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TAX MANAGEMENT COMPENSATION PLANNING JOURNAL

Reproduced with permission from Tax Management Compensation Planning Journal, Vol. 37, No. 6, 06/05/2009. Copyright 2009 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com

SUB Plans Resurface in Tough Economic Times

by Thomas W. Meagher and Clara J. Kim1

INTRODUCTION

With the recent economic climate affecting virtually all businesses and industries, employers are called upon to continually review their organizations to be certain that they are appropriately sized based on current business conditions. Although many employers have attempted to maintain existing workforces in anticipation of business returning to more normal levels, over time, there may be a need to restructure the workforce to more closely track the current level of business. Although employers would prefer to rely on normal attrition to adjust the size of their workforce, many times, attrition alone will not accomplish an employer's employment level objectives. As employers begin

1 Thomas W. Meagher is a Senior Vice President and Practice Leader, and Clara J. Kim is a Vice President of Aon Consulting's National Tax & ERISA Practice with offices throughout the United States.

to evaluate alternative approaches for reducing the size of their workforce, consideration may be given to a number of different approaches including, for example, early retirement windows, asset sales or spinoffs of certain businesses, and the use of severance plans or similar programs. To the extent that the employer is considering implementing a severance plan, the related costs can oftentimes be quite significant. Although severance plans may prove to be the most direct and effective program to reduce workforce size, employers should not assume that all severance plans are alike, or that the employer must bear the full cost of its severance programs. To the contrary, employers have been increasingly looking to supplemental unemployment benefit plans (``SUB plans'') to permit the employer to offset a portion of the cost associated with its severance plans by amounts payable under state unemployment compensation laws. In addition to permitting an offset for state unemployment compensation, these SUB plans, if properly structured, can yield significant tax and financial advantages to employers and their employees. Although SUB plans have been used for many years, they have traditionally been found in such industries as automotive, manufacturing and steel. Although these industries are no strangers to the need to downsize in response to tough economic times, their use of SUB

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plans has proven to be quite effective in that they help employers direct their severance payments to those employees who are out of work and who need income to bridge them over during a period of unemployment; the SUB plan can also be designed to avoid paying severance to those individuals who gain new employment prior to completion of the severance period. With the current focus on the economy and employers' employment-related expenses, the use of SUB plans has caught the attention of employers in virtually all industries as they attempt to come to grips with the need to reduce the size of their workforce in the most cost efficient and tax effective manner possible.

SUB PLANS -- BACKGROUND

SUB plans take their name from the very purpose for which they were designed -- they are intended to supplement unemployment compensation payments to former employees who were involuntarily terminated. SUB plans were first established in the 1950s as a means for employers to supplement the state unemployment compensation received by their employees who lost their jobs as a result of workforce reductions. They have historically been deployed in the context of large, industrial employers, through collective bargaining with their unions to supplement the state unemployment compensation benefits received by laid-off workers. These industries were typically the most susceptible to economic and seasonal downturns. The current applicability of SUB plans, however, extends well beyond the old-line industries and traditional union environment.

SUB PLANS TODAY

Today, SUB plans are intended to align with a state's unemployment compensation laws so that the unemployment compensation and SUB plan payments will generally be paid at the same time and under the same circumstances. Depending on the state unemployment compensation laws, a properly designed SUB plan will permit both the employer and the employee to avoid taxation of such SUB plan payments under the Federal Insurance Contributions Act (FICA) or Federal Unemployment Tax Act (FUTA), while at the same time permitting the employer to reduce its severance payments by the amount of state unemployment compensation payable to the former employee.

must be designed so as to integrate with a state's unemployment compensation laws. In developing a SUB plan, careful attention must be paid to establishing appropriate parameters. SUB plans are intended to be available to provide supplemental unemployment compensation payments to those employees who have been involuntarily terminated from employment by reason of a layoff, reduction in force, discontinuance of a plant or operation, or other similar conditions.2 The SUB plan may not provide for separation benefits in the event that the employee was terminated for cause or other disciplinary reasons, or if he or she voluntarily left the workforce. The SUB plan must also be structured so that benefits are not payments for past services.3 Thus, the SUB plan should provide compensation that is intended to be a source of income to the involuntarily-terminated employee during the period of his or her unemployment; to the extent that the payment represents compensation for periods during which the employee worked for the employer (e.g., payments that may represent accrued vacation pay or a final paycheck), such payments would not be treated as supplemental unemployment compensation. Although many employer severance plans may typically pay severance amounts in a single lump sum, the SUB plan requires that payments be made weekly or in periodic installments so that the severance payments would largely track the payment period during which unemployment payments are made by the state. Although SUB plans are not required to be funded by a trust, trust arrangements often are established in conjunction with a SUB plan. To the extent funded, SUB plans utilize a voluntary employees' beneficiary association established under §501(c)(9) or a supplemental unemployment benefits trust under §501(c)(17).4 In any comparison of alternative reduction in force strategies, the SUB plan, if properly designed and coordinated with state unemployment compensation

2 In the context of a supplemental unemployment benefit trust, ``other similar conditions'' will include involuntary separation from the employer resulting from cyclical, seasonal or technological causes. Regs. §1.501(c)(17)-1(b)(4). All section references herein are to the Internal Revenue Code of 1986, as amended, and the regulations thereunder, unless otherwise stated. 3 See, e.g., NYSA-ILA Container Royalty Fund v. Comr., 847 F.2d 50 (2d Cir. 1988) (wherein the court noted that benefits were not SUB benefits where they were paid equally to all eligible workers, including those who were fully employed). 4 To the extent that a §501(c)(17) trust is established in connection with a SUB plan, the trust must be solely for the purpose of providing supplemental unemployment compensation benefits, and may provide sick and accident benefits to the extent that they are subordinate to the supplemental unemployment compensation. Nondiscrimination rules will apply to both the §501(c)(17) trust and §501(c)(9) trust. §§501(c)(9), 501(c)(17) and 505(b); Regs. §§1.501(c)(9)-1, -2 and 1.501(c)(17)-1(a)(5).

SUB PLAN DESIGNS

In order for an employer to avail itself of the benefits of a SUB plan, the employer's severance plan

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laws, invariably proves to be one of the more financially efficient programs available to employers today. From an employer's perspective, a SUB plan is attractive in that it can permit the employer to obtain the financial benefits associated with state unemployment compensation laws. In operation, an employer will establish or modify its existing severance plan so as to coordinate with the unemployment compensation laws applicable to employees in a particular state. Thus, at the outset, the SUB plan must be designed to only provide for payments upon an involuntary termination of employment. This involuntary termination can take place through reductions in force, layoffs (permanent or temporary), plant closings or other termination programs. The design of the SUB plan is very important insofar as the employer will want to be certain that the plan will properly coordinate with applicable state unemployment laws. State unemployment compensation laws can vary significantly, and a number of states will preclude payment of unemployment compensation if the employee is receiving employer-provided severance payments. Once properly designed (and subject to applicable state unemployment compensation laws), SUB plans can yield several financial benefits for employers, as follows. · No Former Employee Windfall. SUB plans may be particularly attractive to employers today in that they can be designed so that they preclude terminated employees from receiving a windfall in the event that they obtain other employment prior to the unemployment compensation being exhausted. For example, a properly designed SUB plan should provide for the payment of supplemental unemployment compensation payments on a weekly basis to correspond with the state unemployment benefit schedule. To the extent that the former employee is eligible for up to a certain number of weeks of employer-provided payments, those payments can be terminated once the former employee is employed by another employer, similar to the treatment that would be accorded the former employee under state unemployment compensation laws. Thus, the employer will be able to terminate supplemental unemployment compensation payments when the former employee gains new employment, and will not be paying former employees for periods of time during which they have found other employment. This can be a significant savings to employers that do not want to pay severance for periods when the former employee has begun employment with a new employer or a competitor.

duce its severance payments. The SUB plan permits the employer to offset normal severance payments (that would be made in the absence of a SUB plan) by the amount that the involuntarilyterminated employee will receive from the state unemployment compensation agency. Employers can save significant amounts of severance in those states that will permit an employee to receive both unemployment compensation and severance or supplemental unemployment compensation payments.5 · Exemption from FICA and FUTA Taxation. In order for a SUB plan payment to be exempt from FICA and FUTA taxation, the payments must be paid to an individual who is involuntarily terminated, and such plan payments must be designed to supplement receipt of state unemployment compensation. For FICA and FUTA purposes, ``wages'' means all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash, with certain exceptions.6 SUB plan payments may be exempt from FICA and FUTA taxation based on a series of revenue rulings, private letter rulings and case law. The leading authority in this area is Rev. Rul. 90-72.7 In developing a tax-effective SUB plan strategy, any design should attempt to closely track the basic framework established under this ruling.8 In Rev. Rul. 90-72, the Internal Revenue Service (IRS) ruled that an arrangement meeting the following requirements was not subject to FICA and FUTA taxation: · Individuals must be former employees involuntarily terminated from the employer due to plant closing, layoff or reduction in force. · Eligibility for benefits under the plan depends upon a former employee meeting certain pre5 Although there are a number of states (e.g., New Jersey) that will not disqualify an employee from receiving state unemployment benefits due to the receipt of severance payments from a former employer, it is critically important that the state unemployment laws be carefully reviewed. Several states (e.g., Nevada) will expressly preclude an employee from receiving state unemployment compensation benefits during the time he or she is receiving severance benefits (which would include supplemental unemployment compensation). 6 §§3121, 3306. (There are a number of exceptions to the definition of ``wages'' for FICA and FUTA purposes that are intended to exclude specifically identified ``non-wage'' payments.) 7 1990-2 C.B. 211. 8 Rev. Rul. 90-72 was issued as an update to Rev. Rul. 56-249, 1956-1 C.B. 488, which was the first in a series of IRS guidance on supplemental unemployment compensation plans and their exemption from FICA/FUTA taxation.

· Severance Payment Savings to Employer. Supplemental unemployment compensation payments, if properly designed, can permit an employer to re-

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scribed conditions following separation from employment with the company.

· Former employees must be unemployed and meet

the requirements to receive state unemployment compensation benefits, except if their ineligibility is due to: (i) insufficient wage credits under state law; (ii) exhaustion of benefits under state law; or (iii) failure to satisfy the waiting period required under state law for unemployment compensation. form of a lump sum.

· Benefits are paid weekly and not payable in the · The duration of benefits depends in part on the

fund level and the employee's seniority, and benefits are not attributable to the rendering of any particular services. trust-funded SUB plan benefits until such employee is qualified and eligible to receive benefits.

ment compensation check to confirm actual receipt of state benefits), or that were contingent on receipt of state unemployment compensation but for the fact that the employee did not have sufficient employment to be covered under the state unemployment compensation system, had exhausted state unemployment benefits or was serving a waiting week under the state unemployment compensation system, were sufficiently linked to state unemployment payments and, thus, were exempt from FICA/FUTA taxation.

SUB PLANS AND STATE UNEMPLOYMENT COMPENSATION

To the extent that an employer wants to offset its severance payments by state unemployment compensation benefits and avoid the imposition of FICA/ FUTA taxation on such severance payments, it is critical that the employer first evaluate the state unemployment compensation laws of the states in which it intends to reduce its employee workforce. In order to be treated as a SUB plan, the plan must be carefully designed and the state unemployment compensation laws carefully analyzed so as to properly identify those states that permit unemployment compensation to be paid to employees who are involuntarily terminated and eligible to receive severance payments from their employer. In TAM 9416003,12 for example, the IRS stated that, as the benefit recipients were disqualified from receiving government unemployment benefits, this finding was material to the determination of whether the payments were supplemental unemployment compensation. To the extent that the plan's benefits disqualify the recipients from government unemployment benefits, they would cause the plan benefits to be taxed as dismissal payments (not supplemental unemployment compensation) and, thus, prevent the plan from meeting the requirements for a SUB-pay plan for purposes of the FICA/FUTA exemption.13 We have examined two state unemployment compensation laws to illustrate the importance of such laws to an employer's ability to offset its severance payments, and for being able to obtain favorable FICA/FUTA tax treatment. In the State of New Jersey, for example, receipt of severance pay is not a bar to

12 This Technical Advice Memorandum revoked an earlier private letter ruling issued to CSX Corporation that became the subject of ongoing litigation described more fully below. 13 The court in CSX Corp. v. U.S., 518 F.3d 1328, 1351 (Fed. Cir. 2008), stated ``[i]n any event, the payments disqualified the recipients from receiving state unemployment benefits; the plan was thus different in that respect from the plans at issue in both Rev. Rul. 77-347 and Rev. Rul. 56-249 [and thus were not SUB plan payments].''

· No employee has any right, title or interest in the

In ruling that the arrangement described above is not subject to FICA and FUTA taxation, the IRS noted that Rev. Rul. 90-72 restores the ``distinction between [supplemental unemployment compensation benefit payments] SUB pay and dismissal pay by reestablishing the link between SUB pay and state unemployment compensation set forth in Rev. Rul. 56249.'' 9 From Rev. Rul. 90-72, it is clear that the foundation for a FICA/FUTA exemption lies with establishing that SUB plan payments are intended to coordinate and supplement the applicable state unemployment compensation laws.10 Following the issuance of Rev. Rul. 90-72 and the potentially significant FICA/FUTA savings to employers (and employees), there have been several private letter rulings that have served to guide employers. These private letter rulings have further clarified the application of FICA and FUTA taxation to SUB plans.11 In PLR 200322012, for example, the IRS more fully describes the required link between state unemployment benefits and SUB plan benefit payments for purposes of obtaining the FICA/FUTA exemption. More specifically, the IRS concluded that a plan that provided regular benefits that were contingent on actual receipt of state unemployment compensation (an employee applying for regular benefits was required to bring in the employee's state unemployRev. Rul. 90-72. It is noteworthy that although employers should strive to structure the SUB plan so as to avoid the imposition of FICA and FUTA taxation, generally, SUB plan payments to employees will nonetheless continue to be subject to federal income tax withholding. §3402(o). 11 See, e.g., PLRs 200709056, 9734035 and 9546005.

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an employee's receipt of unemployment benefits.14 An employer having New Jersey-based employees contemplating a SUB plan for such employees would be able to institute a SUB plan, provided that the plan clearly linked the ``severance'' payments to the receipt of New Jersey state unemployment benefits. In developing a SUB plan, the employer should also consider whether the former employee will be receiving any other disqualifying income, and the impact of such other payments under the relevant state's unemployment statutes.15 In contrast, the State of Nevada will not allow an individual to receive severance pay and state unemployment benefits in the same week. Nevada unemployment laws state that an individual is disqualified for unemployment benefits for any week with respect to which he or she receives either wages in lieu of notice or severance pay.16 Thus, under Nevada state unemployment laws (and based on TAM 9416003), a SUB plan intending to offset state unemployment benefits does not appear feasible in Nevada.

RECENT FICA/FUTA COURT DECISIONS INVOLVING SUB PLAN PAYMENTS

Although the IRS's position on SUB plan payments and FICA/FUTA exemptions seems fairly well settled, the courts have been wrestling with a few notable cases involving these issues. The issue that has been recently before the courts relates to whether supplemental unemployment compensation benefits 17 should be treated as wages for FICA/FUTA purposes. Sections 3401 and 3402 address the withholding of income tax with respect to all payments of wages unN.J. Admin. Code §§12:17-8.7 and 12:17-8.8; See also Employer Handbook, New Jersey's Unemployment & Disability Insurance Programs 2008; Unemployment Rights: Your Rights and Responsibilities (New Jersey Dep't of Labor and Workforce Development). 15 In New Jersey, for example, an individual is not eligible for state unemployment benefits during the time he or she receives salary continuation payments made by an employer; other states indicate that the receipt of retirement plan payments would result in the individual being ineligible to receive state unemployment benefits. 16 Nev. Rev. Stat. Ann. §612.420; Unemployment Insurance Claim Filing System Frequently Asked Questions, Nevada Dep't of Employment, Training & Rehabilitation. 17 For purposes of §3402(o), ``supplemental unemployment compensation benefits'' means amounts which are paid to an employee pursuant to a plan to which the employer is a party, because of an employee's involuntary separation from employment (whether or not such separation is temporary), resulting directly from a reduction in force, the discontinuance of a plant or operation, or other similar conditions, but only to the extent such benefits are includible in the employee's gross income.

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less otherwise provided. Section 3402(o) indicates that supplemental unemployment compensation paid to an individual ``shall be treated as if it were a payment of wages by an employer'' (emphasis added) and, thus, subject to federal income tax withholding. The legal analysis relates to whether Congress intended supplemental unemployment compensation to constitute wages for purposes of FICA/FUTA taxation, or whether the implication of the phrase ``shall be treated as if it were a payment of wages'' under §3402(o) is intended to suggest that supplemental unemployment compensation benefits are not wages but are simply treated as wages for federal income tax withholding purposes (but not FICA or FUTA purposes). The legislative history to §3402(o) regarding withholding on supplemental unemployment compensation benefits states that, although these benefits are not wages, as they are generally taxable payments, they should be subject to withholding to avoid the adverse tax consequence for employees.18 Although Rev. Rul. 90-72 continues to be the primary guide for employers, two cases in particular are worth studying to appreciate the potentially more expansive interpretation of the FICA/FUTA exemption that may be available to employers. In CSX Corp. v. U.S.,19 the court observed that, during the 1980s, CSX reduced the number of employees through a variety of programs. The programs paid different levels of benefits for different categories of employees. Unlike the required coordination with state unemployment compensation benefits in Rev. Rul. 9072, the CSX benefits were not dependent on a former employee's receipt of state unemployment benefits. Although there was no state unemployment law coordination, the lower court held in favor of CSX when it concluded that payments that qualified as supplemental unemployment benefit payments under §3402(o) were not ``wages'' subject to FICA.20 The Court of Appeals for the Federal Circuit subsequently reversed the lower court and held, in part, that such payments did not satisfy the IRS's requirements set

§3402(o); S. Rep. No. 552, 91st Cong., 1st Sess. (1969). 518 F.3d 1328 (Fed. Cir. 2008). 20 In CSX Corp. v. U.S., 52 Fed. Cl. 208 (2002), rev'd in part, 518 F.3d 1328 (Fed. Cir. 2008), the lower court held that payments that were supplemental unemployment benefits, as that term was defined under §3402(o), were not subject to taxation under FICA. The lower court stated that the ``fundamental definition of wages under FICA and income-tax withholding statutes are to be understood as identical.'' As a result, payments that satisfied the definition of supplemental unemployment compensation payments under §3402(o) were not wages and, thus, were not subject to FICA. The lower court's view was contrary to the IRS's position that none of the payments made by CSX qualified as supplemental unemployment compensation benefits as they did not meet the criteria of Rev. Rul. 56-249 (Rev. Rul. 90-72's predecessor).

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forth in Rev. Ruls. 90-72 and 56-249, and thus, the payments were not exempt from FICA taxation. (CSX's primary argument was that if benefit payments were not ``wages'' subject to federal income tax withholding purposes, they should not be ``wages'' for FICA purposes.) Although the Court of Appeals in the CSX case followed the IRS's position in holding that CSX was not entitled to the FICA tax exemption, the Federal Bankruptcy Court in In re Quality Stores 21 did not feel similarly constrained. During the bankruptcy process, Quality Stores made severance payments by reason of a reduction in force or the discontinuance of a plant or operation. The severance payments were included in the involuntarily-terminated employees' gross incomes, and the company paid the applicable FICA tax. The severance payments were paid in various methods, (i.e., based on payroll cycle or in a lump sum), were not connected to the receipt of state unemployment compensation, and were not attributable to the rendering of any particular services. Based on the lower court's analysis in the CSX case, Quality Stores claimed a FICA refund, arguing that if the payments were non-wage supplemental unemployment benefit payments for federal income tax withholding requirements, then such amounts were not wages subject to FICA.22 The Bankruptcy Court held that wages should be interpreted the same for both FICA and federal income tax withholding purposes. Because supplemental unemployment benefits are not wages for purposes of federal income tax withholding, they should not be treated as wages for FICA purposes.23

In re Quality Stores, Inc. v. U.S., 383 B.R. 67 (Bankr. W.D. Mich. 2008). In re Quality Stores should not be relied on at this stage, as the decision of the Bankruptcy Court is presently on appeal with the U.S. District Court for the Western District of Michigan (Southern Division). On Mar. 9, 2009, a brief was filed on behalf of the U.S. Department of Justice (Tax Division) in an appeal of the case by the United States Attorney's Office. The position of the United States is that ``[n]one of the payments at issue are linked in any way to the receipt of state unemployment compensation. Because there is no provision akin to §3402(o) in the FICA tax provisions, and the payments at issue do not fall within any statutory exception or the description of payments exempt from FICA taxes set forth in Rev. Rul. 90-72, those payments are subject to FICA taxes irrespective of their treatment for purposes of income tax withholding.'' See Brief for Appellant at 22, In re Quality Stores, Inc., 383 B.R. 67 (Bankr. W.D. Mich. 2008), appeal docketed, No. 01-10662 (W.D. Mich., Mar. 9, 2009). 22 Federal income tax withholding requirements for non-wage supplemental unemployment benefit payments are governed by §3402(o). 23 In view of the pendency of the In re Quality Stores, Inc. appeal, some employers may wish to consider filing protective refund claims for FICA taxes pending the outcome of the appeal.

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SUB PLAN DESIGNS IN 2009 -- SOME HELPFUL HINTS

As employers consider the use of a SUB plan, there are a number of design and administrative issues that should be addressed before proceeding further. · Coordination with State Unemployment Laws. In developing a SUB plan, a necessary first step is to confirm the states in which the employees who are to be involuntarily terminated are located. The critical questions to ask at this time relate to whether the particular state permits individuals to receive unemployment compensation while receiving employer-provided severance-type payments.

· Adopt/Amend Severance Plan to Coordinate Pro-

grams. To the extent that the employer is considering a SUB plan, the employer will need to amend its existing severance plan (or adopt a new plan) to directly tie the supplemental unemployment compensation payments to the involuntary termination of employment and the receipt of unemployment compensation. In drafting or amending its plan, the employer should make certain that the benefits are characterized as supplemental unemployment payments tied to a period of unemployment (as opposed to straight dismissal payments made without regard to the former employee's unemployment status). Because state unemployment laws can differ, and several states will not permit the coordination of employer severance payments with state unemployment compensation, multi-state employers may need to structure their program benefits in a bifurcated manner -- one payment amount for those who will be eligible to receive state unemployment benefits (i.e., an offset for state unemployment compensation), and a second scheduled amount for those employees who will not be subject to an offset. Although this can be somewhat confusing, the savings to employers can far exceed any administrative burdens that may be created in the short term. employed Status. In order for the employer to monitor the reemployment of its former employees (so as to terminate the employer-provided payment upon new employment), it will need to develop a process for tracking employees' employment status after they have left the employer's employment. Some employers will require that the former employee submit his or her unemployment payment stub, or choose to rely on the state's unemployment compensation organization to monitor whether employees have become em-

· Develop Administrative Process to Confirm Un-

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ployed so as to no longer be eligible for unemployment compensation from the state. Many times, these monitoring efforts may be undertaken by the employer's outsourcing organization. · SUB Plan Trusts. A SUB plan does not have to be funded by a trust. The failure to provide for the accumulation of funds in a trusteed account from which the supplemental unemployment benefits contemplated by the plan are to be paid is not a material or controlling factor in determining whether the FICA/FUTA tax exemption applies. Thus, an employer does not need to fund a SUB plan through a trust to obtain the FICA/FUTA exemption for benefit payments.24 To the extent that an employer chooses to fund its SUB plan, the employer may utilize a supplemental unemployment benefits trust under §501(c)(17), or a voluntary employees' beneficiary association established under §501(c)(9). If a trust is established, the employer must submit Form 1024, Application for Recognition of Exemption Under Section 501(a), together with Schedule J. In addition, each year, the trust must file Form 990 (Return of Organization Exempt From Income Tax) and, if applicable, Form 990T (Exempt Organization Business Income Tax Return). · De Minimis Exception to the Rule. The FICA/ FUTA exemption for SUB plan payments has also been extended for de minimis amounts paid under a SUB plan that may also make benefit payments to former employees which are not tied to state unemployment benefits. In a private letter ruling,25 the FICA/FUTA exemption was extended to the de minimis amount of benefits made to

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laid-off employees who were ineligible to receive state unemployment benefits because the employee was a full-time student or receiving medical disability payments. Since the inception of the plan, the total amount of benefits paid to full-time students and medical disability recipients accounted for less than one percent of total benefits paid under the plan and were, therefore, a de minimis percentage of the total benefits under the plan. · SUB Plan Not Limited to Union Employees. An employer may provide SUB plan benefits which are unilaterally instituted by the employer and not union-negotiated.26 Therefore, an employer may sponsor a SUB plan for non-union employees. · Miscellaneous Matters. In establishing a SUB plan, employers will continue to want to obtain waivers and releases, particularly where, as here, the employees have been involuntarily terminated. Although SUB plans have a long history with oldline employers, they are being evaluated by employers in all industries with renewed interest in light of current economic conditions. From an employer's perspective, SUB plans can prove to be quite valuable in permitting supplemental unemployment compensation payments to be offset by state unemployment payments, while at the same time permitting the employer (and employees) to benefit from FICA/FUTA tax savings. Although these SUB plans can be quite attractive, employers must proceed cautiously to ascertain how the various states will coordinate their state unemployment compensation payments with an employer's severance plan.

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Rev. Rul. 60-330, 1960-2 C.B. 46. PLR 200709056.

Rev. Rul. 58-128, 1958-1 C.B. 89.

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