Employee Benefit Plan Review | Is My Severance Plan Subject to ERISA or Section 409A?

Recent volatility in the job market has caused many employers to implement reductions in force and employee lay-off programs. In order to reduce the economic consequences of an unanticipated job loss and mitigate the negative employee relations issues that can result from downsizing, many employers will offer those employees who are involuntarily dismissed a severance package or separation pay.

The primary benefit of severance pay is that the terminated employee receives a portion of their salary for a specified period of time. A common severance pay amount is two weeks of compensation. For executives, it is common to pay the executive one month of salary for each year the employee has worked for the company. In some cases, such as with senior level executives, the severance pay can exceed what the employee would have received in salary had they remained at the company.

Click here to read the full article written by Gary Blachman first published in Employee Benefit Plan Review.