GORDON T ZIMMERMAN, Employee
ARMY, Employer
An administrative law judge (ALJ) for the Division of Unemployment Insurance of the Department of Workforce Development issued a decision in this matter. A timely petition for review was filed.
The commission has considered the petition and the positions of the parties, and it has reviewed the evidence submitted to the ALJ. Based on its review, the commission agrees with the decision of the ALJ, and it adopts the findings and conclusion in that decision as its own.
The decision of the administrative law judge is affirmed. Accordingly, as of week 7 of 2007, benefits otherwise payable for any week of partial or total unemployment are reduced by $458.98.
Dated and mailed October 26, 2007
zimmego . usd : 164 : 1 UW 980
/s/ James T. Flynn, Chairman
/s/ Robert Glaser, Commissioner
/s/ Ann L. Crump, Commissioner
In the petition for commission review the employee argues that he believes the wrong percentages were used to determine the offset amount and that, applying the correct percentages, he is still eligible for a weekly benefit. However, the appeal tribunal decision was not based on an analysis of the relative percentages funded by each party. Rather, the appeal tribunal found that, for UI purposes, the entire pension is considered employer funded, such that the employee's benefits must be offset by the total amount of the pension. The commission agrees with this conclusion, for the reasons set forth below.
The department's policy is that if a contribution is from an employee's taxed compensation it is considered a contribution by the employee. However, if the source of the contribution is a pre-tax contribution, the department considers that contribution to be employer funded. Mayer v. Local 1056 Millwrights, UI Dec. Hearing No. 04404010GB (LIRC March 17, 2006).
The basis for this treatment of such monies is the Internal Revenue Code (IRC). Ardell H. Helland, UI Dec. Hearing No. 00000087MD (LIRC Dec. 8, 2000). In a Program Letter issued by the United States Department of Labor, addressing the question of whether employees who give up pay raises or cost of living adjustments in return for increased contributions to a pension plan may consider such employer payments to be employee contributions, the Department of Labor concluded that they could not and stated, in part:
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. . . 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 (1) (which is itself part of the IRC), when other provisions of the IRC do not consider them employee contributions.
Department of Labor Unemployment Insurance Program Letter No. 22-87, Change 2, February 3, 2003. (emphasis added).
The IRC, which relies on a specific, technical construction of the term "contribution," considers even elective deferrals, such as 401(k) contributions and Thrift Savings Plan contributions for federal employees, to be "employer contributions," since they are not included in wages subject to income tax at the time they are contributed. See, Internal Revenue Publication 525 (2006), Taxable and Nontaxable Income, p. 8. See, also, for example, 26 U.S.C. § 401 (k)(2), § 402(e)(3), and § 492(g)(3)(A).
The seventh circuit court of appeals has explained the concept of treating so-called employee contributions as being employer funded in the following manner:
The distinction between "employers' contributions" and "employees' contributions" to qualified pension plans is almost wholly nominal. It is a matter of indifference to an employer whether it pays $30,000 salary to the employee plus $3,000 to a pension plan on the employee's behalf, or instead $33,000 to the employee, of which it sends $3,000 to a pension plan. In either event the employee receives $30,000 at once and $3,000 in deferred compensation, and the employer may deduct the whole $33,000 as an ordinary and necessary business expense. . . .
Howell v. United States, 775 F.2d 887 (7th Cir. 1985).
In this case, the employee's "contributions" to his pension were made pre-tax. While the monies were deducted from the employee's paycheck, those amounts are nonetheless considered to be an employer contribution for purposes of the unemployment insurance law. Consequently, the employee's weekly benefits payable are reduced by an amount equal to his weekly pension. Accordingly, the appeal tribunal decision is affirmed.
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