Eighth Circuit Clarifies Scope of ERISA's Application to Severance Arrangements
"[T]here was no evidence that the agreement amended an ERISA plan, and in fact, the agreement concerned post-termination payments that could only occur when Schieffer was no longer a participant in the company's plans.... Although the benefits were measured by the ERISA plans, ... [the employer] had not indicated that the funds came from anywhere other than its general assets ... [and] had not alleged that the payment would affect the administration of its ERISA plans or 'threaten ERISA's goal of uniformity in the administration of plan benefits'.... [The court concluded that the] arbitration demand did not seek benefits 'due under' an ERISA plan, and the federal court lacked subject matter jurisdiction over the dispute. " [Dakota, Minn. & E. R.R. Corp. v. Schieffer (Schieffer II), No. 12-1807, 2013 WL 1235235 (8th Cir. Mar. 28, 2013)] (Benefits Bryan Cave)

Opportunity for Possible FICA Tax Refund on Severance Pay Ends April 15
"Until a final decision in [U.S. v. Quality Stores] has been rendered, taxpayers that have made severance payments in 2009 should file a protective claim for a FICA tax refund no later than April 15, 2013. This protective claim will preserve the taxpayer's right to a refund should the IRS not appeal the decision or should the decision be upheld on appeal." (Benefits Bryan Cave)

Miller Chevalier Focus on Employee Benefits, March 25, 2013
Articles in this issue include: Next Steps for Employers Regarding the FICA Tax Treatment of Severance Pay Following the Sixth Circuit's Affirmance of Quality Stores; HIPAA Omnibus Rule Impacts Group Health Plans; and San Francisco Health Care Security Ordinance Enforcement Initiative. (Miller & Chevalier Chartered)

April 15 Deadline for Filing FICA Refunds for Severance Pay
"Employers that have made severance payments due to reductions in force, plant shutdowns or similar conditions should consider filing protective FICA tax refund claims. Only a limited period of time is available to file. In general, the statute of limitations for tax refund claims is three years. As a result, April 15, 2013, is the due date for taxpayers for filing a refund claim with respect to the 2009 calendar year. A refund claim cannot be filed with respect to severance payments made before 2009." (McDermott Will & Emery)

Sixth Circuit Will Not Rehear Decision that Severance Pay in Connection with a Reduction in Force Is Not Subject to FICA; Supreme Court Next Step?
"It is unclear at this time how the IRS will respond to refund claims. New claims filed as a result of the Quality Stores decision may be rejected by the IRS due to the split in the circuits or may be held without action. Until this controversy is resolved, it is prudent for employers to continue withholding FICA taxes on SUB payments made in connection with the present or future involuntary termination of employees that do not meet the strict definition provided in IRS Revenue Ruling 90-72 for exemption." (Proskauer Rose LLP)

Employer Action Required to Preserve FICA Refund Claim on Severance Pay
"[E]mployers that have paid a substantial amount of severance in recent years should consider filing a protective claim with the IRS for a refund of FICA taxes paid. Such a filing will extend the period of time for which FICA contributions on severance could be recovered, should the Supreme Court eventually rule against the IRS." (VedderPrice)

Can a Non-Compete Provision be Added to a Severance Agreement?
"Even though the employer had some discretion with respect to the form of separation agreement, [a federal district court in Illinois] would not permit the employer to condition the severance payment on compliance with a no compete. To add such a requirement, the employer should have amended the severance plan; the proposed separation agreement was not itself such an amendment." [Pactiv Corp. v. Rupert, No. 11C7247 (N.D. Ill., Nov. 1, 2012)] (BenefitsNotes, a blog by Leonard, Street and Deinard)

Circuits/IRS Split When It Comes to FICA Taxation of Severance Pay
"Despite a Circuit conflict, the IRS continues to assert that all severance payments are wages subject to FICA taxation, unless they meet the narrowly-tailored definition of 'supplemental unemployment benefits' under existing IRS guidance. Such benefits are defined as payments on account of an employee's involuntary separation from employment that results directly from a reduction in force, the discontinuance of a plant or other similar conditions. In addition, the IRS requires that such severance payments not be made as a lump sum and specifically be designed to supplement state unemployment benefits that the individual is eligible to receive." (Bloomberg BNA)

Sixth Circuit Holds SUB Payments Not Subject to FICA Taxes; Employers Should Consider Filing Refund Claims
"Although a definitive ruling on this issue is probably years away, employers need to determine what potential FICA refund claims they have and what to do to protect those claims.... Before filing a refund claim, the employer must either (i) reimburse the former employee for his or her portion of the FICA tax or (ii) obtain his or her written consent to pursue a refund claim." (McGuire Woods LLP)

Quality Stores Update: DOJ Files Petition for Rehearing En Banc on Important Severance Pay FICA Case
"On October 18, the Department of Justice (DOJ) filed a petition for rehearing en banc in United States v. Quality Stores, Inc., No. 10-1563 (6th Cir. Sept. 7, 2012) ... [T]he Sixth Circuit [decision being appealed] held that severance payments paid to former employees pursuant to an involuntary reduction in force were SUB-Pay and not taxable 'wages' for FICA tax purposes[.]" (Morgan, Lewis & Bockius LLP via Bloomberg BNA)

Federal Appellate Court Rules that SUB Payments are Not 'Wages' for FICA Tax Purposes
"The beauty of a SUB Plan is that it allows an employer to pay severance to former employees without those payments being subject to FICA taxation. Thus, the employer and the employee each avoid payment to the IRS 7.65% of the severance payment." (Winston & Strawn LLP)

Employers Should Evaluate Refund Opportunities Following Sixth Circuit Ruling on FICA Taxes and Severance Payments
"Quality Stores now is the law in the Sixth Circuit (Michigan, Ohio, Tennessee, and Kentucky). Employers whose principal place of business is in those states should consider seeking refunds of FICA taxes they remitted for SUB payments since January 1, 2009. Also, Sixth Circuit employers should consider whether to withhold FICA taxes from SUB payments made since Quality Stores. Those employers should keep in mind that, if Quality Stores ultimately is overturned, they would owe back FICA taxes for all periods for which the statute of limitations for assessment is open" (Ballard Spahr)

Sixth Circuit Decision Provides Employer Tax Relief and Refunds on Severance Payments Not Subject to FICA
"Employers who collected and paid FICA taxes on severance payments (and their employees) may be entitled to refunds of those FICA taxes. With rates as high as 15.3%, the refunds can be substantial. The refund procedures are complex. Employers cannot simply amend their employment tax returns and claim a refund." (Miller Johnson)

Sixth Circuit Holds that Severance Pay is Not Subject to FICA Taxes (PDF)
"Even though section 3402(o)(2) covers income tax withholding, not FICA taxes, the Sixth Circuit concluded that any statutory exemption from 'wages' like that provided for in these involuntary severance benefits must be deemed to extend to FICA taxes as well, unless the IRS provides a different rule by regulation." (Winston & Strawn LLP)

FAQs About RIFs and Possible FICA Refunds (PDF)
"The following Q&As demonstrate that seeking [a refund for FOCA taxes paid in connection with involuntary terminations of employment] is easy. (1) What are the key facts that could open the door for a FICA refund?... (2) What was the 6th Circuit's rationale?... (3) Will the 6th Circuit's decision come to apply nationwide?... (4) What are the steps to pursue a FICA refund?" (Nationwide Financial Services, Inc.)

Sixth Circuit's Ruling Exempting Severance Pay From FICA Tax Poses Quandary for Employers (PDF)
"Employers who made substantial severance payments in 2009 (or later) should consider filing protective claims by the April 15, 2013 deadline (4/15/2014 for 2010 payments, etc.), but continue to subject such payments to FICA taxes until we hear more from the IRS or the Supreme Court." (Groom Law Group)

Severance Packages Can Lead to Discrimination Suits
"Severance benefits are inherently discriminatory unless all employees receive the same package. Chances are a rank-and-file worker will get a less generous package than an executive, but discrimination is problematic only when it involves a protected class such as women or people of a particular religion." (Human Resource Executive Online)

Sixth Circuit Says No FICA Taxation on Involuntary Severance Pay -- Billions of Dollars in Refund Claims At Stake
"In a somewhat surprising decision on September 7, 2012, the Sixth Circuit affirmed the Western District Court of Michigan's holding in U.S. v. Quality Stores Inc., 424 B.R. 237 (W.D. Mich. 2010), that severance payments made to employees pursuant to an involuntary reduction in force were not 'wages' for FICA tax purposes. U.S. v. Quality Stores Inc., No. 10-1563 (6th Cir. 2012). Given the recent economic downturn, several billion dollars' worth of FICA taxes could be at issue as a result of this decision." (Bloomberg BNA)

Sixth Circuit Splits from Federal Circuit, Decides Severance Payments Are Not Taxable as FICA Wages (PDF)
"Employers that have made severance payments meeting the requirements for [supplemental unemployment compensation, or 'SUB'] payments as set forth in Internal Revenue Code Section 3402(o) should file claims for refund for FICA taxes paid with respect to these payments. The statute of limitations for filing claims for refund for timely filed 2009 Forms 941 will expire on April 15, 2013.... Employers that have already filed claims for refund and have received a notice of disallowance from the IRS (or have signed a Form 2297) should consider filing suit as soon as possible (or, alternatively, seek the IRS�s agreement to extend the statute of limitations using Form 907).... It is particularly important for taxpayers in the Sixth Circuit (Kentucky, Michigan, Ohio, and Tennessee) to preserve their rights because of the favorable decision in Quality Stores." [United States v. Quality Stores, Inc., No. 10-1563 (6th Cir. 2012)] (Sutherland)

Severance Pay in Connection with Layoff Does Not Trigger FICA Taxes, Sixth Circuit Rules (PDF)
"Whether [supplemental unemployment compensation benefits, or 'SUB'] payments are 'wages' under FICA is a complex question because the FICA statute does not expressly include or exclude SUB payments, nor do the Treasury regulations promulgated under FICA address the subject.... [We conclude that, because] Congress has provided that SUB payments are not 'wages' and are treated only as if they were 'wages' for purposes of federal income tax withholding, such payments are not 'wages' for purposes of FICA taxation.... [W]e do not adopt the government's other arguments or follow the IRS revenue rulings the government cites." [U.S. v. Quality Stores, Inc., No. 10-563 (6th Cir. Sept. 7, 2012)] (U.S. Court of Appeals for the Sixth Circuit)

Plaintiffs' Claims Under ERISA Section 510 and 502(a)(1)(B) Survive Motion To Dismiss
"Proof of a Section 510 violation is not easy. To state a claim under Section 510, plaintiff must show that her employer had 'specific intent' to violate ERISA. Denial of ERISA benefits 'alone is not probative of intent.' ... On the alleged facts, the [Eighth Circuit] concludes that the plaintiff established a plausible case under Section 510. Plaintiff alleged that defendant terminated her under the false pretense of 'misconduct' in order to interfere with her right to the Plan's benefits. These allegations 'are sufficient to show a plausible claim and to thus unlock the doors of discovery.'" (Health Plan Law blog by Attorney Roy F. Harmon III)

Financial Executive Compensation Survey 2012 from Grant Thornton (PDF)
(Note: might take a minute to download; it"s a large file.) Excerpt: 'In response to financial reform legislation, the most included or planned inclusion in executive compensation programs was pay versus performance (23 percent).... Detailed figures for base salary, bonuses, long-term and stock-based compensation, retirement benefits and perquisites are provided by title, company type and company size in the following pages." (Grant Thornton)

Tuning Up Your Company's Severance Plan (PDF)
"This article reviews the history of severance plans, explains how supplemental unemployment benefit (SUB) plans work, provides plan sponsors with questions they should ask when reexamining their severance offerings, and suggests options for plan sponsors to consider in terms of optimizing their severance plan's cost control and certainty, tax savings and appropriate cost sharing with employees." (Buck Consultants)

[Guidance Overview] Terminated Employees of Successor Employer Not Entitled to Separation Benefits under Prior Employer's Pension Plan
"ERISA Section 204(g) does not protect from cutback an early retirement benefit for a plan participant who has not satisfied and can never satisfy the conditions for receiving the benefits that are subject to the cutback. The legacy employees would never be eligible for the PJS benefit because they had been offered continued employment by the successor." (Wolters Kluwer Law & Business / CCH)

[Guidance Overview] Failure to Offer Comparable Severance Package Can Be Prohibited Gender Discrimination under Title VII
"The [Fourth Circuit Court of Appeals] reversed and remanded a district court's dismissal of a claim by a former employee that she was not offered the same severance benefits as other similarly situated male counterparts when they were terminated from employment. In this case, the employee was offered three months of continued pay and health benefits when her employment ... was terminated. The employee claimed that males in similar positions were customarily offered six months of pay and benefits, or were transferred to positions with less responsibility while continuing their pay and benefits." (Haynes and Boone)

[Guidance Overview] Another Question is Answered in the Who's the Employer Q&A Column
Can the spouse of a limited partner in a limited partnership be treated as an employee? (BenefitsLink.com)

Avoiding 409A Pitfalls in Severance Agreements (PDF)
"[Materials from] the second installment in the 409A Basics Webinar Series, which centered on how to avoid pitfalls in severance agreements. Topics discussed included: Structuring severance benefits to be exempt from Section 409A; Separation from service requirements to commence severance; Six-month delay considerations for severance benefits payable to specified employees; Postemployment benefits and reimbursements[.]" (Morgan Lewis)

Text of Final EEOC Regs: Disparate Impact and Reasonable Factors Other Than Age Under ADEA
"The EEOC's proposed rule was designed to conform existing regulations to recent Supreme Court decisions and to provide guidance about the application of the [reasonable factors other than age, or 'RFOA'] affirmative defense. It was not intended to impose unwarranted burdens on employers ... [T]he Commission has revised the rule to clarify that the factors are not required elements or duties, but considerations that are manifestly relevant to determining whether an employer demonstrates the RFOA defense." (U.S. Equal Employment Opportunity Commission)

[Guidance Overview] Severance Pay Falls under Anti-Bias Law, Says Court
"An appeals court ruling that current and former employees can seek redress under Title VII of the Civil Rights Act of 1964 in a case involving a severance package is expected to be influential nationally. The decision in Karla Gerner vs. County of Chesterfield, Va. ... also should remind firms that it is necessary to dispense benefits equitably, experts say[.]" (Business Insurance; free registration required)

Title VII Protection of Severance Benefits Extends to Former Employees
"Former and current employees can seek redress under Title VII of the Civil Rights Act of 1964, says a U.S. appellate court in a case involving a severance package." (Business Insurance; free registration required)

AARP Attorneys Represent Allstate Agents Alleging Age Discrimination
"The cases arise from Allstate's forced termination of more than 6,200 older employee-agents. Approximately 90 percent of those terminated were over age 40, and their median age was 50. Allstate took several approaches in its job termination efforts." (AARP Foundation)

[Guidance Overview] Court Rules Compensation for Loss of Pension is Taxable
"A recent ruling by the Court of Appeal has highlighted the importance of considering all the reasons for which a termination payment is made in deciding whether it is taxable." (SNR Denton)

Wisconsin State Worker Severance Packages Scrutinized
"The joint legislative subcommittee hearing follows reports by the Pioneer Press and KSTP-TV in November about $57 million paid out in unused sick time to state employees - a practice largely unheard of in the private sector - and $32 million paid out in unused vacation time between January 2008 and June 30, 2011." (MediaNews Group, Inc.)

[Guidance Overview] Participant's Estoppel Claim Rejected for Failure to Show Pension Calculation Error Was Intentional
"The court also rejected the participant's claim that he'd relied to his detriment on the mistaken calculations when he signed the severance agreement. He undermined this argument by his own admission that he has no current wish to rescind his agreement and renegotiate the terms." (Wolters Kluwer Law & Business / CCH)

Ford Plant Closing Afftects the City
"About two-thirds of the plant's workers can transfer out of state, though the company doesn't yet know how many will do so, said Marcey Evans, a Ford spokeswoman. The buyout packages for those eligible for retirement are a $50,000 bonus for eligible production employees and a $100,000 bonus for skilled trades." (Pioneer Press)

Pros and Cons of Severance Agreements
"Employers who pay out severance to their employees run certain risks that need to be considered beforehand. Some employers have learned the hard way that severance agreements aren't always the best course of action." (Mondaq Ltd. via International Foundation of Employee Benefit Plans)

Severance and Change-in-Control Plans
"[The survey research was] designed to better understand the prevalence and perceptions of severance programs within organizations." (WorldatWork / Innovative Compensation and Benefits Concepts, LLC)

Pros and Cons of Severance Agreements
"[M]ost employers who use severance payouts ask their employees to sign a document essentially releasing the company from any and all legal liability upon acceptance. This way, the relationship can be considered to be completely and forever severed, each party moving on in the world, never again to have to deal with each other." (Fisher & Phillips LLP)

Six Tips for Handling Severance Pay Plans
"How do you put together a severance pay plan that meets your needs and also stays within the bounds of legal requirements for such plans?" (Business & Legal Reports, Inc.)

IRS May Propose New Section 457(f) Vesting, Other Rules in Mid-2012
"No firm deadline exists, but an IRS attorney's recent statements indicate that the agency's current goal is to publish proposals by June 30, 2012." (Mercer LLC)

[Guidance Overview] One-Person Individually-Negotiated Employment Agreement Not an ERISA Plan
"With regard to the employee's demands under the ERISA plans, the Court ruled that the state law remedies would be preempted; however, if the employee's demands were simply for payment of amounts that were pegged to what would have been paid under the ERISA plans, the state law remedies would not be preempted. The case was sent back to the district court for further proceeding in accordance with the Court's decision." (Deloitte via BenefitsLink.com)

Outsize Severance Continues for Executives, Even After Failed Tenures
"A hallmark of the gilded era of just a few short years ago, the eye-popping severance package continues to thrive in spite of the measures put in place in the wake of the financial crisis to crack down on excessive pay." (The New York Times; free registration required)

[Guidance Overview] Court Rejects Payment of Overstated Pension Benefits; Keeps Severance Pact
"Miscalculation of some of the benefit options available under a pension plan was not intentional, said the Seventh Circuit Court of Appeals, and did not warrant payment of the higher amount. This was the decision in Kenneth Pearson v. Voith Paper Rolls, Inc. . . ." (Wolters Kluwer Law & Business / CCH)

[Guidance Overview] Employee Release Provisions Present Section 409A Trap for the Unwary
"If you regularly draft or review employment, change-in-control or severance agreements, you know it is a standard practice to condition payment of severance benefits or other compensation on the employee signing a general release of claims against the employer. What you may not realize is that conditioning benefits on the execution of a release may give rise to tax problems for the employer and the employee under Section 409A of the Internal Revenue Code." (McguireWoods LLP)

[Guidance Overview] Individual Employment Agreement Was Not ERISA Plan
"We caution against concluding, based on this opinion, that one-employee arrangements can never be subject to ERISA, particularly for employers outside the Eighth Circuit . . . . Resolution of these cases tends to be highly fact-specific, and a different court could very well reach a different conclusion on similar facts." (Thomson Reuters/EBIA)

The Basics of Garden Leave: Continuing the Employment Relationship for a Transition Period (PDF)
What is 'garden leave'? A 'garden leave' provision generally takes the form of a 'notice' period -- designated in weeks or months -- during which a terminating employee is paid to remain at home and out of work (tending to the garden), but to be 'on call' to his or her former employer for as-needed transitional services. (The Bureau of National Affairs, Inc. via Paul Hastings LLP)

[Guidance Overview] Relief Granted for Disabled Auto Workers Denied Severance Benefits
"NUMMI employees who meet the following criteria may be eligible to participate in a claims process over the coming months: disabled under state and federal laws, on leave from work due to their own disability at any time between October 1, 2009 and April 1, 2010, and denied all or any part of the NUMMI severance pay." (U.S. Equal Employment Opportunity Commission)

[Guidance Overview] Forum Selection Clause Enforced in ERISA Claim Litigation
"The Plaintiff presented three reasons that the Court should not enforce the forum selection clause: #1 the SPA's forum selection clause is not explicit enough to be enforceable because it was 'buried' in the SPA and does not specifically reference Plaintiff's severance agreement; #2 forum selection clauses are not enforceable under ERISA; and #3 the forum selection clause was unreasonable." (Roy Harmon III / Health Plan Law)

[Guidance Overview] Florida Passes Public Worker Severance Pay Law
"The law provides that effective July 1, 2011, a unit of government that enters into a contract or employment agreement, or renewal or renegotiation of an existing contract or employment agreement, that contains a provision for severance pay with an officer, agent, employee, or contractor must include a requirement that severance pay provided may not exceed an amount greater than 20 weeks of compensation." (PLANSPONSOR.COM)

[Guidance Overview] New Compensation Restrictions Coming for Colleges and Universities (PDF)
"An IRS official recently stated that long-awaited regulations under Section 457 of the Internal Revenue Code, first announced in 2007, are in clearance and may be issued as soon as September 2011. These regulations will require that all exempt organizations, including colleges anduniversities, review and potentially revise their employment, severance and deferred compensation agreements to avoid tax penalties." (Vorys, Sater, Seymour and Pease LLP)

[Guidance Overview] Sixth Circuit Upholds Denial of ERISA-Based Income Protection Benefits; Plan Administrator Need Not Investigate Whether the Employer Violated FMLA
"As demonstrated by the Sixth Circuit's recent decision in Farhner v. United Transportation Union Discipline Income Protection Program, a well-drafted ERISA income protection or severance pay plan should enable the plan administrator to rely on the employer's stated reason for termination of an employee, rather than conducting an independent review of the facts regarding the termination." (Porter Wright Morris & Arthur LLP)

[Guidance Overview] SEC Makes the Advance Approval of Shareholder Say on Parachute Payments Even Less Attractive
"Question 128B.01 . . . provides that, even if a company's shareholders approve a say-on-parachute payments resolution in the 2011 annual meeting proxy, if the company adds a new CEO one month later, it would need to seek shareholders approval again in any future merger proxy." (Michael S. Melbinger via Winston & Strawn LLP)

[Guidance Overview] ERISA Considerations for Severance Pay Policies Checklist (PDF)
"This Checklist outlines the advantages and disadvantages of maintaining aformal severance pay policy and of the policy complying with [ERISA]." (Practical Law Company, Inc.)

[Guidance Overview] Final Say on Pay Rules from SEC (PDF)
[T]he early returns from the first spate of 2011 shareholder meetingssuggest that shareholders are not merely rubber-stamping their approval, and that they want annual Say on Pay votes regardless of management proxy statement recommendations. (Paul Hastings LLP)

[Guidance Overview] SEC's Final Rules on Shareholder Say on Golden Parachute Pay
"The Rules do not permit companies to exclude de minimis perquisites and other personal benefits from this disclosure." (Michael S. Melbinger via Winston & Strawn LLP)

[Official Guidance] Text of SEC's Final Rule for Shareholder Approval of Executive Compensation and Golden Parachute Compensation (PDF)
"We are adopting amendments to our rules to implement the provisionsof the Dodd-Frank Wall Street Reform and Consumer Protection Act . . . ." (U.S. Securities and Exchange Commission)

[Guidance Overview] Employers Should Review Severance Plans in Light of IRS Guidance
"Severance plans were included in the arrangements requiring consideration under Section 409A, since they provide for post-employment payments that can be paid beyond two-and-a-half months after the end of the calendar year in which an employee leaves." (Employee Benefit News; one-time free registration required)

[Guidance Overview] Final SEC Rules on Say-on-Pay, Say-on-Frequency and Say-on-Parachutes
"The final rules require disclosure of golden parachute compensation arrangements under Item 402(t) for any transaction at which shareholders are asked to approve an acquisition, merger, consolidation or a proposed sale or other disposition of all or substantially all assets of the company, including Rule 13e-3 'going private' transactions and third-party tender offers." (McDermott Will & Emery)

[Guidance Overview] Final SEC Rules Regarding Say-on-Pay and Golden Parachutes (PDF)
"Under the SEC's final rules, companies are required, not less than once every three years, to include in their proxy statements for an annual or other meeting at which directors are elected a vote by the shareholders approving the compensation of a company's named executive officers, as such compensation is disclosed in the proxy statement." (Dow Lohnes PLLC)

[Guidance Overview] Final SEC Rules Implementing Dodd-Frank 'Say on Pay' and 'Say on Golden Parachutes' (PDF)
"The final rules largely followed the Commission's proposed rules issued on October 18, 2010, with a few notable exceptions." (Alston & Bird LLP)

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