11 Retirement pensions and annuities  

  • Title 34--LABOR
    AND INDUSTRY

    DEPARTMENT OF LABOR AND INDUSTRY

    [34 PA. CODE CH. 65]

    Retirement Pensions and Annuities

    [28 Pa.B. 21]

       The Bureau of Unemployment Compensation Benefits and Allowances of the Department of Labor and Industry (Department) hereby amends §§ 65.101--65.108 (relating to retirement pensions and annuities) to read as set forth in Annex A.

    Statutory Authority

       These amendmentss are adopted under section 201(a) of the Pennsylvania Unemployment Compensation Law (law) (43 P. S. § 761(a)), which authorizes the Department to promulgate and amend rules and regulations necessary to administer the law.

    Contact Person

       Questions may be directed to Pete Cope, Director, Bureau of Unemployment Compensation Benefits and Allowances, Room 615 Labor and Industry Building, Seventh and Forster Streets, Harrisburg, PA 17121 (717) 787-3547.

    Purpose of Rulemaking

       The purpose of the rulemaking is to bring the pension and annuities section of the unemployment compensation (UC) regulations into conformity with the United States Department of Labor's (USDOL) interpretation of the Federal Unemployment Tax Act (26 U.S.C.A. §§ 3301--3307 and 3311) (FUTA), to provide for the nondeductibility of certain payments, and to ensure that the UC Trust Fund remains viable so that UC benefits are available to those who need and are entitled to them. In a global market, the Department is acutely aware that the most effective way to prevent the ills that the UC system was designed to remedy is to increase the number of good jobs available to Pennsylvanians. In balancing the impact of these regulations on employers and employes, the Department sought to reduce the amount of unemployment, while protecting those who are unemployed through no fault of their own.

       The commentators raised questions and suggested changes both in substance and in wording to the proposed amendments. The Department considered all arguments and evaluated the equities involved. The comments have been reviewed; some have been adopted. Terminology was clarified and portions of the law were, by request of the Independent Regulatory Review Commission (IRRC) and others, reiterated in the regulations to provide reassurance that no alteration of the law was contemplated.

       The commentators urged the Department to change the long-standing regulatory policy embodied in the proposed amendments regarding the deductibility of lump sum pension payments taken in lieu of periodic payments. They argued that Federal law does not require lump sum pension payments to be deductible and that State law should, therefore, mandate that all lump sum payments be nondeductible.

       It seemed neither fair nor equitable, however, for individuals who take large lump sum pension payments to receive the full amount of their UC benefits while those claimants who receive modest pension payments periodically would have their pensions offset against their UC benefits. That Federal law allows such a discrepancy did not serve as a persuasive argument. Since Federal law permits states to exercise discretion with respect to the deduction of lump sum pension payments and the Commonwealth has always deducted them if claimants elected to receive their pension payments in a lump sum, the Department made no change in its position with respect to this issue.

       Several commentators also asked that pension payments transferred into an eligible retirement plan, as defined by the Internal Revenue Service, should not be deductible as Federal law does not require them to be offset from UC benefits. Since Federal law permits states to exercise discretion with respect to the deduction of ''eligible rollovers'' Federal law was not dispositive. Consistent with the view of the commentators, the Department modified its position with respect to the transfer of a lump sum pension payment into another eligible retirement vehicle. Administratively and conceptually, the Department viewed the transfers of lump sum payments differently from periodic payments, which are less likely to provide substantial retirement income and are more difficult to account for in the timely processing of UC claims. The Department, therefore, allowed for the nondeductibility of lump sum rollovers, while retaining the deductibility of all periodic payments.

       The Department has balanced the interests of Pennsylvania employes and employers, consistent with the purposes of the law.

    Summary of Proposed Rulemaking

       The regulations in this subpart are being replaced to accomplish several purposes. The USDOL has required the Department to deduct from the weekly UC benefits payable to a claimant those periodic pension payments made when an individual has been permanently and involuntarily separated from employment prior to retirement age (§ 65.103), remove the $40 per week floor on the deductibility of pension payments (§ 65.101) and provide for the deductibility of Social Security retirement benefits (§ 65.108). The Department has provided that certain lump sum payments which are rolled over into an eligible retirement plan are not deductible (§ 65.105), and that the return of a claimant's own contributions to a retirement plan is not deductible (§ 65.102). Language has been clarified and the method for allocating weekly deductions has been included.

    Paperwork Requirements

       No new paperwork is required.

    Fiscal Impact

       If the Commonwealth does not amend §§ 65.101--65.103, the USDOL will bring conformity proceedings against the Commonwealth. If the Commonwealth were found to be out of conformity with Federal law, the Secretary of the USDOL could seek to withdraw certification from the State, which would abrogate funding for both the UC system and Job Centers. See 26 U.S.C.A. § 304(c)--(e). In addition, employers within the State could lose the Federal tax credits to which they are entitled by virtue of the payment of Commonwealth UC taxes.

       The Commonwealth cannot choose not to regulate pension deductibility without precluding the operation of a viable UC delivery system as administered by the Federal government with Federal funds. The UC law is designed to alleviate the devastating impact on health, general welfare and safety that unexpected unemployment brings to individuals and their families.

       Both employers and employes will benefit by avoiding the costs and potential effects of conformity litigation with the USDOL. These regulations serve the interests of employes by providing that lump sum rollovers which are not subject to Federal tax are not deductible from UC benefits and that payments which represent a return of a claimant's own contributions to the pension plan are nondeductible. These regulations serve the interests of employers by providing that claimants who are permanently and involuntarily separated from employment prior to retirement date will have their UC benefits reduced by their pension payments and that lump sums which are not rolled over will also be deductible. Since the amount of money employers contribute to the UC Trust Fund is closely related to the UC benefits they pay claimants, these provisions should help reduce employers' UC costs.

       The Department's Bureau of Research and Statistics has advised that data are not available to provide an analysis of the specific savings or costs associated with the regulations' implementation or with the compliance of the regulated community, local governments or State government. There would be no increase in administrative costs.

    Sunset Date

       These regulations will be monitored through practice and application. No sunset date is designated.

    Regulatory Review Act (Legislative Oversight)

       Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on August 27, 1996, the Department submitted a copy of the notice of proposed rulemaking to IRRC and to the Chairpersons of the House Committee on Labor Relations and the Senate Committee on Labor and Industry. In addition to submitting the proposed amendments, the Department has provided IRRC and the Committees with a copy of a detailed Regulatory Analysis Form prepared by the Department in compliance with Executive Order 1982-2, ''Improving Government Regulations.'' A copy of this material is available to the public upon request.

       In preparing these final-form regulations, the Department has considered the public comments received and the comments received from IRRC.

       These final-form regulations were deemed approved by the House and Senate Committees on December 3, 1997. IRRC met on December 11, 1997, and approved the regulations in accordance with section 5(c) of the Regulatory Review Act.

    Findings

       The Department finds that:

       (1)  Public notice of the intention to adopt these amendments was given in accordance with sections 201 and 202 of the act of July 31, 1968 (P. L. 769, No. 240)(45 P. S. §§ 1201 and 1202) and the regulations promulgated thereunder, 1 Pa. Code §§ 7.1 and 7.2.

       (2)  A public comment period was provided as required by law and the comments received were considered.

       (3)  Modifications to the proposed text do not enlarge the original purposes or the scope of the proposed amendments.

       (4)  These amendments are necessary and appropriate to the administration and enforcement of the act.

    Order

       The Department, acting in accordance with the authorizing statutes, orders that:

       (a)  The regulations of the Department, 34 Pa. Code Chapter 65, are amended by amending §§ 65.101, 65.102, 65.104, 65.105; by deleting § 65.103 and by adding § 65.108 to read as set forth in Annex A.

       (b)  The Secretary shall submit this order and Annex A to the Office of General Counsel and the Office of Attorney General for approval as to legality and form, as required by law.

       (c)  The Secretary shall certify this order and Annex A, and shall deposit them with the Legislative Reference Bureau, as required by law.

       (d)  The regulations, as set forth in Annex A, shall take effect upon publication in the Pennsylvania Bulletin.

    JOHNNY J. BUTLER,   
    Secretary

       (Editor's Note: For the text of the order of the Independent Regulatory Review Commission relating to this document, see 27 Pa.B. 6878 (December 27, 1997).)

       Fiscal Note:  Fiscal Note 12-44 remains valid for the final adoption of the subject regulations.

    Annex A

    TITLE 34.  LABOR AND INDUSTRY

    PART II.  BUREAU OF EMPLOYMENT

    CHAPTER 65.  EMPLOYE PROVISIONS

    Subchapter E.  UC ELIGIBILITY IN CONJUNCTION WITH OTHER PAYMENTS

    RETIREMENT PENSIONS AND ANNUITIES

    § 65.101.  Purpose.

       (a)  In accordance with section 404(d)(2) of the law (43 P. S. § 804(d)(2)), section 402(c) of the Internal Revenue Code of 1986 (26 U.S.C.A. § 402(c)) and section 3304(a)(15) of the Federal Unemployment Tax Act (FUTA) (26 U.S.C.A. § 3304(a)(15)), the Department has promulgated regulations governing the deduction of certain pension payments from unemployment compensation benefits (UC benefits).

       (b)  The Department has balanced the interests of employes and employers of this Commonwealth, consistent with the law. The Department seeks to maximize the Commonwealth's share of competitive employment in a global economy, thereby serving the needs of all Pennsylvanians by reducing the number of unemployed individuals and ensuring that UC benefits are available to those who need and are entitled to them.

       (c)  For any week with respect to which a claimant is receiving certain pension payments, the Department will deduct from the weekly compensation otherwise payable to the claimant the prorated weekly amount of those pension payments which fulfill the prerequisites for deductibility specified in this chapter.

    § 65.102.  Application of the deduction.

       (a)  Unless otherwise excluded from deductibility under this chapter, any pension payment received by a claimant with respect to a week for which the claimant receives unemployment compensation (UC) benefits shall be deducted from the weekly benefit amount otherwise payable to the claimant for that week.

       (b)  Deductible pensions include a governmental or other pension, retirement or retired pay, annuity or any other similar periodic payment which is made under a plan maintained or contributed to by the claimant's base period or chargeable employer and is based on the claimant's previous work.

       (c)  Similar periodic payments shall include all deductible pension payments made on other than a weekly basis which shall be prorated into a weekly amount before being deducted from the weekly benefit amount payable to the claimant.

       (d)  The Department will deduct all Social Security retirement pensions which are based upon the claimant's previous work or self-employment, or both, including primary Social Security, old age and retirement disability benefits.

       (1)  The Department will not deduct Social Security payments which are not based on the claimant's previous work, such as Supplemental Security Income.

       (2)  The Department will deduct pensions paid under the Social Security Act (42 U.S.C.A. §§ 301--1397e) and the Railroad Retirement Act (45 U.S.C.A. §§ 231--231s) when the claimant's base year employer contributed to the pension plan. The pensions are deductible irrespective of whether the claimant's base year employment affected the eligibility for, or increased the amount of, the pension.

       (e)  If the pension is entirely contributed to by the employer, 100% of the prorated weekly amount of the pension will be deducted from the weekly benefit amount payable to the claimant.

       (f)  If the pension is contributed to by the individual, in any amount, 50% of the prorated weekly amount of the pension will be deducted from the weekly benefit amount payable to the claimant.

       (g)  The weekly benefit amount payable to the claimant will not be reduced below zero by the prorated weekly amount of the pension.

       (h)  For any week with respect to which the claimant is not receiving but is eligible for a pension, the Department will not deduct the prorated weekly amount of the pension from the weekly benefit amount payable to the claimant.

       (i)  If, as a result of the claimant's ineligibility to receive a pension payment under a pension plan, the claimant receives a payment which represents only a return of the claimant's own contributions to the plan and does not include any contribution from a base period or chargeable employer, the payment is not a pension and will not be deducted from the weekly benefit amount payable to the claimant.

       (j)  The Department will not deduct pension payments if the services performed by the individual during the base period or the remuneration received for those services from a base period or chargeable employer did not affect the individual's eligibility for, or increase the amount of, the pension, except for pensions paid under the Social Security Act and the Railroad Retirement Act.

       (k)  The Department will not deduct periodic payments which are made under severance agreements, profit sharing arrangements or disability plans administered by a union, employer, workers' compensation carrier, insurance company or the Veterans Administration, unless the payments are based on retirement and fulfill all other prerequisites specified in this chapter.

       (l)  The Department will not deduct lump sum pension payments which represent the transfer of ''eligible rollover distributions'' from a ''qualified trust'' to an ''eligible retirement plan,'' as those terms are defined in section 402(c) of the Internal Revenue Code (IRC) (26 U.S.C.A. § 402(c)).

       (1)  If all of the requirements of section 402(c) of the IRC are met, including the transfer of the payments into an ''eligible retirement plan'' within 60 days of receipt by the individual, those payments do not represent a payment to the individual for the purposes of retirement and are not received by the individual under section 404(d) of the law (43 P. S. § 804(d)) and section 3304(a)(15) of the Federal Unemployment Tax Act (26 U.S.C.A. § 3304(a)(15)) (FUTA).

       (2)  If a distribution, or any part thereof, does not meet the requirements of section 402(c) of the IRC, the Department will deduct the prorated weekly amount of that portion of the lump sum payment which is received by the claimant in accordance with § 65.108 (relating to rules of attribution).

       (3)  If a claimant does not roll over the entire lump sum into an eligible retirement plan, as set forth in paragraph (1), the Department will determine the amount to be deducted from the claimant's weekly benefit amount by dividing the amount of the lump sum payment that is received by the claimant by the total amount the claimant could have received had the claimant opted to take the entire lump sum available to the claimant. That quotient represents the deductible share of the lump sum pension amount received by the claimant. The claimant's unreduced monthly pension is the amount the claimant could have received each month had the claimant opted to take periodic payments in lieu of a lump sum. The Department will calculate the deductible portion of that unreduced monthly amount by multiplying it by the quotient representing the deductible share of the lump sum which is received by the claimant. Using the deductible amount of that monthly pension, the Department will compute the prorated weekly deductible amount in accordance with § 65.108.

       (4)  If a claimant presents documented proof to the Department that the claimant has rolled over a portion of a deductible lump sum payment into an eligible retirement plan within 60 days, so that all or some of that lump sum payment is not subject to Federal Income Tax, the Department will credit the claimant for any amount deducted from the claimant's UC benefits which is properly exempt from deduction because it is attributable to the transfer of the funds into an eligible retirement plan.

    § 65.103.  (Reserved).

    § 65.104.  Initial payments.

       (a)  When, following the retirement of an employe and, as part of a general pension plan, an initial payment is made in lieu of or in addition to the regular pension amount to which the employe is entitled, the initial payment will be considered a pension payment, and will be subject to this chapter.

       (b)  Initial payments are independent of regular pension payments. To the extent that they meet the requirements for deductibility provided in this chapter, the Department will deduct them from compensation otherwise payable to a claimant even if the claimant's regular pension payments are not deductible. The Department will not deduct initial payments if they do not meet the requirements for deductibility provided in this chapter, even if the claimant's regular pension payments are deductible.

       (c)  When the initial payment includes an amount paid for any reason other than pension, including unused vacation, only that amount which is attributable to the pension is deductible.

       (d)  When the initial pension payment is received by a claimant in a lump-sum, the deduction of this initial pension amount will be calculated by dividing the initial pension amount by the number of weeks for which the pension plan specifies the initial payment is being made. The number of weeks attributable to unused vacation or other payments will not be used in determining the weekly pension amount to be deducted. The result of this calculation, if not a multiple of 1 dollar, will be computed to the next higher multiple of 1 dollar and will be considered the prorated weekly deductible amount of the initial payment and is the amount by which the weekly benefit rate will be reduced, but not below zero.

    § 65.105.  Lump-sum retirement payments.

       (a)  When a claimant receives a lump-sum payment in lieu of a periodic pension payment, the prorated weekly pension amount which the employe could have received will be deducted in accordance with § 65.108 (relating to rules of attribution).

       (b)  When a claimant cannot receive periodic pension payments and must take a mandatory lump-sum payment, no pension deduction will be made.

       (c)  When a claimant receives a deductible lump sum payment and transfers only a portion of that payment into an eligible retirement plan within 60 days of receipt, the remainder of the lump sum payment which is not transferred into an eligible retirement plan will be deducted, along with any other deductible pension payments made to the claimant under § 65.102 (relating to application of the deduction) and § 65.108.

    § 65.108.  Rules of attribution.

       If a pension, retirement, annuity or other similar periodic payment deductible under section 404(d)(2) of the law (43 P. S. § 804(d)(2)) is received on other than a weekly basis, the amount to be deducted will be prorated as follows: The claimant's monthly pension is the amount the claimant could have received each month had the claimant opted to take periodic payments in lieu of a lump sum. The Department will use the deductible amount of that monthly pension, convert it to a yearly amount, and divide by 52. If not a multiple of one dollar, the Department will determine the prorated weekly deductible amount of the pension by rounding to the next higher multiple of one dollar. The weekly benefit amount payable to the claimant will be reduced, but not below zero, by the prorated weekly deductible amount of the pension, in accordance with section 404(d)(2) of the law.

    [Pa.B. Doc. No. 98-11. Filed for public inspection January 2, 1998, 9:00 a.m.]