Topics included in this issue:
USDOL ISSUES . . . NEW USERRA REGULATIONS
By Robert J. Chovanec and Justin M. Stemple
The Uniformed Services Employment and Reemployment Rights Act ("USERRA") was enacted in 1994. USERRA applies to all U.S. employers. It prohibits employment discrimination against those who serve in the U.S. armed forces and requires employers to grant leaves of absence for active duty and to reinstate returning veterans with various benefit protections.
The United States Department of Labor ("USDOL") has adopted new interpretive regulations that became effective January 18, 2006. The new regulations consist of 44 pages containing 121 "Questions and Answers" about USERRA. In addition, a 100-page explanatory "Preamble" discusses the intent and history of each regulatory provision in detail. The Preamble and Regulations are available on the web at http://www.dol.gov/vets/.
The new regulations are timely. Currently, 1.8 million Americans are members of the U.S. Military Reserve or National Guard. Since September 11, 2001, more than 420,000 reservists have served tours of active duty. Fully one-third of our military forces in Iraq and Afghanistan are reservists. As of January, 2006, a total of 136,000 reservists are on active duty. The average period of service for reservists called to active duty since 9/11 is over 300 days, compared to an average of 1 day before Operation Desert Storm and Operation Iraqi Freedom.
Who Is Protected by USERRA?
All members of and applicants to the U.S. armed forces, armed forces Reserves and National Guard members, all enrollees in the U.S. military academies, and all ROTC participants who have a contract requiring future service are covered by USERRA's "antidiscrimination" provision. In addition, those who leave civilian employment to voluntarily or involuntarily serve terms of active duty or inactive duty are protected by USERRA's provisions requiring military leave, reinstatement, and special health plan and pension plan rights. Reservists' weekend training, special training periods, and active service are also covered.
What Does USERRA Require of Employers?
Although an employer may inquire about an applicant's U.S. military service, employers may not refuse to hire a person because he/she is or has been a member of the U.S. military services, the Reserve or the National Guard, or because a member's active service or inactive service for training may result in absences from employment. USERRA also prohibits retaliation against an employee who asserts USERRA rights.
2. Leave of Absence.
Eligibility for Leave. Those who are called to or volunteer for active U.S. military service or inactive service for training must be granted a leave of absence to prepare for the leave and while on active service. There is no "minimum duration" for the leave–for example, a Reservist's periodic and intermittent training obligations are also covered. There is a maximum leave period, however. An employer is generally not required to grant military leave for active service in excess of 5 years (although numerous exceptions to the 5-year maximum exist). To be eligible for a USERRA military leave, the service member, or an authorized officer of the armed services, must give the employer "reasonable" written or verbal advance notice of the employee's departure. Thirty days' advance notice is "suggested" where possible, but is not required.
Benefits While on Leave. USERRA provides that an employee on military leave must be given the same benefits that are given to employees on other types of leave. Benefits that are discontinued for all employees on any type of leave need not be provided to those on military leave, but the new regulations confirm previous court decisions holding that those on military leave must be accorded "the most favorable treatment accorded to any form of leave." At a minimum, employers should review every benefit that continues on any kind of leave, and set "maximum absence periods" beyond which the benefit is discontinued.
USERRA creates new health insurance continuation rules for employees on military leave that are similar, but not identical, to those under COBRA. Unlike COBRA's general 18 month rule, USERRA provides that continuation coverage must be available up to 24 months, or the period of service, whichever is less. The regulations confirm that pretax premium and health care flexible spending account plans are health plans subject to USERRA's continuation coverage rules. As with COBRA, an employer may require the participant to pay 102% of the premium for the coverage. USERRA permits an employer to adopt any reasonable procedures for election and termination of coverage consistent with USERRA and the plan. For an employer covered by COBRA, the employer's COBRA procedures may be reasonable. Less-detailed election procedures may be reasonable for employers not covered by COBRA. Even employers that are covered by COBRA may want separate USERRA election procedures, because many of the detailed COBRA requirements are unnecessary under USERRA.
Position, Pay and Benefits. Upon return from military leave, the employee is entitled to "prompt reinstatement" and to "seniority-based benefits" that would have accrued but for the absence on military leave. Reinstatement is not required if it is "impossible or unreasonable," or if the cost of training or other costs would impose an "undue hardship" on the employer. These are very narrow exceptions. For example, reinstatement is not "impossible or unreasonable" just because the employer may have to discharge someone else or train the returning employee. The returning employee's pay rate is to be the same as that of others who have comparable length of service, after crediting the returning employee with length of service for the period of the military leave. The returning employee is entitled to reinstatement to the position that he/she left or, if more favorable, to any position to which it is "reasonably certain" that he/she would have advanced but for his/her absence on military leave (called the "escalator position"), provided that he/she can perform the "essential functions" of that position.
Limits on Reinstatement Rights. To be eligible for reinstatement, the employee must make a timely application for reinstatement and be available to return to work within prescribed time limits. Those limits vary from the next workday for short periods of service (less than 31 days) to 90 days for leaves of 181 days or longer. An employee is not eligible for reinstatement if he/she is dishonorably discharged or discharged under "other than honorable conditions."
4. Protection Against Discharge Without "Cause."
An employee who returns to employment following active service of 30 - 180 days may not be discharged without "cause" during the first 180 days after return. An employee whose period of active service was 181 days or more may not be discharged without "cause" during the first year after return. "Cause" includes poor performance, misconduct, or other legitimate business reasons such as layoff. The employer bears the burden of proving "cause."
5. Special Pension Plan Requirements.
No Break in Service. The regulations provide that participants on military leave are not considered to have a break in service for purposes of participation, vesting and accrual of benefits due to the leave. However, if the employee loses reemployment rights (e.g., by not making timely application to return to work), then the employee is not entitled to any participation, vesting or accrual rights based on the leave for military service.
Contributions. Although an employer is not obligated to make any employer contributions during the leave, after the participant is reemployed, there are strict rules for how the employer must make employer contributions and allow the participant to make up missed contributions or elective deferrals. The employer must make all contributions that are not dependent on employee contributions within the earlier of 90 days after the date of reemployment or when contributions are normally due for the year in which the leave occurred. For participant contributions, the participant has three times the length of the military leave to make up missed contributions or elective deferrals, up to a maximum period of five years. Employer contributions based on participant contributions (e.g., matching contributions) must be made according to the plan's provisions, but only to the extent the participant makes up missed contributions or elective deferrals.
6. How Is USERRA Enforced?
An employee may bring a complaint alleging that an employer has violated USERRA to the USDOL's Veterans Employment and Training Service (VETS). VETS will attempt to resolve the claim administratively and, if that fails, is authorized to sue the employer. Alternatively, an employee may elect to file a private lawsuit against the employer without filing a complaint with VETS. There is no "statute of limitations" under USERRA, but an employee may forfeit the right to claim a violation if he or she unreasonably delays in asserting the claim.
A court can award the amount of pay and the value of benefits lost by the employee due to an employer's violation of USERRA. If the court finds that the employer's violation was willful, then the amount of back pay and benefits awarded will be doubled. USERRA also allows a court to award attorney fees to a successful plaintiff. Individual managers may also be held liable under USERRA if they cause or participate in a violation.
While we have attempted to outline the major provisions of the new USERRA regulations, a complete summary of the regulations is beyond the scope of this article. We encourage you to call or e-mail if you have questions or need assistance with a specific situation.
UNDERSTANDING GENERATIONAL DIFFERENCES IN THE
WORKPLACE IS CRITICAL FOR HR PROFESSIONALS
By Louis C. Rabaut and Beverly J. Ryskamp
For the first time in history, we have four generations in the same workforce. The "Matures" include people over 60 years of age and were born between 1922 and 1945. Early "Baby Boomers" will turn sixty this year. That generation includes those born between 1946 and 1964. "Generation X" includes those born during the 15-year span from 1965 and 1980. Employees in the newest generation, "Generation Y" (also called the "Millennials"), were born beginning in 1981.
We often hear people say, "This next generation doesn't _______," and that observation is probably true. The reality is that there are significant differences in the generations now working together. Just consider the differences in the technology the four generations grew up with:
Radios and records
Touch-tone, cordless phones
8 tracks and cassettes
Tivo and increasing TV channels
Internet network sites
MP3s and podcasting
From a legal standpoint, most employers know that employees age 40 and older are protected from discrimination by the federal Age Discrimination in Employment Act (ADEA). What many employers do not know is that Michigan state law protects ALL employees from age discrimination regardless of their age.
Consider the following two statements given to a Gen-Xer who is rejected for a job in favor of a Baby Boomer:
Now consider the following two statements given to a Baby Boomer who is rejected for a job in favor of a Gen-Xer:
In both cases, the first reasons given–- more experience and more tech-savvy-–are unlikely to raise issues of age discrimination. Experience may be impacted by age, but it isn't always so. Similarly, while younger people may often be more tech-savvy, that isn't always the case. The second reasons given-–"more mature" and "young blood"-–on the other hand, may raise age discrimination questions. Accordingly, employers must be mindful of negative age-related phrases used with respect to both older and younger employers.
The more compelling age-related issue for employers, however, may be the recruitment and retention of Gen-Yers in the workforce. It has been reported that 20-somethings change jobs, on average, every 18 months. With that type of turnover, training, development and succession planning may become very difficult for employers. To deal with this issue, employers are well-advised to consider what is important to this next generation of worker and how to keep them as employees.
For example, consider the generational differences in workplace loyalty:
Extremely loyal to institutions,
Less loyal than Matures,
but want to invest in their workplace
Loyal to individuals, not institutions
Loyal to individuals, not institutions
If you want to recruit and retain employees in Generations X and Y, you will need to develop good leaders and legitimate mentoring programs. The need for quality leadership and mentoring is supported when considering the different views among the generations on the value of feedback at work:
Do not expect feedback
Do not appreciate feedback
Actively seek feedback
Desire immediate feedback
How the different generations view an annual appraisal process can be vastly different. Matures may not expect a review. Baby Boomers may accept (but not appreciate) the annual review. Gen-X employees may look forward to the annual review. Gen-Yers may become impatient waiting for feedback that only comes on a yearly basis.
How should an employer approach the challenge of multiple generations in the same workforce? First, by understanding that differences in values do exist and, second, by seeking ways to accommodate these differences. This approach may lead to even greater buffet-style benefit plans, the development of mentoring relationships, and the creation of prompt feedback systems. With respect to employee benefits, time off appears to be more valued by Gen-Yers than prior generations. Accordingly, a traditional approach of earning vacation time over long periods of service may result in younger employees jumping ship to jobs where they have a more flexible schedule or where they receive more time off.
Since a motivated, creative and loyal workforce is critical to success in most organizations, understanding and accommodating generational differences will be a very useful tool to the HR professional.
WILL YOU BE READY?
NEW TS TREATMENT OF BONUS AND INCENTIVE
PLANS, SEVERANCE ARRANGEMENTS, AND OTHER
NONQUALIFIED DEFERRED COMPENSATION
REQUIRES ACTION THIS YEAR.
MANY PLANS MUST BE REVIEWED AND
A year ago we alerted clients and friends to dramatic changes in the tax treatment of "deferred compensation." (See WN&J HR Newsletter dated Fall, 2004.) Congress added Section 409A to the Internal Revenue Code, effective as of January 1, 2005, in response to deferred compensation abuses at Enron and other corporate scandals. Recently proposed Treasury Regulations will require many existing plans and arrangements to be amended by December 31, 2006.
The scope of Section 409A is very broad. It may impact many arrangements you would not normally consider to be deferred compensation. Bonus and incentive compensation plans, employment contracts and severance arrangements, as well as traditional nonqualified deferred compensation plans, supplemental executive retirement plans, stock-based plans, and many others have to be examined. Some of these plans and arrangements may require only an initial screening, because either they clearly comply with the regulations or they qualify for an exemption. Others will need full review and amendment. We encourage our active clients and those who wish to consult us about Section 409A to call their WN&J contact attorney or any member of our Section 409A Task Force.
Impact on Plans
Section 409A imposes new requirements on compensation paid after the taxable year in which it is earned. Among other restrictions, Section 409A places limits on elections to defer receipt of compensation and to choose the later time and form of payment. It generally prohibits acceleration of previously deferred payments and requires that an election to defer a scheduled payment must be made at least a year in advance and must delay the scheduled payment for at least five years. Section 409A also applies to employer-funded plans in which the amount and time of payment of deferred compensation is fixed and there are no participant elections with respect to either.
There are a number of exemptions and exceptions. For example, some "vested" deferrals made before 2005 may not be covered by Section 409A (i.e., may be "grandfathered"), if there is no material modification of the applicable plan provisions after October 3, 2004. Additional rules apply to plans and arrangements for certain key employees of publicly traded companies. There are special problems in applying Section 409A to plans of tax-exempt and governmental entities.
Failure to comply with Section 409A may result in severe tax penalties for affected employees, former employees and participants, including a 20% excise tax on amounts improperly deferred or paid.
Types of Plans
Some of the plans, contracts and arrangements affected by Section 409A include:
Bonus and Incentive Compensation Plans and Arrangements. Annual and longer-term bonus and incentive plans are generally covered. However, payments ordinarily will be exempt if made within 2 1/2 months after the end of the year (or longer period on which computation of the bonus or incentive payment is based) and there are no other provisions that do not comply with Section 409A. A special timing rule for deferral and payment elections applies to "performance based" plans as defined in the regulations.
Severance Arrangements. Payments after employment ends, as set forth in a plan, severance agreement, employment contract, or even a board resolution, are deferred compensation that may be subject to Section 409A. Some taxable fringe and welfare benefits provided by or with these arrangements (examples: club dues, automobile allowance, certain health benefits) also may be covered if not within an exemption. Many arrangements will satisfy the exemption for payments made within 2 1/2 months after the end of the year of termination or another exemption, and many that are not exempt will nonetheless be in compliance with Section 409A. This can be determined only through an initial screening followed by full review and possible amendment when required.
Nonqualified Deferred Compensation Plans. Typically for executives only and sometimes referred to as "top-hat" or "mirror 401(k)" plans, these plans generally allow a participant to elect to defer payment of compensation to a later time or age or event. These plans must be examined for compliance and amended as necessary.
Supplemental Executive Retirement Plans. Plans in this category are sometimes called "SERPs" and also may be "top-hat" or "excess" plans, referring to the fact that they may provide nonqualified benefits for select executives that exceed applicable benefit limits in a qualified retirement plan. These plans also must be reviewed for compliance and amended as necessary.
Other plans which may be affected by section 409A are:
Stock Options. Stock option plans where stock options were or are granted at below the fair market value or allow extension of the exercise deadline or deferral if payment on exercise.
SARs and Phantom Stock Plans. Stock appreciation rights and phantom stock plans that provide deferred payments or allow a participant to choose when to exercise a stock appreciation right.
Restricted Stock and Stock Unit Plans. Restricted stock and restricted stock unit plans, but only if such plans require or allow payment after the vesting date.
Tax-Exempt and Government Plans. Certain plans of tax-exempt employers and governmental entities.
The foregoing list is not complete or fully detailed but is intended to suggest the broad range of plans that should be identified and reviewed to the extent necessary.
Please call your WN&J contact attorney or any member of our Section 409A Task Force if you have questions about the application of Section 409A to your plans. We will work with you to identify plans that need to be reviewed. We'll follow up with you to identify provisions that need revision and assist you in implementing the changes and notifying affected participants. In some cases, the modifications caused by these new rules will be minor and will not alter the basic compensation goals of the plan. However, other plans, for example some supplemental executive retirement and stock appreciation rights plans, may require substantial changes. We look forward to working with you in complying with these new requirements.
Attorney Members of the Section 409A Task Force:
Sue O. Conway - 616.752.2153
Amber R. DeLong - 231.727.2630
Anthony J. Kolenic, Jr. - 616.752.2412
Norbert F. Kugele - 616.752.2186
John H. McKendry, Jr. - 231.727.2637
Vernon P. Saper - 616.752.2116
Justin W. Stemple - 616.752.2375
George L. Whitfield - 616.752.2102
Kathryn A. Wood - 616.752.2782
HIPAA SECURITY TRAINING
March 15, 2006
8:30 am – 10:30 am
Grand Rapids, Michigan
Registration Fee: $45
Teaming with the Grand Haven Chamber
to bring this program to the lakeshore on:
March 20, 2006
11:30 am – 1:30 am
Spring Lake, Michigan
Do you understand what the HIPAA security rules require you to do? Here are a few questions you might ask yourself to see if you're on the right track for HIPAA security compliance:
- Have you named your security officer and documented his/her responsibilities?
- Have you performed a risk assessment to identify the vulnerabilities in your computer system and how you will address them?
- Have you developed a written plan for emergency recovery of your computer records in case your equipment is destroyed by fire, a natural disaster or vandalism?
- Do you permit e-mail messages with protected health information to be sent over the Internet?
- Do your business associate agreements have the necessary provisions in them for electronic protected health information?
If you are an employer that sponsors a small health plan (one with less than $5 million in annual claims and/or premiums), your compliance date is April 20, 2006. This seminar will help you identify what you should focus on now to get into compliance.
This seminar is ideal for Privacy Officers, Security Officers, and anyone who is involved in your organization's HIPAA security compliance program. Join us for this two-hour program to learn some strategies on how to comply with the HIPAA security regulations.
This is the time of year when companies receive telephone calls and mailings offering "revised" or "new" workplace posters. If you've received one these calls, you might be questioning whether your organization needs new posters. Of the many federal and state workplace posters, only two were republished in 2005. Those were the "Michigan Safety and Health Protection on the Job" poster (publication date of January 2005) and the "Your Rights Under USERRA" poster (publication date of December 2005).
Even though a poster wasn't republished in 2005, it still may need to be updated. In the past few years, many agencies in Michigan have changed their names, which has resulted in new posters being published. The Michigan Economic Development Corporation Web site (michigan.org/medc) contains links to a number of federal and Michigan Web sites for workplace posters.
Warner Norcross & Judd LLP has also compiled a listing of the various federal and state workplace posters (humanresources/Workplace_posters.html).
If you have any questions about workplace posters, please feel free to contact Karen VanderWerff of our office at 616.752.2183 or contact a member of our Human Resources Group.
* * * * *
Human Resources Alert is published by Warner Norcross & Judd to inform clients and friends of new developments. It is not intended as legal advice. If you need additional information on the topics in this issue, please contact your Warner Norcross attorney or any member of the Firm's Human Resources Law Group.