… The Hatter opened his eyes very wide on hearing this; but all he said was, “Why is a raven like a writing-desk?” …“Have you guessed the riddle yet?” the Hatter said, turning to Alice again. “No, I give it up,” Alice replied. “What’s the answer?” “I haven’t the slightest idea,” said the Hatter. “Nor I,” said the March Hare. Alice sighed wearily. “I think you might do something better with the time,” she said, “than waste it in asking riddles that have no answers.”
-Lewis Carroll, Alice’s Adventures in Wonderland
For many HR professionals and employment lawyers, ERISA issues often seem like a riddle with no answer. Corporations and law firms frequently divide employment and benefit matters into separate silos reducing regular interaction. Worse, when they do speak, the day-to-day language of ERISA may seem as unintelligible and impenetrable as the Mad Hatter’s absurdist riddle was to Alice. (Can you tell that I’m only slightly biased as an employment lawyer?)
This communication gulf has real consequences. Take severance policies, for example. Even though the law is fairly settled, it might still come as a surprise to many that a company’s severance policy is probably an ERISA plan. And by missing this, lawyers and companies are needlessly foregoing a powerful weapon to protect themselves against employee claims.
The Department of Labor and courts have consistently held that a severance policy is governed by ERISA if those benefits are paid under a “plan, fund, or program” that requires an “ongoing administrative program” to administer. Fort Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987) (holding that ERISA did not apply to a state-mandated, non-discretionary, one-time severance payment in the event of a plant closing; the payment was made according to a fixed formula and did not require any interpretation or discretion).
Courts suggest three key factors to identify an “ongoing administrative program.” First, whether the employer’s undertaking or obligation requires managerial discretion in its administration. Second, whether a reasonable employee would perceive an ongoing commitment by the employer to provide employee benefits. Third, whether the employer was required to analyze the circumstances of each employee’s termination in light of certain criteria. Okun v. Montefiore Med. Ctr., 793 F.3d 277 (2d Cir. 2015).
Stated simply, if the administration of a severance policy requires a measureable amount of discretion, you can bank on it being treated as an ERISA plan. The severance policy at issue in the Montefiore case is a great example. That policy provided that employees terminated for any reason other than cause would receive severance, and employees with more than 15 years of service would be entitled to have the amount of severance reviewed, and possibly adjusted upwards. Although the policy contained a clear disclaimer that it could be modified or discontinued at any time, it had been in place and unchanged since 1996. The court found that the policy was an ERISA plan, rejecting the “boilerplate” disclaimer that the policy could be changed at any time and citing the amount of discretion required to calculate years of service and determine whether a termination was voluntary or involuntary and for cause or without cause.
At this point, those readers outside of the benefits sphere might swearing: “[expletive deleted] ERISA is complicated and [expletive deleted]!” That swearing also prompts an action plan: “I know enough about ERISA to know I want nothing to do with it….EVER.” This is the wrong response. Having a severance policy governed by ERISA is not a crisis, but an opportunity. Instead of waiting for a court to apply those factors and decide for you, why not just go ahead and make sure that your severance policy is an ERISA plan?
Yes, it’s true that ERISA requires administrative hurdles, but these are relatively straight-forward: namely, you must file a Form 5500 with the IRS (unless the plan has fewer than 100 participants; i.e., employees who could be terminated and be eligible for benefits, not those who actually are); participants must be given a Summary Plan Description; and plans must be in writing and provide a detailed procedure for claims by participants. The plan must also contain a (boilerplate) ERISA rights section, identify the employer’s name, address, and agent for service of process, and have a plan number.
These administrative requirements are outweighed by ERISA’s advantages ERISA plans require an internal claims procedure that employees must exhaust. Any suit must be brought in (or can be removed to) federal court. State-law claims for punitive or compensatory damages will be preempted. ERISA is all equitable so trial will be before the judge, not a jury. Last, but not least, decisions of the Plan Administrator will be (with one paragraph in the plan granting discretion) reviewed only for abuse of discretion.
Whatever you do, just don’t view ERISA as an impenetrable riddle to be avoided at all costs. It’s not. Besides, ERISA lawyers really do have all the answers to why a raven is like a writing desk:
- Because Edgar Allan Poe wrote on both;
- Because there is a b in both and an n in neither;
- Because neither is approached without caws/cause; or
- Because it can produce a few notes, tho they are very flat; and it is never put with the wrong end in front.
PS: Aldous Huxley (who should have been an ERISA lawyer) offered the curious answer in 2; Lewis Carroll himself volunteered 4.