In Okun v. Montefiore Medical Center, Docket No. 13-3928-cv (2nd Cir. 2015), one of the issues faced by the Second Circuit Court of Appeals (the “Court”) was whether a severance policy maintained by Montefiore Medical Center (“Montefiore”) was a “plan” for purposes of ERISA.
In this case, the Montefiore severance policy at issue, number II-17a (the “Policy”), provides that all full-time physicians employed before August 1, 1996 who are terminated for other than cause are entitled to either twelve months’ notice or six months’ severance pay. Eligible employees with more than fifteen years’ service are also entitled to automatic review of the amount of severance pay by the President of the Medical Center. Montefiore has maintained a severance policy since 1987, and the Policy itself has been in place, without revision, since 1996. The Policy explicitly notes that it may be changed, modified or discontinued at any time by the Medical Center’s Senior Vice President of Human Resources, or designee, with or without notice.
In analyzing the issue, the Court said that the dispute here is whether the Policy is adequately alleged to constitute the kind of undertaking to pay severance benefits that can be described as a “any plan, fund, or program,” as that phrase is used in the definition of “employee welfare benefit plan” found in section 3(3) of ERISA. The Court then noted that the term “employee welfare benefit plan” has been held to apply to most employer undertakings or obligations to pay severance benefits.
However, to constitute a plan, following the Supreme Court’s decision in Fort Hallifax and James, the arrangement at issue must involve an “ongoing administrative program.” The Court applies three non-exclusive factors to help determine whether the ongoing administrative program requirement is met: (1) whether the employer’s undertaking or obligation requires managerial discretion in its administration; (2) whether a reasonable employee would perceive an ongoing commitment by the employer to provide employee benefits; and (3) whether the employer was required to analyze the circumstances of each employee’s termination separately in light of certain criteria.
The Court concluded that, based on the facts alleged in the complaint, the Policy is a “plan” for ERISA purposes, as it involves the kind of undertaking that falls within the meaning of the phrase “any plan, fund, or program.” The Policy represents a multi-decade commitment (since 1987) to provide severance benefits to a broad class of employees under a wide variety of circumstances and requires an individualized review whenever certain covered employees are terminated. This review requires discretion and individualized evaluation to administer. As a result, Montefiore assumed the responsibility to pay benefits on a regular basis, and thus faces periodic demands on its assets that require long-term coordination and control.