ERISA and Global Benefits

M&A Severance Payable despite No Job Loss (Plan Terminology Backfires)

August 01, 2014

The Global Compensation, Benefits & ERISA Practice Group

In Adams v. Anheuser-Busch, the 6th Circuit overturned the employer’s denial of severance pay to continuing employees because the seller's plan promised benefits to those "whose employment with the Controlled Group is involuntarily terminated." The court rejected the administrator's argument that the plan was ambiguous, and applied a de novo review standard. The court found an arbitrary and capricious exercise of discretion because there was only one plausible interpretation for the plain meaning of the language in question, as it would be construed by an ordinary person. Because most severance plans are open to amendment before payment rights vest (such as upon a change in control), plan sponsors should be careful to study plan terms - and to thoughtfully refine them -- in order to assure that severance is paid only when intended . . . and not, as here, when employment continued; albeit with a successor who purchased the business for which the employees worked.