Severance Agreement and ERISA: A Comprehensive Guide
When an employee is terminated from a company, it is not uncommon for the employer to offer them a severance agreement. This agreement typically outlines the terms of the employee`s departure, including any severance pay they may receive, and may also include provisions such as non-compete clauses and confidentiality agreements.
However, for companies that are subject to the Employee Retirement Income Security Act (ERISA), there are additional requirements that must be met when offering a severance agreement. This article will provide a comprehensive guide to severance agreements and ERISA, including what ERISA is, which companies are subject to it, and how it impacts severance agreements.
What is ERISA?
ERISA is a federal law enacted in 1974 that sets minimum standards for employee benefit plans offered by private employers. This includes retirement plans, such as 401(k)s, as well as other types of employee benefit plans, such as health insurance and disability insurance.
One of the main goals of ERISA is to protect the interests of employees who participate in these plans by establishing standards for fiduciary conduct, requiring plan disclosures to participants, and providing participants with access to the federal courts to sue for benefits or breaches of fiduciary duty.
Which Companies are Subject to ERISA?
ERISA applies to private employers who offer employee benefit plans, regardless of the size of the company or the number of employees. This includes corporations, partnerships, sole proprietorships, and nonprofit organizations.
However, ERISA does not apply to government employers, churches, or plans maintained solely to comply with workers` compensation, unemployment, or disability laws.
How Does ERISA Impact Severance Agreements?
While ERISA does not specifically address severance agreements, it does regulate certain aspects of employer-provided severance plans. If an employer offers a severance plan that is considered an employee benefit plan under ERISA, then the plan must comply with ERISA`s requirements.
To determine whether a severance plan is subject to ERISA, the plan must meet two criteria: it must be a “welfare plan” and it must be established by an employer.
A welfare plan is any plan, fund, or program that provides benefits to employees in addition to regular salary or wages. This includes severance plans, health insurance plans, and disability plans. If a severance plan meets this criterion, then it is considered an employee benefit plan under ERISA.
Next, the plan must be established by an employer. This means that the plan cannot be an individual agreement between the employer and the terminated employee. Instead, the plan must be offered to a group of employees and must be established through written documents, such as a plan document or summary plan description.
If a severance plan meets both of these criteria, then it is subject to ERISA`s requirements. This includes provisions for fiduciary conduct, plan disclosures, and reporting and filing requirements. Additionally, employees who are entitled to benefits under the plan are considered plan participants and have the right to sue for benefits or breaches of fiduciary duty.
If your company offers a severance plan, it is important to understand whether the plan is subject to ERISA`s requirements. This will ensure that your plan is compliant with federal law and that your employees are protected. If you have questions about ERISA or your company`s severance plan, consult with an experienced employment law attorney or qualified benefits consultant.