October 2008 marked the beginning of the worst recession to hit our economy since the Great Depression. We have seen a record number of claimants collect unemployment resulting in thirty-five states borrowing funds from the federal government. Since 2009, 46.8 million individuals were unemployed with $482.6 billion paid out in unemployment benefits. The federal government passed thirteen different acts to assist state agencies with operations during these difficult times.

Why were the states unable to handle the high volume of claims during this past recession? One reason would be that the level of the trust fund balances for most states were already reduced prior to the recession. Many states had increased the claimants’ benefit amount but did not update rate tables or taxable wage base limits to accommodate the increased payments to claimants. The issue was compounded by employers paying less in contributions to the states as their taxable payrolls declined due to the reduction in the workforce. As the taxable payrolls of employers declined, more claimants were collecting benefits further depleting the trust fund balances. As stated in several of our Newsletters, the unemployment system is broken.

One of the Acts signed into law was Senate Amendment A was passed in 2011 requiring states to have an ACHM (Average High Cost Multiple) of 1.0% by 2019. A prior study proved the states that had an ACHM of 1.0% or higher either borrowed less from the federal government or did not borrow at all. All states will begin working on legislation this year to enable their trust funds to meet this requirement by 2019.

The 1.0% ACHM goal will be met by the agencies adjusting legislation in one or more of the following areas: increasing their taxable wage base, decreasing benefit paid or the duration paid to claimants or changing their tax tables to accommodate the increase. Any state who does not have an AHCM by 2019, will be subject to losing their full 5.4% FUTA Tax Credit reduction resulting in those state employers paying FUTA Taxes at the full 6.0% rate on the first $7000 of gross payroll paid to each employer. It is unlikely that any state will not comply. It is, however, likely that a few states will ask for an extension which may be granted.

The next area of UI repair is focusing on UI Integrity. In 2008, erroneous UI benefits were paid in the amount of $ 4.2 billion. A study of these erroneous payments made by the state agencies proved that government action was a necessary step. Listed below is the historical data supplied by the DOL in regards to the overpayment of benefits.

Year – Billions

2008 – 4.2
2009 – 12.3
2010 – 17.5
2011 – 13.7
2012 – 10.3

How do overpayments to claimants occur? Most of the improper payments were caused by claimant fraud, employer indifference, and late response by employers and by agency errors. The Trade Adjustment Assistance Extension Act of 2011 (signed October 21, 2011) was designed to reduce improper payments made to claimants. Employers will be charged if they provide incorrect information regarding a claimant or if the information is received untimely.

Each state is permitted to set legislation that denies the relief of benefit charges if a pattern exists with the incorrect submissions or late information provided by the employer that would have denied benefits to the claimant. All state agencies have until October 21, 2013, to pass legislation outlining how the program for their state will function. Some states limit the occurrences of improper information or late response to one or two claims before implementing a ruling that all future occurrences will result in the denial of relief for the benefit charges. The denial of erroneous benefit charges that can no longer be removed from an employer could prove detrimental to their tax rate for future computations. One lost claim can increase a tax rate for the following year resulting in higher contributions being paid to the state.

The implementation of SIDES (State Information Data Exchange System) is another program being used to help reduce fraud and provide a quicker response to the state agency. SIDES is a program that is used between the state and the employer (or third party vendor) to provide a quicker response to the initial claim through electronic transmission. Thirty-seven states are in the process of implementing SIDES, nine more states will be added by December and seven states have not implemented a plan. Corporate Cost Control is currently testing our SIDES program and working with the state agencies to ensure it is operational by the end of September. Please see the article titled “CCC on Cutting Edge of Electronic Filings” for additional details on SIDES.

Several states set to repay their Title XII loans

Alabama has permanently extended the 0.06% Employment Security Enhancement Assessment. The assessment had been in place since 1992 and would have expired in September of 2013.

Arizona passed legislation to allow the issuance of bonds to pay the outstanding FUTA Title XII loan. Arizona can expect to retain their full FUTA Tax Credit reduction and pay at a rate of 0.6% on the first $7000 for all employees.

Florida employers will not lose a portion of their FUTA Tax Credit reduction. As of May 15, 2013, Florida repaid their outstanding loan. The interest owed on the loan will be paid with other Florida funds. No additional assessments will be made on employers by the Florida Department of Revenue. Employers will pay their FUTA taxes at a rate of 0.6% for all of 2013.

HB 456 was signed last month by the Louisiana governor. The ACT provides amnesty to all taxes owed but unpaid from July 1, 20101 – December 31, 2013. Applications are available through the agency. All prior amounts due during this time must be paid immediately. Penalty and interest for that time period will be waived as long as the amount is satisfied before December 31, 2013.

A recent determination made by the Minnesota Court of Appeals ruled that the Department of Employment and Economic Development incorrectly ruled on a partial transfer of experience between two companies. Previously determinations were issued requiring the partial transfer of experience if there was at least 25% common ownership or interest between the two entities or if a common officer existed. On this particular case, an officer was transferred from both the seller and the buyer to run this new company. In this case, the partial transfer resulting in a high rate should not have been transferred. Please let your tax analyst at Corporate Cost Control know if you have had a partial transfer of experience over the past three years. We will check to see if we can obtain a different ruling on your behalf.

Nevada has issued bonds to repay their Title XII loan. If the Title Xll loan balance is paid by November 10, 2013, employers will receive their full FUTA Tax Credit reduction. If the Title XII loan is not satisfied by November 10, 2013, employers will pay FUTA Taxes at 0.9%. Nevada expects to repay the Title XII loan before the November deadline.

Nevada employers have received assessments for the bond interest assessment and the interest assessment (from the Title XII loan). The rate assigned is based on a proportionate share of the assessment and is then multiplied by the employer’s taxable wages reported in 2012. Payment must be submitted in the form of a check and cannot be paid electronically or with the second quarterly return. The payments for the two assessments are due July 31, 2013.

South Carolina has made an early voluntary repayment of their Title XII Loan. The partial payment of $144 million was made saving employers 1.7 million in interest assessed by the federal government. South Carolina has avoided the loss of their FUTA Tax Credit, and they expect to receive a waiver for 2013.

Washington will increase their taxable wage base to $41,300 for 2014. Washington indexes their wage base in accordance with the average wage for employees and the growth or decline of individuals in the workforce. According to Washington’s statistics, employment grew in 2012 by 1.9% which contributes to the increased taxable wage base for 2014.

Next month Corporate Cost Control will issue details in their Newsletter explaining some of the complications of a Title XII Loan after the third January has passed, and a Title XII Loan still exists. An employer loses 0.3% of their credit reduction for each year the loan is outstanding. However, after three years of a state having an outstanding loan balance, an additional rate up to 2.7% can be added to the 0.3% reduction. Corporate Cost Control is currently contacting the states with the outstanding balances and reviewing legislation for the 2013 effects of the Title XII outstanding loans.

 


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