On December 19, 2005, the Department of Labor, Veterans’ Employment and Training Service (“DOL”) issued final regulations that interpret the Uniformed Services Employment and Reemployment Rights Act of 1994, as amended (“USERRA”). These final USERRA regulations (“final regulations”) are effective January 18, 2006. An article in our January issue described the effects of the final regulations on single employer plans. Most of those provisions apply equally to multiemployer health and pension benefit plans whose participants leave their employment to serve in the uniformed services of the United States (“military service”). The final regulations also contain provisions that apply only to multiemployer plans, which this article will discuss.
Multiemployer Health Plans
Two sections of the final USERRA regulations specifically address multiemployer health plans. The first deals with the determination of who is financially responsible for continuation of health plan coverage during military service, even when the service member’s employer no longer exists or participates in the plan, absent a plan provision assigning such responsibility. The second is the impact of USERRA coverage on multiemployer health plans that operate on a banked or credited hours system.
Financial Responsibility for Continued Coverage
According to the preamble to the final regulations (the “preamble”), continued health plan coverage in a multiemployer health plan during military service is required even when the service member’s employer no longer exists, or no longer participates in the plan. This is an exception to the general rule under USERRA that when an employer cancels health plan coverage for its employees, or goes out of business while the service member is performing military service, the service member’s coverage terminates. Any liability under the multiemployer plan for employer contributions and benefits during such continued coverage is to be “allocated” according to the policy of the plan sponsor (usually a joint labor-management board of trustees), or, if no policy for allocation has been provided, the liability is “allocated” to the last employer employing the participant before the period of military service. When that employer is no longer “functional,” any such liability is the responsibility of the plan. Thus, in this instance, it is to the advantage of multiemployer plans to address the issue by formalizing a policy of liability.
The DOL received comments regarding the application of USERRA to multiemployer health plans that establish accounts (or “hour banks”) in which employees save prospective health benefit credits that may be spent later. The comments requested guidance as to whether employees should be allowed to deplete the balance of their “hours bank” during a period of military service. The concern addressed in the comments was that as USERRA requires immediate reinstatement upon reemployment, the health plan could be required to fund the health coverage of a person that had depleted the “banked” hours during military service, and therefore lacked the credits necessary to initiate or resume coverage upon reemployment.
In response to the comments, the Department added a new Section 1002.171 to the final regulations providing that, during a period of military service, an hours bank plan must provide employees with the option either to deplete their hours bank in order to continue health plan coverage in lieu of payment for that continuing coverage, or to pay for continuing coverage and maintain the account balance intact, to resume its use upon reemployment. If the employee depletes “banked” credits in order to continue coverage at no cost to the employee, the plan must provide for reinstatement of the coverage upon reemployment. The plan may require the employee to pay the full cost of the reinstated coverage until the employee has earned enough credits after reemployment to resume normal coverage. In addition, if the “banked” credits are depleted during the applicable eligibility period, the employee must be permitted at his or her option to pay for continuation coverage for the balance of the period. This section ends with the admonition that either employers or plan administrators should counsel employees about the options available to them for the use of any such “banked” credits.
COBRA and USERRA Integration
Finally, multiemployer health plans can and should integrate their COBRA and USERRA administration, both to insure that participants can elect all benefits available to them and that the plan maintains one consistent, rather than two possibly inconsistent, policies, for ease of administration. In a discussion about health plan coverage in general, the preamble notes that both the Internal Revenue Service and the Department of the Treasury have indicated that a health plan will be “deemed not to be in conflict” with the applicable Internal Revenue Code requirements merely because of compliance with USERRA or its regulations.
Multiemployer Pension Plans
Section 4318 of USERRA, relating to the rights of returning service members under employee pension benefit plans, applies with equal force to multiemployer pension plans, whether defined benefit or defined contribution. To review briefly, that section provides that when an employee is absent from his or her job because the employee is performing military service the employee must be treated, upon reemployment, as though he or she had been continuously employed with the employer maintaining the plan during the entire period starting from the date the employee left employment to enter uniformed service (including time off necessary to prepare for such military service) and ending with the date the employee is reemployed by that employer following such military service, provided the employee timely reports back to work or applies for reemployment after leaving military service. (The deadline for reporting or applying will be from one to ninety days, depending on length of military service.) This “continuous service” rule applies for purposes of participation, vesting and benefit accrual, and for purposes of preventing any break in service the employee otherwise might have incurred because of his or her absence. The special nature of multiemployer plans presents some compliance issues where USERRA is concerned. In general, those issues relate to the source or the timing of employer contributions that may be required to fund the benefits a returning service member must be provided based on his or her military service.
Special provisions in USERRA give the plan sponsors of multiemployer plans great flexibility in allocating the responsibility to fund USERRA mandated benefits. In most cases, the plan sponsor will be a joint labor-management board of trustees. The final regulations mirror the statutory provisions and confirm the authority of the multiemployer plan sponsor to allocate any employer contribution liability under USERRA “in such manner as the sponsor…shall provide.” As with health plans, if the plan sponsor makes no such provision, then the liability falls either on the last employer who employed the service member prior to his or her entry into military service, or if that employer is “no longer functional,” to the plan itself. Section 1002.262(a) of the final regulations require an employer to make any required contributions to the plan within 90 days following an employee’s reemployment (the proposed regulations would have allowed only 30 days) unless it is “impossible or unreasonable” for the employer to meet this deadline. The most obvious example is where the employer is not immediately aware that it has employed a returning service member. If the 90 day deadline cannot be met, then the contributions must be made “as soon as practicable.”
What options do multiemployer plan sponsors have in allocating USERRA contribution liability and are there any fiduciary considerations in choosing those options? The preamble goes to great lengths to underscore Congress’ intent to give multiemployer plan sponsors “flexibility in structuring the payment obligation to suit the plan’s particular circumstances.” Quoting from USERRA’s legislative history, the DOL highlights several options a plan sponsor might choose from besides allocating the contribution liability to the service member’s last employer preceding military service, including allocating the liability to the employer with which the returning service member had the most covered service during a given period following his or her return. Or, according to that legislative history, the plan sponsor has the right to determine that it would be “more appropriate not to make any individual employer liable for such costs and…benefits would be funded out of plan contributions and other assets….” Following this lead, a plan sponsor might decide that the last employer should bear the responsibility of making contributions for relatively short periods of military service (perhaps up to one year) while the plan bears the responsibility for funding benefits for longer periods of military service. Quite obviously the DOL, without specifically saying so, is trying to allay any fiduciary liability concerns a plan sponsor might have about imposing the USERRA funding obligation on the plan either in whole or in part. Nonetheless, assuming the plan sponsor makes the allocation decision in a fiduciary capacity (e.g., as a board of trustees), that decision should be made only after weighing all the relevant factors, but with the knowledge that imposing the obligation on the plan is a permissible option.
Section 4318(b)(1) of USERRA incorporates Section 515 of ERISA by reference, thereby giving multiemployer plans the direct authority (and by implication the fiduciary responsibility) to bring collection actions in federal court when employers fail to make pension contributions required by USERRA. The statute also mandates that a contributing employer to a multiemployer pension plan who reemploys a returning service member must notify the plan within 30 days after the service member is reemployed. Section 1002.266 of the final regulations provides that the notice period does not begin until the employer has knowledge that the individual has reemployment rights under USERRA.
To the extent they have not already done so, the plan sponsors of multiemployer pension plans should consider sending employers an annual reminder of their obligation to contribute for returning service members and incorporating into the plan’s employer payroll audit policies special procedures for identifying failures of contributing employers to make timely USERRA contributions. Keep in mind that failure to collect those contributions does not let the plan off the hook; it must still provide the required benefits or account allocations.
What happens in the case of a multiemployer defined contribution plan if the employer liable to make USERRA contributions on behalf of a returning service member fails to make the contribution and the plan is unsuccessful in compelling payment? Under the statute and the regulations the plan is the funding source of last resort but, according to the DOL, other participants’ account balances are off limits. In theory, the plan sponsor has several other sources to make up the deficiency, including account forfeitures, earnings on plan assets and perhaps even current contributions made on behalf of the other plan participants. What if these prove insufficient or, in the case of current contributions, legally impermissible? Although the DOL acknowledges this possibility in the preamble, its solution is to exhort plans to develop reasonable procedures to avoid tapping account balances “to the greatest extent possible,” leaving open the question of what happens if there is no other funding source despite the adoption and implementation of such procedures.
One particularly troubling aspect of the proposed regulations was that they would have greatly expanded the liabilities of multiemployer pension plans to provide pension benefits for periods of military service. As proposed, the regulations would have required multiemployer plans to grant full credit for periods of military service as long as the service member returned to work in covered employment for any contributing employer rather than just the service member’s last employer before entering military service. In our comments on the proposed regulations, we questioned the authority of the DOL to expand the scope of a service member’s reemployment rights to circumstances in which he or she was not actually “reemployed” under USERRA. We noted that the only circumstance where the law accorded reemployment rights to someone who did not return to the same employer is in the hiring hall context, where the two employers are linked by a common job referral plan or practice, such as in the building trades and maritime industries. In the preamble, the DOL acknowledges that this proposal was overbroad. Section 1002.266(c) of the final regulations stipulates that the multiemployer plan’s USERRA obligations are only triggered if the service member returns to work for the same employer, except in the common job referral situation. Plans covering industries where such job referral arrangements are common will have to take extra steps to ensure that returning service members are granted appropriate credit for their military service. For these plans, the idea of designating the plan as the funding source for USERRA contribution liabilities, rather than the last employer, may be particularly appealing.