Q: “What is the impact on Severance and Deferred compensation/Equity Incentive Arrangements?”
May 12, 2020
Answered By Kristy Britsch
A: Severance obligations vary based on whether an employer has a written severance plan or policy and, if so, whether the plan is subject to ERISA. Generally, a severance arrangement will be considered a plan subject to ERISA if the arrangement requires an ongoing administrative scheme. By contrast, employers may establish a one-time, non-discretionary fixed payment due to a limited event (such as a plant closing) without creating an ERISA plan. Employers with severance plans governed by ERISA must administer their plans following the written plan document. An issue such employers may face is whether employees impacted by a layoff or furlough are eligible to receive benefits under the terms of their severance plan document.
Under most bonus, deferred compensation and equity incentive plans, a participant’s vesting rights are affected by whether the employee quits or is terminated without cause. Also, many equity incentive compensation plans, employment agreements, severance agreements, short- and long-term bonuses, or other long-term incentive compensation plans and arrangements have payments triggered upon the termination of employment.
You should evaluate your existing contractual obligations to pay severance benefits to confirm if the acceleration of payment is required and also consider whether to offer new or additional severance benefits to employees who are furloughed or terminated. It is also wise to confirm whether an employee’s layoff or furlough due to the COVID-19 outbreak entitles an employee to be partial or full vesting or payment under your equity incentive compensation plans, employment agreements, severance agreements, short- and long-term bonuses or other long-term incentive compensation.