Furloughs and Layoffs: Pension and Health Plan Issues and Other Critical Legal Implications

Description

The coronavirus pandemic has significantly impacted many businesses, forcing them to furlough or lay off their employees. These furloughs and extended layoffs may trigger a full or partial withdrawal from multiemployer pension plans, which can lead to significant liability. For companies with single-employer pension plans, furloughs and layoffs could lead to “shutdown liability,” resulting in additional contributions required to be made to the plan. In both scenarios, the resulting liabilities are joint and several obligations of the employer’s controlled group.

Employers must act to mitigate these risks. This means having a complete understanding of the applicable rules regarding withdrawal and shutdown liability and how furloughs or layoffs might give rise to liability. Employers should consider structuring furloughs and layoffs in a way that decreases the risk of incurring significant liability during an already challenging time.

Employers faced with furloughs or layoffs should also consider issues relating to their health and welfare plans, such as whether they are required to offer COBRA coverage, whether they can subsidize premium payments, and whether employees may change their existing elections.

Justin S. Alex, Senior Counsel at Proskauer Rose, Katherine B. Kohn, Of Counsel at Groom Law Group, and Emily C. Lucco, Associate at Groom Law Group, will guide employee benefits counsel on potential pension withdrawal and shutdown liability issues and other legal implications of furloughs and layoffs.