severance pay: welfare plan or pension plan issues

[EGB]

Employer, pursuant to a collective bargaining agreement, agrees to pay each employee who terminates employment on or after age 65, $250 per month in cash. The reason this was implemented was to give the retiree cash to help pay for health insurance premiums, though there is no requirement that the cash be used for such purpose. Are these technically severance payments? Is this arrangement an ERISA plan? If so, is it an ERISA welfare or pension plan? It seems to me that this may well be an ERISA pension plan as it arguably is a program that provides retirement income to employees. Without giving a lot of facts, assume that it does involve an administrative scheme. Do the answers to any of the foregoing questions differ if the employer requires the payments to be used for the payment of health insurance premiums? Any comments would be greatly appreciated.

[Kirk Maldonado]

The definition of severance pay plan for purposes of ERISA is found at 29 CFR 2510.3-2(B).

[david rigby]

PWBA / DOL regs. http://www.access.gpo.gov/nara/cfr/waisidx...v9_01.html#2509

[EGB]

Thanks for the regulatory cites. I had already reviewed the regulations, but am still pondering these issues. I believe the arrangment I described is a pension plan (ie, making cash payments on a monthly basis to retirees). However, I am uncertain if the character as a pension plan would change if the payments were required to be used for the payment of premiums on individual health insurance plans. I don' think this changes the character as a pension plan, but I could be missing something. If it is a pension plan, could we add these payments to their existing defined benefit plan by amending said plan and stating that each retiree will receive, in addition the the regular pension benefit, an additional $250 per month as a severance type benefit? If we can/should put this in the pension plan, I assume that we cannot require the $250 to be paid in a lump sum and that we would have to annuitize the payments, with an option to waive the annuity and take a lump sum.

[Ron Snyder]

The arrangement you describe is probably a defined benefit pension plan covered by ERISA. However, whoever negotiated the plan for both sides were beyond their expertise.

Had they negotiated a "health reimbursement arrangement" the amounts could be spent by employees for 213(d) medical expenses tax free. Time to reopen negotiations?

We have been setting up HRAs for some time now and are relieved now that IRS has issued their approval of such arrangements, as well as the conditions that apply to them.

See http://www.benefitslink.com/links/20020626...26-017319.shtml

and http://www.ebia.com/misc/RR-2002-41.pdf