Unemployment Taxes Becoming “Significant Cost” says CNNMoney

by Guest Blogger Douglas J. Holmes, President of UWC- Strategic Services on Unemployment & Workers’ Compensation

The US Department of Labor has released instructions to states in response to the federal sequester that became effective March 1, 2013.

Changes to UI, as announced in the recent UI program letter, could affect your organization. Have you read the full letter yet?

Regular state unemployment compensation amounts are not directly impacted by the sequester. However, the details of the impact on funding for UI administration at the federal and state level and in sorting out the reduction amounts for individual weekly Emergency Unemployment Compensation (EUC) and Extended Benefit (EB) claims will be confusing for claimants, state agencies and employers and will likely result in higher error rates due to the short time to respond with programming, lack of training for staff, and misunderstanding of changes.

Sequestration specifically applies to

  1. UI state administrative grants under Title III, Social Security Act
  2. Administrative funding for UCFE, UCX, and administrative funding for TRA, ATAA, and RTAA benefits under the Trade Adjustment Assistance Act
  3. Reemployment and Eligibility Assessments (REAs) for regular UI program claimants
  4. UI national administrative activity funding
  5. Emergency Unemployment Compensation (EUC) benefits and administrative funding
  6. EUC related Reemployment Services and Reemployment and Eligibility Assessments
  7. Federal reimbursements of state Short Time Compensation benefit costs
  8. The federal share of extended benefit reimbursement

The DOL has asked that states make adjustments necessary to implement the reductions as soon as possible, and that EUC weekly benefit amounts and total EUC benefits payable be reduced by 10.7% effective with the week of March 31, 2013. However, recognizing that there may be some states that are not able to implement the reductions on March 31, 2013, states may delay implementation but the applicable percentage reduction will increase with later implementation.

The DOL has prescribed a notice to be sent to claimants explaining the reason for the reduction in EUC payments.

Impact on charges to state UI trust fund and employers in federal share of Extended Benefits

Of particular concern to employers in states that have triggered regular Extended Benefits (EB) is that the federal share of the EB payment will be reduced from the temporary 100% federal reimbursement, increasing the share to be paid through charges to employers and the state unemployment trust fund. Alaska is currently the only state triggered, but this cut in reimbursement should be noted as a concern in other states as well. A state may pass legislation detailed in the DOL program letter to reduce the EB Weekly Benefit Amount by the percentage of the cut.

A number of states enacted optional EB trigger provisions due to or conditioned on there being 100% federal reimbursement for the payments. The federally promised 100% reimbursement is now being cut, raising the policy and legislative issue as to the impact on laws requiring 100% reimbursement and states that assumed 100% federal reimbursement when enacting the optional triggers.

State administrative complexity will cause overpayments

Instead of simply reducing the total amount payable in EUC, the Office of Management and Budget and DOL have decided to implement the reductions with respect to individual weekly claims as well as in reduction of the total. The result of this decision will be difficult programming and administration by states with very little additional administrative funding ($40,000 per state). The determination of the amount of the reduction on a weekly basis, the relationship to state weekly benefit amounts, overpayments and a host of other issues are likely to result in significant numbers of overpayments and confusion on the part of claimants.

Employers and states should review the program letter (linked below), specifically with reference to EB considering measures to avoid increased charges to state unemployment trust funds resulting from a reduced federal share reimbursement.

The full program letter may be viewed at http://wdr.doleta.gov/directives/corr_doc.cfm?DOCN=4985.

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09/28/11 8:58 PM

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