Modernize Severance

A February 11 report from the Bureau of Labor Statistics indicates 2010 closed with a slight decrease in the unemployment rate and a record low number of annual layoffs. As stated in the report, compared to 2009, the number of mass layoff events in 2010 decreased by 39 percent, the first over-the-year decline since 2005. Yet 1,213,638 workers were affected by involuntary terminations in 2010. This is still a significant number of people.

A quick Googling of benefit plan changes in 2011 shows the huge number of employers and various benefits providers that have made changes to one benefit or another (or many) in 2011. It is a standard practice across businesses today to update benefits on a regular basis, keeping up with the times to offer modern yet competitive benefits to suit employees' needs and retain/attract key talent. An old-school medical benefit, for example one without modern options such as a flexible spending plan or pre-tax health savings account, would do many employees less good today in the world of fast-changing technology and medical practices. A 401(k) plan design left unchanged since 1985 could do little to address the needs to the modern retiree.

How is it that severance practices are stuck in the olden days?

The BLS' February 11 report gives hope that layoffs are slowing down. A hopeful indicator of what is to happen over the next year or two or five. Of the 1.2 million people laid off in 2010, however, statistics would show that a significant percent received severance packages. And IRS data indicates that many of these severance packages were of the 'old-school severance' type. 2011 is an excellent opportunity for employers to modernize their separation benefit practices, taking advantage of a time when fewer and fewer involuntary terminations are expected to occur.

A modern separation benefit will do more than merely meet the modern needs of an employee, such as provide income during the period of employment. A modern separation benefit will also save money for an employer, perhaps giving businesses the opportunity to decrease layoffs moving forward through 2011. A modern separation benefit package will seek to fund separation benefits from available government sources, freeing up a company's immediate cash flow. A modern separation benefit does just what other benefits are already doing for an organization - meeting the needs of an employee in the most cash-savvy way. Modern, strategic, and smart.