Is money received from early withdrawl of a 401k considered income and could it reduce unemployment benefits?

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Is money received from early withdrawl of a 401k considered income and could it reduce unemployment benefits?

The unemployment office is considering the employer-provided (i.e. company match) portion of my 401k as a pension and requesting that I pay back all unemployment benefits I received. I have a separate pension that I can’t touch, so I’m not sure why they consider the 401k a pension.

Asked on November 19, 2011 under Employment Labor Law, Iowa

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

You should consult with an attorney who specializes in unemployment claims and law, since this can be a tricky, technical area. It is not certain that what the unemployment office is doing is correct--which is why you should consult in detail with an experienced lawyer in this field, about the specifics of your situation, to be sure--but the reasoning behind their action would probably be as follows:

That portion of your 401k which was based on deductions or withholding from your salary is basically your savings--conceptually, it's no different than if you had put $X away in a saving account for your retirement. However, the company or employer match portion was *not* your own savings--rather, it was additional compensation your employer chose to pay you, or at least make available to you; it was extra money you were able to get for working, and so the unemployment office may be considering it income. While it was not income you were paid at the time, they may be treating it as deferred income, or as income paid pursuant to a severance or separation agreement over time (i.e. not as a lump sum), both of which can render someone ineligible for unemployment, since he or she is still being paid for his or her work--just at a later time.

Again, it is not clear the office's interpretation is correct, but there is at least a logical underpinning to it. Given what is at stake, it is worthwhile consulting with an attorney experienced in this area to see if you have grounds to fight this determination.


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