Continuation of benefits: Overview, definition, and example
What is continuation of benefits?
Continuation of benefits refers to the extension of certain employee benefits, such as health insurance, retirement contributions, or stock options, beyond the period of active employment or service. This provision is commonly included in employment contracts, severance agreements, and executive compensation plans to ensure ongoing support for employees after termination or retirement.
For example, an executive employment agreement may state that the employee will continue to receive health insurance coverage for 12 months after leaving the company.
Why is continuation of benefits important?
Continuation of benefits is important because it provides financial and healthcare security to employees after their employment ends. It helps employees transition smoothly by maintaining essential benefits for a defined period, especially in cases of layoffs, retirement, or disability.
For employers, offering continuation of benefits can serve as a retention tool, making employment packages more attractive. It also helps maintain goodwill and reduces potential legal disputes related to post-employment compensation.
Understanding continuation of benefits through an example
A company downsizes its workforce and lays off several employees. As part of the severance package, affected employees receive six months of continued healthcare coverage and three months of salary payments. This helps employees transition while they look for new opportunities.
In another example, a retiring CEO negotiates a compensation agreement where they will continue receiving company-paid life insurance and stock options for two years post-retirement. This ensures financial stability as they step away from active service.
Example of a continuation of benefits clause
Here’s how a continuation of benefits clause might appear in a contract:
“Upon termination of employment, the Employee shall be entitled to continuation of benefits, including health insurance and retirement contributions, for a period of [X] months. The continuation of benefits shall be subject to the terms and conditions of the Employer’s benefits plan.”
Conclusion
Continuation of benefits ensures that employees retain key benefits such as healthcare and financial support after leaving a company. This provision helps employees transition smoothly while providing employers with a structured approach to post-employment obligations. Including a clear continuation of benefits clause in employment contracts and severance agreements protects both parties and ensures a fair and transparent exit process.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.