Severance Value Maximizer


Underutilized Savings Strategy

The Concept of Supplemental Unemployment Benefit (SUB) Plans

Significant reductions in the cost of severance can be achieved by setting up a SUB Plan without compromising your existing severance benefit strategy.

SUB Plans are recognized by the IRS (Rev. Ruling 90-72 and related rulings) and in all 50 states. Many Fortune 500 companies have setup SUB Plans and are enjoying the substantial reduction in cost of their severance benefits plan.

Pursuant to IRS rulings, severance payments made from a qualified SUB Plan are considered benefits and not treated as wages for the purposes of FICA/FUTA taxes and state unemployment eligibility. Consequently, neither the employer nor the employee pays FICA Tax. Employers are also exempt from FUTA and SUTA taxes.

The benefit to the employer is a reduction in FICA, FUTA, SUTA taxes plus added savings for any offset in their payments to displaced employees that unemployment provides. The benefit to the employee is the elimination of FICA tax.

How It Works

  • SUB Plans must meet certain requirements such as a written plan document and timely state filings (if applicable). TMS will draft these plan documents for your review and submit them to the applicable state agencies on your behalf.
  • The plan design must link eligibility for state unemployment benefits with SUB Plan payments.
  • SUB Payments to eligibile employees must be made on a periodic basis (e.g. continuing pay dates) and cannot be made in a lump sum during the period of unemployment.
  • Once re-employed, and at the discretion of the company, any remaining severance benefits for the displaced employee can be either retained by the company or paid to the participant in a lump sum or over continuing pay periods.


  • Once set up, a SUB Plan can be put in "hibernation mode" and then re-started as needed.
  • SUB Plans are a very narrow field often misunderstood by top professionals.
  • TMS's sole practice is designing, implementing, and administering SUB Plans.