What’s FMLA got to do with retirement plan vesting?
Statistics show that about 10,000 Americans turn 65 years old each day, and that an entire generation is expected to reach retirement age by 2030. But what does retirement have to do with leave under the federal Family and Medical Leave Act (FMLA)? Read our story to learn more.
To illustrate
Kalin, an employee, asked for leave for an upcoming surgery, indicating that she might need all 12 weeks off. Kalin would receive paid time for about three weeks of her leave, but the rest would be unpaid. Trevor, the HR manager, knew Kalin was eligible for FMLA leave and that the reason qualified, but he wondered whether such a long absence would impact Kalin’s retirement account, particularly the vesting.
Like most retirement plans, the company had a defined contribution plan. Therefore, Kalin was 100 percent vested in her own contributions and in any earnings from her contributions. Employees, however, needed to work several years before being vested in the employer’s matching contributions. Kalin had not yet worked long enough to be 100 percent vested in the company’s contribution. Trevor, therefore, needed to determine whether he had to consider Kalin’s time off as continued service for vesting purposes.
Trevor did a little research and found that he needed to treat any period of FMLA leave as continued service (i.e., no break in service) for purposes of vesting and eligibility to participate in pension and other retirement plans.
FMLA leave and vesting
Employers must look at the details. If, for example, the plan requires an employee to be working on a specific date in order to be credited with a year of service for vesting or participation purposes, an employee on FMLA leave who subsequently returns to work must be deemed to have been working on that date. This provision applies only to vesting or eligibility.
Employees may, but are not entitled to, accrue any additional benefits or seniority during unpaid FMLA leave. Employees, therefore, are not necessarily entitled to pension plan credit for the time spent on FMLA leave. Employees also don’t need to make contributions for any period during which they are not in a pay status.
Employers must consider other factors, as well. If, for example, the FMLA leave was unpaid, they must review company policies with respect to employees on other types of unpaid leave.
Key to remember: Like many FMLA-related situations, the question of vesting while on FMLA leave is often not as simple as it might seem on the surface. Extended periods of FMLA leave should be treated as continued work/service, and not as a break in service, for retirement plan vesting and eligibility.