Yesterday afternoon, President Bush signed the Heroes Earnings Assistance and Relief Tax Act of 2008 (the HEART Act), which provides a number of new required and permissive benefits under employer-sponsored benefit plans for individuals who are called to active duty from their civilian workplace. For years, public and private employers have been required to provide special benefits under their retirement plans to employees who were called to qualified military service under the Uniformed Services Employment and Reemployment Rights Act (USERRA). The HEART Act expands the requirements of USERRA and affords employers the opportunity to provide additional benefits to employees who are called to active duty. The HEART Act provisions affecting employee benefit plans include the following:

  • Individuals who die during qualified military service must be treated as having been actively employed on the date of their death;

  • Differential pay must be included in compensation for purposes of determining benefits under a retirement plan;

  • Individuals called to qualified military service must be permitted to receive distributions from their retirement plans without penalty;

  • Employers may provide additional benefit accruals and contributions to individuals who die during qualifying military service;

  • Employers may allow employees who are called to active duty to receive a cash distribution from a health flexible spending account equal to the balance in the account before the end of the plan year; and

  • There are new mandatory tax withholding requirements for certain benefit plan payments to expatriates.

Certain HEART Act provisions are immediately effective for employee benefit plans. Plans generally must be amended to comply with the HEART Act provisions by the 2010 plan year.

All employers should review their obligations under the HEART Act. Ballard Spahr's Employee Benefits and Executive Compensation Group can help. For assistance and more detailed information, please contact Brian Pinheiro at pinheiro@ballardspahr.com or 215.864.8511, or any member of the firm's Employee Benefits and Executive Compensation Group.


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