EBIA Weekly Newsletter

Voluntary Separation Program Without New or Ongoing Administrative Scheme Is Not an ERISA Plan

   May 17, 2018

Girardot v. Chemours Co., 2018 WL 2017914 (3rd Cir. 2018)

A group of former employees who separated during a reduction-in-force brought ERISA claims against their employer over its voluntary separation program (VSP), which permitted employees who elected to be considered and were chosen for employment termination to receive a severance payment. The employer asked the court to dismiss the suit, claiming that the plan was not subject to ERISA. The trial court agreed, and the Third Circuit has upheld that ruling, concluding that the VSP lacked the necessary ongoing administrative scheme to constitute an ERISA plan. (In general, an ERISA plan exists when the employer is committed to paying benefits systematically, using an ongoing administrative program or scheme to determine eligibility and calculate benefits.)

The court explained that the crucial factor for ERISA plan status is whether the employer expresses an intent to provide benefits on a regular and long-term basis. Under the VSP, the election window was just a few weeks, and eligibility decisions, which were completely at the employer’s discretion, were to be made by the end of the following month. For those selected, severance payments were determined based on a straightforward formula and paid in a lump sum. The court concluded that no new or ongoing administrative scheme was needed to make lump-sum payments over this defined and relatively brief period. Although employer discretion was involved in eligibility determinations, the court noted that there was no long-term administrative process because the determinations took place during a short window. Nor did other aspects of the plan make it an ERISA plan. According to the court, the VSP’s knowledge transfer requirement necessitated only passive and ministerial involvement by the employer; non-competition and non-disparagement provisions were “untethered” from any ongoing payment of VSP benefits; and rules regarding rehire did not require a new administrative process outside the employer’s existing hiring framework and would not impact entitlement to VSP benefits. Thus, the court concluded that the VSP was not an ERISA plan, and the ERISA claims were properly dismissed.

EBIA Comment: It is unclear whether these individuals might pursue state-law remedies for their claims, but any ERISA avenues are foreclosed. When structuring new arrangements, employers should understand the rules regarding whether a program falls within or outside of ERISA’s purview—as it appears this employer did. But the determination of whether an arrangement constitutes a “plan, fund, or program” for purposes of ERISA is a factual one, and different courts may reach different conclusions even when considering similar situations. For more information, see EBIA’s ERISA Compliance manual at Sections VI.B (“Is There a Plan, Fund, or Program?”) and VI.K.7 (“Severance Plans”).

Contributing Editors: EBIA Staff.