Severance: Trending Toward a BalanceSUB Plan History
In its origin in the mid-1950s, the SUB Plan was implemented for the union employees of large manufacturers and was designed to provide unemployment benefits at a much lower cost than employers had experienced before. For many years, the SUB Plan was used mainly in the union environment; it is only in the last decade that employers within other industries have discovered its value. Today, SUB Plans are offered by all types of employers to any type of W2 employee.
The tax history of SUB Plans is well-established by several milestone events:
1956
Rev Ruling 56-249 established a limited exemption from FICA, FUTA for certain payments made following the involuntary termination of an employee.
1958
Rev Ruling 58-128 held that tax exemptions apply even when SUB payments are not the subject of collective bargaining.
1960
Rev Ruling 60-330 announced that SUB payments paid from an employer’s general assets, rather than a trust, would still qualify for the exemptions under 56-249.
1990
Rev Ruling 90-72 further codified that SUB payments must be linked to state unemployment benefits and be paid over time. Since 1990, numerous Private Letter Rulings have continued to cite Rev Ruling 90-72 and adhere to its findings.
2008
CSX Corporation v. United States. In this landmark appeals court case, the rules under 90-72 further established that SUB payments must be linked to the eligibility for state unemployment insurance and paid over time.