Union and employer severance funds under ERISA

P/OPINION 77-18
                                                  3(1)
                                                  3(2)


                    January 18, 1977



Dear          :

Thank you for your letter dated January 9, 1976,
requesting a determination whether proposed severance
payment funds are covered under the Employee Retirement
Income Security Act of 1974 (ERISA). I am sorry we could
not reply sooner.

Each fund, with union and management trustees, would be
set up on an individual company basis. Each employee
whose termination is due to reorganization, going out of
business, relocating, etc., would be paid one week's pay
for each year of service, the payroll on January 1 of each
year being the basis of computing the amount due to any
worker who is terminated during such year. According to
your phone conversation with a member of my staff,
payments will be made immediately or within a few weeks
after separation.

Section 2510.3-2(b) of a regulation issued August 15, 1975
(copy enclosed), describes the conditions under which a
severance pay plan is not an employee pension benefit plan
under the ERISA. All such payments must be completed
within one year after the participant's separation from
service and the total of all payments made within such
year to any participant cannot exceed the participant's
annual compensation level. In a News Release issued
April 26, 1976 (also enclosed), the Department announced
its intention to revise the regulation to include payments
which do not exceed two years of final annual compensa-
tion, or extend for a period of more than twelve months
beyond normal retirement age or the effective date of
elected early retirement.

Based on the above, it appears that these funds will not
constitute pension plans under the ERISA. However,
section 3(1) defines an employee welfare benefit plan, in
part, as "any plan, fund, or program which was heretofore
or is hereafter established or maintained by an employer

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P/OPINION 77-18


or by an employee organization, or by both, to the extent
that such plan, fund, or program was established or is
maintained for the purpose of providing for its
participants or their beneficiaries, through the purchase
of insurance or otherwise, . . . (B) any benefit described
in section 302(c) of the Labor Management Relations Act,
1947 (other than pensions on retirement or death, and
insurance to provide such pensions)". Severance pay is
one of the benefits described in section 302(c) of the
Labor Management Relations Act. Therefore, the funds are
employee welfare benefit plans within the meaning of
section 3(1) of the ERISA and are covered under Title I.

Sincerely,