Life sciences industry employers should consider maintaining severance agreements, policies, or plans that would elicit benefits in the event of severance between employees and their businesses or organizations. Such agreements, policies, or plans should propose and define potential benefits that would be entitled to employees who undergo termination without “cause.” Elsewhere, employers might be able to use such a variety of agreements, policies, or plans as a way of limiting severance to particular kinds of separation (e.g., job elimination).
As a continuation of this discussion, we have shifted gears and hammered on concerns employers in this industry have when it comes to ERISA (Employee Retirement Income Security Act of 1974) and taxes in this post.
Concerns Life Sciences Industry Employers have over ERISA & Taxes
For the purposes of ERISA, a severance plan classified as a “policy” may be considered a “plan.” This implies to instances where the plan is administered under the discretion of the employer, which means that ERISA is likely to apply when determining the level of benefits to award or determining if an employee is eligible for benefits. However, employers within this industry should understand that an ERISA-covered plan should have some chief requirements that include:
- A summary plan description must be provided to participants.
- Employers must annually file a Form 5500 for the plan.
- A plan must be in writing.
Notably, ERISA preemption will apply if the employer’s plan is not covered under the statute. Since employers would not be liable for claims under state law, which results when employees are denied benefits, this could be a significant advantage for them.
The other issue of concern regards taxes. Pursuant to I.R.C. § 409A, deferred compensation under nonqualified plans is included in gross income under Section 409A of the Internal Revenue Code (IRC). Notably, when determining whether Section 409A would cover a specific severance plan, employers in this industry enjoy substantial flexibility. However, they should also note that modifying a schedule might prove difficult under the statute once such a payment schedule is established under the plan.
In Part XIX of this series and our blog post titled “Chief Employment Policies for Employers in the Life Sciences,” we shall move the discussion forward by hammering on some of the key employment policies for employers within the life sciences industry.
In the meantime, stay tuned for more legal guidance, training, and education. In the interim, if there are any questions or comments, please let us know at the Contact Us page!
Always rising above the bar,
Isaac T.,
Legal Writer & Author.