Total and Partial Unemployment TPU 460.55

Pension or Retirement Pay

  1. Pension Law - Section 1255.3

    Section 1255.3 reads as follows:

    "(a) Except as provided by subdivisions (c) and (d), the amount of unemployment compensation benefits, extended duration benefits, and federal-State extended benefits payable to an individual for any week which begins after March 31, 1980, and which begins in a period with respect to which that 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 the individual shall be reduced, but not below zero, by an amount equal to the amount of the pension, retirement, or retired pay, annuity, or other payment, which is reasonably attributable to that week.

    (c) Subdivision (a) shall apply to any pension retirement or retired pay annuity, or other similar periodic payment only if both of the following are met:

    (1) The pension, retirement or retired pay, annuity or similar payment is under a plan maintained (or contributed to) by a base period or chargeable employer.

    (2) In the case of such a payment not made under the federal Social Security Act or the Federal Railroad Retirement Act of 1974 (or the corresponding provisions of prior law) services performed for the employer by the individual after the beginning of the base period (or remuneration for such services) affect eligibility for or increase the amount of such pension, retirement or retired pay, annuity, or similar periodic payment.

    (d) (1) Subdivision (a) shall not apply to any pension retirement, or retired pay annuity or other similar periodic payment if the individual has made any contribution to the pension retirement or retired pay, annuity or other similar periodic payment.

    (2) The amendments made to this subdivision during the 1986 portion of the 1985-86 Regular Session shall apply to new claims filed with an effective date beginning on or after January 1, 1987."

    To summarize, Section 1255.3 provides that a pension payment is deductible if:

    1. It is based on the individual's prior work; and
    2. It is paid under a plan maintained or contributed to by a base period employer; and
    3. The claimant s work after the beginning of the base period affected eligibility to receive the pension; or

      Work after the beginning of the base period increased the award of the pension; and

    4. The claimant made no payment into the pension fund.

    The following chart illustrates the steps which must be followed in implementing this law.

    PENSION DEDUCTION GUIDE

    Pension Deduction Guide

  2. Section 1255.3 Interpretations/Definitions

    1. A "base period employer" is considered an employer who pays wages upon which the claim is based, i.e., an employer who provided UI coverage for the particular claim.

    2. A "chargeable employer" is the same as a base period employer.

    3. To be deductible the pension payment must be under a plan maintained or contributed to by a base period employer. For example if an individual at company A retires under a pension maintained by that employer but then goes to work for company B for three years, which has a different pension plan and the individual is subsequently laid off, the pension payment from company A would not be deductible since company A is neither a base period employer nor an employer who contributed to the same plan as company B.

      Conversely, if an individual retires from company C to collect pension payments and then goes to work for company D for three years, where the individual is also covered under the same pension fund (e.g., a multi-employer pension fund) and is then laid off, the pension would be deductible if the work for company D after the beginning of the base period affected eligibility for, or increased the amount of the pension, and the individual had not made any contribution to the pension fund.

      Another example of a multi-employer fund is a union multi-employer pension trust fund.

    4. The term "affect eligibility" means that the service performed must open the door for the claimant to receive any pension benefits at all.

    5. To "increase the amount" of the pension means that the service must increase the dollar amount of the benefits

      Thus if the individual qualifies for a pension on the basis of the services performed after the beginning of the base period or if the amount of the pension payment is increased by reason of such services and the individual does not make any contribution to the pension fund, the pension would be deductible.

      In connection with this section, in the case of Rivera vs. Becerra, the petitioner contended that where a private pension is found to be deductible only that amount which increased during the base period should be deducted. The Court of Appeals held that the language of this section only pertains to whether or not a private pension is deductible. Once it is determined to be deductible the entire amount is deductible.

      If it is determined that the work the claimant performed after the beginning of the base period was necessary to meet the minimum qualification for receipt of the pension, it is not necessary to also calculate whether the work increased the amount of the pension, and vice versa.

  3. Examples of Application of Section 1255.3 (c)(2)

    1. Claimant A: Work Affected Eligibility for Pension:

      BYB: May 3 1981 Base Period: Calendar Year 1980

      Factual Data: Claimant retired from Employer A upon reaching age 60 on March 30, 1981 after 20 years service. Retirement plan provides that minimum eligibility requirement for retirement is age 60 with 20 years service. Employer makes 100 percent contribution towards pension. Claimant obtains temporary work of a few days with Employer B and is LOLW on April 30, 1981 and files UI claim.

      Conclusion: Pension is deductible. Claimant's work after beginning of base period did AFFECT claimant's eligibility for pension. If claimant had not worked for employer after beginning of base period he would not have qualified for pension.

    2. Claimant B: Work Increased Amount of Pension:

      BYB: May 3 1981

      Base Period: Calendar Year 1980

      Factual Data: Claimant retired on September 30 1980 from Employer A upon reaching age 60 after 25 years service with a pension of $750 per month. Claimant was first eligible for retirement at age 55 after 20 years service at $500 per month. Retirees are eligible for a higher pension for each year of service after age 55. Employer A makes 100 percent contribution towards pension. Claimant began working for Employer B on January 15, 1981 and was LOLW on April 30, 1981.

      Conclusion: Pension is deductible. Claimant's work with Employer A after beginning of base period did not affect eligibility for pension, i.e. claimant could have first retired at age 55; however claimant's work with Employer A after beginning of base period did INCREASE amount of pension.

    3. Claimant C: Work Neither Affected Nor Increased Amount of Pension:

      BYB: May 3, 1981

      Base Period: Calendar Year 1980

      Factual Data: Claimant retired on September 30, 1979 from Employer A after 25 years of service with a pension Of S500 per month. Claimant later worked for Employer B beginning October 1 1980 and was LOLW April 30, 1981. Employers A and B are members of the same multi-employer pension fund; however, the fund provides that work performed after the initial retirement will not increase the amount of the pension.

      Conclusion: Pension is not deductible. Claimant's work after beginning of base period neither AFFECTED eligibility for the pension nor INCREASED amount of pension.

  4. Example of Application of Section 1255.3 (d)

    Section 1255.3 (d) was added effective with claims filed after January 1, 1987. It provides that a pension is not deductible if the worker made any contribution to the pension fund.

    Example:

    BYB: July 8, 1987

    Base Period: Calendar Year 1986

    Factual Data: Claimant was mandatorily retired in June, 1987. He worked for the employer for 35 years. He is receiving a pension of $900 per month based on his employment.

    During the first ten years he was employed the claimant did contribute to the pension fund. He did not contribute after that because the union and employer negotiated a new pension plan agreement which provided that the pension would be paid entirely by the employer. Thus, during the last 25 years he was employed, the claimant made no contribution to the pension fund.

    Conclusion: The pension is not deductible because the claimant did at one time, make contributions to the pension fund, even though the last contribution was 25 Years before.

  5. Lump Sum Payments

    Where an individual receives his/her entire pension in a lump sum, or if an employee is separated prior to retirement and is paid a lump sum from the pension fund covering his/her full entitlement, the lump sum pension payments are not deductible under Section 1255.3. Under Section 1255.3 (a), a pension payment is deductible only if it consists of a "periodic" payment. Inasmuch as a lump sum the entire pension due cannot "periodic" payment, it is not deductible.

  6. Allocation of Retroactive Pension Payments

    Another area to be examined in determining a claimant's eligibility for benefits under Sections 1252 and 1279 is whether he/she has "wages" payable with respect to a week of benefits claimed.

    1. Initial Pension Payment

      In those situations when a claimant has applied for a pension but has not yet received a payment, deductions from UI benefits will not be made until the claimant receives the first payment. Once payment is received the claimant will be scheduled for an immediate determination if the pension plan is maintained by, or contributed to, by a base period employer. If it is established that the claimant is in receipt of deductible pension income under Section 1255.3 the retroactive portion of the deductible pension will be allocated back to the period for which the pension is payable in the same manner in which a back pay award is allocated. If, as a result, the claimant has been overpaid UI benefits follow normal procedures as contained in the FOM, Overpayment and Fraud for establishing overpayments.

      In the following example, the claimant did not contribute to the pension fund. The claimant is mandatorily retired on October 31, 1980 and files for UI benefits effective November 2, 1980. The initial pension application is still pending and hence, no pension payments have been received. The claimant's UI award is established at $100 per week. As the claimant is otherwise eligible he/she is given WP credit and paid full UI benefits through the week ending November 29, 1980. On December 1, 1980, the claimant receives his/her first pension payment of $470 per month which is payable retroactive to Novembe 2, 1980. Therefore, $108 per week (as per DE 8847 Monthly Pension Conversion Table) is deductible and must be allocated to each of the weeks ending November 8 November 15 November 22 and November 29. The resulting overpayment is $400.

      Since the deductible amount of the pension exceeds the weekly benefit amount, no further benefits are payable.

    2. Cost of Living or Other Adjustments

      Cost of living and other types of general increases in the amount of pensions are deductible. Deductions from UI benefits will not be made until the claimant receives the adjusted increase; however, if the payment is for any retroactive period it shall be allocated to the prior period for which the increase is payable.

  7. Examples of Potentially Deductible Pensions

    In the event the claimant made no contributions to the pension fund the following types of pensions are potentially deductible:

    1. Federal civilian service pensions including disability pensions.

    2. State and local government pensions, including disability pensions.

    3. Private employer pensions including disability pensions.

    4. Military retirement pensions and disability retirement pensions paid by the Armed Forces. Disability payments for service-connected or nonservice-connected disability made by the Veterans Administration, however, are not deductible.

    5. Profit sharing plans. These are plans wherein the employee receives a share of the employer's profits. While there are many different types of plans we have identified the three major types of plans:

      1. Cash plan. The primary purpose of this plan is to create employee work incentive. Distributions of the profits to be shared are made reasonably soon.

        The plan has no tax advantage. This would not be considered a deductible pension payment.

      2. Deferred plans. The primary purpose of most deferred plans with no formal pension plan in effect is retirement income.

        There may be significant tax advantages if they meet IRS requirements. This type of payment is a deductible pension payment provided the claimant did not contribute to the plan.

      3. Combination cash and deferred plans. The purpose of this plan is to create employee incentive and to provide a retirement income. Under this plan, an employee may elect annually to receive a certain percentage of his/her allocation in cash. The deferred plan payments are deductible pension payments, but the annual optional payments are treated as noted in 5.a.

  8. Examples of Pensions Which Are Not Deductible

    Another area to be examined in determining a claimant's eligibility for benefits under Sections 1252 and 1279 is whether he/she has "wages" payable with respect to a week of benefits claimed.

    1. Individual Retirement Account (IRA). Under this plan, an individual who is not covered by a qualified retirement plan or is, but has annual wages below certain specified levels, may, by contributing to an IRA, take a deduction of up to a specified percentage of his/her earned income not to exceed a specified amount per year for money set aside for retirement. Payments received by the claimant under this plan are not deductible. (Care should be taken to ascertain whether an employer contributed to the plan for the employee since employers can elect voluntarily to contribute to these plans.)

    2. Keough Plans. This is a plan for self-employed individuals who may contribute up to certain specified amounts of their (and any employees of theirs) annual adjusted gross income, whichever is less into a retirement plan. The taxes are deferred until retirement. Payments under this plan are not deductible for the self-employed individual, but potentially could be for that individual's employees if all contributions are made by their employer.

    3. Workers' Compensation Payments. Though not deductible under Section 1255.3, they may be deductible under Section 1255.5.

    4. Workers' Compensation "Life Pension." Payments which are awarded by the Workers' Compensation Appeals Board are not deductible.

    5. Supplemental Security Income (SSI). Under this program, monthly checks are paid to people in financial need who are 65 or older and to people in need at any age who are blind or disabled. For UI purposes, these payments are not deductible. The payments are based on need and not on a person's prior work. The program is administered by the Social Security Administration; however, it is financed by the General Fund of the U.S. Treasury.

  9. Information on Major Pension Plans

    1. Military Retirement:

      a. The following information is provided to assist in determining whether the services performed after the beginning of the base period "affects eligibility for or increases the amount" of pension payment:

      (1) Minimum eligibility requirement to qualify for pension:

      (a) Regular - 20 years of service

      (b) Disability - no minimum years of service, eligibility determined by the branch of the Armed Forces for which the individual performed services.

      (2) Computation of Final Pension Award: The formula used is 2 1/2 x years of service (up to a maximum of 30 years) x the final rate of pay. After 30 years of service, the percentage used in the computation remains constant; however, the final pension award would be increased by working additional years before retirement, if there is an increase in the individual's rate of pay.

      b. The following information is provided to assist in determining the deductible pension amount: Military personnel make no contributions toward the pension plan. Accordingly, if the pension is deductible, the entire amount is deductible.

      NOTE: Federal civilian employees, under both existing retirement systems, pay contributions into the retirement fund. Retirement pay, therefore, is not deductible.

    2. Public Employees Retirement System (PERS):

      a. Government Agencies Under PERS: There are two broad categories of employers under PERS: 1) State; and 2) Local Public agencies - city, county, special districts, school districts.

      b. Employee Categories: Under both State and Local Public Agencies, the employees are generally divided into two groups:

      (1) Safety Member: Those involved in law enforcement, protection of public safety, or in a position designated by law as a "safety member" position.

      (2) Miscellaneous Member: Any of the vast majority of occupations not designated as a "safety member."

      It should be noted that a safety member or a miscellaneous member may be covered under PERS only or PERS combined with Social Security coverage; however, most safety members are covered under PERS only.

      c. State Employees Under PERS:

      State employees, under PERS, generally make contributions into the retirement plan. This is commonly called Tier-1 coverage. Some State miscellaneous employees, as a result of collective bargaining agreements, have an option to not pay into the system. This entirely "paid by the State" plan is called Tier-2 coverage and was effective January 1, 1985.

      Tier-2 coverage is available to PERS miscellaneous members who meet one of the following conditions:

      • designated management, supervisory, confidential or excluded.
      • rank and file in a CSEA, CAUSE (Unit 07), CAPS (Unit 10) or CWA (Unit 18) bargaining unit.

      The five retirement categories within State service which are not eligible for Tier-2 are:

      • State Patrol Members
      • State Safety Members
      • State Industrial
      • State Peace Officer/Firefighter Members
      • University of California and California State University Employees

      Since a retiree, under Tier-1, contributes to the retirement system, pension payments are not deductible from UI benefits. On the other hand, pension payments for retirees who have Tier-2 coverage are potentially deductible depending on the other Section 1255.3 criteria.

      If an employee elects to be covered under Tier-2, he/she can withdraw his/her previous contributions from the Fund, or leave them invested as a savings. When withdrawn later or paid out by PERS, these funds are a return of the claimant's own money and are not a deductible pension.

      d. Eligibility/Computation:

      The following information is provided to assist in determining whether the services performed after the beginning of the base period "affects eligibility for or increases" the amount of the pension payment:

      (1) Minimum Eligibility Requirements to Qualify for a Pension:

      (a) Regular - age 50 (or age 55 if contract so provides) with five years of service.

      (b) Disability

      • nonjob-related - five years of service
      • job-related - no service requirement.

      (2) Computation of Final Pension Award.

      The basic formula for computing how much an individual's retirement allowance will be, contains three elements:

      (a) Number of years of service,

      (b) Age at retirement (this determines the percent of pay to which the individual is entitled for each year of service, and

      (c) "Final compensation." (The "final compensation" is the average monthly pay rate during the individual's last consecutive 36 months of work. If there was another period of 36 consecutive months when the average pay was higher, that period can be used to compute the "final compensation." Some local agency contracts provide for the n final compensation" to be figured on the last 12 consecutive months of work.)

      Once a worker has met the minimum qualifications to receive a pension, continued service thereafter (years and months) increases the pension award.

    3. Local Public Agencies

      Some local Public Agencies can elect to pay the employee's contributions toward the pension. Therefore, interviewers should always clarify whether or not the employer paid the entire contribution.

    4. Golden Handshake - State Employees

      Section 20816 of the Government Code provides that the Governor can offer a "golden handshake" to State employees. If the Governor determines that because of the impending curtailment of services or change in the manner of performing services, it would be in the best interests of the State to encourage the retirement of State employees, and that sufficient savings would be realized to offset the cost, PERS will credit the State member (employee) with an additional two years of service.

      In order to be eligible to participate in the "golden handshake", a member must be credited with five or more years of service and must retire within a specified time period after the Governor authorizes the offering of the "golden handshake."

      Section 20816 of the Government Code further provides that a member who accepts the "golden handshake" and retires will lose the additional two years' service credit if he or she receives unemployment insurance within a one-year period of the date the Governor authorized the offering of the "golden handshake."

      This provision of the Government Code does not affect an individual's eligibility to receive unemployment insurance benefits. The member's pension award is, however, subject to reduction by the receipt of unemployment insurance benefits. If the member receives unemployment within the one-year period following the executive order, PERS will delete the additional two years' service credit and recalculate the pension award based on the actual number of years worked.

      If an individual who accepted the "golden handshake" claims unemployment insurance benefits and the individual is eligible for benefits because he or she contributed to the pension, the interviewer should advise the individual what effect the receipt of the unemployment insurance benefits will have on the pension award so that the individual can decide whether he or she wishes to receive unemployment insurance benefits.

      If the individual has questions concerning this provision of the law, refer the individual to PERS.

  10. General Rules for Calculation of Deductible Amount

    1. Conversion of Periodic Pension Payment to Weekly Basis: Pension payments which are made on other than a weekly basis are to be converted to a weekly amount by using the DE 8847, Monthly Pension Conversion Table.

    2. Round off to Whole Dollars: For purposes of making arithmetical calculations involving odd cents, round off to whole dollar if .50 cents or more. Drop odd cents if less than .50 cents.

    3. Divorce Settlement: There are instances where the court has held that the pension earned by an individual is community property. In those instances where the court holds a pension to be community property and assigns a percentage of the pension to the individual's spouse as part of a divorce settlement, that portion assigned to the spouse is not the claimant's property and therefore is not part of the claimant's gross pension award.

      For example, the claimant's total monthly pension award is $1244. The court has awarded the claimant's spouse $458 of the monthly pension award. The claimant's share of the pension is $786 (the difference between $1244 and $458). The deductible amount of the pension is $786.

    4. Gross Amount of Periodic Pension Payment: If any deductions have been made from the pension award, these amounts would have to be added to the claimant's pension pay to obtain the potentially deductible amount. Examples would be medical insurance premiums, federal income tax, court-ordered child support payments, and amounts to offset prior overpayments.

    5. Change in Pension Amount During Same Week: When a claimant's pension is increased or decreased during the week, calculate the deductible amount for this particular week by determining the daily deductible rate for the old and new pension payments by using the DE 3335, Daily Benefit Table, and adding the two figures.

      For Example:

      The claimant was receiving a pension to which he made no contributions. The pension is determined to be deductible.

      The claimant's WBA is $166. At the time of the determination, the pension amount was $450 per month. This was paid through Tuesday, June 30, 1987. The PWP deductible amount of the pension was $103 per week.

      Effective July 1, 1987, the amount of the pension increases to $500 per month. The PWP deductible amount becomes $115 per week.

      To determine the amount payable to the claimant for the week ending July 4, 1987, it is necessary to establish the PWP daily deductible rate of the old and new pension payments. Use the DE 3335 to determine the daily rates.

      • PWP
        • Deductible AMT - $115 (new)
        • Number of days AT RATE - 3/7 of $103
        • AMT - $45
      • PWP
        • Deductible AMT - $103 (Old)
        • Number of days AT RATE - 4/7 of $115
        • AMT - $66
      • Total PWP deductible amount: $111
        ($45+$66)
      • Claimant eligible to receive: $55
        ($166-$111)

      During the week ending July 4, the old PWP amount of $103 would be in effect for three (3) days (June 28 through June 30) and the new PWP amount of $115 would be in effect for four (4) days (July 1 through July 4).

    6. Deductible Amount for Week in Which Initial Payment Begins After First Day of the Week:

      For Example:

      A claimant files a claim effective January 4, 1987. The WBA of the claim is $166. The claimant is paid benefits through the week ending April 4, 1987, at which point, he begins work for XYZ, Inc.

      The claimant reports to the field office on July 1 to reopen the claim. The claim is AC'd effective June 28. The claimant reports that he is now receiving a pension which was effective April 1, 1987. The first pension payment was received May 1. The pension is from ABC Co. where the claimant worked for 35 years. The claimant states he made no contributions to the pension fund. ABC Co. is a base period employer.

      The pension is determined to be deductible. The monthly pension amount is $675. The PWP weekly deductible amount is $156.

      Since the claimant was paid full WBA for the week ending April 4, benefits were overpaid for that week. To determine the amount of the pension which was deductible for that week, it is necessary to determine the deductible rate. Use the DE 3335 to determine the daily rate.

      • FULL WEEK
        • Deductible AMT - $156
        • Number of days AT RATE - 4 (April 1 Thru April 4)
        • DEDUCTIBLE PWP AMT - $89 (4/7 of $156)

      For the week ending April 4, the deductible PWP amount is $89. The claimant was thus entitled to receive only $77 for the week ending April 4 ($166 minus $89).

This Google Translate™ translation service is provided for informational purposes only as the EDD is unable to guarantee the accuracy of this translation. View Disclaimer

 

Benefit Determination Guide