How does ERISA relate to employee terminations? Let us count the ways.

Employee terminations, whether a single employee or a round of lay-offs, are never easy. Offering severance pay can help make the transition easier, but in addition to employment concerns, employers need to keep in mind benefits considerations associated with severance. Questions that need to be considered include:

  • Does the company have a written plan document or a practice of paying severance? Could this be an ERISA plan, requiring a plan document?
  • Is the severance exempt from Section 409A of the Internal Revenue Code?
  • Will medical coverage be extended or COBRA subsidized?

The answers to these questions and others will influence what can be offered and should be discussed with benefits counsel before any conversations with the employees being terminated occur.