4099 / How do supplemental unemployment compensation (“SUB”) and severance pay benefits apply in the context of a welfare benefit fund?
Where contributions are made to a fund to provide supplemental unemployment compensation (“SUB”) or severance pay benefits, the account limit for SUB or severance pay benefits is 75 percent of the average qualified direct costs for any two of the immediately preceding seven taxable years, as selected by the fund.1 If the benefit to any individual is payable at an annual rate in excess of 150 percent of the IRC Section 415 dollar limit on contributions to defined contribution plans, the excess cannot be taken into account in determining the account limit.2 In applying this latter limit, all welfare benefit funds of the employer are treated as one fund.3 Treasury regulations are to provide an interim limit for new SUB or severance pay plans that do not cover key employees.4
The safe harbor limit for SUB or severance pay benefits is the amount as determined above.5
For an explanation of how certain severance benefits are treated in light of the deferred compensation rules set forth in IRC Section 409(A), see Q 4118.