Receiving a severance package should give you peace of mind that you will receive pay and benefits if you have to leave your job unexpectedly. However, some employers do not follow through with their promises. You might wonder if your severance package qualifies for protection under federal law.
The Employee Retirement Income Security Act, commonly known as ERISA, protects workers who enter into voluntary health care and retirement plans provided by their employers. SHRM explains there are some circumstances when ERISA will step in if an employee has a problem.
Whether a severance plan qualifies
Not all severance plans qualify for ERISA protection. An ERISA plan is in effect when an employer creates and maintains a program, plan or a fund for an employee, or if an employee has a legal duty to provide severance pay. To be a qualified ERISA plan, your severance package must function under these guidelines.
To give an example, your severance package is unlikely to be an ERISA plan if your employer just pays you in a lump sum because of a triggering event like a layoff. On the other hand, your employer might pay you over a period longer than two years and your package adds up to a greater amount than twice your annual salary. This situation is more likely to invite ERISA protection.
When a severance plan is not written
Your employer might argue that your severance package is not an ERISA plan because your employer only gave you a verbal promise and not a written document. Still, even if your package never took a written form, it may still be an ERISA plan if it functions according to ERISA guidelines.
In other words, if your severance package comes with all the expectations of a pension plan under ERISA, a court may determine that ERISA covers your plan. It may also result in consequences for your employer since ERISA requires that ERISA plans must come in written form.
Whether legal action is a possibility
Given that a severance package does not always qualify under ERISA, it is important to examine your situation carefully if you suspect your employer is not honoring an agreement for pay and benefits following the end of your employment. The documents stating the terms of your package and the functionality of your plan could give you valuable insight into whether you have a case under ERISA.