Question: We have several employees who recently returned to their jobs after being on military leave. In addition to making elective deferrals for the current year to our 401(k) plan, some are asking if, and how, they can make additional deferrals for the time they were on leave.
Can you review for us the Uniformed Services Employment and Reemployment Rights Act (USERRA) rules for making missed deferrals?
Answer: As you have indicated, the USERRA requires employers to provide certain reemployment and benefits rights to employees who are absent from employment for "service in the uniformed services."
Note: USERRA applies to all employers — there are no exceptions for governmental employers, churches, or small employers.
If returning employees meet USERRA's requirements, they're entitled to make up 401(k) plan elective deferrals they could have made if they hadn't been absent for uniformed service. Although we focus here only on make-up deferrals, 401(k) plans also are required to provide make-up employer contributions and service credit to returning employees.
Here's a summary of the USERRA rules for make-up deferrals:
- Deadline for make-up deferrals. Starting from the date of reemployment, the deadline for make-up elective deferrals is three times the period of uniformed service that gave rise to the USERRA rights, but no more than five years. For example, if the employee served in the military for one year, the employee would have three years (three times the service period) in which to make up deferrals. Termination of the reemployment, however, ends the make-up period — even if the termination is involuntary. Thus, if a returning employee subsequently changes jobs, is laid off, or is involuntarily terminated before fully making up elective deferrals for the period of absence, the employee's make-up period ends.
- Amount of make-up deferrals. The amount of make-up elective deferrals for the period of absence is determined by the limits that applied to elective deferrals for the year to which the deferrals relate. For example, in 2023, the dollar limit on elective deferrals is $22,500, so an employee absent during 2023 could elect to defer up to that amount in make-up deferrals, less any deferrals actually made during that year (in 2022 the dollar limit was $20,500). This amount would be in addition to the employee's elective deferrals for the current year.
- Compensation for determining make-up deferrals. For purposes of calculating make-up elective deferrals, compensation is defined as the amount that the employee actually earned during the period of uniformed service plus the additional pay that the employee would have earned if the uniformed service had not interrupted employment. If an employee's rate of pay isn't reasonably certain (for example, an hourly employee who worked an irregular schedule), the plan must use the employee's average rate of compensation during the 12-month period before the uniformed service or, if shorter, the period of employment before the uniformed service. Note: Amounts paid for a period of uniformed service that have already resulted in a deferral should not be included to the extent that would result in duplicate benefit.
- Other types of deferrals. Catch-up contributions and designated Roth contributions are elective deferrals subject to this make-up provision. Presumably, the rule also applies to deemed IRA contributions. Similar rules apply to after-tax contributions.
The Uniformed Services Employment and Reemployment Rights Act (USERRA) provides that returning servicemembers must be reemployed in the job that they would have attained had they not been absent for military service. As described in this article, USERRA also addresses pension plan coverage and other issues.
