Screwed by the state

When I was laid off by Quark in mid-May, I applied immediately for Colorado unemployment benefits. Everything sailed through smoothly. Oodles of paperwork arrived in the mail – notification of approval, how much I’d get, when it would start, what I had to do every week, and a thick book telling me the rules and Dos and Don’ts and procedures.

Included in the book was a brief sentence saying that I was required to notify the state if I withdrew money from a 401(K) to which my employer had contributed.

As it happened, my 401K had been doing surprisingly well, despite the financial meltdown. I made what seemed to be a very prudent decision. Since I had to move the money out of my now ex-employer’s 401(K) plan, I decided to roll half of it over into an IRS and use the other half to get us (finally!) completely out of debt, eliminating what had been a burdensome monthly payment. (The result of youthful indiscretions combined with some unavoidable emergencies. We’d been painstakingly paying down that result for years.) What a relief that was! And how much easier it would make it to survive on unemployment benefits while I searched for a new job.

Of course I notified the state about it. I figured that they would delay the beginning of my unemployment checks by a few more weeks because they would treat one-half of the employer’s contribution to my 401K as part of my severance package. That would have been fair and reasonable.

Then I received a letter from the state saying that under Sections 8-73-110 (3) (A) & (C) of the Colorado Employment Security Act, since I did not reinvest every penny of the 401(K) in an IRA or Keogh plan, the entire amount of the 401(K) was being treated as a lump-sum retirement payment. This delayed the start of my unemployment benefits until March of 2010.

I appealed, noting that I had reinvested half of the 401(K) in an IRA, and moreover that of the half I had withdrawn for my use, only a small portion was my employer’s money, as opposed to my own. Would I have been penalized the same way if the money had come from a regular savings account? No. Would it have hurt the state to mention this bizarre law in the thick booklet it sent to me? No.

I was given a hearing date. I went on schedule. I repeated all of the above objections to a hearing officer named Benedict, a tired man despite my being his first appointment of the day, a distracted man, an uninvolved man. He’d heard it all before. (To be fair, perhaps he was sympathetic but had been trained not to show it.) As I expected, the appeal was denied.

So there’s a law on the books that affects your unemployment benefits, but the booklet from the state that tells you what you need to know when you apply for unemployment doesn’t tell you about that law. It tells you that you must notify the state about a 401(K) withdrawal, but it doesn’t tell you what the consequences of such a withdrawal are.

I’m not living in Colorado. I’m living in Kafkarado.