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Make sure your company’s summary plan descriptions tell employees what happens to their benefits when they are on leave, Timothy Stanton, a lawyer with Ogletree Deakins in Chicago, said at the firm’s Workplace Strategies Conference on May 6. The rules differ depending on which type of leave the employees are on.
For Family and Medical Leave Act (FMLA) time off, the employer must offer group medical benefits on the same terms as if the employee had continued to work, Stanton noted. The cost must be the same, and employees on leave receive new and revised benefits. The health benefits continue until the employee chooses to drop them, does not pay premiums or does not return to work. All benefits must be restored when an employee returns to work, he said, emphasizing that not returning to work is a COBRA-qualifying event, but taking leave isn’t.
The employer’s payment for health benefits while an employee is on leave may be the same as for COBRA premiums, he observed, or another system voluntarily agreed upon between the employer and the employee. The employer must provide written notice to the employee of payment requirements.
What happens if the employee doesn’t pay for his or her health insurance? If payment is more than 30 days late, coverage may be dropped if the employer provides a written notice to the employee stating that payment has not been received and that if no payment is made, coverage will cease on a specified date that is at least 15 days away, Stanton said.
For 401(k) plans during leave, Ann Carr Mackey, an attorney with Ogletree Deakins in Indianapolis, said the FMLA unpaid leave is not counted toward:
Paid leave, by contrast, is counted for these purposes.
The plan may suspend the participant’s loan repayments on a 401(k) plan during an unpaid leave of absence or paid leave if the pay the employee receives is less than the loan repayments, she added. But under the FMLA, the loan should not extend beyond five years, she added.
Stanton noted that for leave taken under the Uniformed Services Employment and Re-employment Rights Act (USERRA), if the service member is enrolled in medical benefits at the beginning of service, he or she can continue coverage until the earlier of:
Health care flexible spending accounts (FSAs) may permit employees who are called to active military duty to receive distribution of all or a portion of their health FSA account balances, Stanton said. These distributions are called qualified reservist distributions and are allowed to help reservists avoid forfeitures under the use-it-or-lose-it rule.
Mackey said there are more rules for 401(k) plans under USERRA than the FMLA, noting that employers must permit employees who have been on USERRA leave to contribute makeup deferrals and after-tax contributions. Employers also must contribute missed matching and profit-sharing contributions.
If the employee is not re-employed because he or she dies during military service, the employer:
Loan repayments on 401(k)s may be suspended for the period of USERRA leave, Mackey noted. And the term of the loan may be extended to the maximum permissible term plus the period of military leave. However, interest will continue to accrue during the loan period.
If an employee is on Americans with Disabilities Act (ADA) leave, health coverage must be maintained if it is offered to anyone on non-FMLA leave or someone in an
Affordable Care Act stability period, Stanton said.
Mackey noted that the same is true with 401(k) plans—they must be provided during ADA leave the same as for those on non-FMLA leave.
“Confirm accurate communications with employees and insurance carriers and payroll,” she concluded.
Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him
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