Severance/Pension Pay Deductions FAQs
1. How does severance, separation or salary continuation pay affect my UC benefits?
Severance pay received by a claimant that exceeds 40 percent of Pennsylvania's average annual wage* is deducted from the claimant's UC if the claimant's application for benefits (AB) date is on or after Jan. 1, 2012, and the severance pay agreement between the employer and the claimant is entered into on or after Jan. 1, 2012. The deductible portion of a claimant's severance pay is allocated to the weeks immediately following the claimant's separation based on the claimant's full-time weekly wage. Severance pay means one or more payments made by an employer to an employee on account of separation from the service of the employer.
A claimant receives $32,000 in severance pay. Forty percent of Pennsylvania's average annual wage ($48,542.52 for 2015) is $19,417.00. Therefore, $19,417.00 is subtracted from $32,000 equaling $12,583, which is the amount of the claimant's severance pay that is deductible. The claimant was earning $1,200 a week at the time of his separation. Accordingly, the deductible amount of severance pay is allocated at $1,200 per week to the first 10 weeks the claimant is unemployed. Because $1,200 exceeds the maximum weekly UC benefit rate, the claimant would not receive any benefits for this 10-week period. The 11th week would be calculated by taking the remaining severance pay amount of $583.00 to determine eligibility.
This example is to calculate severance pay received in 2015. Please note that the average annual wage is subject to change each year which will change the calculation.
*The average annual wage, for unemployment compensation purposes, is based on the most recent three fiscal years, or 36 months of data. Effective with claim week ending Jan. 10, 2015, the severance pay calculations will change in accordance with the new average annual wage. For more information, go to http://www.paworkstats.state.pa.us/portal/server.pt/community/home/19890
If your hours of work have been reduced or you otherwise continue to work less than your normal full-time work week, you may be eligible for partial benefits
2. Will receiving a pension make me ineligible for UC benefits?
When filing for unemployment compensation (UC) benefits, you are required to report all pensions, including retirement, retired pay, annuities or other similar periodic payments and lump-sum pension payments. Pension and retirement payments are deducted from UC benefits if a base year employer maintained or contributed to the pension plan and if the base year employment affected your eligibility for, or increased the amount of, the pension. If the base year employer alone contributed to the pension, 100 percent of the prorated, weekly amount of the pension is deductible. If you contributed in any amount to the pension, 50 percent of the prorated, weekly pension amount is deductible. Pensions are deductible from weekly benefits on a dollar-for-dollar basis. The partial benefit credit is not applicable.
A lump-sum pension payment is not deducted from UC, unless you had the option of taking a monthly pension. In addition, a lump-sum pension is not deductible if you "roll over" the lump sum into an eligible retirement plan such as an Individual Retirement Account (IRA) within 60 days of receipt.
Social Security and Railroad Retirement pensions are not deducted from UC benefit payments.