Plan administrators charged with administering Employee Retirement Income Security Act-governed severance plans are often confronted with the question of whether they should conduct an independent investigation into the reasons the employer-plan sponsor terminated an individual’s employment before deciding whether to grant or deny the individual’s claim for severance benefits. The decision to conduct such an investigation, and, the breadth of such an investigation, may have consequences in the event of litigation.
This article provides some guidance to plan fiduciaries in evaluating claims for severance benefits.
Many severance plans provide that an employee is ineligible for benefits if terminated “for cause” and define cause as, among other things: neglect in performing one’s duties, misconduct, or unsatisfactory performance. A threshold question for those charged with the responsibility for deciding severance benefit claims and appeals is thus whether the employee was in fact terminated “for cause.” Whether and, if so, how “for cause” is defined is controlled by the terms of the plan. What is required of plan fiduciaries under these circumstances? May they accept the employer’s stated reason for the employee’s discharge? Must they conduct an independent investigation into the reasons for the employee’s discharge? Somewhat surprisingly, there are relatively few reported decisions addressing whether a plan fiduciary has an obligation to conduct an independent investigation into an employer’s reasons for discharging an employee.