Monday, October 29, 2018

Is Your Severance Arrangement Subject to ERISA?

From: The Emplawyerologist:
Suppose your company, Wonderful World of Widgets, Inc., finds itself needing to lay off some employees. You are tasked with effectuating the terminations, making sure they go smoothly, including offering severance benefits. You read The EmpLAWyerologist’s previous posts on severance agreements (click here, here, here and here for review). You have taken those points to heart and even gone beyond that, offering a package that you believe will take care of your terminated employees. But wait. There may be more. Could the benefits you have offered be subject to ERISA? Let’s take a look — after the jump…

Before we get into the nitty-gritty, we need some definitions. First, what is ERISA? The acronym stands for the Employee Income Retirement Security Act. ERISA is a federal law, enacted on September 2, 1974 that establishes minimum standards for pension plans and sets forth extensive federal income tax rules for transactions associated with employee benefit plans. Its mission is to protect employee beneficiaries of pension and benefit plans. It includes disclosure and reporting requirements, standards of conduct for plan administrators (also known as fiduciaries) and to provide for appropriate remedies and access to federal courts.  Unlike many other federal laws, ERISA applies to all employers whether they have 1 employee or billions of employees.  
Now let’s discuss some terms that look and sound alike, but carry some significant differences. You already know that a severance agreement is the actual contract between the employer and the terminated employee that a) governs the post-termination relationship; and b) discusses the severance benefits that the employer has agreed to provide the former employee. A severance package is the entire set of benefits provided to the terminated employee(s). Severance  packages may include without limitation pay, stock options and medical/dental benefits to name a few things.
Full post here.