Opinion ID: 1359056
Heading Depth: 2
Heading Rank: 6

Heading: allocation of the special payment

Text: In each of the three cases at issue here, the Board allocated the petitioner's special payment to the entire three-month period following retirement. In each case, this resulted in ineligibility for unemployment benefits for the entire three-month period. Petitioners take issue with this method of allocation. As noted above, section 1255.3 provides that for any week, unemployment benefits shall be reduced by an amount equal to the amount of any periodic retirement pay reasonably attributable to such week. The Board's allocation of the special payment was based primarily upon the terms of the pension agreement, which provides in pertinent part: The special payment shall be payable for the first three full calendar months following the month in which retirement occurs. Petitioners argue that if the special payment is a pension at all it must be considered a pension payable in a lump sum and subject to special allocation procedures under the terms of the California Employment Development Department's (EDD) own rules. In part, petitioners' argument on this issue is rendered moot by the stipulated judgment entered in Rivera v. Becerra (N.D.Cal. 1982) No. C-80-3469, a class action against the director of EDD and the Secretary of the United States Department of Labor brought on behalf of all California residents whose unemployment benefits had been reduced or eliminated because of section 1255.3. Prior to entry of the judgment in Rivera, the policy of the EDD had been to allocate pensions payable in a lump sum to the week in which they were paid and to offset unemployment benefits only for that one week. Thus, regardless of the amount of the lump sum pension  the EDD's own directive used the example of a $50,000 pension  the retiree would lose only a single week's unemployment compensation. Petitioners sought to require the Board to follow the EDD policy in these cases and offset unemployment benefits only for one week rather than three months. The parties to the judgment in Rivera v. Becerra , however, stipulated that 26 U.S.C. § 3304(a)(15), as amended, the federal pension offset provision, and California Unemployment Insurance Code § 1255.3 do not require the offset against unemployment insurance of a pension paid to a claimant on a lump sum basis. Defendant Director of the California Development Department agrees not to offset against unemployment insurance any pension that is paid to a claimant on a lump sum basis. Defendant Director of the California Employment Development Department further agrees to restore to plaintiff class members any unemployment insurance benefits that would have been paid but for the offset of a pension that was paid to a claimant on a lump sum basis. The stipulation does not so state, but presumably the reason the EDD and the Secretary of Labor agreed to this outcome is that the exact words of 26 United States Code section 3304(a)(15), pension, retirement or retired pay, annuity or any other similar periodic payment (italics added), cannot reasonably be construed to include pensions entirely paid in a single installment. In any case, in light of the disposition in Rivera, it is clear that if petitioners' argument that the special payment is a lump sum pension is persuasive, then the EDD is already bound to restore to petitioners all unemployment benefits withheld to offset the special payment. Thus we need not address petitioners' argument that the Board is required to follow departmental policy as set out in EDD directives. In light of the stipulation entered in Rivera, this issue is irrelevant. (11) Rather, we must determine whether the special payment is a pension that is paid to a claimant on a lump sum basis as that term is used in Rivera. [9] We conclude that it is not. Both under the terms of the pension agreement and in actuality, the special payment and the regular pension are components of a single integrated periodic pension plan. In effect, the special payment is the first installment of a pension whose regular monthly installments begin three months after retirement. The fact that the first interim payment is paid on a quarterly basis and is calculated differently does not suggest that it is a pension paid on a lump sum basis independent of a periodic pension which commences in the second quarter after retirement. Further, a legislative distinction between pensions entirely paid in a single lump sum and pensions paid in periodic payments is rational, primarily because of the administrative and equitable difficulties inherent in attempting to prorate a lump sum pension over the remainder of a retiree's life for purposes of calculating a weekly unemployment benefit reduction. No such rationale justifies a distinction between this special payment and other periodic retirement payments. The special payment is allocated by the terms of the agreement to a specified, finite period. Indeed, in that it typically provides 13 weeks of pay for a 13-week period, the agreement itself provides an equitable formula for the allocation of the special payment. (12) However, this formula itself leads us to conclude that the Board's current method of allocating the special payment is erroneous, at least as to some recipients. As noted above, a major part of some retirees' special payment consists of accrued vacation pay within the terms of section 1265.5. This section, by its own terms, prohibits denial or reduction of unemployment compensation because of the receipt of such accrued vacation pay. Thus, many retirees qualify for a special payment consisting of several weeks of accrued vacation pay, as to which unemployment compensation offset is statutorily prohibited, and several weeks of adjusted vacation pay as to which such offset is statutorily required. The only rational method of harmonizing sections 1255.3 and 1265.5 in this peculiar context is to allocate the special payment in weekly increments consistent with the method of calculation. If an employee qualifies for a special payment consisting of five weeks of accrued vacation pay and eight weeks of adjusted vacation pay, the Board may reduce only eight weeks of unemployment benefits to offset receipt of retirement pay. (13) Petitioner Goist, however, had taken five weeks of vacation in his retirement year prior to retirement. Under the terms of the pension agreement, therefore, his earned vacation pay was deducted from his calculated special payment. Thus, rather than five weeks of accrued vacation pay and eight weeks of adjusted vacation pay, Goist received only eight weeks of adjusted vacation pay. Nonetheless, the Board prorated Goist's eight weeks of pay across the entire three-month period prior to the commencement of Goist's regular pension payments and found Goist ineligible for unemployment compensation throughout that entire period. We conclude that this manner of apportionment does not meet the standard of reasonableness mandated by section 1255.3. If eight weeks of pay can only reduce eight weeks of unemployment in the case of a worker who retires with accrued vacation time, it is unreasonable that the same eight weeks of pay should reduce thirteen weeks of unemployment compensation in the case of a worker who retires with none. Rather, the calculation of the special payment itself should be employed to supply the reasonable attribution of the special payment. The special payment is calculated on a 13-week basis. Each week's payment should be attributed to a week of potential eligibility for unemployment compensation. The Board may reduce unemployment compensation only for those weeks in which adjusted vacation pay is paid. Eight weeks of adjusted vacation pay will result in eight weeks of offset. Offset may not be applied to weeks for which the employee either receives accrued vacation pay or receives nothing.