Reduction In Force; Unemployment Strategies

The MHASC Unemployment Compensation Program regularly consults with members that may have to initiate layoffs and reduced hour situations due to work force restructuring. Many employers are looking for ways to reduce their liability, especially since $7,800 is the current maximum in potential unemployment benefits that an employee may be entitled.

In the next several issues of the UCP Update, we will include this special publication, Reduction in Force Unemployment Strategies. The articles in this publication will address unemployment issues to be considered in work force restructuring. We will outline techniques that may lead to a reduction in unemployment compensation liability, as well as highlight programs offered by the UCP to assist you and your employees during a time of transition.

If work force restructuring is under consideration within your organization, we encourage you to consult with us early in your planning process since most of the techniques must be put in place prior to the effective date of the layoff or reduction in hours. Early consultation will ensure that proper techniques are developed and implemented, which may lead to a reduction in total unemployment liability. Please contact me if you have any questions or wish to discuss these articles in more detail.

Neil A. MacVicar, senior director

Unemployment Compensation Program

(517) 886-8331 nmacvica@lans.mha.org

RETIREMENT BENEFITS MAY AFFECT UNEMPLOYMENT

The MES Act defines "retirement benefit" as a benefit, annuity, or pension of any type which is provided as an incident of employment under an established retirement plan and payable to a claimant because the claimant has qualified on the basis of attained age and length of service or disability. This applies whether or not the claimant retired voluntarily or was retired involuntarily.

A claimant's receipt of retirement benefits may affect a claim for unemployment benefits. The entitlement depends on the type of retirement plan offered by the employer.

If the employer funds the retirement plan and the claimant's weekly retirement benefit is equal to or exceeds the claimant's assigned weekly benefit rate, the claimant is not entitled to unemployment benefits. If, however, the claimant's weekly retirement benefit is less than the assigned weekly benefit rate, the claimant will receive unemployment benefits if otherwise eligible and qualified. The unemployment benefit will be reduced, however, dollar for dollar by the amount of the weekly retirement benefit. If the employer did not fund or did not contribute to the retirement plan, the claimant's weekly unemployment benefits are not reduced by the retirement benefit.

In a recent Employment Security Board of Review decision, the Board held that lump sum pension benefits transferred into a tax deferred Individual Retirement Account (IRA) must also be coordinated with unemployment benefits. Unfortunately, the Board of Review's decision is not yet "official precedent" since there are appeals pending, and the MESA has not amended its official interpretative guideline on this issue.

PAYMENT ALLOCATION

When implementing a work force reduction, an employer may offer to pay employees for accrued vacation, accrued sick time, payment in lieu of working notice, and longevity pay. Under the MES Act, the employer may allocate these payments over a specific period. When an employer properly allocates these payments, the MESA may consider the payments as "remuneration" or earned wages. If the payments are determined to be remuneration, the employee is not eligible for unemployment benefits during the period of allocation.

It is important to note that payment allocation does not deprive the employee of any unemployment benefits; it merely delays the commencement of unemployment benefit payments. Payment allocation actually provides financial security to the employee by extending the period of payments after the last day of work. The employer's unemployment liability is reduced when a laid off employee finds new employment or returns to work prior to exhausting their unemployment claim.

General rules and requirements for properly allocating payments are as follows:

1. Notice of allocation must be given to the employee before or at the time of the separation;
   
2. The notice to the employee must indicate that payment will be allocated over a designated period of time. The allocation time period must be clearly stated.
   
3. The notice must indicate that the allocated pay "MAY RENDER THE EMPLOYEE INELIGIBLE FOR UNEMPLOYMENT BENEFITS DURING THE ALLOCATION PERIOD."
   
4. For allocated vacation pay and allocated sick pay, written notice must be delivered to the affected employee AND to the employee's bargaining representative, if any. - OR - A formal notice of this policy must be conspicuously posted in the workplace in an easily accessible place frequented by the employees AND delivered to the employee's bargaining representative, if any.
5. All payments should be made before the end of the quarter in which the separation occurs to limit future liability.

This section of the MES Act requires exact compliance. Please contact our office in advance for advice and consultation on how payment allocation can reduce your liability. Assistance is also available in drafting a formal notice to the employee and in reviewing your work force reduction policies. Advance notice also assists the Unemployment Compensation Program in planning a careful response to the initial request for separation and wage information from the MESA.