Unemployment Benefits Reduced by Pensions and Social Security: A Fact Sheet

Unemployment Benefits Reduced by Pensions and Social Security: A Fact Sheet

Order Code 95-1180 EPW
Updated January 15, 2004
CRS Report for Congress
Received through the CRS Web
Unemployment Benefits Reduced by
Pensions and Social Security: A Fact Sheet
Celinda Franco
Specialist in Social Legislation
Domestic Social Policy Division
Background
Unemployment compensation (UC) may be reduced by a claimant's retirement
income. Specific offset rules vary by state. This offset, which became federal policy in
1980, is intended to resolve the tension between the central premise of UC eligibility and
the condition of retirement. That is, to be eligible for UC, a worker must have lost a job
involuntarily for economic reasons, be able and willing to work, and be actively engaged
in job search. However, a worker who retires leaves a job voluntarily, perhaps leaving
the work force altogether. Caught between these concepts are: (1) pensioners who find
other work and then become unemployed; and (2) workers drawing social security
retirement benefits who continue to work and become unemployed. Some countries (e.g.,
France, Germany, Japan) deal with this conflict by paying regular unemployment benefits
only to persons below pensionable age.
In the U.S. system, the states pay UC benefits and establish most eligibility and
benefit rules. However, federal law requires that all states reduce UC for certain
retirement income. The law does give states flexibility in two respects: (1) how to treat
employee contributions to pensions; and (2) whether to apply the offset to all pension
income or to limit it to pensions paid by a UC claimant's "base-period employer" (i.e., an
employer during the 52-week period before job loss, a period that states use to determine
a claimant's covered wages).
When a UC claim is filed, the claimant must report any "disqualifying income."
Retirement income falls into this category. If the claimant has retirement income, the
state calculates an offset amount according to its rules and reduces any UC entitlement
by the offset, but not below zero.
Legislative History
Before 1980, there was no federal rule regarding receipt of retirement income by UC
claimants.
In 1978, 22 states treated pensions from base-period employers as
disqualifying income, and 14 states treated all pensions as disqualifying income. The
other 17 jurisdictions ignored pension income. Only 14 states offset Social Security
retirement benefits against UC.
Congressional Research Service ˜ The Library of Congress

CRS-2
In 1974, a New York study had found that 11% of UC claimants received retirement
income while on UC. This sizable overlap raised the question of whether these claimants
were actually ready and available for work as required. It was alleged that some retirees
were using UC as a part-year supplement to their retirement income, and it was argued
that this was an inappropriate use of the payroll taxes paid by employers to help their
temporarily jobless workers.
In the Unemployment Compensation Amendments of 1976 (P.L. 94-566), Congress
voted to require that all retirement income be offset against UC effective Oct. 1, 1979.
This effective date was delayed to Apr. 1, 1980, by the Emergency Unemployment
Compensation Extension Act of 1977 (P.L. 95-19). The law was amended again before
taking effect by the Multiemployer Pension Plan Amendments Act of 1980 (P.L. 96-364).
This final law limits the federally required offset to benefits from a base-period employer
that were actually affected by the base-period employment. This limitation does not apply
to Social Security benefits, which may be offset regardless of when entitlement occurred.
This law also permits states to disregard the claimant's own contributions to a pension or
Social Security in computing the offset amount.
How the States Apply the Offset
States can impose a broader, but not a narrower, offset than federal law requires.
Three jurisdictions (the District of Columbia, Vermont, and Virginia) offset all pensions
from all employers against UC. The other 50 programs restrict the offset to pension
income paid by base-period employers. About half of these jurisdictions offset this
pension income only if the pension amount were increased by the base-period
employment. They are:
Alabama
Hawaii
Missouri
Oklahoma
Wisconsin
Alaska
Iowa
Montana
Pennsylvania
Arizona
Kansas
Nevada
Puerto Rico
California
Kentucky
New Hampshire
Tennessee
Connecticut
Maine
New York
Washington
Georgia
Massachusetts North Dakota
West Virginia
However, the offset amount is still the full pension amount, not simply the amount of the
increase resulting from base-period employment.
All but 14 jurisdictions disregard an employee's own contributions in applying the
offset. The jurisdictions that do not disregard employee contributions are:
Alabama
Indiana
Missouri
Utah
Colorado
Louisiana
North Carolina
Virginia
District of
Minnesota
Ohio
Virgin Islands
Columbia
Mississippi
Oklahoma
West Virginia
For Social Security, this disregard generally amounts to half the benefit because
employees pay half the Social Security payroll tax. According to the Department of Labor
28 states do not reduce UC benefits by Social Security payments.