2011 unemployment compensation integrity amendments

2011/uipl_2_12_acc.pdf (https://www.dol.gov/sites/dolgov/files/ETA/advisories/UIPL/2011/uipl_2_12_acc.pdf)

                                                         CLASSIFICATION
                                                         UI
   EMPLOYMENT AND TRAINING ADMINISTRATION                CORRESPONDENCE SYMBOL
               ADVISORY SYSTEM                           OUI/DUIO/DL
          U.S. DEPARTMENT OF LABOR                       DATE
             Washington, D.C. 20210
                                                           December 20, 2011




ADVISORY:         UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 02-12

TO:               STATE WORKFORCE AGENCIES

FROM:             JANE OATES /s/
                  Assistant Secretary

SUBJECT:          Unemployment Compensation (UC) Program Integrity – Amendments made
                  by the Trade Adjustment Assistance Extension Act of 2011 (TAAEA)

1. Purpose. To advise states of the statutory amendments related to UC program integrity
included in the TAAEA (Public Law (Pub. L.) 112-40), enacted on October 21, 2011.

2. References.

   •   TAAEA (Pub. L. 112-40);
   •   Sections 303 and 453A of the Social Security Act (SSA) (42 U.S.C. 503 and 653a);
   •   Sections 3303, 3304, and 3309 of the Federal Unemployment Tax Act (FUTA);
   •   Unemployment Insurance Program Letter (UIPL) No. 21-80, Secretary’s Decision on
       Attribution of Benefit Liability to Reimbursing Employers in Proceedings as to Delaware,
       New Jersey, and New York;
   •   UIPL No. 45-89, Permissible Deductions from Payments of Unemployment
       Compensation; and
   •   UIPL No. 04-01, Payment of Compensation and Timeliness of Determinations during a
       Continued Claims Series.

3. Background. To help maintain the integrity of the UC program, the U.S. Department of
Labor (Department) and state agencies that administer the UC program have made the
prevention of improper payments a high priority. While the Department has been working
aggressively with states to develop and implement strategies to improve UC program integrity,
additional statutory authority was needed to provide states with better tools and additional
resources to combat improper payments. For this reason, the Department transmitted to
Congress the Unemployment Compensation Integrity Act of 2011 (Integrity Act), consistent with
the proposals in President Obama’s Fiscal Year 2012 Budget. The TAAEA includes three
provisions that are similar to provisions in the Integrity Act provisions. Specifically, the
TAAEA:

 RESCISSIONS                                            EXPIRATION DATE
 None                                                   CONTINUING

   •   Requires states to impose a monetary penalty on claimants whose fraudulent acts resulted
       in overpayments;
   •   Prohibits states from providing relief from charges to an employer’s UC account when
       the actions of an employer or an agent of an employer have led to an improper payment;
       and
   •   Adds a definition of a newly hired employee to include an individual who:
            o Has not previously been employed by the employer; or
            o Was previously employed by the employer but has been separated from the
                employer for at least 60 consecutive days [new requirement].

4. Mandatory Penalty Assessment on Fraud Claims. The TAAEA requires states to assess a
penalty on claimants committing fraud in connection with state or Federal UC programs.
Section 251(a) of the TAAEA amends section 303(a), SSA, by adding a new paragraph (11). As
a condition of receiving a Federal grant to administer its UC law, a state that has determined that
an improper payment from its unemployment fund was made to an individual due to fraud
committed by such individual must assess a monetary penalty of not less than 15 percent of the
amount of the erroneous payment against that individual. The 15 percent penalty amount is the
minimum amount required; states may impose a greater penalty.

   A. Requirements: Section 303(a)(11), SSA, further requires that the state immediately
      deposit receipts of the Federally-mandated penalty amounts into the unemployment fund
      of the state. As with other amounts in a state’s unemployment fund, use of these penalty
      funds is limited to the payment of UC, except as provided by sections 303(a)(5), SSA,
      and 3304(a)(4), FUTA. This penalty applies to benefits paid out of a state’s
      unemployment fund, namely:

       •   Regular state UC;
       •   Extended benefits;
       •   Additional benefits; or,
       •   Any other state program providing for payment of UC.

       Section 251(b) of the TAAEA also requires, as a condition of administering “any”
       Federal UC program, that a state assess penalties against individuals determined to be
       overpaid under these programs due to fraud in the same manner as the state assesses and
       deposits these penalties under state law implementing section 303(a)(11), SSA, with
       respect to UC paid out of the state’s unemployment fund. This means that the state must
       apply the same penalty to any Federal UC program fraud overpayment. The TAAEA
       identifies seven types of Federal UC programs to which these penalties apply:

       •   UC for Federal civilian employees (5 USC 8501 et seq.);
       •   UC for ex-servicemembers (5 USC 8521 et seq.);
       •   Trade readjustment allowances (19 USC 2291-2294);
       •   Disaster unemployment assistance (42 USC 5177(a));
       •   Any Federal temporary extension of UC;
       •   Any Federal program which increases the weekly amount of UC payable to
           individuals; and

       •   Any other Federal program providing for the payment of UC.

       Notices advising claimants of these overpayments must include, along with the
       claimant’s appeal rights, the penalty amount and an explanation of the reason for the
       overpayment and the reason the penalty has been applied.

       When a recovery with respect to a fraudulent overpayment is made, the state is
       encouraged to apply any recovery to the principal amount of the overpayment first, to the
       Federally-mandated penalty amount second and finally to any other amounts due (e.g.,
       additional penalties and/or interest). However, the order of the recovery is determined by
       state law. Section 3304(a)(3), FUTA, and sections 303(a)(5) and (11)(B), SSA, require
       that any recoveries applicable to the overpayment or the Federally-mandated penalty
       amount be immediately deposited into the state’s unemployment fund.

       If states wish to impose an additional penalty amount for a fraudulent overpayment in
       excess of the Federally-mandated penalty, the additional penalty does not need to be
       established in state law as a separate penalty. However, if a state has one penalty, its law
       must clearly identify each component designating how much is to be deposited into the
       state’s unemployment fund (minimum 15 percent of the amount of the overpayment) and
       how much is to be deposited in another fund. Uses of any additional penalty amounts are
       at the discretion of the state.

       States are reminded that offsets of future UC payments to recover overpayments are
       limited to the recovery of the overpayment amount itself in accordance with Federal
       and/or state law. Offsets may not be used to recover any interest or penalties due under
       Federal or state law (See UIPL 45-89, paragraph 5.a.).

   B. Reporting Requirement: Amounts collected for the Federally-mandated penalty should
      be reported on line 12 of the ETA 2112, UI Financial Transaction Summary (Office of
      Management and Budget No. 1205-0154). See Handbook 401, Section II-1, for
      instructions on the reporting of penalty and interest amounts.

   C. Effective Date: The penalties required under section 303(a)(11), SSA, as amended by
      the TAAEA, are mandatory for any fraudulent payments established after the end of the
      two-year period that begins on the date of enactment. That is, a penalty of at least 15
      percent must be assessed on any fraudulent overpayment established after
      October 21, 2013. However, states may opt to apply the penalty to fraudulent payments
      established earlier than this date.

5. Prohibition on Noncharging Due to Employer Fault. Section 3303(a)(1), FUTA, governs
the conditions under which a state may reduce employers’ rates of contributions to its
unemployment fund. Many states relieve an employer’s unemployment account of charges (e.g.,
benefits or benefit wages) that the state has determined were made improperly. Section 252(a) of
the TAAEA adds a new subsection (f) to section 3303, FUTA, to provide that, for a state law to
meet the requirements of section 3303(a)(1), FUTA, the state must not relieve an employer of
charges (noncharging) when the employer, or an agent of the employer, does both of the
following:


   •   “was at fault for failing to respond timely or adequately to the request of the [state]
       agency for information relating to [a] claim” for UC benefits that was subsequently
       overpaid; and
   •   “has established a pattern of failing to respond timely or adequately” to requests from the
       state agency for information relating to claims for UC benefits.

This prohibition applies if the employer has a pattern of failing to respond timely, failing to
respond adequately, or failing to respond both timely and adequately. Section 3303(f)(2),
FUTA, permits states to impose stricter standards limiting the relief from charges, such as, but
not limited to, denying relief from charges to an employer after the first instance of a failure by
an employer or an employer’s agent to respond timely or adequately to requests for information.
Thus, states have some latitude in implementing the new requirement, including whether a
pattern of behavior is required and, if so, the determination of the definition of a pattern of
failure to respond timely or adequately to requests for information. A pattern of failure to
respond timely or adequately means two (at a minimum) or more instances of such behavior by
the employer or an agent of the employer.

   A. Requests for Information: As mentioned above, the timeliness and adequacy of
      responses from the employer or agent must be based on an initial written request
      (including electronic requests) for information relating to a claim for UC. States will also
      apply the prohibition of noncharging provision to any other requests for information
      required for the establishment of a claim for UC (i.e., wage information, weeks worked,
      etc.) in addition to separation information, if the employer is potentially chargeable for
      the overpaid benefits in question.

   B. Timely Responses: Each state establishes its own deadlines by which responses to
      requests for information must be received in order for the state to make timely
      determinations and payments. States should use their own requirements concerning
      timely responses when determining whether an employer or agent’s response is not
      timely for purposes of the prohibition on relief from charging.

   C. Adequate Responses: In determining the adequacy of responses to requests for
      information, states must determine whether the employer’s or agent’s response provides
      sufficient facts to enable them to make the correct determination under its law. A lack of
      receipt of a response would certainly result in the state not having adequate information;
      failure to respond would also constitute an inadequate response. However, a response
      may not be considered inadequate if the state agency failed to ask for all necessary
      information.

   D. Agents of Employers: If an employer uses a third party agent to respond on its behalf to
      the state agency, then the actions of the agent will be considered when determining a
      pattern of behavior. A pattern is established based on the pattern of the agent’s behavior
      overall and not only with respect to its behavior related to each individual
      client/employer.

   E. Duration of Prohibition on Relief from Charges: UIPL No. 04-01 explains that since
      an individual in a continued claims series has been determined to be eligible for UC, UC


   payments may not be suspended until there has been a determination that the individual is
   no longer eligible for UC. Thus, until the issue has been adjudicated or an appeals
   decision has been made, UC payments must continue to be made, even if those payments
   ultimately are determined to have been overpayments. As such, once a state determines
   that an employer account will not be relieved from charges because of the employer’s or
   its agent’s failure to respond timely or adequately to information requests, this
   prohibition will apply to each week of UC that is an overpayment until the state agency
   makes a determination that the individual is no longer eligible for UC and stops making
   UC payments. If the individual again becomes eligible for UC during a subsequent spell
   of unemployment, the state may provide the employer relief from charges consistent with
   the provisions of the state’s UC law.

F. Reimbursing Employers: Section 3303(f), FUTA, as added by the TAAEA, modifies
   section 3303(a)(1), FUTA, relating to the conditions under which a taxpayer (employer)
   may receive a specified credit against the FUTA tax. Section 3303(f) does not apply to
   state and local governmental entities, Indian tribes, and certain nonprofit organizations,
   since they are excluded from the FUTA tax.

   Rather, the liability of these entities for the costs of unemployment benefits are governed
   by section 3309(a)(2), FUTA, which provides that they may elect to pay into “the State
   unemployment fund amounts equal to the amounts of compensation attributable under the
   State law to” services in the employ of such an employer. In a 1979 conformity opinion,
   the Secretary of Labor held that whether benefits paid are attributable to service in the
   employ of a reimbursing employer is determined under the provisions of a state law
   "which reasonably interpret and implement Section 3309(a)(2) of FUTA." (See UIPL
   No. 21-80) The Secretary concluded that it was a reasonable interpretation that
   erroneously paid benefits were not “attributable” to service in the employ of an employer.

   It is the Department’s position that it is unreasonable to not “attribute” service in the
   employ of an employer when the overpayment falls within the terms of section
   3303(f)(1)(A) and (B), FUTA; that is, the erroneous payment was made because of the
   employer’s or agent’s fault and the employer or agent has established a pattern of fault.
   When the employer or agent is at fault as part of a pattern of such fault, any rationale
   determining that the services are not attributable to the employer no longer exists since
   the employer is responsible for the erroneous benefits. Thus, the Department interprets
   3309(a)(2), FUTA, as prohibiting states from relieving employers from reimbursement
   under the same conditions that apply to contributing employers under section
   3303(f)(1)(A) and (B), FUTA. However, if the state chooses to impose the stricter
   standard in 3303(f)(2), FUTA, to taxpayers liable for the FUTA tax, the Department
   encourages states to impose the same stricter standard to reimbursing employers. The
   Department will issue additional guidance on reimbursable employers reflecting this
   interpretation.

G. Combined-Wage Claims: Determinations of noncharging for a combined-wage claim
   will be made by the paying state, since the paying state has the necessary information to
   make the determination of a timely or adequate response from the employer in the
   transferring state. If the response from the employer does not meet the criteria


       established by the paying state for an adequate or timely response, the paying state must
       promptly notify the transferring state of its determination and the employer must be
       appropriately charged.

   H. Good Cause: Many state laws provide for good cause for failure to follow certain
      administrative requirements (e.g., good cause for filing an appeal late). While states may
      provide for good cause for failure to respond timely or adequately to information
      requests, in order for the prohibited relief from charging to have practical effect, such
      good cause must be extremely limited (e.g., agency error resulted in the notice being sent
      to the wrong address or a disaster made it impossible for an employer to respond timely).
      Otherwise, the costs of these overpayments will be borne by all employers in the state.

   I. Effective Date: Under Section 252(b)(1) of the TAAEA, the requirements of section
      3303(f), FUTA, “apply to erroneous payments established after the end of the two-year
      period beginning on the date of the enactment of this Act [October 21, 2013].” That
      means that if an erroneous payment is made because an employer or its agent was at fault
      for failing to respond timely or adequately to an agency request, and the state determines
      that the employer or agent has established a pattern of such failure (or at the first instance
      if the state elects a stricter standard), the employer will not be entitled to relief from
      charges that result from the erroneous overpayment if the overpayment is established
      after October 21, 2013. However, section 252(b)(2) of the TAAEA, permits a state to opt
      to prohibit relief from charging based on such erroneous payments established before this
      date.

6. Reporting of Rehired Employees to the Directory of New Hires. Section 253(a) of the
TAAEA adds a new section 453A(a)(2)(C), SSA, expanding the scope of individuals reported to
the state directory of new hires by specifically defining a “newly hired employee” as an
employee who “has not previously been employed by the employer,” or “was previously
employed by the employer but has been separated from such prior employment for at least 60
consecutive days.” Newly hired employees meeting either of these terms must be reported to the
state directories of new hires.

   A. Overpayment Prevention: Adding to the definition of “newly hired employee” that
      includes a rehired employee who was separated for at least 60 days, will enhance state’s
      ability to detect and prevent overpayments when states conduct cross-matches with their
      state directory of new hires.

   B. Effective Date: Under section 253(b) of the TAAEA, the new definition is effective six
      months following the date of the enactment, April 21, 2012. However, if the Department
      of Health and Human Services (HHS) determines the state must amend its law in order
      for the State Plan for Child and Spousal Support required by the SSA to meet the
      requirements imposed by this new definition, the statute establishes a transition period
      within which the state may meet these requirements. The state will not be deemed to
      have failed to meet these requirements until the first day of the second calendar quarter
      that follows the close of the first regular session of the state legislature that begins after
      the effective date of the amendment. If the state has a two-year legislative session, each
      year of the session is deemed to be a separate regular session. HHS will be providing


       guidance to those states requiring a statutory change to implement these new
       requirements.

7. Action Requested. State Administrators are requested to provide this information to
appropriate staff. States are requested to submit to the appropriate Regional Office a copy of any
state law, regulation, or policy enacted or implemented to meet the requirements of the statutory
changes related to UC program integrity.

8. Inquiries. Questions should be directed to the appropriate Regional Office.

9. Attachment. Trade Adjustment Assistance Extension Act of 2011, Subtitle C – Offsets, Part I
– Unemployment Compensation Program Integrity

2011/uipl_2_12_att.pdf (https://www.dol.gov/sites/dolgov/files/ETA/advisories/UIPL/2011/uipl_2_12_att.pdf)

                             SUBTITLE C—OFFSETS
                     PART I—UNEMPLOYMENT COMPENSATION
                             PROGRAM INTEGRITY

SEC. 251. MANDATORY PENALTY ASSESSMENT ON FRAUD CLAIMS

(a) IN GENERAL.—Section 303(a) of the Social Security Act (42 U.S.C. 503(a)) is amended—
        (1) in paragraph (10), by striking the period at the end of subparagraph (B) and inserting
        “; and”; and
        (2) by adding at the end of the following new paragraph:
            “(11)(A) At the time the State agency determines an erroneous payment from its
            unemployment fund was made to an individual due to fraud committed by such
            individual, the assessment of a penalty on the individual in an amount of not less than
            15 percent of the amount of the erroneous payment; and
            “(B) The immediate deposit of all assessments paid pursuant to subparagraph (A)
            into the unemployment fund of the State.”.
(b) APPLICATION TO FEDERAL PAYMENTS.—
        (1) IN GENERAL.—As a condition for administering any unemployment compensation
        program of the United States (as defined in paragraph (2)) as an agent of the United
        States, if the State determines that an erroneous payment was made by the State to an
        individual under any such program due to fraud committed by such individual, the State
        shall assess a penalty on such individual and deposit any such penalty received in the
        same manner as the State assesses and deposits such penalties under the provisions of
        State law implementing section 303(a)(11) of the Social Security Act, as added by
        subsection (a).
        (2) DEFINITION.—For purposes of the subsection, the term “unemployment compensation
        program of the United States” means—
                (A) unemployment compensation for Federal civilian employees under subchapter
                I of chapter 85 of title 5, United States Code;
                (B) unemployment compensation for ex-servicemembers under subchapter II of
                chapter 85 of title 5, United States Code;
                (C) trade readjustment allowances under sections 231 through 234 of the Trade
                Act of 1974 (19 U.S.C. 2291-2294);
                (D) disaster unemployment assistance under section 410(a) of the Robert T.
                Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5177(a));
                (E) any Federal temporary extension of unemployment compensation;
                (F) any Federal program which increases the weekly amount of unemployment
                compensation payable to individuals; and
                (G) any other Federal program providing for the payment of unemployment
                compensation.
(c) EFFECTIVE DATE.—
        (1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this
        section shall apply to erroneous payments established after the end of the 2-year period
        beginning on the date of the enactment of this Act.
        (2) AUTHORITY.—A State may amend its State law to apply such amendments to
        erroneous payments established prior to the end of the period described in paragraph (1).


SEC. 252. PROHIBITION ON NONCHARGING DUE TO EMPLOYER FAULT

(a) IN GENERAL.—Section 3303 of the Internal Revenue Code of 1986 is amended—
        (1) by striking subsections (f) and (g); and
        (2) by inserting after subsection (3) the following new subsection:
        “(f) PROHIBITION ON NONCHARGING DUE TO EMPLOYER FAULT.—
                “(1) IN GENERAL.—A State law shall be treated as meeting the requirements of
                subsection (a)(1) only if such law provides that an employer’s account shall not
                be relieved of charges relating to a payment from the State unemployment fund if
                the State agency determines that—
                        “(A) the payment was made because the employer, or an agent of the
                        employer, was at fault for failing to respond timely or adequately to the
                        request of the agency for information relating to the claim for
                        compensation; and
                        “(B) the employer or agent has established a pattern of failing to respond
                        timely or adequately to such requests.
                “(2) STATE AUTHORITY TO IMPOSE STRICTER STANDARDS.—Nothing in paragraph
                (1) shall limit the authority of a State to provide that an employer’s account not be
                relieved of charges relating to a payment from the State unemployment fund for
                reasons other than the reasons described in subparagraphs (A) and (B) of such
                paragraph, such as after the first instance of a failure to respond timely or
                adequately to requests described in paragraph (1)(A).”.
(b) EFFECTIVE DATE.—
        (1) IN GENERAL—Except as provided in paragraph (2), the amendments made by this
        section shall apply to erroneous payments established after the end of the 2-year period
        beginning on the date of the enactment of this Act.
        (2) AUTHORITY.—A State may amend its State law to apply such amendments to
        erroneous payments established prior to the end of the period described in paragraph (1).

SEC. 253. REPORTING OF REHIRED EMPLOYEES TO THE DIRECTORY OF NEW
HIRES

(a) DEFINITION OF NEWLY HIRED EMPLOYEE.—Section 453A(a)(2) of the Social Security Act (42
U.S.C. 653a(a)(2)) is amended by adding at the end the following:
               “(C) NEWLY HIRED EMPLOYEE.—The term ‘newly hired employee’ means an
               employee who—
                       “(i) has not previously been employed by the employer; or
                       “(ii) was previously employed by the employer but has been separated
                       from such prior employment for at least 60 consecutive days.”.
(b) EFFECTIVE DATE.—
       (1) IN GENERAL—Subject to paragraph (2), the amendments made by this section shall
       take effect 6 months after the date of the enactment of this Act.
       (2) COMPLIANCE TRANSITION PERIOD.—If the Secretary of Health and Human Services
       determines that State legislation (other than legislation appropriating funds) is required in
       order for a State plan under part D of title IV of the Social Security Act to meet the
       additional requirement imposed by the amendment made by subsection (a), the plan shall
       not be regarded as failing to meet such requirement before the first day of the second
       calendar quarter beginning after the close of the first regular session of the State

legislature that begins after the effective date of such amendment. If the State has a 2-
year legislative session, each year of the session is deemed to be a separate regular
session of the State legislature.