October 2026 - ERISA Compliance
Overview
A severance plan, program, or policy can be governed by the Employee Retirement Income Security Act of 1974 (ERISA) as an employee benefit plan. ERISA defines "employee welfare benefit plan" to include any "plan, fund, or program" that provides benefits in the event of unemployment.
ERISA gives employers uniform national rules, preemption of state-law claims, and deferential judicial review of benefit decisions. It also imposes fiduciary duties, disclosure obligations, and claims-procedure requirements.
In addition, severance arrangements may also be subject to 409A if they do not fit the separation pay exemption.
When Is a Severance Arrangement an ERISA Plan?
A severance arrangement is an ERISA plan when it requires an “ongoing administrative scheme” to administer benefits.
The leading test comes from the U.S. Supreme Court's decision in Fort Halifax Packing Co. v. Coyne where a one-time severance payment did not create an ERISA plan. A single payment triggered by a single event needed no "ongoing administrative program" to satisfy, so ERISA did not apply. Fort Halifax and its progeny look at a variety of factors to determine whether a severance plan, policy, or practice is subject to ERISA.
Recent litigation, including a case filed against John Deere - Ahmed et al. v. Deere & Company et al – is one of the more recent illustrative cases.
The John Deere Severance Litigation
In Deere & Company, two former employees allege that Deere used its performance-review process to deny or reduce severance owed under an ERISA plan. Deere argues that its severance program is not an ERISA plan. Plaintiffs seek certification of a class action of more than 80 employees who, according to Plaintiffs, received reduced severance offers or were denied severance after a monitoring period.
According to plaintiffs, between 2024 and 2025, Deere changed its performance-evaluation system, allegedly requiring that at least 10% of employees be rated as needing improvement and removing certain rating categories. Employees who received a negative review were allegedly offered a choice: accept three months of severance or enter a 60-day performance-monitoring period that could end in termination with no severance.
The plaintiffs contend this ultimatum conflicts with Deere's severance documents, which they say provide half a month of pay per year of service, up to 12 months.
John Deere's Argument
John Deere argues the program falls outside ERISA. Deere first contends the program arises from layoffs in a prior year and providing a single lump-sum payment calculated from years of service and base pay does not require ongoing administration.
Deere also argues that neither plaintiff is an eligible participant in the severance program because one plaintiff was not terminated as part of a workforce reduction, and the other resigned voluntarily.
Finally, Deere alleges ERISA claims were waived by signing a release and cannot challenge that waiver without returning the severance received.
409A Implications
While many severance plans are drafted to fit the short-term deferral or separation-pay exceptions to 409A, ensure your separation plan, policy, or practice is drafted accordingly.
Work with Momentum Advisors to ensure one of the 409A exceptions applies to avoid adverse 409A consequences.
Practical Takeaways for Employers
Employers should decide whether their severance plan, policy, or practice is or will be an ERISA plan, then administer accordingly. A few action items employers can take now:
1. Inventory severance practices, policies, programs, and agreements.
2. Review handbooks, offer letters, practices, layoff packages, patterns, practices, and documentation.
3. Consider whether you want your severance plan, practice, or program subject to ERISA. Further consider whether you want to continue current separation plans, practices, or policies as drafted.
4. Contact Momentum Advisors regarding your severance program, policy, or practice to discuss whether your arrangement is subject to ERISA and help you stay compliant.
Reach us via LinkedIn or email at: info@momentumadvisors.law