UI Integrity: Let’s Get Ed-UC-ated
Unemployment Insurance (UI) Integrity has been a trending topic in Unemployment Cost Management for the past couple of years. The waters are proving to be somewhat murky and the flow of guidance from state to state can be inconsistent.
In 2009, with unemployment rates nearly double historical norms, UI benefit payments increased significantly and reached an annual high of nearly $80B1. While the high unemployment rate triggered a significant aggregate payout, it also shined light on the inefficiencies and inaccuracies that existed within the unemployment insurance program. These inefficiencies and inaccuracies led to unnecessary costs to administer the program, as well as benefit overpayments; both of which led to insolvent trust funds in many states.
The responsibility for UI Integrity is shared by employers, claimants, and state agencies. While states are required to ensure that individuals meet eligibility requirements and receive their unemployment benefits, employers and claimants are responsible for providing the state with the information required to make an accurate determination. States facilitate this process by issuing claim documents requesting information from employers and interviewing potential claimants. However, prior to UI Integrity legislation, there weren’t many levers to pull to influence compliance. UI benefit payments were often occurring as a result of late, incomplete, or inaccurate responses to state unemployment information requests.
Federal Mandate vs. State Legislation
To improve the integrity of the unemployment insurance program and reduce improper payments, a federal mandate was developed to address the timeliness, adequacy, and accuracy of information provided by employers. The Trade Adjustment Assistance Extension Act (TAAEA) of 2011 provides for a statutory subsection which mandates that state unemployment insurance agencies prohibit relieving employers of benefit charges to their unemployment tax account when UI benefits were improperly paid because:
- The employer, or their agent, was at fault for failing to respond in a timely or adequate manner to the agency’s request for information
- The employer has established a pattern of failing to respond in a timely or adequate manner
A federal mandate uniformly applied across all states…interesting and easy, right? No – not so easy! Section 3303(f)(2) of the Federal Unemployment Tax Act (FUTA) permits states to impose even stricter standards in limiting relief from charges, such as denying relief from charges to an employer after the first instance of an inadequate or untimely response to a request.
The states, now armed with keys to their own vehicle of compliance, are driving in different directions. While Federal guidance on establishing a pattern of failure suggested that a pattern should result if an employer is non-compliant on the greater of 2 or 2% of claims activity, many states have elected to impose a stricter standard along with monetary penalties. The following illustration from the U.S. Department of Labor is just a small example of some of the variation.
Multi-state employers seeking to comply with legislation across all states need to be able to track the legislation and understand how to comply in each state. A best practice might be to shift the focus from protest claims to overall compliance. Yes, it is a matter of compliance. A few key points to consider:
- Employers are required to respond to all claims timely and with adequate information in order to remain in compliance with UI Integrity regulations.
- Non-compliance could result in loss of appeal rights, loss of benefit charge credit, and, in some instances, monetary penalties.
- Increases in benefit charges can negatively impact Unemployment tax rates. If you are a reimbursing employer it may increase the cost associated with the payment of benefits.
To effectively manage your unemployment program compliance, it is important to understand the laws in each state, the risk to your organization, and how you are trending against the established pattern of failure. For single state employers with one active state account number this may not seem so daunting; however, for employers with multiple state account numbers and/or those that operate in multiple states, tracking and managing the program can be extremely challenging. It is important to know where your risks are and where to focus your efforts to improve compliance. It is important to have tools to allow you to quickly measure UI Integrity compliance. It is equally important to have a plan of action to avoid non-compliance or implement practices to improve compliance in areas of your organization where you have already reached the pattern of failure threshold.
For more information or to discuss your company’s needs, please contact Pete Krieshok at (314) 214-7325 or via e-mail at firstname.lastname@example.org.
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