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  • Dismissal or Severance Pay and Pensions: Frequently Asked Questions

    Q: What is considered dismissal or severance pay?

    A: Dismissal pay is payments made by an employer to an employee due to separation from employment. Severance pay is considered dismissal pay.

    Dismissal/severance pay does not include payment for pension, retirement, accrued leave and health insurance or payments for supplemental unemployment benefits.


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    Q: If a claimant receives dismissal or severance pay, will it affect their benefits?

    A: A claimant may be eligible for Unemployment Insurance if the weekly payments of dismissal or severance pay are the same as or less than the maximum benefit rate. The claimant must notify the Telephone Claims Center if they receive or will receive dismissal or severance pay within 30 days of their last day of employment. This applies even if they receive dismissal or severance pay after filing a claim. If the claimant does not notify us, they may receive an overpayment of benefits, which must be paid back. The claimant also may be subject to other penalties.

    A claimant will not be eligible for benefits immediately if:

    • They receive weekly dismissal or severance payments that are greater than the weekly benefit rate;or
    • Their employer gave them a lump sum payment and the weekly pro-rated amount of the payment is greater than the maximum weekly benefit rate.
    A claimant may be eligible to collect benefits if:

    • The weekly amount of dismissal/severance pay is the same as or less than the maximum weekly benefit rate; or
    • The dismissal/severance pay is stopped and the claimant has enough earnings in the base period to establish a claim.
    • The initial dismissal/severance payment is made more than 30 days after the claimant's last day of work.

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    Q: What is an employee’s last day of employment for the purposes of dismissal or severance pay?

    A: An employee's last day of employment is the last day he or she actually worked or was on paid leave, such as a scheduled vacation or medical leave.


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    Q: Is WARN pay the same as dismissal/severance pay?

    A: No. Payments made under the New York State WARN Act (Worker Adjustment and Retraining Notification Act -- Article 25-A of the Labor Law) are not considered dismissal or severance pay. The WARN Act states that Unemployment Insurance benefits may not be denied or reduced because a claimant is receiving WARN payments.


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    Q: Can dismissal or severance pay be used to establish a new claim after the dismissal or severance pay ends?

    A: No. Only wages or earnings for actual employment can be used to establish entitlement to a claim.


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    Q: Is dismissal/severance pay paid in a lump sum treated differently from payments made over a period of time?

    A: No. Any dismissal/severance payment received within 30 days of a claimant's last day of work, whether as a lump sum or in payments made over a period of time, may affect a claimant's benefits.

    Usually, the time period covered by the lump sum payment will be clearly spelled out in the dismissal or severance pay agreement or plan. If it is not, the Department of Labor's Telephone Claims Center will determine the time period that the lump sum payment covers. They will determine the time period by looking at actual average weekly pay or the average weekly pay of the claimant's highest-earning calendar quarter of the base period from the employer paying the dismissal or severance pay.


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    Q: What if I send dismissal or severance pay to a union, and the union sends it on to my former employee(s)?

    A: The same rules apply as if your former employee(s) were receiving the dismissal or severance directly from you. Your employee(s) are considered to have received the dismissal or severance pay when it is transferred from you to the union, not when the former employee(s) actually receive it.


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    Q: If a claimant rolls their dismissal or severance (either lump sum or scheduled payments) into a qualified Individual Retirement Account, will their benefits be affected?

    A: The claimant would not be eligible for benefits as long as they are receiving dismissal or severance payments that exceed their benefit rate, regardless of what they do with the payment.


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    Q: Does receiving a pension affect a claimant’s benefits?

    A: A person who is retired and not seeking employment is not eligible for Unemployment Insurance benefits. A person who is retired and actively seeking work may be eligible for benefits under the same conditions as other workers.

    If a claimant who is receiving a pension is found eligible for Unemployment Insurance benefits, their weekly benefit rate will be reduced by 100% of the amount of the pension if a base period employer contributed to it. This is true even if the former employee contributed to the pension. The weekly benefit rate will not be reduced if the former employee was the sole contributor to the pension.


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    Q: Can other types of retirement payments be considered pensions, and therefore reduce Unemployment Insurance benefits?

    A: Yes. The pension reduction applies to a governmental or other pension, retirement or retired pay, annuity or any other similar periodic payment which is based on previous work.


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    Q: Is a 401(k) considered a pension that reduces a claimant’s benefit rate?

    A: A claimant's benefit rate could be reduced if they received a payment from a 401(k) if a base period employer contributed to it. This would apply if the claimant receives periodic 401(k) payments or if the claimant is unemployed due to retirement but remains active in the workforce and receives a lump sum payment. The pension reduction applies to a governmental or other pension, retirement pay, annuity or any other similar periodic payment which is based on previous work.


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    Q: If a claimant rolls their pension, 401(k), 403 (b), etc. into a qualified IRA, are they still subject to a rate reduction?

    A: No.


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