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Peare v. McFarland

November 27, 1985

HARRY S. PEARE, INDIVIDUALLY AND ON BEHALF OF A CLASS OF PERSONS IN THE STATE OF INDIANA SIMILARLY SITUATED, PLAINTIFF-APPELLANT,
v.
HARRY T. MCFARLAND, IN HIS CAPACITY AS DIRECTOR OF INDIANA EMPLOYMENT SECURITY DIVISION, WILLIAM H. SKINNER, PAUL M. HUTSON, AND DANIEL L. ADAMS, DEFENDANTS-APPELLEES, AND UNITED STATES DEPARTMENT OF LABOR, DEFENDANT-INTERVENOR-APPELLEE



Appeal from the United States District Court for the Northern District of Indiana, South Bend Division. No. S 83-69- Allen Sharp, Judge.

Author: Fairchild

Before CUDAHY and POSNER, Circuit Judges, and FAIRCHILD, Senior Circuit Judge.

FAIRCHILD, Senior Circuit Judge.

This appeal involves an application of the federal law governing a State's offset of Social Security retirement benefits against unemployment compensation. Indiana is the State involved here. The same question has been presented in the Sixth and Ninth Circuits and decided in favor of the offset. Bowman v. Stumbo, 735 F.2d 192 (6th Cir. 1984) and Rivera v. Becerra, 714 F.2d 887 (9th Cir. 1983), cert. denied, 465 U.S. 1099, 104 S. Ct. 2678, 80 L. Ed. 2d 124 (1984). We reach the same conclusion. The opposite decision was made in Edwards v. Valdez, 602 F. Supp. 361 (D. Colo. 1985) appeal pending, Nos. 85-1552, 85-1650 (10th Cir., April 11, 1985, May 5, 1985). We shall attempt to avoid unnecessary duplication of the background material included in those opinions.

I

Harry Peare, the named plaintiff, retired and started receiving Social Security retirement benefits in 1973. He was 65. In 1981 he went to work for Mathis Machine Corporation. He had not previously worked for Mathis. After 18 months, Peare was laid off and applied for unemployment compensation.

Mathis, his "base period employer" for the purpose of unemployment compensation, paid FICA taxes with respect to its employees, including Peare. IESD, the appropriate Indiana agency, granted unemployment compensation, but reduced it by 50% of Peare's Social Security benefits.

Peare filed this class action against McFarland, the Direct of IESD. The United States Department of Labor was permitted to intervene. The district court granted the Department's motion for summary judgment. Peare v. McFarland, 577 F. Supp. 791, 795 (N.D. Ind. 1984). Peare appealed from the judgment accordingly entered.

The federal statute involved is 26 U.S.C. § 3304(a)(15) as amended by Pub. L. 96-364, § 414, 94 Stat. 1208, 1310 (1980).

As enacted in 1976, the statute had required States to reduce unemployment compensation by 100% of all pension income. Apparently considering that this requirement may have gone too far, Congress postponed the effective date. The 1980 amendment was designed to ameliorate the so-called offset requirement. It clearly did so. The present dispute with respect to Social Security is whether greater liberalization was intended.

26 U.S.C. § 3304(a) requires the Secretary of Labor to approve any State law which he finds contains certain provisions. Subsection (15) is the offset requirement, compelling reduction of compensation by the amount of "a governmental or other pension, retirement or retired pay, annuity, or any other similar periodic payment which is based on the previous work of" the applicant.

The 1980 amendment added two conditions, (A)(i) and (A)(ii) which are to be fulfilled before the offset is required, and added (B) permitting a State to limit the offset where the worker made contributions for the payments.

The (A)(i) condition is fulfilled if the payment "is under a plan maintained (or contributed to) by a base period employer or chargeable employer (as determined under applicable law)."

Everyone concedes that Social Security retirement benefits constitute one of the types of payment dealt with by subsection (15). Indeed, if that were not so, there would never be a reduction of unemployment compensation as a result of Social Security benefit payments. Although in the course of formulation of the 1980 amendment the House of Representatives had adopted a provision that the offset "shall not apply to any amount paid under the Social Security Act or the Railroad Retirement Act of 1974 . . .," this provision did not survive the Committee of Conference. House of Representatives Report No. 96-1343, September 18, 1980. Indeed, Social Security (and Railroad Retirement) payments are expressly excepted from "such a payment" in ...


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