Early Draft of 2011 Indiana House Bill Included SUB-Pay as Deductible Income Against State Unemployment Insurance Benefits
March 11, 2011 - NORTON, MA - Since its introduction in 1956, Supplemental Unemployment Benefit ("SUB-Pay") Plans have been used by companies to coordinate an employee’s receipt of separation pay with their receipt of state unemployment insurance ("UI") benefits resulting from an involuntary layoff.
While some states consider an individual’s receipt of traditional severance benefits as wages and deductible income against UI benefits, all 50 states, including the District of Columbia and Puerto Rico, recognize SUB-Pay benefits as non-wages and non-deductible income against UI benefits as defined by IRS Revenue Rulings 56-249, 60-330 and 90-72.
However, in an effort to address its rising UI rate and UI trust fund solvency issues, a January 21, 2011 draft of Indiana’s House Bill 1450 included a provision that declared SUB-Pay benefits as deductible income against the receipt of UI benefits effective October 2, 2011.
This proposed legislation was opposed by Indiana unions and employers who would have been unable to utilize their paid-in state UI taxes to supplement UI benefits with SUB-Pay and allow their separated workforce to receive a FICA tax savings. On behalf of its Indiana clients, Total Management Solutions also contacted Indiana’s Director of UI Benefits to oppose this Bill.
On January 25, 2011 a revised draft of the House Bill rescinded the proposed provision and declared SUB-Pay benefits remain classified as non-deductible income against state UI benefits.
On February 24, 2011, House Bill 1450 was signed by Indiana Governor Mitch Daniels. The revised Bill also set the UI weekly benefit amount at 47% of an individual's prior average weekly wage and established the maximum weekly UI benefit amount to $390.
About Total Management Solutions
For 24 years, Total Management Solutions has set the standard for Supplemental Unemployment Benefit (“SUB-Pay”) Plan development and administration for Fortune 1000 companies. Introduced by organized labor and the Department of Labor in the early 1950's, and first issued in a Revenue Ruling by the IRS in 1956, SUB-Pay Plans enable corporations to utilize its paid-in asset of state unemployment insurance taxes to supplement state unemployment insurance benefits with separation pay. When combined, these two benefits reduce a corporation's severance costs by 7.65%-45% while providing their separated or furloughed employees with up to 100% of their pre-layoff wage, plus a 7.65% tax savings, while they transition to reemployment.