Severance Plans and ERISA Compliance: Limiting Liability in Design and Implementation of Severance Arrangements

ERISA applies to retirement and group healthcare plans, but severance pay may constitute a “plan” under ERISA depending on the nature of the arrangement. Companies must identify the elements of severance arrangments that form a plan under ERISA.

ERISA governs the implementation and termination of pension and welfare benefit plans, which can include severance arrangements such as one-time payments, individual agreements, policies or more formal severance plans. A severance arrangement is subject to ERISA if a reasonable person can determine the intended benefits, beneficiaries, the source of financing and the procedures for receiving benefits. If a severance plan is subject to ERISA, counsel and advisers must ensure that clients satisfy all legal obligations under ERISA. Noncompliance may result in civil and criminal penalties.

There are advantages to establishing and maintaining ERISA compliance for severance arrangements that allow employers to avoid or limit potential litigation and penalties. A compliant severance plan provides for the preemption of state laws under ERISA and requires participants to submit disputes to the plan administrator first per applicable ERISA claims procedures.

Listen as our panel discusses methods to ensure ERISA compliance in the design, use and implementation of severance plans, the benefits and potential ramifications of severance plans subject to ERISA, and best practices in drafting severance plan documentation to limit or avoid litigation.

1. Application of ERISA to severance plans and ramifications of noncompliance
2. Advantages of establishing severance plans in accord with ERISA requirements
3. Section 409A implications for severance benefits
4. Best practices for drafting severance plan documentation to limit or avoid litigation

The panel will review these and other critical issues:

• Determining whether a severance plan is subject to ERISA
• What requirements must a severance arrangement satisfy if it is considered a “plan” under ERISA?
• What are the advantages of designing an ERISA compliant severance plan?
• How does Section 409A apply to severance benefits?
• Best practices for drafting plan documentation to limit potential liability