When is a Severance Plan an ERISA Plan?

Many advocate that employers should craft severance pay plans so that they qualify as ERISA plans; the principal argument being that if the plan contains explicit language conferring discretion on the plan administrator to interpret the text of the plan and in applying that interpretation to the facts presented, the federal district courts’ scope of judicial review will be quite limited. The flip-side is that there is no cognizable claim for attorneys’ fees in a common law breach of contract case; whereas ERISA has a fee-shifting provision, albeit one that is not as hefty as, for example, Title VII’s.

A recent decision by Chief Judge McAuliffe of the District of New Hampshire is illustrative of the analysis that the courts use to determine whether a severance plan qualifies as an ERISA plan. See Sargent v. Verizon Servs. Corp., 2010 U.S. Dist. LEXIS 15408 (D.N.H. Feb. 22, 2010).