Koontz v. Ameritech Services, Inc.

Decision Date12 June 2002
Docket NumberDocket No. 116366, Calendar No. 5.
Citation645 N.W.2d 34,466 Mich. 304
PartiesNancy KOONTZ, Plaintiff-Appellee, v. AMERITECH SERVICES, INC., Defendant-Appellant, and Unemployment Agency of the Michigan Department of Consumer and Industry Services, Formerly Michigan Employment Security Agency, Appellee.
CourtMichigan Supreme Court

David Davidson, Lansing, MI, for the plaintiff-appellee.

Ameritech Law Department (by Albert Calille), Detroit, MI, and Lacey & Jones, L.L.P. (by Richard G. Finch), Birmingham, MI, for the defendant-appellant.

Evans, Plelkovic & Rhodes, P.C. (by William Nole Evans), Huntington Woods, MI, for the Michigan Chamber of Commerce and Detroit Regional Chamber of Commerce.

Naida & Pierce, P.C. (by James D. Naida), Bingham Farms, MI, for the Employer's Unemployment Compensation Council.

Opinion

CORRIGAN, C.J.

This case requires that we interpret a statute directing coordination of unemployment benefits with pension benefits. Plaintiff received a lump-sum pension payment under an employer-funded retirement plan. When plaintiff sought unemployment compensation, the Unemployment Agency1 coordinated her weekly benefits with her prorated weekly amount of pension payments (i.e., the amount of pension benefits plaintiff would have received weekly had she not opted for a lump-sum payment). The ensuing reduction rendered plaintiff ineligible to receive any unemployment benefits. The Employment Security Board of Review and the circuit court upheld the reduction. The Court of Appeals reversed and held that coordination was not required.

We hold that the governing statute, M.C.L. § 421.27(f)(1), mandates coordination of plaintiff's unemployment benefits with her pension benefits. We therefore reverse the judgment of the Court of Appeals and reinstate the decision of the Board of Review and the judgment of the circuit court.

I. Underlying Facts and Procedural History

Plaintiff began working for Ameritech in its Traverse City office in 1965. Thirty years later, Ameritech closed its Traverse City office and offered to continue plaintiff's employment in another office. She declined, electing instead to retire. Ameritech's retirement incentive program entitled plaintiff to a $1,052.95 monthly pension allowance, which Ameritech fully funded. In lieu of monthly payments, however, plaintiff elected to receive her pension in a lump-sum in the amount of $185,711.55. Plaintiff also chose to transfer the lump-sum directly into her individual retirement account (IRA).

Plaintiff then applied for unemployment compensation. Ameritech argued in response to plaintiff's application that M.C.L. § 421.27(f) of the Michigan Employment Security Act, M.C.L. § 421.1 et seq., allowed coordination of plaintiff's unemployment benefits with the amount of pension payments plaintiff would have received if she had elected the monthly payment option. The Unemployment Agency agreed and directed coordination under M.C.L. § 421.27(f). This coordination resulted in a reduction in plaintiff's unemployment benefits in the amount of $243 weekly, rendering her ineligible to receive any unemployment benefits.2 Plaintiff timely protested this determination, but the Unemployment Agency upheld its decision on redetermination.

Plaintiff thereafter appealed the redetermination. A referee reversed the decision of the Unemployment Agency on the ground that neither M.C.L. § 421.27(f)(1) nor (5) required coordination since plaintiff had transferred the pension funds directly into her IRA and thus had not "received" the funds within the meaning of the act. The referee relied on the Unemployment Agency's Revised Benefit Interpretation No. 20.641, which indicates that an employee who rolls a pension amount over into an IRA does not incur immediate income tax liability because the Internal Revenue Service does not consider the payment "received" for income tax purposes.

Ameritech appealed the referee's decision to the Michigan Employment Security Board of Review, which reinstated the Unemployment Agency's determination in a split decision. The Board of Review ruled that the taxability of plaintiff's pension benefit did not affect the operation of M.C.L. § 421.27(f) and that the lump-sum distribution was a "retirement benefit" under the plain language of the act. Accordingly, the board concluded that coordination was required under M.C.L. § 421.27(f)(1)(a).

One member of the Board of Review dissented, finding that plaintiff did not receive a retirement benefit because the lump-sum distribution had been rolled over into an IRA. The dissenting member relied on Revised Benefit Interpretation No. 20.641 and the United States Department of Labor's (USDOL) Unemployment Insurance Program Letter No. 22-97. The USDOL Letter No. 22-97 stated that pension amounts rolled over into an IRA within sixty days of receipt are not gross income for purposes of federal income taxation and thus are not "received" for purposes of 26 USC 3304(a)(15)(A) of the Federal Unemployment Tax Act (FUTA), 26 USC 3301 et seq.3 The dissenting member concluded that M.C.L. § 421.27(f) did not require coordination of plaintiff's weekly benefit amount.

The circuit court affirmed the Board of Review's decision. The Court of Appeals then granted leave to appeal4 and reversed the circuit court order. 239 Mich.App. 34, 607 N.W.2d 395 (1999). It held that another subsection, M.C.L. § 421.27(f)(5), governed and did not require coordination of benefits. Alternatively, the court stated in dictum that even if M.C.L. § 421.27(f)(1) applied, coordination was not required because 1) plaintiff had not received a "retirement benefit" within the meaning of M.C.L. § 421.27(f)(4), and 2) the phrase "receive or will receive" in M.C.L. § 421.27(f)(1) does not include the direct rollover of a pension fund to an IRA.

II. Standard of Review

This case requires us to ascertain the meaning and proper application of M.C.L. § 421.27. Issues of statutory interpretation are questions of law that we review de novo. Oade v. Jackson Nat'l Life Ins. Co., 465 Mich. 244, 250, 632 N.W.2d 126 (2001); Donajkowski v. Alpena Power Co., 460 Mich. 243, 248, 596 N.W.2d 574 (1999).

III. Relevant Statutes

MCL 421.27(f)(1) has existed in essentially the same form since 1954 PA 197. It states:

[N]otwithstanding any inconsistent provisions of this act, the weekly benefit rate of each individual who is receiving or will receive a "retirement benefit," as defined in [MCL 421.27(f)(4) ], shall be adjusted as provided in subparagraphs (a).... However, an individual's extended benefit account and an individual's weekly extended benefit rate under [MCL 421.64] shall be established without reduction under this subsection unless [MCL 421.27(f)(5) ] is in effect....
(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.

MCL 421.27(f)(1) thus requires an offset in unemployment compensation for retirement benefits if the employer charged with unemployment benefits funded the retirement plan. This type of reduction is known as "narrow coordination."

Before 1980, federal law did not address coordination of unemployment and retirement benefits. In March 1980, Congress amended 26 USC 3304(a)(15) of the FUTA to require the coordination of unemployment benefits with employer-funded retirement benefits, regardless of whether the employer who had funded the retirement benefits was the same employer whose account would be charged for the unemployment benefits. This type of coordination is known as "broad coordination." Section 3304, particularly subsection (a)(15), of the FUTA requires the states to conform to federal policy regarding coordination of unemployment benefits to insure eligibility for federal funds or tax credits. See Gormley v. General Motors Corp., 125 Mich.App. 781, 785-786, 336 N.W.2d 873 (1983). In response to the federal amendment, the Michigan Legislature promptly adopted broad coordination to the extent required by federal law. MCL 421.27(f)(5) states:

Notwithstanding any other provision of this subsection, for any 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 or 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 required 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 revenue code of 1986, 26 USC 3301 to 3311.

The federal mandate for broad coordination was short-lived. In September 1980, Congress amended 26 USC 3304(a)(15) to its present form, which requires only narrow coordination, i.e., that coordination specified in M.C.L. § 421.27(f)(1). Despite the federal amendment, the Michigan Legislature has never amended M.C.L. § 421.27(f)(5). MCL 421.27 thus retains both broad and narrow coordination provisions. We now address the interplay of those provisions.

IV. Principles of Statutory Interpretation

When interpreting statutory language, our obligation is to ascertain the legislative intent that may reasonably be inferred from the words expressed in the statute. Wickens v. Oakwood Healthcare System, 465 Mich. 53, 60, 631 N.W.2d 686 (2001). When the Legislature has...

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