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Severance plans typically compute benefits using a formula based on length of service, like a week or month of pay per year of service.

Once an employer offers a severance pay benefit, federal law treats it as a “welfare benefit plan” under the Employee Retirement Income Security Act of 1974 (ERISA).

While employers can create severance pay plans, most do not.Employees can also bargain with employers over severance pay at the end of their employment relationship.The employer may want a clean break and a promise by the employee not to suet.Unemployment compensation benefits pay workers who lost their job without fault a modest weekly payment until the worker finds a new job, up to a specified number of weeks.Each state administers its own unemployment compensation program.

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