TN 23 (06-10)

A. Definition of SUB plans.

SUB plans provide compensation to employees in addition to State unemployment insurance during periods of layoff. The typical SUB plan is financed by employer contributions to a trust fund from which benefits are paid to employees because of involuntary separation from employment.

SUB plans generally provide payments to an employee for involuntary separation from employment (whether or not such separation is temporary) due to

• a reduction in force or

• the closing of a plant or similar condition.

SUB payments include sick and accident benefits but only if such benefits are made in conjunction with, and subordinate to, the SUB payments.

Other types of SUB payments include:

• relocation allowances paid to employees who relocate to avoid involuntary separation; and

• compensation for loss of pay due to shorter work weeks to avoid involuntary separation.

B. Policy for SUB plans.

1. Wage status

SUB payments are not wages because they are paid on account of unemployment rather than employment.

To qualify as a wage exclusion, SUB payments must be tied to State unemployment compensation, which are periodic payments.

NOTE: Employers usually have an IRS ruling that the trust from which SUB payments are made is tax-exempt.

2. Exception

SUB payments paid in a lump-sum or not directly related to State unemployment compensation are wages. This rule applies to benefits paid on or after January 1, 1991. If the lump-sum SUB plan was in effect on September 4, 1990, this rule applies to benefits paid the later of January 1, 1991 or the date the plan expires.

3. Disability beneficiary

SUB plans must be examined to determine the impact a lump-sum payment (reported as wages on the earnings record) has on a disability beneficiary.

Some plans provide that a person (albeit a disability beneficiary) still carried by the company as an employee, could be entitled to SUB payments if the job is terminated while he or she is a disability beneficiary.