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A. D. No. B93-17227-130278 S.S.No.~ B. 0. No. 33 Employer No. 0090154

STATE OF MICHIGAN IN THE 42ND JUDICIAL CIRCUIT COURT

IN THE COUNTY OF MIDLAND

JOHN W. BRENNAN, Claimant-Appellant,

v

WCHIGAN BELL TELEPHONE COMPANY, Employer-Appellee

and MICHIGAN EMPLOYMENT SECURITY AGENCY,

Appellee _____________________________ / JOAN F. DUDLEY (P46891) Attorney for Claimant-Appellant

ALBERT CALILLE (P26819) Attorney for Employer-Appellee

FRANK J. KELLEY Attorney General

By: MARTIN J. VITI ANDS (P26292) Assistant Attorney General Attorney for Appellee, State of Michigan Unemployment Agency, Department of Consumer & Industry Services ______________________________ /

OPINION

Case No. 97-6843-AE-L HON. THOMAS L. LUDINGTON

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STATE OF MICHIGAN

FORTY-SECOND CIRCUIT COURT FOR THE COUNTY OF MIDLAND

JOHN W. BRENNAN,

Claimant-Appellant, FILE NO: 97-006343-AE-L

vs.

MICHIGAN BELL TELEPHONE COMPANY,

Employer-Appellee,

and

MICHIGAN EMPLOYMENT SECURITY AGENCY,

Appellee. ____________________/

OPINION

Appeal From Michigan Employment Security Agency Board of Review

r1ECEIV2D

FEB 0 6 1998

LEGAL DEPT.

I.

II.

III.

IV.

V.

VI

VII.

VIII.

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TABLE OF CONTENTS

FACTS

BASIS OF JURISDICTION

STANDARD OF REVIEW

OVERVIE'VV OF THE MICHIGAN EMPLOYMENT SECURITY ACT (MESA)

OVERVIEW OF PENSION PLANS SUBJECT TO MESA'S PROVISIONS

MICHIGAN BELL'S PENSION PLAN

ISSUES ON APPEAL

ANALYSIS

A Statutory Construction of MESA Section 27(f) Addressing Pension Benefit Coordination.

1. The USDOL's interpretation of the FUT A pension benefit offset provision is not a binding interpretation of MESA Section 27(f).

2. MESA reflects the legislature's intent that the benefits of an otherwise eligible claimant who is actively seeking employment, may, in certain circumstances, be required to be coordinated

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with the claimant's pension benefits.

Retirement benefits received by a MESA claimant as a result of an employer's election to terminate a pension plan are not to be coordinated under MESA The

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IX. SUMMARY

legislature also did not intend distributions from pension plans caused by other employer changes to "established" plans to be coordinated under MESA

The record is unclear in reflecting whether Appellant Brennan elected to receive his retirement benefit under the terms of Michigan Bell's "established" pension plan.

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FACTS

Claimant-Appellant Brennan appeals from a Micbigan Employment Security

Agency Board of Review (MESABR) decision denying his claim for unemployment

compensation benefits.

Appellant Brennan began employment with Micbgan Bell in 1956. He was larer

employed by AT&T a.TJ.d finally by A..rneritech or an &"filiated subsidiary.

In September 1993, Appellant's employment was teim.inated under an incentive

program called the "Transitional Staffing Separation Payment Plan." According to

Appellee Michigan Bell Telephone Company, Brennan was eligible to receive his pension

based on the fact that he was over 59 years of age and had invested over 37 years of

service , with his employer or its predecessors, a t the time of separation.:

Apparently, Appellant had the option of receiving either a lwnp sum payment of

the pension benefit or a monthly annuity payment. Appellant's annuity payment would.

have amounted to $3,762.04 per month for life. Brenrian, however, opted to recebe the

At the time of separation, Brennan's pension entitlement derived from the Ameritech Management Pension Plan. The Michlgan Bell Telephone Company is also part of the Ameritech Pension Plan. Before the federally mandated divestiture of AT&T in 1982. Brennan was a participant in the AT&T pension plan. Pursuant to the divestiture of AT&T, its pension plan was divided among the resulting entities. The Plan of Reorganization, (Civil Action NO. 82-0192; D DC, 1982) provided for the portability of pension benefits for employees who, due to the "break up," were transferred from one company to another. At the time of the "break up," Brennan's employment, along with his pension rights , was transferred from AT&T to Michigan Bell. Employees of AT&T also retained their seniority and years of service when transferred. The pension plan was, at all times, non contributory; Brennan concedes this fact and admits that he did not contribute to the funding of the pension.

lump sum payment in the amount of $566,951.47. Brennan also elected to defer receipt

of the payment until January 1, 1994. On January 3, 1994, Appellar:t "rolled" the

S566,951.47 payment into an Individual Retirement Account (IRA).

Pursuant to 26 USCS § 402(c), the Federal Income Tax Code exempted Appelle.r:t's

receipt of the S566,951.47 from immediate taxation provided that the pension benett was

tra..r1sferred, withill sixty days of receipt, into an IRC... or other qualified plc....""J.. If AppeUac.t

had directly received the per...sion benefit before he reached the age of 59 V:: the benefi1:

would have been subject to income ta.'<ation and e. 10% excise penalty t2.x.

As a result of being involuntarily tenninated. Appellant sought u..TJ.employmem

compensation benefits from the Michigan Employment Security Agency. The

Employment Security Agency held that Brennan's termination qualified him fo:­

unemployment compensation benefits pursuant to MCL 421.29(1)(C): MSA 17.531(l)(C).

However, it concluded that pursuant to MCL 421 .27(f)( 1): MSA 17.529(f)( 1). his pension

benefits completely offset his entitlement to unemployment benefi~s. Appellant

appealed the decision to an Agency Referee who held that . Ameritech had not

demonstrated that it contributed to the pension plan within the mea.TJ.i.ng of MCL

421.27(f)(l)(a)&(b); MSA 17.529(f)(l)(a)&(b). Therefore, the pension benefits should nm

offset any unemployment compensation benefits.

Subsequent to the Referee's decision, Appellee Michigan Bell appealed to the

MESABR. The MESABR reversed the Referee and held that Appellant's pension benefits

must be used to offset his unemployment benefits. Brennan made application for

rehearing with the MESABR but the application was denied.

Brennan now appeals the MESABR decision. Oral arguments were heard or..

December 29, 1997, and this Opinion follows.

BASIS OF JURISDICTION

It is uncontested by the parties that this appeal is properly before this Col.!l't.

Appellan.t, having exhausted his administrative remedies, appeals pursuant MCR 7 .104

and MCL 421.38(1): MSA 17.540(1). which, in percinent part , provides that:

The circuit court ... may review questions of fact and law on the record made before the referee and the board of review involved in a final order or decision of the board, and may make funher orders in respect to that order or decision as justice may require, . ..

MCR 7.105(M), which governs the appeal of contest ed cases frcm a.J.

administrative agency further provides that the court may affirm, reverse. rema.J.d or

modify the decision of the agency.

III.

STANDARD OF REVIEW

The standard of review for appeal from a decision of the MESABR is found i..TJ. c2e

Michigan Employment Security Act (MESA) MCL 421.1 et seq.; MSA 17.501 et seq. c.c §

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... the court may reverse an order or decision only if it finds that the order or decision is contrary to law or is not supported by competent, material, and substantial evidence on the whole record .... [MCL 421.38( 1): MSA 17.540(1)1

OVERVIEW OF THE MICHIGAN EMPLOYMENT SECURITY ACT (MESA)

MESA. enacted pursuant to the State's police powers, is intended to provide

temporary income replacement for workers who. through no fault of their own. 2..!'e

unemployed. See MCL 421.2; MSA 17.502 and I M Dach Co v MESC, 347 MICH 465: 80

NW2D 193 ( 1957). A worker in need of temporary income replacement can file a_r1

application for unemployment benefits at a local Employment Security Agency office and

register for work in accordance with the provisions of MCL 421.32; MSA 17.534. .A..,.'1

important component of the registration process requires the claimant to period.:.cally

report to his local Employment Security Agency' office. MCL 421.28(1)(a); MSA

17.530(1)(a).

Once a claimant has initiated the process, the Employment Security Agency will

determine the claimant's eligibility for benefits. ELigibility for benefits under MESA is

determined through application of many statutory requisites; but there are four t!lreshold

requirements , each of which must be met:

1) The employee must be ''tmemployed," as that term is defined by MESA.

2) The employee must have been engaged in e!TI.ployme!':t that qualifies for coverage under MESA

3) The employee must apply for the unemployment benefits. 4) The employee must be available for and actively seeking suitable

full time work. [MCL 421.28(1); MSA 17.530(1)1

Additionally, there are many instances when an employee vvili oe statutorily

disqualified from unemployment compensation eligibility . For example. an employee

who voluntarily terminates employment without good cause attributable ;::J the employer

and an employee discharged for rrJsconduct on the job are disqualified t-om eligibility.

MCL 421.29; MSA 17.531. Generally, the bw-den of proving eligibility and challenging

disqualification rests on the employee . McArthur v Bormans. Inc, 200 Mic!l. App 277; 297

NW2d 652 (1993). However. the Michigan Court of Appeals has he ld that in order to

effectuate the purpose of MESA. the disqualification provisions are LO be narrowly

construed. Schultz v Oakland County, 187 Mich App 96; 466 NW2d 37~ (1991).

The ma.nner by which the value of the_ benefit is determined has recemly changed.

The Employment Secu..rity Agency has. converted from a wage~reporting system to a

wage~record system, 2 and the provisions addressing the a.rnount of the benefit have

undergone significant change since Appellant Brennan filed his cl2i.:r;.. Under both

systems, however. the benefit amount will represent a percentage of the employee's

former income. Moreover, regardless of when a claim was made, the m a:<imuin weekly

benefit amount is $300.00. MCLA 421.27(b)(1) ; MSA 17.529.

:Effective July 1, 1997. See 1994 PA 162, § 75.

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i ., The amount of the weekly benefit can be reduced by many fc.cwrs . MESA

requires benefits to be reduced by the amount of remuneration ea::-_:d from other

employment, MCL 421.44( 1); MSA 17.543( 1), as well as for pension beneB.:.s. w.b..ich is the

primary statutory issue raised on appeal in this matter. MCL 42 : .27(f)(l); MSA

17.529(f)(1).

Like the amount of the benefit . its duration is calculated accorc:L::.~ to c. formula

provided by MESA MCL 421.27; MSA 17.529. The maximu...'TI duratic::. !s twenty-six

weeks while the minimum duration is fourteen weeks. The employee cc: ... apply for an

, extension of benefits for up to an additional thirteen weeks. MCL 421.5~ : MSA 17.568.

The temporary income provided to unemployed workers is financed exclusively

. . by employers through the payment of unemployment taxes. Employer :.:ability u...'1der

MESA can be depved in many ways, but essentially depends on the size c: ~he e mployer,

the amount of wages paid, and the number of weeks per year it empio:;s employees.

MCL 421.41; MSA 17.543.

MESA was intended to coordinate with the Federal Unemploy::::ent Tax Ace

(FUTA), 26 USCS § 3301, et seq. FUTA operates in much the same fashior:. c.s MESA end

two important aspects of the interrelationship are worth noting. Fi..rst . ::::ecause liable

employers will pay both state and federal unemployment taxes, 26 uses § 3302(b ),

provides a ta"< credit. An employer who pays its state unemployment tc:.xes in a timely

fashion will receive a credit of 5.4% against its federal unemployrne:nt tax obligation.

.. Since the federal rate is 6.2% of the first $7,000.00 of an employee's wc.c;es, the credit

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,i :j results in the employer's tax obligation being reduced to .8%; thus avoiding duplicative

taxation.

Second, FUT A requires the provisions of the state legislation to be consistent 1:"ith

.. , its provisions. The penalty for nonconformity is loss of the federal tax credit for all

employers in the state.

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OVERVIEW OF PENSION PLANS SUBJECT TO MESA'S PROVISIONS I

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There are two basic types of employer furnished pension p lans; defined ., ·: 1 contribution plans and defined benefit plans. :! ' ·I 1 Under a defined contribution plan, an employer obligates itself to ma..l{e annual

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j: ,! contributions to individual employee accounts maintained in a single trust fund under

the plan. The investment earnings of the trust fund accrue to the benefit or detriment

of the individual employees. At retirement or othe-r termination of employment. the

!j ij employee may elect to receive the account balance in either a single payment or in :I

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installments. Many different types of Internal Revenue Code (IRC) qualiii.ed pension

plans fall within this very broad category including employer funded "money purchase

pension plans," "profit sharing plans ," "stock bonus plans ," and "employee stock

! ownership plans." I·

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Probably the most common type of defined contribution p lan is the deferred salary

arrangement plan provided for at IRC 401 (K). Under such a p lan, the employee may

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deposit a portion of his or her salary into a 401 (K) plan. The amow.t of ::he employee's

salary reduction is not subject to current income tax IRC 402(G)(l) . Ts~ employee's

account is always fully vested but the funds may not be withdrawn um:.l ;:~e emplovee

is 59 V2 years old except in the case of certain financial hardships, dec.:h. disability , or

other termination of employment. IRC 401 (K)(2)(b). In many cases, emplcyers encourage

employees to participate in the plans by agreeing to match a cen:a.i.:: percentage of

employee contributions.

It is worth noting at this juncture that the employee contribution component of

deferred salary pension plans or of 401(K) plans will not be subject to the f:ension benefit

coordination provisions because MESA §27(f)( 4)(b ) provides that coordinc.tion is limited

to the amount of the benefit financed by the employer. The only category of pension

benefit at issue on appeal are pension benefits paid for by the employer

Defined benefit plans operate in an opposite fashion from that of defined

contribution plans, as it is the ultimate pension benefit that must be specified in the

pension plan. In fact, Treasury Regulation 1.401-l{b)(l)(i} mandates thc.t a defined

benefit plan must provide benefits that are "definitely determinable." Defined benefir;

plans are generally funded by the employer without any reduction in t2e employee 's

salary. Defined contribution and defined benefit plans are both sc..:..bject to the

requirements of the federal Employee Retirement Income Security Act of 1974 (EfUSA).

29 uses§ 100, et seq.

Subject to certain limits dictated both by ERISA and the IRC, employers may

determine the participation requirements for defined benefit plans, the eligibility

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1 requirements for receipt of benefits and the method of payment of the l:e~Efits . Defined 'I

benefit plans often differ from defined contribution plans in several res;:ects.

First, most employer provided defined benefit plans do not periTi ;: ~2.rticipams to

receive payment of their benefits until the participant reachEs an ac;~ specified in the

plan. By contrast, most defined contribution plans permit participc..r:: distributions

shonly after tErmination of employment, with or without the 10% pEnalty :c.:{. depending

upon the specific circumstance .

Second, the benefit an employee receives from a defined benefit p!a..'1 is generally

a monthly pay-ment based upon the employee's e lection of either a sL."lg!e !..ife annuity or

a joint and survivor annuity. While defined contribution plan panicipa:-.1:s may purchase

.i an annuity contract with their account balance they eire also able , by comrast, to elect

! ·; to receive their account balance at the time of distribution.

' , ; Third, the employee's decision about when they will e lect to receive a distribution

., of the benefit under a defined benefit plan will also affect the amot.L.~::: of the benefit. I

.. ' :: Generally, there will be an actuarial reduction in the monthly berJ.efit for Early

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·i :i conunencement of the benefits to reflect the fact that the annuity vvil.! b.:: pc..id for a longer

period because the participant's life expectancy is longer. By contrast, L"l: arnoum of the

distribution from a defined contribution account will always be thE e....rnount of the

employee's account balance.

Employee Separation Compensation Plans or severance pay pla...'1s are not i

•I :I pensions plans, but employee welfare benefit plans. 29 CFR 2510.3-2(a). SL.'l.ce this type

lj of plan is not a retirement plan, it is not regulated by ERlSA. To be excluded from EFJSA I

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coverage, however, severance pay plans cannot be contingent on 2.!J. employee's

retirement; cannot exceed twice the employee's annual pay from the pr::•lious year; and

must be completed within one year of the employee's tennination.

VI.

MICIDGAN BELL'S PENSION PLAN

On December 8, 1997, the Court wrote counsel ~"ter a preliminc=.ry review of the

briefs seeking to detennine whether specific factual information abom ?vfichigan Bell's

pension plan was addressed in the record. Appellee Michigan Bell furnished a

Supplemental Brief along with an Affidavit of a manager for hurna..11 resources verifying

the following:

1. Eliaibilitv to Receive Retirement Benefits. Under Michig~ Bell's defined benefit plan, an employee is eligible for a service pension w"i<.h 30 years of service at any age, 25 years of service at age 50, 20 years of service at age 55, and 10 years of service at . age 65. As previously noted, Appellant Brennan was eligible to retire and receive a benefit under the plan because he was over 59 years of age and had worked over 37 years.

Appellant also elected to receive the distribution i.mo his IRA. notwithstanding the fact that he could have elected to def:r :-eceipt of the payment from the pension plan. The future payment "vvculd be greate:­than the pension benefit he received at (the) younger age.·· Appellant Brennan elected to receive the lower distribution but at the earlier date.

2. Terms of Pavment. Apparently, all employees pa..rticipating in the Michigan Bell plan are extended the opponunity to elect either montrJy annuity payments or a single lump sum distribution. Api=ellant Brenna..TJ. elected the latter.

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Importantly, Appellee Michigan Bell also verified that the pension plan was not

modified or amended to require Appellant Brennan or any other involuntarJy terminated

employee to accept the benefit. Moreover. Appellant Brennan was not required to

accept the pension benefit as a condition to his receipt of the other benefits offered by

the Transitional Staffing Separation Payment Plan. A copy of that plar.. -vvas not made a

part of the record nor was it clear whether or not Michigan Bell's plan was a Qualified

Employee Separation Compensation Plan.

Appellant Brennan objected to the fact that most, if not all of the information

furnished by Appellee Michigan Bell in its Supplemental Brief was not, in fact.

established in the record.

ISSUES 0 N APPEAL

Appellant Brennan raises two primary argumemts on appeal. First, he contends

that the record does not reflect that Michigan Bell or it predecessors in interest

"contributed to the financing of the retirement benefit" within the meaning of MCL

421.27(f)(1)(a); MSA 17.529(f)(l)(a), which provides:

(a) If and to the extent that unemployment benefits payable under this act would be chargeable to an employer who has contributed to the financing of a retirement plan under which the claimant is receiving or will receive a retirement benefit yielding a pro rata weekly amount equal to or larger than the claimant's weekly benefit rate as otherwise established under this act, the claimant shall not receive unemployment benefits that would be chargeable to the employer under this act. [Emphasis added]

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Appellees disagree and contend that the record reflects the fac: that Michigan

Bell and its corporate predecessors contributed the full economic cos: of Appellam's

• retirement benefit.

Appellant concedes that he did not contribute to the cost of ths pension plcm.

Moreover, the Court is satisfied that the record supports the conclusion that MicbJgc...TJ.

Bell and its predecessors contributed the funds necessary to pay for Appellant's per..siorr

benefit.

Appellant's second contention is that the Board of Review erroneously concluded

' that he "received" a "retirement benefit" with the meaning of MESA. :MCL

421.27(f)(l)(a); MSA 17.529(f)(l)(a) provides:

(f)( 1) Notwithstanding any incon.Sistent provisions of t.his act, the ·weekly benefit rate of each individual who is receiving or will receive a retirement oeneiit. as defined in subdivision (4), shall be adjusted as provided in subparagraphs (a) . (b). and (c).

(a) If and to the extent that unemployment be.q.efits payable under this act would be chargeable to an employee who has contributed to the financing of a retirement plan Under which the claimant is receiving or will receive a retirement benefit yielding a pro rata weekly amount equal to or larger than the claimant's weekly benefit rate ... the claimant shall not receive unemployment benefits that would be chargeable to the employer under this act. (Emphasis added)

MCL 421.27(f)(4)(a); MSA 17.529(f)(4)(a) provides:

(a) As used in this subdivision, "retirement benefit" means a benefit, annuity, or pension of any type or that part thereof that is described in subparagraph (b) that is:

(i) Provided as an incident of employment under 2..."'1

established retirement plan, policy, or agreement, including federal social security if subdivision (5) is in effect.

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(ii) Payable to an individual because the individual has qualified on the basis of attained age, length of service, or disability, whether or not the individual retired or was retired from employment. Amounts paid to individuals in the course of liquidation of a private pension or retirement fund because of termination of the business or of a plant or department of the business of the employer involved shall not be considered to be retirement benefits. [Emphasis added!

Appellee Michigan Bell disagrees with Appellant's statutory ims~retation that

the transfer of his pension benefit funds into an IM was not "receipt" cf the retirement

benefit. Appellant asserts, in addition, that his interpretation of MESA is required as a

result of the UDJted States Department of Labor's (USDOL), Unemployment Insurance

Program Letter No. 22-87, interpretation of FUTA and MCL 421.27([)(5 ); MSA 17.529([)(5)

'' which provides:

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(5) Notwithstanding any other provision of this subsection, for a:1y week that begins after March 31, 1980, and with respect to which an individual is receiving a governmental or other pension and claiming unemployment compensation, the weekly benefit amount payable to the individual for those weeks shall be reduced, but not below zero, by the entire prorated weekly amount of any governmental or other pension, retirement cr retired pay, annuity, or any other similar payment that is based on any previous work of the individual. This reduction shall be made only if it is re9J,ired as a condition for full tax credit against the tax imposed by the federal unemployment tax act, chapter 23 of subtitle C of the internal reve!lue code of 1986, 26 U.S.C. 3301 to 3311.

ANALYSIS

A . Statutory Construction of MESA § 27(f) Addressing Pension Benefit Coordination.

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Tne rules of statutory construction found at MCL 8.3; MSA 2 .212 h2.'l9 been reti.r..ed

to si.:< basic rules that a coun must fo llow in application and i....'1terpretc.<:ion of statutory"

law. The Michigan Coun of Appeals in Kubick v Child & Family Services of Michigan.

Inc, 171 Mich App 304; 429 N'VV2d 881 (1988) succinctly delineated those rules:

Briefly stated, the rules of statutory construction are: (1) when a st:atute is unambiguous, further construction is to be avoided; (2) if a.Il a.rnbiguity exists , the LTJ.tent of the Legislature must be given effect: (3) a cofl...struction which best accomplishes the statute's pW"pose is favored; (4) starutes are to be interpreted as a whole and construed so as to give effect: to each provision; (5) specific words in a statute are given their ord.LTJ.ary meaning unless a different interpretation is indicated; and, (6) respectful consideration is to be given to the construction of a statute used by those charged with its application. [Kubick at 3081

1. The USDOL's interpretation of the FUT A pension benefit ocse.: provision is not a binding interpretation of MESA Section 27(f).

The USDOL issued Unemployment Insurance Progra.rn Letter No. 22-87, Cha::ge

I. on June 19, 1995. The program letter provided .an interpretation of the language

"receiving . . . retirement . .. pay .. . "contained in§ 3304(a)(15)(A) of FUTA. The USDOI...

, concluded that Congress did not intend FUT A benefits to be coordinated vvith retiremer.I

I benefits. The interpretation was based primarily on the fact that Congress had excludeG.

"rollover distributions" from immediate taxation under IRC 402(c).

; Whatever the merits of the USDOL's interpretation of FUTA, it is simply not

authority that prohibits a state legislature from reaching a contrary conclusion. The i ·I . I

program letter was not issued as a result of a legislative change to Fu"'TA or as result of :j I

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, a judicial decision. Accordingly, the USDOL's opinion is authority for t::e Department's

implementation of FUT A but is not itself a requirement of FUT A. Ludington Service

Corporation v Acting Commission of Insurance, 444 Mich 481, 511 NW2d 661 (1994).

1/Vhile the Program Letter is binding with respect to extended benefits fi Qo.nced by the

federal government because of MCL 421.27([)(1) and (f)(5), MSA 17.529(:1( 1) and ([)(5). i::

is the Michigan legislature's intention in enacting the balance of §27([) of .MESA that is

the governing criteria for this Court.

Moreover, Appellant has not provided this Court wil:h any c::.J.::hority for the

proposition that the Michigan legislature's intentior.. in enacting MESA TNas the same as

Congress ' intention in deciding to exempt benefit transfers to IRA's from current L11come

ta"< or in deciding to impose a 10% excise tax on benefit distributions made to a taxpaye:

before the age of 59 Yz. Indeed, it seems quite likely that Congress was attempting to

encourage taxpayers to use privately fw~C.ed. ~cL'....:iic;::. te;::.c:t:::> :::::tc: :.::.:..:: =-~~~~ c~ :~-::~2.!

security, "old age," benefits. It seems equally likely, on the other ha.."ld. that the

Michigan legislature sought to require terminated employees to use employer fu.r1deC.

pension benefits that were intended under the terms of the pension pla.r1 for transitiona2.

economic support, in addition to "retirement," rather than to impose a further tax

obligation on the employer for a benefit the employer had already funded. In any evem.

there is no authority to suggest that Congress' intention in enacting §402 of the Interna..l

Revenue Code was the same as the Michigan legislature's intention in. enacting §27(£)

of MESA.

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I Finally, the legislature could have expressly limited the reach of ~.!:::SA §27(f) to I

!I :! the "after-tax" component of the benefit as they did in enacting the ;:ension offset

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,, provision under subsection 354{1)d (MCL 418.354(1)(d); MSA 17.237(3 ::.; ~( 1 )(d)) of the :i !

:! Worker's Disability Compensation Act. The Michigan Supreme CotZ:: s decisioE i!1 ,. ' I

Corbett v Plymouth Twp, 453 Mich 522; 556 NW2d 478 (1996) relied or:. :2is very poLTl::

.: in concluding as follows:

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"The construction that we adopt is consistent "~Nith the ic.::.guage of .:tc: statute, which provides for an off-set "of the after-tax :: .. :::.aunt cf t.he pension . or retirement payments received or being received by the employee .... " (Emphasis added.) By reason of the tax-Z:::s aspect cf c rollover into an IRA, there is no taxable event and. hence. r:: tax or "2.!.~er­tax amount" that is "received or being received. "

2. MESA reflects the legislature's intent that the i:::enefits of 2.!'.

otherwise eligible claimant who continues to cccively seek employment. may, m certam circumstances . ue r--::•...J.ui!t:l.i. ~u u~

coordinated with the claimants pension benefits.

;; It is clear from the provisions of MESA that the Michigan legislc::ure intended .I ., 'I

·1 some claimants, who do not intend to retire because they do intend to re:nain a part c f

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:! the work force, to utilize eruployer funded retirement benefits for transiti:::nal econcwJc ~ l . I

'i support. Indeed, the question of retirement benefit coordination does ::.at even arise !;

:: ., '· under §27(f) of MESA unless a claimant is eligible for benefits u...'"lder MESA ceca use they

" ·i are " . .. available for and actively seeking suitable full-time work'' as well c.s "registered ., : ~ :I ;l for work" with the agency (MCL 421.28(1), MSA 17.530(1)).

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3. Retirement benefits received by a MESA claimant as a result of an employer's election to tenninate a pension ptar~ are not to be coordinated under MESA. The legislature also did not intend distributions from pension plans caused by other employer changes to "established" plans to be coordinated llilder M:C:SA.

The legislature expressly exempted retirement benefits from coordination under

§27(f) if the benefits become payable because the employer elects t:J liquidate the

pension plan or terminate its business. The legislature also c~cse the term

"established" to refer to retirement plans subject to MESA coor~ation. It is a fair

conclusion from the legislature's choice of language that the legislarure excluded

!: pension benefits from MESA coordination if: (i) the benefits are only received as a result :.

ii :: of the employer's decision to tenni..Tlate the plan or business, thereby altering the

' :; employee 's expectations about his or her use of the pension benefits, or (ii) the benefits

'i are being paid because of an employer's amendment to an "established" but continuing i

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:1 plan that requires the payment.

'i Indeed, such a construction of the statutory language is consistent r.V:th Appellant .: '!

:j Michigan Bell's contention that the legislature sought . to avoid the pyramiding of 'i " :i employer funded benefits by focusing the factual inquiry on whether or not the employer ~ I =I

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and employee expected that the employer funded pension benefi.r: could be used for

transitional economic support. If the employee receives the pension benefit. rolled into

an IRA or otherwise, as a result of their own election W1der the terms of a.'1 esr:ablished

.1 plan, there is no pyramiding of benefits because the pension benefit has been used in o! ' I

'I :i a marmer anticipated by both the employee and the employer. On the od:er hand, if the ,j •I

:1 employer elects to alter the eligibility or payment terms of a pension plan to require

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distributions to terminated employees, the employee is forced to use the benefits for an

unexpected purpose. The Michigan legislature did not intend the latter result and t.i:e :I ., ! ·I language of the statute is unambiguous . . :

4. The record is unclear in reflecting whether Appellant Brer...r:a.:.~

elected to receive his retirement benefit illlder the terms of Michigan Bell's "established" pension plan.

Given this Coun's interpretation of MESA, and if Michigan Bell's assertions in w.'le .

Supplemental Brief are accurate, coordination of Appellant's retirement benefit with rJs

· ~ unemployment compensation benefits is appropriate. Mr. Brennan elected to receive the '

retirement benefit distribution into his IRA Michigan Bell's pension plan was not

uniquely amended to require the distribution. The fact that Congress has chosen to

impose income tax and an excise ta..x pen::tlt.y n.n his usA of the same funds the Michie a.-:. ., ·: ,! legislature seeks to require him to use for transitional economic assistance is anomalous

:; but it is nevertheless the apparent intention of both legislative bodies. ' ·: ., ' i :i I I ., I

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IX.

SUMMARY

This matter is remanded to the Michigan Employment Security Agency to permit

!I the parties an opportunity to supplement the factual record "With resp8et to any issue not !i :I l! previously addressed in the record but relevant to this Opinion. :; '! i

.I :i DATED: February 3, 1998 :1

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:I il ., :I " :I . I .: d :I .,

~~~ Circuit Court Judge

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