February 13, 2002
UNEMPLOYMENT COMPENSATION OFFSETS
By: Kevin E. McCarthy, Principal Analyst
You asked for background on the offset against unemployment compensation for Social Security pension. You were interested in whether (1) there is an offset for private pensions, (2) the provision's legislative history indicates the rationale for the offset, (3) legislation has been proposed in Connecticut in recent years to modify this offset, and (4) surrounding states have similar offsets.
Connecticut requires an offset against unemployment compensation benefits for Social Security pensions, and, in certain cases, other public and private pensions. The offset is reduced to the extent that the employee contributed to the pension (approximately 50% in the case of Social Security). The offset requirement was originally adopted in 1967; the provision's legislative history does not indicate its rationale. Legislation was introduced in 2001 to eliminate the offset for Social Security pensions, but the proposal died in the Finance, Revenue and Bonding Committee. There were no other bills on this issue in the past five years.
All three neighboring states have offset provisions, but Massachusetts and New York do not require an offset against Social Security benefits. Massachusetts requires a 50% offset against pension benefits, other than Social Security, if the recipient's base period employer (usually his most recent employer) contributed to the pension. New York requires an offset against pensions, other than Social Security. Rhode Island requires a 50% offset against pensions to which the employee contributed, including Social Security, and a 100% offset for non-contributory pensions.
CONNECTICUT'S OFFSET PROVISIONS
The law requires that unemployment compensation benefits be reduced by the amount that the employee receives under a pension plan his base period employer maintained or contributed to. Pensions for this purpose are defined broadly to include governmental and private pensions, retirement pay, annuities, and other things. If the employee contributed to the pension, the offset is reduced proportionately. The offset is not made for the receipt of a pension (other than Social Security or railroad retirement) if the employee's service or pay did not affect his eligibility for the pension or increase the pension payment (CGS § 31-227).
The law has its origins in PA 790 of 1967, then codified as CGS § 31-236(9). Originally, the law was more restrictive than it is today, in that it generally made individuals who retired voluntarily ineligible for unemployment compensation. It required a total offset of Social Security and other pensions against unemployment compensation for voluntary retirees. Before 1981, the law required that all retirement income be deducted from the unemployment compensation benefit, but PA 81-318 limited the offset to the part of the retirement income attributable to the recipient's base period employer.
The legislative history of the 1967 act does not indicate the rationale for the offset. The issue was not discussed at the Labor Committee public hearing or in the Senate debate on the bill. In the House, Representative Badalato mentioned the provision in his description of the bill, but there was no discussion of its rationale.
While not discussed in the law's legislative history, one possible basis for the offset is the Federal Unemployment Tax Act (FUTA). FUTA requires states to reduce a person's unemployment compensation amount by the amount he receives in "governmental (including Social Security) or other pension, retirement or retired pay, annuity, or any other similar periodic payment which is based on the previous work of such individual" (26 USC § 3304(a)(15)). But, FUTA was amended in 1980 to allow states to limit the amount of any such reduction by taking into account contributions made by the employee to his pension (26 USC § 3304(a)(15)(B)). According to the U.S. Department of Labor, states may reduce the amount deducted from unemployment compensation by any amount, including 100%, if state law specifies that the offset is being reduced because the individual contributed to the pension plan.
In 2001, the Labor and Public Employees Committee favorably reported HB 5863, which would have eliminated the offset for Social Security pensions. The House referred the bill to the Finance, Revenue and Bonding Committee, which took no action on it. The Office of Fiscal Analysis estimated the bill would have cost the Unemployment Insurance Fund approximately $1.8 million per year.
LAWS IN NEIGHBORING STATES
There is a 50% offset against unemployment compensation for retirement benefits other than Social Security or severance pay. The offset only applies if the recipient's base period employer (usually his most recent employer) financed all or part of the pension. There are specific provisions for people who are partially unemployed or who are receiving extended or dependency benefits (Mass
Gen. Laws ch. 151A § 29).
New York does not require an offset against Social Security benefits. For other pensions, it requires an offset if the recipient's base period employer financed at least 50% of the pension benefit. If the employer funded 50% to 100% of the benefit, there is a 50% offset. If the employer fully funded the benefit, there is a 100% offset. (N.Y. Labor Law § 600).
If an unemployment compensation recipient receives a pension benefit to which he contributed (including Social Security), his compensation is reduced by 50% of the amount of the pension. If he did not contribute to the pension, the entire amount is offset (R.I. Gen. Laws § 28-44-19). The offset only applies if the recipient's base period employer contributed to the pension. Thus, if the employee receives a Social Security pension, there would be an offset in most cases since his base period employer would have paid social security taxes for the employee. On the other hand, if the employee receives a pension from an employer for whom he last worked 10 years ago, there would not be an offset.