USERRA - Company Contributions

[Guest Tdavid]

John Doe comp is $120,000. John works 3 months in 2010, and then has 9 month military leave.

During 3 months in 2010, earns $30,000 in comp, and defers $16,500.

Reemployed Jan 1, 2011.

Company match is 1:1 up to 10% of pay.

He already received $3,000 in match (10% of his $30,000 pay)

Is he due an additional $9,000 in match upon reemployment?

Or is he out of luck, because the match is contingent on him contributing, and he can no longer contribute?

What if it was the same scenario, but instead of deferrals of $16,500, he did $16,000. He then decides to "make-up" $500 for 2010. What company match is due then?

Is it just 1:1, so $500?

Should we look at the full year, and see that he would have been due $12,000 based on his comp, therefore he is now owed $9,000 in match?

Is it nothing, because these $500 are deferrals above the 10% income threshold that is used for all other employees to cap company contributions?

Generally speaking, when we calculate company match, we fund no more than 10% of pay per period, but we evaluate based on the full year, and we do a true-up contribution to make sure that for each year, employees receive the match based on their full year's comp, so if people fund quickly or late in the year, they receive the same match as people funding 10% evenly throughout.

Thanks for your thoughts.

[ESOP Guy]

Here is the IRS FAQ on USERRA

http://www.irs.gov/retirement/article/0,,id=109878,00.html

This guy might not be "out of luck".

You will see he has the right to make up the 401(k) contributions within a speciified time period. IF he does that he gets the match as if he was employed during that time.

edit fixed typos

[Guest Tdavid]

Here is the IRS FAQ on USERRA

http://www.irs.gov/retirement/article/0,,id=109878,00.html

This guy might not be "out of luck".

You will see he has the right to make up the 401(k) contributions within a specified time period. IF he does that he gets the match as if he was employed during that time.

edit fixed typos

I understand he has the right to make up 401(k) contributions and IF he does that, then he gets make-up company match.

But if he contributed $16,500, and has no more to contribute, what triggers him getting the make-up match since this is a contributory plan based on him making contributions?

If he had only done $16,000, came back, and did another $500, that would trigger the full match for the year, but if he already did $16,500, is he out of luck?

Thanks

[ESOP Guy]

Tdavid sorry now I think I get the question.

Does this help?

From 414(u)(2)(B)

(B) Amount of makeup required

The amount determined under this subparagraph with respect to any plan is the maximum amount of the elective deferrals that the individual would have been permitted to make under the plan in accordance with the limitations referred to in paragraph (1)(A) during the period of qualified military service if the individual had continued to be employed by the employer during such period and received compensation as determined under paragraph (7). Proper adjustment shall be made to the amount determined under the preceding sentence for any elective deferrals actually made during the period of such qualified military service.

Note the part about giving credit for compensation as if the person had continued employment.

Here is paragraph 7

(7) Compensation

For purposes of sections 403 (b)(3), 415 ©(3), and 457 (e)(5), an employee who is in qualified military service shall be treated as receiving compensation from the employer during such period of qualified military service equal to—

(A) the compensation the employee would have received during such period if the employee were not in qualified military service, determined based on the rate of pay the employee would have received from the employer but for absence during the period of qualified military service, or

(B) if the compensation the employee would have received during such period was not reasonably certain, the employee’s average compensation from the employer during the 12-month period immediately preceding the qualified military service (or, if shorter, the period of employment immediately preceding the qualified military service).

If you treat him as having “receiv(ed) compensation from the employer during such period” don’t you have to treat him as having received the full $120,000 for that year?

And if you do that I would favor giving him the full match. He made a $16,500 and is given credit for having earned $120,000 for 2010.

I would add had I understood the question correctly up front I might not have answered. I favor giving the person the full match because of the logic above. I am not 100% sure of that answer.

edit minor typo

[GMK]

FWIW, I agree with ESOP Guy.

If the absence was because of qualified military service, you consider his compensation to be what it would have been if he had not been absent.

Since you consider his compensation to be 120,000 for the year, and since he deferred more than 12,000 during the year, his match for the year is the full 10% (12,000).

[Guest Tdavid]

Tdavid sorry now I think I get the question.

Does this help?

From 414(u)(2)(B)

(B) Amount of makeup required

The amount determined under this subparagraph with respect to any plan is the maximum amount of the elective deferrals that the individual would have been permitted to make under the plan in accordance with the limitations referred to in paragraph (1)(A) during the period of qualified military service if the individual had continued to be employed by the employer during such period and received compensation as determined under paragraph (7). Proper adjustment shall be made to the amount determined under the preceding sentence for any elective deferrals actually made during the period of such qualified military service.

Note the part about giving credit for compensation as if the person had continued employment.

Here is paragraph 7

(7) Compensation

For purposes of sections 403 (b)(3), 415 ©(3), and 457 (e)(5), an employee who is in qualified military service shall be treated as receiving compensation from the employer during such period of qualified military service equal to—

(A) the compensation the employee would have received during such period if the employee were not in qualified military service, determined based on the rate of pay the employee would have received from the employer but for absence during the period of qualified military service, or

(B) if the compensation the employee would have received during such period was not reasonably certain, the employee’s average compensation from the employer during the 12-month period immediately preceding the qualified military service (or, if shorter, the period of employment immediately preceding the qualified military service).

If you treat him as having “receive(ed) compensation from the employer during such period” don’t you have to treat him as having received the full $120,000 for that year?

And if you do that I would favor giving him the full match. He made a $16,500 and is given credit for having earned $120,000 for 2010.

I would add had I understood the question correctly up front I might not have answered. I favor giving the person the full match because of the logic above. I am not 100% sure of that answer.

edit minor typo

Thanks, that does help to get other people's opinions on this topic, I am glad you answered. This is definitely not straight-forward, and I think it could come down to comp as well. My understanding matches yours, however I am not 100% on this either, and I don't feel I have found a specific answer to this either. Seems to state that they need to make additional elective deferrals to trigger the match. But maybe this is stating that there has to be a match given for any extra deferral needed to earn that match that was "missed". In this case, there is no "additional deferral" that would be required to receive this extra match, because the deferral was already made and this person has already maxed out. If they did need to make extra deferral to get match, we need to give them the period described and then give them match, but if they already maxed out, there is no additional deferral required?

How does that logic sound?

From 414(u)(2)(B)

The employer sponsoring the plan shall be treated as meeting the requirements of such chapter 43 with respect to such elective deferrals only if such employer—

(i) permits such employee to make additional elective deferrals under such plan (in the amount determined under subparagraph (B) or such lesser amount as is elected by the employee) during the period which begins on the date of the reemployment of such employee with such employer and has the same length as the lesser of—

(I) the product of 3 and the period of qualified military service which resulted in such rights, and

(II) 5 years, and

(ii) makes a matching contribution with respect to any additional elective deferral made pursuant to clause (i) which would have been required had such deferral actually been made during the period of such qualified military service.

Thanks again, good food for thought.

[GMK]

and we do a true-up contribution to make sure that for each year, employees receive the match based on their full year's comp, so if people fund quickly or late in the year, they receive the same match as people funding 10% evenly throughout.

Look at in terms of what you would have done had the person not been absent for qualified military service.

In your case, he would have deferred 16,500 early in the year, had compensation of 120,000 for the year, and been trued up for a match of 12,000. He can't make additional deferrals, because he's already at 16,500, and he doesn't need to make additional deferrals to get the full match.

If he had not already deferred 16,500 for the year, he would get the opportunity to make additional deferrals, but such deferrals are not required for his getting the full match once he's deferred 10% of his annual compensation.