Severance Pay Plan - info to be included?

[Guest calcu]

I am trying to figure out what information I need to file a Form 5500 for a severance pay plan and am a little confused. What schedules, if any, should be attached? I assume there is some place where I can input the dollars that were paid out of the program? I am just a little fuzzy and any help is greatly appreciated.

Thanks

[E as in ERISA]

Is it paid out of general assets of the employer? Then the 5500 will not have that much detail.

[Guest calcu]

Yes, it is paid out of the general assets of the employer. One more question, for purposes of determining how many participants are in the plan, my understanding is that it is only those who qualify for the severance benefit... those who have lost their job due to one of the specified reasons. Is my understanding correct?

[JanetM]

We do snapshot count on last day of the year and count all those who are elibible to receive the benefit. Our interpretation is that the count is of active participants who have not been severed. Those servered have recieved a benefit and no longer eligible.

How does the document define participant? Does employee become participant by virture of employment or at the time of termination? Our plans state you become a participant after 1 yr service and remain a participant until you quit or are terminated.

[401 Chaos]

I am interested in others' thoughts but I have seen a technical argument put forth that where the plan requires individuals to sign a general release in order to obtain severance benefits under the plan then only those individuals who are actually terminated, sign a release and get the severance benefits are counted as "participants." As a result, all employees generally eligible to receive severance if they were to be terminated (and then sign a release) would not be considered "participants." While I believe the regs. say something like where an individual would automatically be covered by a plan upon the occurrence of a certain contingency (e.g., termination), then those individuals should be counted as participants, the requirement that the terminated individuals also sign a release eliminates this automatic qualification for benefits upon termination.

[Guest calcu]

The plan states that one is automatically a participant if he or she is classified as an emloyee and not within certian job classifications. It then goes on to state that benefits are payable if employment is terminated as a result of certain enumerated items. Does this mean then that all employees who are potentially eligible will be considered participant's for 5500 purposes (and determining whether a small plan)?

[JanetM]

Chaos,

By that interpretation all employees who are termed and sign the release to become participants will forever be participants. You can't pay a participant until they cease to be active participant. Your interpretation says they don't become participants until they terminate. Since they are not employees of the sponsor how to suddenly become eligible to receive benefits from the plan?

Am I misunderstanding you?

[401 Chaos]

Janet,

I think the Plan would / could be drafted so that participation in the plan does not begin until selected for involuntary termination and ends upon receipt of all severance benefits provided under the Plan. I have just seen people try to make this argument where you have a large company with a broad, general severance plan. It does seem strange to me if you have a company with thousands of employees but only say 80 or so receiving severance benefits under a general severance plan to say that the plan has thousands of participants (including both active employees not receiving benefits as well as the terminated employees receiving benefits) simply because many of the thousands would be covered under the broad severance plan if they were terminated in a RIF / layoff action, etc. Using the release requirement just seems one way around the DOL Reg. § 2510.3-3(d)(B) contingency language so that you don't have to count active employees as participants. This could make a big difference in terms of the 100 participant threshold for Form 5500 filing purposes. I have also seen this used as an excuse not to distribute SPDs for the severance plan to hundreds or thousands of the active employees thus causing great alarm and instead restricting SPDs to those active employees selected for involuntary termination.

Let me say I have some uncertainty about these arguments and am not necessarily saying they work--just wondered what others thought.

[Guest calcu]

Sorry for the confusion, but I want to make sure I understand this. The plan is an unfunded arrangement and based on the language in the SPD, it appears that all employees are participants, so we do not qualify for a small plan exception. As far as I can tell, no attachments are necessary (no insurance contracts, no service providers, not a DFE, no loans, and unfunded. So, all we need to file is the 5500. This is pretty basic information, just how many participants are in the plan and the number receiving benefits. I feel like I am missing something?!@?

Thanks

[JanetM]

calcu,

You have it exactly right.

[Guest calcu]

Thank you very much for your help!