[Federal Register: March 28, 2003 (Volume 68, Number 60)]
[Notices]
[Page 15241-15243]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28mr03-101]
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DEPARTMENT OF LABOR
Employment and Training Administration
Workforce Security Programs: Unemployment Insurance Program
Letter Interpreting Federal Law
The Employment and Training Administration interprets federal law
requirements pertaining to unemployment compensation (UC) and public
employment services (ES). These interpretations are issued in
Unemployment Insurance Program Letters (UIPLs) to the State Workforce
Agencies. The UIPL described below is
[[Page 15242]]
published in the Federal Register in order to inform the public.
UIPL 22-87, Change 2
UIPL 22-87. change 2, using a Q and A format, advises states of the
Department of Labor's interpretation of federal law relating to the
treatment of retirement pay for unemployment compensation (UC)
purposes. Specific information regarding the effect of employee
contributions to retirement plans and receipt of Social Security is
also addressed.
Dated: March 20, 2003.
Emily Stover DeRocco,
Assistant Secretary of Labor.
Employment and Training Administration Advisory System U.S. Department
of Labor Washington, D.C. 20210
Classification--Retirement Pay
Correspondence Symbol--OWS/DL
DATE--February 3, 2003
Advisory: Unemployment Insurance Program Letter No. 22-87 Change
2.
To: All State Workforce Agencies.
From: Cheryl Atkinson /s/ Administrator, Office of Workforce
Security.
Subject: Treatment of Retirement Pay--Employee Contributions.
1. Purpose. To answer questions related to the treatment of
retirement pay for unemployment compensation (UC) purposes,
particularly regarding the effect of employee contributions to
retirement plans.
2. References. The Internal Revenue Code of 1986 (IRC),
including Section 3304(a)(15) of the Federal Unemployment Tax Act
(FUTA); and Unemployment Insurance Program Letter (UIPL) No. 22-87
(52 Fed. Reg. 22,546 (1987)), and Change 1 (60 Fed. Reg. 55,604,
55,606 (1995)).
3. Background. Section 3304(a)(15), FUTA, requires, as a
condition for employers in a state to receive credit against the
federal unemployment tax, that the amount of UC payable to an
individual be reduced for any week ``which begins in a period with
respect to which such individual is receiving a governmental or
other pension, retirement or retired pay, annuity, or any other
similar periodic payment which is based on the previous work of such
individual * * * .'' Two subparagraphs go on to provide the
following qualifications to this requirement:
[sbull] Under subparagraph (A), states must reduce UC due to
receipt of retirement payments only when (i) a base period or
chargeable employer maintained or contributed to the plan and (ii)
the services performed for that employer affected eligibility for,
or increased the amount of, the retirement payment. Subparagraph
(A)(ii) does not apply to payments ``made under the Social Security
Act or the Railroad Retirement Act * * *.''
Rescissions--None
Expiration Date--Continuing
[sbull] Under subparagraph (B), states may ``take into account''
contributions made ``by the individual for the pension, retirement
or retired pay, annuity, or other similar periodic payment'' to
provide limits on any such reduction. This exception applies to all
retirement plans to which the employee has made contributions.
The entire text of Section 3304(a)(15), FUTA, is provided in the
Attachment. UIPL 22-87 provides the Department's interpretation of
this Section. This Change 2 is issued to respond to questions from
states, particularly those related to Subparagraph B.
4. Questions and Answers:
Question 1: How much latitude does a state have in ``taking into
account'' an employee's contributions to set limits on the amount of
any reduction in UC?
Answer: Since subparagraph (B) does not specify the degree of
offset, states have broad latitude in how an employee's
contributions are ``taken into account.'' As a result, a state may
disregard part or all of a retirement payment in determining the
amount of UC payable ``regardless of the relative proportions of
employee and employer contributions.'' Therefore, a state may
disregard up to 100 percent of a retirement payment as long as the
employee contributed some amount to the retirement plan, and any
reduction in the amount of UC payable need not be proportionate to
the amount of the employee contribution.
If an employee at one time paid contributions to a plan that was
later converted to one in which the employer paid 100% of the
contributions, then the employee has made contributions to the plan.
Therefore, the state has the option of ``taking into account'' the
employee's contributions before the conversion.
Question 2: Must Social Security retirement benefits be deducted
from UC?
Answer: No. As explained in the preceding Question and Answer,
states may ``take into account'' contributions made ``by an
individual for the pension, retirement or retired pay, annuity, or
other similar periodic payment.'' Since employees make contributions
to Social Security, the state may ``take into account'' the
employee's contributions to Social Security.
Confusion apparently exists concerning the treatment of Social
Security payments because, as noted in the Background section, the
qualification found in subparagraph (A)(ii) does not apply to Social
Security. However, there is no similar limitation in the ``take into
account'' provision in subparagraph (B).
Question 3: UIPL 22-87 says that, if a state chooses to exercise
the ``take into account'' option, the state's UC law must clearly
indicate that the retirement payments are not deducted from UC
because of the employee's contribution. (Page 6 of UIPL 22-87.) If a
state chooses to exercise the ``take into account'' option solely
for Social Security payments, must the state's law explicitly state
that it is ``taking into account'' the employee's contributions?
Answer: No. The Social Security contribution scheme is governed
entirely by federal law, which by its terms provides for employee
contributions to the Social Security trust fund based on the
employee's work. Because it is clear from a reading of the relevant
provisions of the federal law, that a state may exclude these
payments from pension offset, there is no need for the state law to
explain how it is doing so.
There also is no need for the state law to explain that it is
``taking into account'' the employee's contribution with regard to
other retirement plans with employee contributions that are governed
entirely by federal law, such as Railroad Retirement or Civil
Service retirement payments. For retirement plans that the state law
singles out that are not governed entirely by federal law, the
state's law must, to guarantee conformity with federal law,
explicitly state that it is ``taking into account'' the employee's
contribution.
Question 4: During a collective bargaining process, employees
may give up pay raises or cost of living adjustments in return for
an increased employer contribution to the pension plan. May states
consider these employer payments to be ``contributions made by the
individual?''
Answer: No. The controlling factor is whether the individual
actually made any direct contributions to the plan. A direct
contribution is one made by payroll deduction or otherwise from an
employee's personal funds. A wage agreement that results in
increased employer contributions to a retirement plan in exchange
for a surrender in wages does not constitute a direct contribution
to the pension plan by the employees.
This is consistent with other provisions of federal law. The
Department of Labor's Pension, Welfare and Benefits Administration
(PWBA) considers contributions made by an employer to a pension fund
in these cases to be employer contributions for purposes of laws
administered by PWBA. (Indeed, the Form 5500, Annual Return/Report
of Employment Benefit Plan, filed by the employer, should reflect
this.) Also, payments made by an employer to a retirement plan are
not considered part of an employee's wages for federal income tax
purposes under Section 3401 et seq., of the Internal Revenue Code
(IRC). It would be inconsistent to attribute these contributions to
employees for purposes of Section 3304(a)(15), FUTA (which is itself
part of the IRC), when other provisions of the IRC do not consider
them employee contributions.
Question 5: The federal legislative language is very complex.
Could you give a simple statement of what retirement payments must
cause a reduction in UC?
Answer: UC must be reduced only due to receipt of retirement pay
that is--
[sbull] For a week of unemployment beginning during a period for
which the individual is receiving retirement pay;
[sbull] Reasonably attributable to such week;
[sbull] Based on the previous work of the individual;
[sbull] 100% financed by a base period or chargeable employer;
AND
[sbull] Based on work affecting eligibility for, or increasing
the amount of, the retirement payment.
See UIPL 22-87, page 4, for a discussion of the various types of
payments that fall under the term ``retirement pay'' and a more
detailed discussion of these criteria.
5. Action. State administrators should distribute this advisory
to appropriate staff.
[[Page 15243]]
6. Inquiries. Questions should be addressed to your Regional
Office.
7. Attachment. \1\
\1\ ATTACHMENT I is available in the www.ows.doleta.gov Web site
under Laws.
[FR Doc. 03-7450 Filed 3-27-03; 8:45 am]
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