Salary Continuation: Are salary continuation plans subject to ERISA?

Hhave you ever wondered what might happen to you if you either get injured or die in the United States while working for your company?

If you’re lucky, your company has enrolled you in a salary continuation scheme, whereby an agreement is in place for you or your family to receive either a percentage or your salary in full following the incident.

What is a salary continuation plan?

As highlighted above, a salary continuation plan refers to a written agreement between an employer and an employee, whereby the employer lays out a contingency plan should an employee no longer be able to perform their duties due to an injury.

This could mean the employee in question could receive all or part of their salary from the firm.

For a salary continuation plan to be valid, the agreement must be in place before the injury occurs.

Benefits of a salary continuation plan

The biggest benefit of a salary continuation plan is that an employer is able to engender a sense of loyalty from their employees as the workers believe they are being well taken care of.

It is important to note, however, that employees are usually divided into classes. For example, while executives are eligible to participate in this scheme, salary continuation benefits may only be offered to a selective pool of highly compensated executives.

On the flip side, the downside of enforcing a salary continuation plan is that certain individuals might abuse the scheme by refusing to come back to work even if they can, especially if they are being paid in full.

What is the Employee Retirement Income Security Act (ERISA)?

According to the department of labor, the Employee Retirement Income Security Act (ERISA), is a federal law that aims to protect established retirement and health plans in private industry.

Are salary continuation plans subject to ERISA?

Salary continuation plans are not protected by the ERISA and are agreements struck directly between a firm and its employees.

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