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Severance Pay
National Summary
Severance benefits are payments made to employees upon the termination of employment. Employers may choose to pay severance benefits under a number of circumstances, including workforce reductions, plant closings, mergers and acquisitions, incentives for early retirement programs, or in exchange for a general release of claims to discourage terminated employees from suing the company. Severance benefits may include salary and health benefit continuation, outplacement counseling, accelerated vesting of stock options or rights to purchase stock, bonus payments, and forgiveness of loans. Severance benefits may be paid pursuant to a formal severance plan regulated by ERISA or may be offered as an informal severance package. Employees who are offered severance benefits should be asked to sign a general release of all claims against their employer, and if the employee is 40 years of age or older, the release must comply with the Age Discrimination in Employment Act (ADEA) and the Older Workers' Benefits Protection Act (OWBPA).
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