Severance Benefit for Rank and File

[Christine Roberts]

Employer would like to pay cash awards to all employees upon termination of employment for reasons other than cause. Award is available after a set period of service (not very long) and is based on position and pay. Even if the plan were structured to fit within the definition of an ERISA welfare benefit plan (pays no more than 2 x salary within 2 years of termination) it arguably is not a severance plan because it pays benefits "when" termination of employment occurs rather than "because" of termination (PLR 199903032).

If not an ERISA welfare plan, must it meet ERISA pension plan requirements? Or does the short-term deferral exception under 409A create a "space" where the plan could exist; i.e., benefit is paid out by March 15 following the year of termination; therefore not "deferred compensation"; if not "deferred compensation" than no concern arising from the fact that the plan is not limited to a top-hat group.

What if the plan met another exception than the short-term deferral exception such as the limited amount exception (maximum benefit does not exceed 402(g) dollar limit for the applicable year). Still no "deferred compensation" and hence no need to limit to top-hat group?

What if the employer simply inserted the right to eliminate the plan at any time, such that there was no legally binding right to the payment? Would it still be a workable deferred compensation arrangement not limited to the top-hat group?

It just seems to me that, between PLR 199903032 and 409A's carve out for involuntary severance benefits, establishing a voluntary severance plans for rank and file employees is not possible save for the 409A exceptions, if in fact those are available.