Should I contribute

[Guest Mike Schwing]

If an employee leaves a company because they are called to serve in the armed forces are they still an employee of the company (for qualified plan purposes) while serving? Don't you have to be "employed by the employer" to be an employee?

The company policy is to continue to pay their salary, but should the company continue to contribute to the 401(k) account? (the employee was actively contributing to the 401(k) before leaving)

If they are not an employee, and I withhold and contribute 401(k) contributions on the their behalf is it violation of the exclusive benefit rule?

I contacted the local veterans office and was told that the employee who left to serve is still an employee and the company should continue to withhold and match accordingly. She could not provide specific guidance so I am a bit leary of her response.

Any help would be greatly appreciated.

[goldtpa]

check this out

USERRA

[ccassetty]

I'm not sure there is any better guidance. It's clear from the guidance we do have that an employee must be considered to be on a leave of absence and not terminated when serving in the military. None of the guidance that I am aware of addresses the situation you describe. So, it's time for a "reasonable interpretation" of what we do know.

Since the employee cannot be deemed to be terminated until he/she fails to returned to work by the applicable deadlines given in USERRA, one possible reasonable interpretation would be to allow the deferrals.

As to your original question about updating the vesting schedule based on the pay being received by this employee, in looking at DOl Reg 2530.200b-2 sections (a) through (a)(2)(i)it says:

2(a) Genral rule.  An hour of service which must, as a minimum, be counted for the purposes of determining a year of service, a year of participation for benefit accrual, a break in service and employment commencement date (or reemployment commencement date) under sections 202, 203 and 204 of the Act and sections 410 and 411 of the Code, is an hour of service as defined in paragraphs (a) (1), (2) and (3) of this section.  The employer may round up hours at the end of a computation period or more frequently.

(1) An hour of service is each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer during the applicable computation period.

(2) An hour of service is each hour for which an employee is paid, or entitled to payment by the employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vaction, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or leave of absence.  Notwithstanding the preceding sentence.

(i) No more than 501 hours of service are required to be credited under this paragraph (a)(2) to an employee on account of any single continuous period during shich the employee performs no duties (whether or not such period occurs in a single computation period);

Since (i) specifically says no more than 501 hours is required to be credited, that leaves the door open to credit more. So this period of absence in which the employee is being paid for military duty could be credited for vesting purposes. Either way, the document would have to allow for it.

If only those on military duty are allowed to make deferrals from pay received during a leave of absence or have more than 501 hours credited, it could open the door to some BRF issues.