Beware Before You Sign a Separation Agreement: It Could Impact Your Pension Benefits
In conjunction with an employee’s separation of employment, employers frequently ask the employee to sign a separation agreement in exchange for a sum of money, assistance in finding another job, or some other consideration. For many employees, the lure of the money motivates them to sign the separation agreement. However, most separation agreements include a broad release of claims against the employer and its agents, affiliates, representatives, employees and other related individuals and entities. If you later discover that your pension benefit was miscalculated and, as a consequence, understated, the release might bar you from pursuing a claim for additional pension benefits.
Most private-sector pension plans are governed by the federal Employee Retirement Income Security Act (ERISA). Therefore, some courts hold that, unless the release specifically refers to ERISA, it does not waive a claim for ERISA-governed benefits. Other courts hold that if the release states that the employee is waiving all federal claims, that is sufficient to find that the employee waived a claim for ERISA-governed benefits even though the release never mentions ERISA.
Courts also look to whether the release bars only known claims or, instead, both known and unknown claims. In addition, the court may consider the type of pension claim at issue in determining whether the release waived it. For example, is it a claim for benefits due under the terms of the plan? Or is it a claim for breach of fiduciary duty or other statutory duty or requirement? Unfortunately, the courts are not in unison on the significance of these distinctions in determining whether a release waives a claim for additional pension benefits.
So, what should you do if your employer asks you to sign a separation agreement in exchange for a sum of money or other the consideration? First, see if the agreement contains a release of claims. If so, ask yourself whether the amount of money or type of consideration offered is sufficiently great to make the possibility of waiving a future claim for additional pension benefits worth it. If not, I would not sign the release. On the other hand, if the offered consideration is sufficiently great to take the risk, I recommend you consult an experienced pension lawyer who can suggest changes to the release for you or the attorney to present to your employer. Even if your employer is unwilling to change the release language, you will at least know the potential ramifications if you sign the release.
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