GUIDE SHEET 5

DISQUALIFYING/OTHER
DEDUCTIBLE INCOME

Unemployment compensation can be denied to any individual for the receipt of disqualifying income. This income may result in the total or partial reduction of weekly benefits.

Disqualifying or deductible income is governed by State law. Although law provisions vary among the States, most provide for disqualification or reduction in benefits for any week or part of a week during which the claimant receives income such as earnings, wages in lieu of notice, dismissal pay, workers' compensation, back pay, holiday or vacation pay, payments made under an employer's pension plan, OASI benefits, and unemployment benefits under another State or Federal law.

NOTE: Some types of payments, such as workers' compensation, may indicate that an A&A issue exists.

A written determination must be issued to the claimant with respect to the first week in the claimant's benefit year in which there is a reduction for income other than earnings. A written determination is not required for subsequent weeks or a transitional claim if the deduction is based on the same set of facts which applied to the first week.

The written determination must explain the rules and methods for computing the deduction, the period affected, and that there will be no further determinations issued for subsequent weeks if the future deduction is based on the same facts.

There is an exception to issuing a written determination regarding earnings. A written determination is not required if, at the claimant's benefit rights interview or through an official SESA brochure or pamphlet, the claimant is advised of the conditions under which certain types of income are disqualifying or deductible. The claimant has to be advised that he/she must request a written determination before any appeal action can take place.

Income usually must be payable to be disqualifying or deductible. In other words, if an individual has been determined to be eligible for payments which are considered disqualifying under State law, the payments can be deducted by the SESA from the claimant's weekly benefit amount before actual payment is received by the claimant. The fact that the claimant has not received the income but is due the remuneration is considered "constructive receipt" for the purposes of UI eligibility.

The Federal Unemployment Tax Act (FUTA), Section 3304 (a)(15) addresses reducing a claimant's unemployment compensation by any pension, retirement or similar periodic payment the individual is receiving. States have the option of reducing benefits only when a base period employer has contributed to the pension plan and (except for Social Security and Railroad retirement) the base period services affect eligibility for or increase the amount of the pension. States may also limit the amount of the reduction to take into account contributions made by the individual to the pension plan. States, therefore, have considerable latitude regarding how pensions are treated.

Adjudicators must be aware of State law and policy affecting the receipt of this type of income. Any time that there is a change in the claimant's pension amount, a separate determination notice must be made reflecting the effect on the claimant's benefit rights. The claimant must be given the opportunity to provide information before a determination can be made.

BASIC QUESTIONS AND FACTORS TO CONSIDER

A. WHAT TYPE OF INCOME DID THE CLAIMANT RECEIVE?

1. The type of income the claimant received or will receive (wages, remuneration, pensions, etc.) and the period to which it is applicable must be recorded during the factfinding process. This will help determine the week(s) affected and the deduction from the claimant's weekly benefit amount.

2. All States require that weekly benefits be reduced if the claimant is receiving or will receive a pension from a base period employer. Therefore, it is important to determine if the income also represents pension payments from a base period employer. In the case of pensions (also known as pension offsets), 3305 (a)(15), FUTA, requires that compensation be payable (constructive receipt) in order for the reduction to apply. Confirmation must be obtained from the employer or pension plan that a pension is "payable" before a reduction is made.

3. The type of income determines the formula the State applies for reducing the claimant's weekly benefit amount (WBA). In many States, if payment is less than the WBA (based on a percentage of earnings that is disregarded), the claimant receives the difference between the amount deducted (after the disregard) and the WBA. In others, a dollar-for-dollar reduction may apply, or no benefits are payable if the claimant receives disqualifying income regardless of the amount.

B. WHAT IS THE GROSS AMOUNT OF INCOME THE CLAIMANT RECEIVED?

1. The gross amount of income received is used to determine its impact on the claimant's WBA - present, past, or future.

2. It will be necessary to determine, based on the amount actually received or, in the case of pensions, "constructively received," the weeks to which the income is applicable and the amount of reduction required by law and policy.

C. IF THE CLAIMANT IS RECEIVING A PENSION, WHAT PERCENT WAS CONTRIBUTED BY THE CLAIMANT AND WHAT PERCENT BY THE EMPLOYER?

1. It may be necessary to know, based on the applicable State law and policy, how much each party contributed to the pension of the claimant. This information will determine the amount of deduction from the WBA. It is important to know if the State reduces benefits only when a base period employer contributes to a pension plan or limits reduction taking into account contributions made by the individual to the pension plan.

D. WHAT PERIOD DOES THE INCOME COVER?

1. The SESA must determine the time period to which the income applies in order to establish the effective date of the deduction or disqualification.

2. This period covered will also provide the SESA with the necessary information about the next modification to the claimant's benefits so that a new determination can be issued reflecting the change in circumstances and its effect on the claim.

E. WILL THE AMOUNT GO UP OR DOWN? IF SO, WHEN?

1. It is important to determine if future weeks will be affected so that the claim can be flagged for a subsequent determination modifying the claimant's weekly benefits and remaining benefit account balance. Document the effective date of the adjustment and the benefit week to which the adjustment applies.

HINT: The party taking the action is the party from whom specific information must be obtained as to type and amount of payment. Depending on the type of payment in question, i.e., employer payments or pensions from other sources, the appropriate entry would be made either in Element 19 (Employer Information) or Element 20 (Information from Others).

If information about a payment is received from an employer, the claimant must be contacted for verification of actual receipt of the payment and the amount. If no verification is made, enter either "I" (inadequate) or "N" (not obtained).

Factfinding

A. TYPE OF INCOME RECEIVED, OR "CONSTRUCTIVELY RECEIVED"

1. Type of income received

• Specific type of income received or considered to be constructively received by the claimant
  
  
• A pension from a base period or prior employer
  
  
• For job related injury, i.e., workers' compensation
  
  
• For other reasons defined by State law and policy
  
  
• Vacation pay during regularly scheduled business shutdown, pay in lieu of notice, severance pay, etc.
  
  

2. Determine if income is constructively received (applies to earnings for services, pensions, etc.)

• Although not yet paid to the claimant by the employer, a determination has to be made if the income meets the State definition for deductibility and/or disqualification for the weeks affected.
  
  
• A period of regularly scheduled vacation from the employer may be disqualifying if there is no separation for lack of work and claimant is considered not unemployed within the meaning of State law.
  
  
• A determination of entitlement for a pension is a prerequisite to issuing a disqualification for the receipt of this type of income. The SESA must determine if the claimant in fact applied for a pension and that authorities responsible for administering the pension confirmed the application and the amount due, i.e., payable to the claimant, including the periods covered. Confirmation of pension status will determine whether the pension meets the criteria for "constructive receipt." Mere application on the part of the claimant is insufficient to conclude constructive receipt.
  
  
• The SESA must determine if the income is based on employment or if the income is from an employer's pension plan, disability plan, Social Security, etc. to establish the appropriate method for reducing the claimant's WBA.
  
  

B. GROSS AMOUNT OF INCOME

1. Document whether the income was received in a lump sum and how the State applies these types of payments to weeks.

• Lump sum payments can represent different types of income.
  
  
• Lump sum payments may be applied only to the week in which the payment was received, or
  
  
• May be considered periodic payments, applying the prorated amount to several weeks.
  
  

C. FINANCING OF PENSIONS - EMPLOYER(S), CLAIMANT, OR BOTH

1. Need to establish how the pension is financed.

• Determine if pension is financed in whole or part by a base period employer.
  
  
• Obtain documentation or verification from the claimant and employer as to how the pension is financed.
  
  
• Once the financing sources are identified and the information is confirmed, a determination can be issued to wholly or partially reduce the claimant's benefit award in accordance with State law and policy.

E. WILL THE AMOUNT GO UP OR DOWN, AND IF SO, WHEN?

1. Flag the claim record for future determinations to adjust the claim record in case of changes in the claimant's income, especially in the case of pension deduction.

2. Identify the weeks affected by the income.