Although employers are not required to offer severance benefits to their employees, severance plans are a common feature of employer-provided benefit packages. Severance benefits usually take the form of cash payments to an employee whose employment is involuntarily terminated. In spite of their relative simplicity compared to pension or group health plans, severance plans are one of the most misunderstood and litigation-prone types of employee benefit arrangements.

For example, until recently it was unclear if employers were required to withhold FICA taxes on severance payments. However, in United States v. Quality Stores, Inc., the US Supreme Court unanimously held that severance payments made to employees terminated against their will are wages subject to FICA tax withholding.

Consult Practical Law's Severance Benefits, Plans and Agreements Toolkit for recently updated resources designed to help employers evaluate how best to structure severance arrangements under ERISA and in light of the Quality Stores decision.