Are stock option plans governed by erisa
March 5, by theemplawyerologist 5 Comments. Suppose your company, Wonderful World of Widgets, Inc. You are tasked with effectuating the terminations, making sure they go smoothly, including offering severance benefits. You have taken those points to heart and even gone beyond that, offering a package that you believe will take care of your terminated employees.
There may be more. Could the benefits you have offered be subject to ERISA? Before we get into the nitty-gritty, we need some definitions. First, what is ERISA?
The acronym stands for the Employee Income Retirement Security Act. ERISA is a federal law, enacted on September 2, that establishes minimum standards for pension plans and sets forth extensive federal income tax rules for transactions associated with employee benefit plans. Its mission is to protect employee beneficiaries of pension and benefit plans.
It includes disclosure and reporting requirements, standards of conduct for plan administrators also known as fiduciaries and to provide for appropriate remedies and access to federal courts. Unlike many other federal laws, ERISA applies to all employers whether they have 1 employee or billions of employees. You already know that a severance agreement is the actual contract between the employer and the terminated employee that a governs the post-termination relationship; and b discusses the severance benefits that the employer has agreed to provide the former employee.
A severance package is the entire set of benefits provided to the terminated employee s. If your severance pay arrangement is in fact a severance plan it will be subject to ERISA requirements, including without limitation:. So how do you know whether your severance arrangement is an ERISA plan? How do we determine if a severance arrangement involves an ongoing administrative scheme?
The terms of your plan and how it is administered are key here. Here are some factors courts consider in determining whether an ongoing administrative scheme exists:. In general, the less discretion and administration necessary to implement the arrangement, the more likely it is simply a payroll practice, rather than an ERISA plan.
Conversely, the more discretion and administration necessary for implementation, the more likely it is an ERISA plan.
While we have established that an ERISA plan is subject to reporting, disclosure and greater administrative requirements which in turn could add to the cost of the plan , employers with ERISA plans reap some benefits too.
If you set up your plan correctly, you will have your own internal claims procedure that your employees must exhaust before they can file suit. Those who do file suit must do so in federal court and any trial will be decided by a judge, not a jury. Moreover, the decision of the Plan Administrator is usually entitled to great deference in court. So, should you actually consider creating an ERISA plan, or should you take steps to ensure that your severance arrangements do not fall under ERISA?
Plan Governed by ERISA
That will depend on your specific circumstances. You should consult with either your in-house counsel or competent outside counsel. If you wanted to create an ERISA plan, what should you consider and what might you avoid doing? Make sure your criminal background checks are legally compliant. Click here to catch my webinar live at 1pm EST today Feb. Click here to download my webinar, What Employers Need to Know About Their Severance Arrangements on February 11, Want to really be up to date on hot button topics impacting employers?
Severance Agreements , Termination Tagged With: Employee Income Retirement Income Security Act , ERISA , ERISA welfare plan , Fort Halifax Packing Co v Coyne , ongoing administrative scheme , pension plan , severance agreement , severance benefits , Severance package , severance pay , severance plan , welfare plan. April 9, at 3: Does an employer have the responsibility to tell an employee that the severance agreement is governed user ERISA?
April 11, at In most cases, yes, the employer will be required to disclose that the plan is subject to ERISA, because if the plan is subject to ERISA then employees who would be eligible for the benefits if a qualifying termination occurs are entitled to annual reports and summary plan descriptions in understandable language. That is not required for plans not subject to ERISA. Your email address will not be published. Notify me of follow-up comments by email.
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Frequently Asked Questions and Answers About ERISA Basics for In-House Counsel | Jackson Lewis
Crafted with by 3P Creative Group. The EmpLAWyerologist Firm The Employer's Legal Wellness Professional. Is Your Severance Arrangement Subject to ERISA?
If your severance pay arrangement is in fact a severance plan it will be subject to ERISA requirements, including without limitation: Plans must be in writing and provide for detailed claims procedures; All participants must receive a Summary Plan Description. All participants must receive a summary annual report, unless the plan is exempt from filing a Form annual report.
Other reporting and disclosure requirements. Here are some factors courts consider in determining whether an ongoing administrative scheme exists: Amount and form of payments; Level of discretion in determining eligibility for participation and benefits; Length or term of plan is it indefinite or single event only?
Comments Frank zee says April 9, at 3: Hi Frank, In most cases, yes, the employer will be required to disclose that the plan is subject to ERISA, because if the plan is subject to ERISA then employees who would be eligible for the benefits if a qualifying termination occurs are entitled to annual reports and summary plan descriptions in understandable language. Leave a Reply Cancel reply Your email address will not be published. Join Our Community Join hundreds of other successful professionals and receive monthly updates and alerts regarding must-read employment law updates as well as invitations to our upcoming webinars.
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