Whether a severance arrangement constitutes an employee benefit plan determines the procedural rules, the standard of review and whether state law claims are preempted.
The test. Whether the arrangement requires an ongoing administrative scheme — discretion in determining eligibility and amounts, individualised determinations, and administration over time — rather than a single lump sum triggered by a defined event.
Why an employer usually wants plan status. Preemption of state law contract and tort claims; a claims and appeals procedure the claimant must exhaust; and a deferential standard of judicial review where the document grants the administrator discretionary authority.
What plan status requires. A written plan document, a summary plan description distributed to participants, a named fiduciary and administrator, a claims procedure with prescribed timelines, and reporting where thresholds apply.
Discretionary authority language is what secures deferential review, and its absence means the denial is reviewed without deference.
Amendment and termination. Severance plans are generally welfare plans that may be amended or terminated prospectively, which is a significant advantage over individual contracts.
Interaction with individual agreements. A plan can coexist with negotiated individual arrangements, and the plan should say how it treats them.