The current financial crisis and economic downturn have caused many employers to implement lay-offs and reductions in force. In an effort to reduce the harsh economic impact of a sudden job loss and in an effort to mitigate the negative employee relations issues that can result from downsizing, many employers offer affected employees separation pay or severance.

. . . Regardless of how these severance arrangements are designed and implemented, you should be aware of several tricky compliance issues that may have been overlooked in the rush to deal with such a sudden economic slowdown and the practicalities of significant employee reductions. As the end of the year approaches and we look forward to better times, now is the right time to consider the compliance issues that come with the adoption of a severance arrangement.

The first step is to determine whether a particular severance arrangement is governed by ERISA. If the severance plan is subject to ERISA, it will likely be required, among other things, to prepare and submit a completed Form 5500, make available a compliant summary plan description to participants and establish proper procedures for participants to appeal adverse claim determinations.

While most employers are well aware of ERISA's application to retirement plans and group health plans, many are surprised to learn that some severance arrangements are considered "welfare pans" under ERISA and are therefore, subject to ERISA's reporting and disclosure requirements, as well as the rules for processing and determining claims. Because not every severance arrangement is covered by ERISA, many employers overlook its potential application when they are implementing or designing a severance plan. The application of ERISA, though not necessarily a bad thing for employers, can be a source of problems if you are not aware of the various requirements that must be met if a severance plan is subject to ERISA.

The rest of the story . . . .