An ERISA attorney can help you to understand whether your severance plan is covered under ERISA.
ERISA-Covered Severance Plans, Positives And Negatives
It can be confusing when trying to differentiate severance plans and whether yours is covered by ERISA. Your ERISA attorney will explain the positives and negatives of having a plan that is covered by ERISA as well as other issues related to severance plans. A positive of having a plan that has ERISA coverage is that the employer has the ability to use discretion when making a decision on a claim. Courts will respect the discretion accorded to employers provided that the decision made is not impulsive or subjective. A negative to having ERISA is that there will be a need to complete a form known as Form 5500 every year. Employees are able to file a lawsuit in federal court if there are allegations that an employer has violated ERISA. Also, a claimant who prevails in court will have a right to recover lawyers’ fees.
Even a Plan That Is Not Specifically Designated as ERISA Might Be Subject to ERISA Requirements
Your ERISA attorney will be aware that a decision by the U.S. Court of Appeals for the Second Circuit pointed out that even in cases in which the employer is functioning under the belief that an established policy for severance was not an ERISA plan, it might still be viewed as a plan that falls under the requirements of ERISA. That decision centered around a former employee who alleged that ERISA was violated because the former employer did not provide severance benefits. The lower court ruled that the policy of the employer was not ERISA, therefore the court did not have jurisdiction over this particular claim. However, the policy specifically stated that it was able to be altered or concluded by the employer without giving notice. The decision was reversed by the Court of Appeals as that court said ERISA was applicable. In order to distinguish an ERISA plan from a non-ERISA plan, the Second Circuit said the following three nonexclusive factors had to be in place and it will be considered under ERISA if:
- The obligation of the employer requires discretion on the part of managers of the administration.
- There is a reasonable belief on the part of the employee that the employer has an ongoing commitment to provide these benefits.
- The employer is bound by a requirement to assess the situation regarding the termination of each employee in a separate context to come to a determination as to whether the employee is owed benefits.
Factors in the Second Circuit Decision
The Second Circuit decided that physicians working full-time required 12 months’ notice of termination or six months’ of severance pay if they were terminated without cause. Those who had been working for more than 15 years were allowed to have a review on how much severance pay they would receive. The decision is unclear as to whether the payment would have been in a lump sum or not, although it appears so. According to the court, discretion was necessary to determine whether a physician was dismissed for reasons other than cause. The Circuit also decided that since the severance policy was formulated in 1987 and had stayed static since 1996, the employer had a continuous commitment to provide benefits. Since these benefits were provided to a wide range of employees under various circumstances with a review on an individual basis in the event of termination, these factors equated to it being considered an ERISA plan. Other courts might view it differently. Some might place a greater focus on how the benefits were paid – in a lump sum or over time. The Second Circuit did not take into account if ongoing administration is required.
Contact an Experienced ERISA Attorney
If you have questions about whether your severance plan is covered by ERISA, call 617.357.9700 to speak to ERISA attorney Jonathan M. Feigenbaum, Esquire.