Supplemental Unemployment Benefits (SUB) by TSI
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Supplemental Unemployment Benefits (SUB) Plans are quickly gaining popularity across industries as a less costly alternative to severance. The IRS approved Plan structure works to simultaneously maintain the income of displaced employees while also generating significant savings for the organization compared to traditional severance, typically 30-45%. This presentation gives a general overview of how a SUB Plan is structured and administered, and demonstrates two examples of real savings achieved by organizations that switched from traditional severance to SUB.
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Supplemental Unemployment Benefits (SUB) by TSI
- 2. © 2015 Transition Services, Inc. All Rights Reserved. 2 What is a Supplemental Unemployment Benefits (SUB) Plan? Think of it as a more efficient and equitable alternative to severance. A Supplemental Unemployment Benefits Plan (SUB) is an IRS-approved structure used to maintain the pre-displacement income of employees impacted by a reduction in force while generating 30-45% cost savings for the employer. A SUB Plan has three primary components: 1. Integration with State Unemployment Compensation (UI). The displaced employee’s income is maintained, but now comes from two sources, the state and the employer, thus reducing the benefit cost for the employer; 2. Duration Management. Because benefits are tied to UI benefits, benefit payments cease when employees return to work. A FICA-taxable bonus of some portion of the remaining benefit may be issued upon reemployment prior to the expiration of the benefit period. If employees do not obtain work prior to the expiration of benefits, the savings realized may be used to extend the benefit period; 3. Elimination of Payroll Tax. Under a SUB Plan, payments are classified as benefits rather than as wages and are therefore not subject to payroll taxes for the employer or employee. OVERVIEW
- 3. © 2015 Transition Services, Inc. All Rights Reserved. 3 WHY USE A SUB PLAN? A SUB Plan is a more efficient approach to severance, and establishes a better balance between employee and company interests. 1. Severance and SUB Pay provide financial support to employees affected by a lack of work for circumstances out of their control. 2. Both severance and SUB Pay are typically provided in exchange for a Release & Waiver. 3. A SUB Plan creates benefit equity for the entire employee population across multiple states. In many states, individuals are allowed to receive wages and State Unemployment simultaneously; in others, this is not allowed. 4. SUB Plan payments are classified as benefits, not wages, and therefore are FICA non- taxable for both the employer and the employee. 5. SUB Plan payments are designed to meet the primary need of the displaced employee – income protection. The terminated employee’s pre-displacement wage is maintained during the unemployment period or the benefit period, whichever is less. 6. The design of a SUB Plan is flexible and can be structured to best accomplish the goals of the employer, whether that is to maximize savings or provide greater benefit to the terminated employees.
- 4. © 2015 Transition Services, Inc. All Rights Reserved. 4 • A large IT outsourcing firm has had monthly activity since implementing its SUB Plan in 2006. Thousands of participants have taken part in the program. • A national manufacturer and industrial solutions provider implemented its SUB Plan in mid-2011 in all states, achieving considerable immediate savings. 15,608,799 Total Severance (average benefit allocation of 16.9 weeks) 1,033,246 Employment Taxes $16,642,045 Total Benefit Cost under Fixed-Sum Severance Plan 3,335,308 Duration Savings (average benefit utilization of 12.5 weeks) 4,564,842 State UI Offset Savings 1,033,250 Employment Tax Savings $7,708,645 Total Benefit Cost under TSI Plan, including TSI Fees $8,933,400 Savings through TSI 54% Gross savings through TSI 29,175,299 Total Severance (average benefit allocation of 7.0 weeks) 1,421,611 Employment Taxes $30,596,910 Total Benefit Cost under Fixed-Sum Severance Plan 2,040,481 Duration Savings (average benefit utilization of 6.5 weeks) 4,190,607 State UI Offset Savings 1,421,611 Employment Tax Savings $22,944,211 Total Benefit Cost under TSI Plan, including TSI Fees $7,652,699 Savings through TSI 25% Gross savings through TSI TSI has designed, implemented and managed Supplemental Unemployment Benefit Plans in 46 states, serving thousands of participants for organizations in multiple industries, including financial services, information technology, retail, and manufacturing. Two examples of current client savings are shown below; both use SUB Plans for reductions in force. TSI RESULTS
- 5. © 2015 Transition Services, Inc. All Rights Reserved. 5 ADMINISTRATION The management and administration component of a SUB Plan is a key factor in its success. TSI is a full-service SUB Plan administration firm dedicated to making your challenging, transitional time as efficient and simple as possible. After implementation is complete, we assume the bulk of administrative responsibilities for your Plan, and work diligently to ensure a seamless and compassionate experience for your displaced employees. Our services include: • Communicating with Plan Participants; TSI’s Customer Service Call Center with 24 hour web and voice-automated support is available to participants around the clock. • Calculating and reporting the individual Benefit amounts to be paid each pay period in conjunction with State UI. • Monitoring eligibility and unemployment status of participants. • Legal and regulatory compliance support. • Quarterly Reporting on Participant satisfaction and Plan savings achieved.
- 6. © 2015 Transition Services, Inc. All Rights Reserved. 6 Experience with clients in a broad range of industries since 2002 has provided TSI the capability to provide expert and efficient program design and implementation in all states. TSI’s systems expertise and process disciplines ensure close monitoring of and adherence to relevant tax and unemployment regulations. TSI relies on state-of-the-art systems and expert partners to support its programs. High-quality customer service and systems integrity are supported by the services of Plum Voice IVR, PowerServe International, Verizon Business, and Rackspace Hosting, providing TSI with the highest standard in the market for maximum uptime and business continuity. TSI’s systems are capable of processing over 10,000 participants simultaneously and have been designed for easy scalability. TSI is one of the RVI Group companies. For over 20 years, RVI has provided financial, regulatory and accounting benefits to a roster of clients who are active worldwide in leasing, asset-based finance, and asset securitization. RVI is the world’s leading provider of residual value insurance. ABOUT TSI
- 7. © 2015 Transition Services, Inc. All Rights Reserved. 7 CONTACT TSI @transitionsvcs linkedin.com/company/transition-services-inc severancetrends.blogspot.com www.transitionservices.com