September 26, 2001

Retirement plan rights of employees called up for military service promise additional paperwork complications for plan administrators. The following briefly summarizes basic statutory requirements applicable to retirement plans covering veterans who exercise their reemployment rights:

401(k) and Other Defined Contribution Plans

• Military service is treated as service with the employer for vesting purposes and may not be considered as a break in service under the plan.

• Employees on military leave are entitled to make up the plan contributions they would have been permitted to make had they not been on military leave. This would include 401(k) plan salary deferrals. 

• An employee returning from military leave must be allowed five years after returning (or three times the period of military leave, if shorter) to make up plan contributions he or she would have been eligible to make while on military leave. The make-up contributions are exempt from discrimination testing and other limits for the year in which they are made; they are subject to limits applicable to contributions for the year of military leave to which they relate. 

• The employer must make matching contributions that the employee would have received if make-up had actually been made during the period of military service. The employee must also be credited with any additional profit-sharing contributions which would have been received during the military leave period. 

• Where the plan relates employee deferral contributions, matching contributions, or allocation of profit-sharing contributions to compensation, the employee must be treated as receiving compensation equal to the compensation the employee would otherwise have received during the period of military service. If this amount is not clear, the employee’s average compensation during the 12-month period just prior to military service must be used. 

• Employees on military leave need not be credited with earnings on make-up, matching, or profit-sharing contributions before the contributions are actually made. 

• Forfeitures for the leave period need not be allocated to the accounts of employees on military leave. 

• Employers may (but are not required to) amend plan loan provisions to provide for suspension of loan repayment obligations for employees who are on military leave. 

Defined Benefit Pension Plans

• Military service is treated as service with the employer for vesting and benefit accrual purposes and may not be considered a break in service under the plan. Thus, an employee who returns from military leave will be credited with the pension benefits which would have accrued during the military leave period. 

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