Under the legislation, H.R. 6081, which President Bush is expected to sign, employers would have to include the amount of so-called differential pay for pension benefit and defined-contribution plan purposes. Under current law, such inclusion is optional.
For example, under the legislation, an employee receiving differential pay could elect to contribute a portion of that pay into a 401(k) plan, with the employer matching that contribution on the same basis as other employees’ contributions.
Current law allows employees who return to their same employers after military service to make retroactive contributions to their retirement savings plans. Companies must match those retroactive deferrals to the same extent they matched other workers’ contributions during the period of military service.
The differential pay provision in the legislation will be especially helpful to those employees who do not return to their former employers after completion of their military service, said Steve Clark, a legal consultant with Hewitt Associates in Lincolnshire, Illinois.
Other provisions in the legislation, which largely deals with aiding employees called up for military service, will allow such employees to cash in unused health care flexible spending account balances. It also makes permanent a now-expired law that allows such individuals to receive penalty-free distributions from their 401(k) plans.