Payment of interest on Title XII unemployment advances

UIPL29-11acc.pdf (https://www.dol.gov/sites/dolgov/files/ETA/advisories/UIPL/2011/UIPL29-11acc.pdf)

                                                           CLASSIFICATION
   EMPLOYMENT AND TRAINING ADMINISTRATION                  UI
               ADVISORY SYSTEM                             CORRESPONDENCE SYMBOL
                                                           OUI/DFAS
          U.S. DEPARTMENT OF LABOR
                                                           DATE
             Washington, D.C. 20210                        September 7, 2011



ADVISORY:          UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 29-11

TO:                STATE WORKFORCE AGENCIES

FROM:              JANE OATES /s/
                   Assistant Secretary

SUBJECT:           Payment of Interest on Title XII Advances

1. Purpose. To provide states with instructions for payment of interest due on Title XII
   advances at the end of each Federal fiscal year and to explain the consequences to the states of
   failing to timely pay interest due.

2. References. Sections 303(c)(3) and 1202(b), Social Security Act (SSA); Section 3304(a)(17),
   Federal Unemployment Tax Act (FUTA); 20 CFR parts 601 and 606; Unemployment
   Insurance Program Letter (UIPL) Nos. 30-86; 38-87; 58-88; and 05-93.

3. Background. This UIPL supersedes UIPL No. 05-93 on the same subject. Section
   1202(b)(3)(A) of the SSA requires that interest due on Title XII advances made during a
   Federal fiscal year must be paid before the first day of the following Federal fiscal year.
   Thus, any interest payments due must be paid in full by September 30. However, Title XII,
   SSA, includes some exceptions to the interest accrual and payment requirements if states meet
   specific requirements. These exceptions are as follows:

       a.   Section 1202(b)(3)(B), SSA, and 20 CFR 606.40 provide that a state may defer the
            interest due and payable on advances made during the last 5 months of any Federal
            fiscal year until the last day of the succeeding calendar year. However, interest will
            accrue on the deferred interest until it is paid.

       b.   Section 1202(b)(2), SSA, and 20 CFR 606.32(b) provide that no interest is due on
            advances made January 1 through September 30 and repaid in full before October 1
            in the same calendar year provided no additional advances are obtained before
            January 1 of the succeeding calendar year. Additionally, beginning in 2014, the state
            must meet certain funding goals. If an additional Title XII advance is obtained after
            September 30, and within the same calendar year, interest accruing through
            September 30 is due and payable the day after the day that first additional advance is
            taken, except that payment of interest on advances made after May 1 may be
            deferred as previously mentioned.




 RESCISSIONS                                               EXPIRATION DATE
 Rescinds UIPL No. 05-93                                   Continuing

       c.   Section 1202(b)(3)(C), SSA, and 20 CFR 606.41 provide that a state may defer 75
            percent of the interest due before October 1 when the state’s insured unemployment
            rate equals or exceeds 7.5 percent for the first six months of the preceding calendar
            year. One-third of the remaining interest must be paid in each of the three years
            following the year in which the deferral was granted. If a state defers an interest
            payment under this provision, the interest does not accrue interest during the deferral
            period.

       d.   Section 1202(b)(9), SSA, and 20 CFR 606.42 provide that a state may defer the
            payment of interest due before October 1, for a period not to exceed nine months, if
            the total unemployment rate equals or exceeds 13.5 percent for the most recent
            twelve-month period before such October 1 for which data is available. If a state
            defers an interest payment under this provision, the interest does not accrue interest
            during the deferral period.

  The rate of interest earned by the Unemployment Trust Fund (UTF) for the fourth quarter of
  the previous calendar year is the rate of interest used for calculating interest due and payable
  for the entire calendar year. Any interest due from previous years will also be included in the
  amount due, based on the applicable rate of interest.

4. Source of Funds/Governor’s Letter. Section 1202(b)(5), SSA, provides that interest
   required to be paid shall not be paid (directly or indirectly) by a state from amounts in its
   unemployment fund. If the Secretary of Labor (Secretary) determines that any state action
   results in the payment of such interest directly or indirectly (by an equivalent reduction in
   state unemployment taxes or otherwise) from such unemployment fund, the Secretary shall
   not certify such state’s unemployment compensation law under §3304, FUTA. Such non-
   certification shall be made in accordance with section 3304(c), FUTA, and 20 CFR 601.5.

  Section 303(c)(3), SSA, and 3304(a)(17), FUTA, also prohibit payment of interest directly or
  indirectly from the state’s unemployment fund. UIPL No. 58-88 provides additional
  information on acceptable funding sources. It states that payment of interest on Title XII
  advances from any state fund other than the state unemployment fund is not prohibited by
  Federal law even if state law requires or permits excess amounts in that fund to be transferred
  to the unemployment fund. This includes penalty and interest special funds that have been
  established under state law for purposes including the payment of interest on Title XII
  advances.

  In accordance with Federal law, the Secretary must determine if the funds used for payment of
  interest were amounts taken directly or indirectly from state unemployment funds. In order
  for the Secretary to make this determination, the state official who makes the payment of
  interest at the close of the fiscal year must provide a letter to the Secretary by September 30,
  identifying the funding source to be used for the payment of interest and the statutory basis for
  the establishment and use of such funds for this purpose. If the Governor has delegated
  authority to request and repay advances, the delegated official may submit the letter providing
  information about the source of funds.

5. Interest Calculation, Billing Process, and Timely Payment of Interest. The U.S.
   Department of Treasury (Treasury) established the following procedures for interest
   calculation and billing.


a. Treasury Calculation and Billing of Interest Due. September 16 is generally the cut-
   off date for the calculation of interest due. Interest is calculated by Treasury on the
   outstanding balance of interest-bearing Title XII advances as of the close of business
   on that day and projected through September 30. On the first business day following
   September 16th, this amount will be billed to the states as the amount of interest due
   and payable on September 30. Bills will be sent to state officials authorized to
   request Title XII advances and repayments and include a general description of how
   the billed amount was computed.

   Projection of interest by Treasury assumes no further advances or repayment after the
   cut-off date and through September 30. If a state receives additional advances or
   makes repayments after the cut-off date, the amount billed by the Treasury must be
   adjusted by the state workforce agency (SWA) in accordance with these procedures:

         1. Calculate the daily interest rate by dividing the annual rate of interest
            charged for Title XII advances by 365 (366 in a leap year).

         2. For each day after the cut-off date through September 30, calculate the
            amount by which the advance balance either exceeds or falls below the
            advance balance on the cut-off date.

         3. Sum the results from Step 2 (note the result could be a negative number) and
            multiply that amount by the daily interest rate calculated in Step 1.

         4. The result of Step 3 should be added to the interest amount billed by
            Treasury to obtain the adjusted interest payment.

   Any adjustment to the amount billed by Treasury must be documented and
   substantiated in an email to the Trust Fund Management Branch of the Treasury (see
   contact information below). This email must immediately follow the interest
   payment. Treasury will verify the calculation, transactions and adjustments and
   advise the state if further action is required. Accuracy in the calculation of
   adjustments by SWAs is essential. If Treasury determines that a state paid less than
   required, Treasury will notify within two business days the state official authorized to
   request Title XII advances and repayments and the OUI Administrator. In that event,
   sections 3301(a)(17), FUTA, and 303(c)(3) and 1202(b)(5), SSA, provide for the loss
   of employer tax credits and administrative grants. If Treasury determines that a state
   has paid more than required, for example pays the amount billed, but the amount
   billed is erroneously high, Treasury would refund the difference.

   Treasury’s Title XII Advances Activity Schedule Web site, showing the annual
   interest rate used in Treasury’s calculations, outstanding advance balance and interest
   owed can be found by following this link:
   http://www.treasurydirect.gov/govt/reports/tfmp/tfmp_advactivitiessched.htm
   After the cut-off date, the Web site will include a column projecting interest due on
   September 30 based on the latest transactions.

b. Timely Payment of Interest. States must wire-transfer interest payments to the
   Federal Reserve Bank (FRB) of New York. The payments should be transferred in a
   fashion similar to that of normal UTF deposits, with the exception that the source of

            the funds being sent must be an account outside of the UTF. State agencies will
            specify on the memorandum line that the funds are for “Payment of Title XII
            interest.” The wire-transfers must be received by the FRB of New York no later than
            5:00 p.m. Eastern Daylight Time (EDT) on September 30. Any interest received after
            that cut-off time will be considered paid the next business day and delinquent.

  Whenever the last day of the Federal fiscal year falls on a Saturday or Sunday, any interest
  due and payable no later than September 30 must be received by the FRB of New York on or
  before the preceding Friday by 5:00 p.m. (EDT).

6. Treasury Contacts.

       a. The billing notice to the states will include the name, email address, and telephone
          number of a contact person in the Trust Fund Management Branch of the Treasury.
          These notices will include detailed instructions for SWAs to follow to pay the interest
          amount due and payable on or before September 30.

       b. Treasury staff is available at (304) 480-5121 for consultation with SWAs during
          normal business hours to verify loans, repayments, and interest charges.
          Correspondence to the Treasury should be via email to: Manager, Trust Fund
          Management Branch at: [email protected].

7. Failure to Pay Interest Timely. When a state accepts a Title XII advance, it takes the
   responsibility to pay all interest when due. Failure to do so can lead to conformity/substantial
   compliance proceedings which could result in loss of FUTA tax credits for employers in the
   state for the year the interest payment is not made timely, and loss of unemployment
   compensation (UC) administrative funding under Title III, SSA, for the time period during
   which interest is outstanding. Interest will be charged on the outstanding interest at the rate
   paid on deposits in the UTF until payment is made.

  If a state does not pay interest due on or before September 30, and interest relief provisions in
  subpart E of 20 CFR part 606 do not apply, the Secretary of Labor may commence
  proceedings, offering the state an opportunity for a hearing. A state may appeal the outcome
  of such a hearing. If the state is found out of conformity or substantial compliance at the
  conclusion of the proceedings, employers will be assessed the full FUTA tax for the taxable
  year in which the interest was not paid timely. None of the FUTA tax for the year will apply
  to the state’s outstanding Title XII advance. In addition, the state would be required to return
  any UC administrative grants allocated for the period during which interest was not paid, pay
  interest on the unpaid interest, and would not be eligible for additional UC administrative
  grants until all interest is paid.

8. Action Requested. SWA Administrators should:

       a.   Advise the appropriate individuals of this directive;

       b.   Assure that any interest due and payable on or before September 30 (or at any later
            time) is paid timely and in full and in accordance with instructions provided by the
            Treasury and Federal law requirements; and



       c.   Advise the Governor of the potential liability for the payment of interest due on Title
            XII advances at the close of the Federal fiscal year, and that a letter signed by the
            Governor or his/her delegate must be sent to the Secretary on or before September
            30, containing the following information:
                 1. Identification and description of the funding source to be used for the
                    payment of interest that becomes due and payable prior to the beginning of
                    the succeeding Federal fiscal year; and

                 2. The statutory basis for the establishment and use of such funds.

                  Mail this letter to:

                  U.S. Department of Labor
                  Attention: Office of Unemployment Insurance
                  Room S4524
                  200 Constitution Avenue, N.W.
                  Washington, D.C. 20210

  The SWA should send a copy to the appropriate Regional Office.

9. Inquiries. Direct inquiries to the appropriate Regional Office.