Using state unemployment funds for costs of nonfederal benefit loans

UIPL07-04c1acc.pdf (https://www.dol.gov/sites/dolgov/files/ETA/advisories/UIPL/2010/UIPL07-04c1acc.pdf)

                                                          CLASSIFICATION
      Employment and Training Administration              Withdrawal Standard
                 Advisory System                          CORRESPONDENCE SYMBOL
            U.S. Department of Labor                      OUI/DL
             Washington, D.C. 20210                       DATE
                                                          May 11, 2010


ADVISORY:            UNEMPLOYMENT INSURANCE PROGRAM LETTER No. 7-04,
                     Change 1

TO:                  STATE WORKFORCE AGENCIES

FROM:                JANE OATES /s/
                     Assistant Secretary

SUBJECT:             Payment of Interest and Other Administrative Costs on Loans Used to Pay
                     Unemployment Compensation

1. Purpose. To clarify the Department of Labor’s position about the use of unemployment fund
   moneys to pay interest and other administrative costs on non-federal loans used to pay
   unemployment compensation (UC) under state law.

2. References. The Federal Unemployment Tax Act (FUTA); Titles III, IX and XII of the Social
  Security Act (SSA); Unemployment Insurance Program Letter (UIPL) Nos. 39-97, 7-04, and
  14-09; and Training and Employment Guidance Letters Nos. 18-01 and 18-01, Change 1.

3. Background. UIPL No. 7-04 addressed situations where, instead of obtaining advances from
   the Federal Unemployment Account as provided under Title XII of the SSA, states obtained
   loans from other, non-federal sources to pay UC. These non-federal loans may, for example,
   come from state revenues or from selling bonds. UIPL No. 7-04 provided the Department’s
   position on the use of unemployment fund moneys to repay these non-federal loans (including
   bonds) or to pay associated costs such as interest, fees, or other administrative costs.

  UIPL No. 7-04 stated that, with an exception, unemployment fund moneys may not be used to
  pay interest, loan/bond fees, or other administrative costs on these non-federal loans. The
  exception, the UIPL explained, was that a certain type of unemployment fund moneys,
  commonly called Reed Act moneys, may be used for these purposes. In light of the
  prohibition in Federal law on the use of unemployment fund moneys to pay interest on Title
  XII loans, questions have arisen as to why the use of Reed Act moneys for this purpose is
  permissible.


 RESCISSIONS                                            EXPIRATION DATE
 None                                                   Continuing

  This UIPL explains the Department’s position on this use of Reed Act moneys and other
  unemployment fund moneys, such as the recent UC Modernization Incentive Payments, which
  are available for administrative purposes.

4. Use of Reed Act and Other Unemployment Fund Moneys. The term “Reed Act” describes
   moneys transferred to state accounts in the Unemployment Trust Fund (UTF) under Sections
   903(a) and (d), SSA. These moneys may, under statutorily-prescribed conditions, be used for
   certain administrative expenses, including the administration of the state’s UC law. Similarly,
   UC Modernization Incentive Payments are transferred to state accounts under Section 903(f),
   SSA, and are available, under statutorily-prescribed conditions, for the payment of costs of
   administration of the state’s UC law. Finally, the $500 million Special Administrative
   Transfers made to state accounts under Section 903(g), SSA, in 2009 is also available for the
   payment of certain UC administrative costs. Since the funds described in Sections 903(a), (d),
   (f), and (g) are transferred to the states’ accounts in the UTF from which UC is paid, these
   funds are “unemployment funds” subject to Federal law restrictions.

  Section 3304(a)(17), FUTA, requires, as a condition of employers in a state receiving credit
  against the Federal unemployment tax, that—

       any interest required to be paid on advances under title XII of the Social
       Security Act . . . shall not be paid, directly or indirectly (by an equivalent
       reduction in State unemployment taxes or otherwise) by such State from
       amounts in such State’s unemployment fund; . . . . [Emphasis added.]

  (Similar prohibitions are found at Sections 303(c)(3) and 1202(b)(5), SSA.)

  As a result of this restriction, states may not use Reed Act moneys, UC Modernization
  Incentive Payments, or the 2009 Special Administrative Transfer to pay interest on a state’s
  Title XII loan.

  This limitation is, however, expressly limited to interest due on Title XII advances. It does not
  apply to non-federal loans. Also, although Federal law restricts the use of Reed Act and UC
  Modernization Incentive Payments, it does not prohibit payment of interest, loan/bond fees, or
  other administrative costs associated with non-federal loans. Thus, a state may, if the moneys
  are appropriated by the state legislature consistent with Section 903, SSA, use Reed Act or UC
  Modernization Incentive Payments to pay these costs.

  The 2009 Special Administrative Transfer may not, however, be used for these costs. Unlike
  the Reed Act and UC Modernization Incentive Fund provisions, which broadly allow use for
  any purpose related to administration of a state’s UC law, the 2009 Special Administrative
  Transfer is limited to specific administrative provisions related to UC Modernization,
  improving state operations, and providing staff-assisted reemployment services. Since the
  payment of costs associated with loans for the payment of UC is not one of these permissible
  uses, the 2009 Transfer may not be used for the payment of these costs.


   The following table summarizes the permissible uses of unemployment fund moneys as they
   relate to interest and administration of Title XII advances and non-Title XII loans.

                                                UC Advances and Loans
                                                                                      Permissible Uses
                       Funding Source                                Federal (Title XII)            Non-federal Loans
                                                                         Advances
             Description                   SSA Reference         Interest Administrative       Interest    Administrative
                                                                  Costs          Costs          Costs           Costs
1. UC Administrative Grant             Section 302                 No             Yes            No              Yes
2. Reed Act                            Sections 903(a) and (d)     No             Yes            Yes             Yes
3. UC Modernization Incentive          Section 903(f)              No             Yes            Yes             Yes
   Payments
4. Special Administrative Transfers    Section 903(g)              No            No             No              No
   2009
5. All unemployment fund moneys not listed in lines 2-4 above      No            No             No              No



5. Action. State administrators should distribute this advisory to appropriate staff.

6. Inquiries. Questions should be addressed to your Regional Office.