When a worker comes back from a deployment, USERRA 401(k) make-up contributions are one of the first plan obligations that surface, and one of the most commonly missed. The returning employee is treated, for retirement plan purposes, as if the employee had been continuously employed. That is a fiduciary and operational obligation, not a courtesy, and it sits with the employer and the plan administrator.
This post is written for owners, CFOs and HR leaders who may be handling a return from military leave for the first time. It explains what the plan owes, who decides what, and how to document it. It is general information; confirm specifics against your plan document and with qualified counsel.
1. Why a Military Return Is a Fiduciary Event, Not a Payroll Task
USERRA protects the retirement benefits of employees who leave for qualifying uniformed service and return in a timely way. The plan must credit the period of service as if the employee had kept working. Getting this wrong is not a clerical slip. It changes eligibility, vesting, match calculations and testing results, and the plan administrator is the party responsible for making it right.
Because the obligation arises from an event rather than a calendar, it is easy to miss. Nobody schedules a military return the way they schedule a deposit. That is why a standing procedure matters. Our plan compliance checklist is a good place to add an event-driven row for it.
2. How the Process Goes Wrong
- Payroll treats the leave as an unpaid break and simply resumes deferrals going forward.
- The plan administrator never learns the employee left for service, so no one opens a make-up file.
- The match is calculated only on pay actually received, ignoring the pay the employee would have earned.
- Service credit is dropped for the leave period, so eligibility and vesting dates are wrong.
- The employee is never told that make-up deferrals are available, or the offer is made informally and not recorded.
- Nothing in the plan document or the committee minutes shows the policy was ever decided.
3. What the Plan Owes the Returning Employee
1. Make-Up of Employee Deferrals
The returning employee generally must be given the opportunity to make up the deferrals missed during the leave, over a period tied to the length of the service. The sponsor owes the opportunity; the employee decides whether to use it. Your document provider can confirm the mechanics for your plan.
2. Employer Matching Contributions
If the employee makes up deferrals, the employer generally owes the match that would have applied to them. The match is a plan term, so it follows your matching formula and your document. See how the formula works in our 401(k) matching guide.
3. Employer Non-Elective and Profit-Sharing Contributions
Contributions that do not depend on the employee’s own deferrals may also be owed for the leave period, based on the compensation the employee would have received. Where that compensation is uncertain, the plan needs a documented, reasonable method for estimating it. Read the compensation definition in the document; do not assume payroll’s view of it is the same. Our profit sharing overview covers how these contributions work.
4. Service Credit for Eligibility and Vesting
The leave period generally counts as service for eligibility, vesting and, where relevant, benefit accrual. Dropping that credit can strand an employee on the wrong vesting step. Entry-date rules matter too; see our guide to 401(k) eligibility and entry dates.
5. Loans Taken Before the Leave
Participant loans may carry special treatment during service, including suspension of repayment in some circumstances. If the employee had a loan, the administrator should confirm how the plan and loan policy handle repayment during and after the leave. Unresolved loans can become deemed distributions; our loan default guide explains the exposure.
6. Who Pays for the Make-Up Contributions
Employer contributions owed because of the leave are funded by the employer, and the plan generally cannot charge them back to the employee. Forfeitures may or may not be an available source under your document. That is a document question, not a convenience choice.
4. The Settlor Decisions and the Fiduciary Implementation
Some elements are settlor choices made when the plan is designed or amended, such as the matching formula, the compensation definition and the vesting schedule. Others are fiduciary implementation, which means applying those terms correctly to the person in front of you.
- Settlor: the match formula, what compensation counts, and which contributions the plan offers.
- Fiduciary: applying those terms to the leave period, estimating missed pay reasonably, and keeping the file.
- Employer-only data: the employee’s pre-leave pay, scheduled raises and expected hours, which only the employer can supply.
The recordkeeper cannot guess at any of that. The employer data it needs must come from your HR and payroll systems and be reviewed against the plan document. That reconciliation discipline is the same one we describe in participant data reconciliation.
5. An 8-Step Self-Check When a Service Member Returns
- Confirm the leave qualifies and the return was timely under the plan’s reading of the rules.
- Open a file the day HR learns of the return and notify the plan administrator in writing.
- Pull the plan document, matching formula, compensation definition and vesting schedule.
- Estimate the pay the employee would have earned, and document the method used.
- Offer the make-up deferral opportunity in writing and record the employee’s choice.
- Calculate and fund the employer match and any non-elective contribution owed.
- Restore service credit for eligibility and vesting, and check loan status.
- Reflect the contributions in testing and retain the full file with the plan records.
6. Where Sponsors Get Hurt
- No trigger: HR knows the employee is leaving for service, but nobody tells the plan administrator.
- Informal offers: make-up deferrals are discussed but never documented in writing.
- Wrong pay assumption: the match or contribution is figured on zero pay for the leave period.
- Testing blind spot: make-up contributions change the year’s numbers, but testing was already run. See nondiscrimination testing.
- Late discovery: the miss is found at audit or after a complaint, when the correction is larger. Our administrative error correction guide explains the repair path.
7. What You Can Delegate and What You Cannot
An experienced 3(16) plan administrator can run the intake, apply the plan terms, calculate the make-up amounts, track the offer and the election, and keep the evidence file. A 3(16) cannot supply pay history it never receives, and it cannot change the plan’s design for you. Compare the roles in our 3(16) vs TPA comparison.
It also helps to know who decides what. Whether the plan should be amended, how a disputed estimate is resolved, and whether the match formula should change are decisions that rest with the named fiduciary or the settlor. That is the gap a formal appointment closes.
Admin316 accepts formal appointment as the plan’s ERISA 402(a) named fiduciary, which most providers decline. In practice, that means someone with real authority owns the decision when a service member’s return raises a question the document does not clearly answer. If you have an employee returning from service, or want a standing procedure in place before one does, book a conversation with Admin316.
