[Federal Register Volume 59, Number 49 (Monday, March 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-5889]
[[Page Unknown]]
[Federal Register: March 14, 1994]
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Federal-State Unemployment Compensation Program: Unemployment
Insurance Program Letters Interpreting Federal Unemployment Insurance
Law
The Employment and Training Administration interprets Federal law
requirements pertaining to unemployment compensation as part of its
role in the administration of the Federal-State unemployment
compensation program. These interpretations are issued in Unemployment
Insurance Program Letters (UIPLs) to the State Employment Security
Agencies (SESAs). The UPLs described below are published in the Federal
Register in order to inform the public.
Unemployment Insurance Program Letter No. 13-94
This UIPL advises SESAs of the provisions of Public Law (Pub. L.)
103-152 which affect the unemployment compensation (UC) program. Public
Law 103-152 requires that States establish and utilize a system of
profiling all new claimants for regular UC in order to identify those
claimants most likely to exhaust regular UC and in need of reemployment
services in order to obtain new work. It also requires that an
individual identified pursuant to the profiling system must participate
in reemployment services as a condition of UC eligibility.
Unemployment Insurance Program Letter No. 14-94
This UIPL advises SESAs of the provisions of Public Law 103-182
relating to self-employment assistance as it affects the UC program.
Public Law 103-182 amended Federal law to give States the option of
permitting, for a five-year period, certain individuals to receive
payments from a State's unemployment fund for the purpose of assisting
such individuals in establishing businesses and becoming self-employed.
Dated: March 8, 1994.
Doug Ross,
Assistant Secretary of Labor.
Classification: UI.
Correspondence Symbol: TEURL.
Date: January 28, 1994.
Directive: Unemployment Insurance Program Letter No. 13-94
To: All State Employment Security Agencies
From: Mary Ann Wyrsch, Director, Unemployment Insurance Service
Subject: The Unemployment Compensation Amendments of 1993 (Pub. L.
103-152)--Provisions Affecting the Federal-State Unemployment
Compensation Program
Rescissions: None.
Expiration Date: January 31, 1995.
1. Purpose. To advise State employment security agencies (SESAs)
of the provisions of the Unemployment Compensation Amendments of
1993, Public Law (Pub. L.) 103-152, which affect the Federal-State
Unemployment Compensation (UC) Program.
2. References. Section 4 of Public Law 103-152; Titles III and
IX of the Social Security Act (SSA); Public Law 103-6; Public Law
102-318; UI Occasional Papers 89-3 and 91-1; and UIPL 45-93, dated
September 23, 1993.
3. Background. On November 24, 1993, the President signed into
law the Unemployment Compensation Amendments of 1993, Public Law
103-152. Public Law 103-152 extended the Emergency Unemployment
Compensation (EUC) program, and amended the SSA to require States,
as a condition of receiving administrative grants, to establish and
utilize a system of profiling all new claimants for regular UC for
purposes of identifying claimants who are likely to exhaust UC and
will need job search assistance to make a successful transition to
new employment. The SSA was further amended to require States to
disqualify an individual identified pursuant this profiling system
if the individual fails to participate in reemployment services. In
addition, Public Law 103-152 made a technical change to Title IX of
the SSA. States have already been advised of those provisions
affecting the EUC program in GAL 12-92, Change 6. This issuance is
limited to those amendments to the SSA affecting the Federal-State
UC program. These amendments are as follows:
(a) a new requirement that States establish and utilize a system
of profiling all new claimants for regular UC;
(b) a new requirement that State law require claimants
identified as most likely to exhaust regular UC to participate in
reemployment services as condition of UC eligibility; and
(c) a technical amendment to Title IX of the SSA pertaining to
the Unemployment Trust Fund.
4. Action Required. SESAs are requested to take the action
necessary to assure consistency with Federal requirements as amended
by Public Law 103-152. The effective dates for implementation of
these amendments are found in Attachment III.
5. Inquiries. Inquiries should be directed to your Regional
Office.
6. Attachments.
I. Unemployed Workers Profiling
II. Participation in Reemployment Services
III. Draft Language to Implement Section 4(b) of Public Law 103-152
IV. Technical Amendment Concerning the Unemployment Trust Fund
Attachment I to UIPL 13-94
Unemployed Worker Profiling
a. Text of Amendment--Section 4(a) of Public Law 103-152
Sec. 4. Worker Profiling.
(a) In General.--
(1) Establishment of Profiling System.--Section 303 of the
Social Security Act is amended by adding at the end thereof the
following new subsection:
``(j)(1) The State agency charged with the administration of the
State law shall establish and utilize a system of profiling all new
claimants for regular compensation that--
``(A) Identifies which claimants will be likely to exhaust
regular compensation and will need job search assistance services to
make a successful transition to new employment;
``(B) Refers claimants identified pursuant to subparagraph (A)
to reemployment services, such as job search assistance services,
available under any State or Federal law;
``(C) Collects follow-up information relating to the services
received by such claimants and the employment outcomes for such
claimants subsequent to receiving such services and utilizes such
information in making identifications pursuant to subparagraph (A);
and
``(D) Meets such other requirements as the Secretary of Labor
determines are appropriate.
``(2) Whenever the Secretary of Labor, after reasonable notice
and opportunity for hearing to the State agency charged with the
administration of the State law, finds that there is a failure to
comply substantially with the requirements of paragraph (1), the
Secretary of Labor shall notify such State agency that further
payments will not be made to the State until he is satisfied that
there is no longer any such failure. Until the Secretary of Labor is
so satisfied, he shall make no further certification to the
Secretary of the Treasury with respect to such State.''
b. Discussion.
Profiling--Situation Prior to Enactment of Public Law 103-152.
Profling is based on the premise that a set of characteristics--a
``profile''--can be developed to identify, at an early stage of
unemployment, which workers are likely to exhaust UC and will need
assistance to find new jobs. Research on this point sponsored by the
Department of Labor and conducted in the State of New Jersey found
that profiled claimants who received reemployment services returned
to work earlier than those who did not receive such services. (See
UI Occasional Papers 89-3 and 91-1 which contain reports on the New
Jersey project). In addition, studies on the long-term unemployed
have found that individual characteristics such as schooling and job
tenure relate to when the individuals return to work. Thus,
providing early reemployment assistance to individuals most likely
to remain out of work should result in an earlier return to work.
Section 4 of Public Law 103-6 addressed the establishment of a
system of profiling all new claimants for regular UC (including new
claimants under Federal unemployment benefit allowance programs) to
determine which claimants may be most likely to exhaust regular UC
and may need reemployment services to make a successful transition
to new employment. Although States were not required to establish a
system of profiling, the Secretary was directed to ``encourag[e]
[its] adoption and implementation by all States,'' as well as
provide ``technical assistance and advice to the States in the
development of model profiling systems.''
In response to this legislation, the Department took action to
develop a model profiling system. UIPL 45-93 was issued and States
were encouraged to provide comments on the profiling system and the
procedures needed to implement it. The Department was in the process
of developing this system and a strategy for its implementation when
Public Law 103-152 was enacted.
Profiling--Effect of Public Law 103-152. The amendments made by
Public Law 103-152 repealed section 4 of Public Law 103-6 and added
subsection (j) to section 303, SSA, to require States, as a
condition for receiving Title III grants, to implement and utilize a
system of profiling all new claimants for regular UC. Under section
303(j)(1), SSA, the system must include components which:
1. Identify which claimants will be likely to exhaust regular UC
and will need job search assistance services to make a successful
transition to new employment.
2. Refer the claimants described in item 1 above to reemployment
services, such as job search assistance services, available under
any State or Federal law. The conference Committee Report defines
``reemployment services'' as:
* * * job search assistance and job placement services, such as
counseling, testing, and providing occupational and labor market
information, assessment, job search workshops, job clubs and
referrals to employers, and other similar services. [H. Rep. No.
333, 103rd Cong. 1st Sess., 5 (1993)]
3. Collect follow-up information relating to the services
received by such claimants and their employment outcomes and use the
information for future profiling.
4. Meet ``such other requirements as the Secretary of Labor
determines are appropriate.''
The Department of Labor will provide further guidance concerning
``reemployment services,'' job search assistance,'' ``follow-up
information,'' ``employment outcomes'' and any other requirements
the Secretary of Labor determines to be necessary for the proper
implementation of a profiling system.
c. Technical Assistance and Report. Section 4(c) of Public Law
103-152 requires that the ``Secretary of Labor shall provide
technical assistance and advice to assist the States in implementing
the profiling system'' and that ``such assistance shall include the
development and identification of model profiling systems.'' The
Department of Labor plans to provide technical assistance to States.
Information concerning this assistance and the model profiling
systems will be provided in future issuances.
Section 4(d) of Public Law 103-152 requires that, not later than
the date three years after the date of enactment of Public Law 103-
152, the Secretary of Labor will report to the Congress on the
operation and effectiveness of the profiling system and of the
participation requirement described in Attachment II below. Since
Public Law 103-152 was enacted on November 24, 1993, the report is
due November 24, 1996.
d. Effective Date. Section 303(j)(2), SSA, requires that States
must comply substantially with the requirements of 303(j)(1), SSA as
a condition of receiving administrative grants under Section 303(a),
SSA.
Under section 4(f)(1) of Public Law 103-152, new section 303(j),
SSA, ``shall take effect on the date one year after the date of the
enactment of this Act,'' or November 24, 1994. In determining
whether to take action against a State which has not appropriately
amended its law and/or not established a profiling system by this
effective date, the Department of Labor will take into consideration
the feasibility of such State taking that action to meet the
requirements of the statute, as interpreted by the Department in its
operating instructions. These operating instructions will be
provided in future issuances.
Attachment II to UIPL 13-94
Participation in Reemployment Services
a. Text of the Amendment--Section 4(b) of Public Law 103-152.
(b) Participation Requirement.--Section 303(a) of the Social
Security Act is amended--
(1) By striking the period at the end of paragraph (9) and
inserting ``; and '', and
(2) By adding at the end thereof the following new paragraph:
``(10) A requirement that, as a condition of eligibility for
regular compensation for any week, any claimant who has been
referred to reemployment services pursuant to the profiling system
under subsection (j)(1)(B) participate in such services or in
similar services unless the State agency charged with the
administration of the State law determines--
``(A) Such claimant has completed such services; or
``(B) There is justifiable cause for such claimant's failure to
participate in such services.''
b. Discussion. Public Law 103-152 added section 303(a)(10) to
the SSA to require States, as a condition of receiving Title III
grants, to place an additional condition of eligibility on claimants
who have been referred to reemployment services pursuant to the
profiling system under subsection 303(j)(1)(B), SSA. A profiled
claimant, in order to be eligible for regular UC for any given week,
must participate in reemployment services or similar services unless
the State agency determines that (1) the profiled claimant has
already completed such services; or (2) there is a justifiable cause
for the claimant's failure to participate in such services. The
Department of Labor will provide further guidance to States
concerning participation in ``reemployment services'' or ``similar
services'' and ``justifiable cause.''
The Department believes States will need to amend their laws to
provide for a disqualification based on a profiled claimant's
failure to participate in reemployment services. If a State does not
need to make such a law change, it will be necessary to notify the
Department that such a disqualification can be accomplished without
amendment.
c. Effective Date. Section 4(f) of Public Law 103-152, requires
that new Section 303(a)(10), SSA, ``shall take effect on the date
one year after the date of the enactment of this Act,'' or November
24, 1994. In determining whether to take action against a State
which has not met this requirement by this effective date, the
Department of Labor will take into consideration the feasibility of
such State timely amending its law and establishing a profiling
system (which is a necessary requisite to this denial provision)
which meets the requirements established by the Department in its
operating instructions.
Attachment III to UIPL 13-94
Draft Language to Implement Section 4(b) of Public Law 103-152
States needing to amend their laws to incorporate the new
eligibility criteria established by Public Law 103-152, may wish to
use the following draft language.
(a) Eligibility for benefits.--An unemployed individual shall be
eligible to receive benefits with respect to any week only if the
individual:
* * * * *
( ) participates in reemployment services, such as job search
assistance services, if the individual has been determined to be
likely to exhaust regular benefits and need reemployment services
pursuant to a profiling system established by the Commissioner.
Attachment IV to UIPL 13-94
Technical Amendment Concerning the Unemployment Trust Fund
(a) Text of the Amendment--Section 5 of Public Law 103-152.
Sec. 5. Technical Amendment to Unemployment Trust Fund.
Paragraph (1) of section 905(b) of the Social Security Act is
amended to read as follows:
``(b)(1) Except as provided in paragraph (3), the Secretary of
the Treasury shall transfer (as of the close of each month) from the
employment security administration account to the extended
unemployment compensation account established by subsection (a), an
amount (determined by such Secretary) equal to 20 percent of the
amount by which--
``(A) The transfers to the employment security administration
account pursuant to section 901(b)(2) during such month, exceed
``(B) The payments during such month from the employment
security administration account pursuant to section 901(b)(3) and
(d).
If for any such month the payments referred to in subparagraph
(B) exceed the transfers referred to in subparagraph (A), proper
adjustments shall be made in the amounts subsequently transferred.''
(b) Discussion. The legislation proposed which eventually became
Public Law 103-318 contained a provision which would have amended
section 901(b)(1), SSA, to create new subparagraphs (A) and (B).
This provision was not enacted. However, corresponding amendments to
section 905(b) were included in the enacted version of Public Law
103-319. As these amendments referred to non-existent sections, the
amendments had no effect. Section 5 of Public Law 103-152 amended
Section 905(b), SSA, to delete the erroneously enacted language
pertaining to the non-existing section.
Classification: UI.
Correspondence Symbol: TEURL.
Date: February 16, 1994.
Directive: Unemployment Insurance Program Letter No. 14-94
To: All State Employment Security Agencies
From: Mary Ann Wyrsch, Director, Unemployment Insurance Service
Subject: North American Free Trade Agreement Implementation Act
(Pub. L. 103-182)--Provisions Affecting the Federal-State
Unemployment Compensation (UC) Program relating to Self-Employment
Assistance
Rescisions: None.
Expiration Date: February 28, 1995.
1. Purpose. To advise State agencies of the provisions of the
North American Free Trade Agreement Implementation Act which affect
the Federal-State UC Program.
2. References. The Federal Unemployment Tax Act (FUTA); Title
III of the Social Security Act (SSA); the Federal-State Extended
Unemployment Compensation Act of 1970 (EUCA), as amended; section
9152 of Public Law 100-203; section 507 of the North American Free
Trade Agreement Implementation Act (NAFTA), Public Law 103-182;
Unemployment Insurance Program Letter (UIPL) 29-83, Change 1:
General Administration Letter (GAL) 7-94; and UI Occasional Paper
92-2.
3. Background. On December 8, 1993, the President signed into
law the NAFTA, Public Law 100-182, which affects the UC program in
two ways. First, NAFTA created a transitional adjustment assistance
program designed to address worker dislocation caused by NAFTA. This
aspect of NAFTA was addressed in GAL 7-94. Second, NAFTA amended
Federal law to give States the option of permitting, for a five-year
period, certain individuals to receive a payment from the State's
unemployment fund for the purpose of assisting such individuals in
establishing a business and becoming self-employed. It is this
second aspect of NAFTA which is the subject of this UIPL.
4. Discussion.
a. In General. The ``withdrawal standard'' of Section
3304(a)(4), FUTA, and section 303(a)(5), SSA, limits withdrawals
(with specified exceptions not relevant here) from a State's
unemployment fund to payments of ``compensation'' and prior to the
enactment of NAFTA would have prohibited withdrawals for the purpose
of paying self-employment allowances. The term ``compensation'' is
defined in section 3306(h), FUTA, as ``cash benefits payable to
individuals with respect to their unemployment.'' Due to this
requirement that the payment be with respect to ``unemployment,''
the withdrawal standard has previously, with one temporary
exception, prohibited States from using unemployment funds to assist
individuals in establishing themselves in self-employment.
The previous temporary exception was created by section 9152 of
Public Law 100-203, the Budget Reconciliation Act of 1987. Public
Law 100-203 authorized three demonstration projects to test the
feasibility of providing self-employment allowances, payable from a
State's unemployment fund, to individuals. Only Massachusetts
operated a demonstration project. The initial report on this project
was issued in UI Occasional Paper 92-2, Self-Employment Programs for
Unemployed Workers, and is available by writing Ingrid Evans, United
States Department of Labor, Unemployment Insurance Service, 200
Constitution Ave. NW., room S-4231, Washington, DC 20210. A final
report will be available in 1994.
NAFTA amended Federal law to allow payments to self-employed
individuals under specified conditions during the five years
following NAFTA's date of enactment. The report of the House Ways
and Means Committee describes the intent behind the new Self-
employment provision:
Providing States the authority to establish and operate self-
employment programs would significantly benefit workers that may be
dislocated because of the NAFTA. The traditional system of
unemployment compensation is primarily designed to provide income
support for workers who are temporarily laid off or expect to be
unemployed for only a short time. However, as a result of the NAFTA,
some workers may lose their jobs permanently and need additional
tools besides the basic income maintenance provided by the
unemployment insurance system in order to re-enter the work force.
For some of those workers, access to a self-employment program would
be the best path for them to re-enter the work force. This provision
gives states the ability to add the tool of self-employment training
and support to the options available to help speed the transition of
dislocated workers back into the work force. [H. Rept. No. 361, Part
1, 103rd Cong., 1st Sess. 94 (1993).]
Specifically, section 507, NAFTA, amended the withdrawal
standard (and the definition of ``unemployment fund'' in section
3306(f), FUTA) to provide that amounts may be withdrawn from the
unemployment fund of a State ``for the payment of allowances under a
self-employment assistance program (as defined in section 3306(t)) *
* *'' FUTA. This exception to the withdrawal standard applies solely
to the self-employment assistance (SEA) allowances described in
section 3306(t), FUTA, which was also added to FUTA by section
507(a), NAFTA. Under new section 3306(t)(1), SEA allowances are
payable ``in lieu of regular'' UC for the purposes of assisting
individuals in establishing a business and becoming self-employed.
b. Eligibility for SEA Allowances. SEA allowances are to be
payable ``in the same amount, at the same interval [e.g., payment
with respect to a period will be made weekly if that is the State's
usual practice for claims for regular UC or every other week if that
is the usual practice], on the same terms, and subject to the same
conditions as'' regular UC. (Section 3306(t)(2), FUTA.) This ``equal
treatment'' provision applies to all monetary and nonmonetary
(including reporting and certification) eligibility requirements
except where specifically prohibited by other provisions of Federal
law pertaining to SEA allowances. It also applies to notice and
appeal rights.
Since individuals engaged in self-employment activities will
normally be disqualified if certain eligibility provisions for State
UC are followed, section 3306(t)(2), FUTA, provides that these
provisions of State law shall not be followed. Specifically, the
following provisions shall not apply:
(1) State requirements relating to availability for work, active
search for work, and refusal to accept work.
(2) State requirements relating to disqualifying income are not
applicable to income earned from self-employment by individuals
claiming SEA allowances.
In addition, individuals in the SEA program will be considered
to be ``unemployed'' for purposes of both Federal and State UC laws
provided the individuals meet provisions of State law subject to the
above equal treatment provision and four additional eligibility
provisions for SEA allowances discussed immediately below. (The
effect of this requirement on Federal law is discussed below in item
4.f.)
Section 3306(t)(3), FUTA, contains the four additional
eligibility provisions which individuals must meet to receive SEA
allowances:
(1) They must be eligible to receive regular UC under the State
law (or they would be eligible but for the requirements suspended by
the SEA provisions at section 3306(t)(2), FUTA, as discussed above).
This is basically a restatement of the ``equal treatment''
requirement of section 3306(t)(1), FUTA, and includes monetary as
well as initial and continuing nonmonetary eligibility. For purposes
of determining SEA eligibility, ``regular compensation'' includes UC
for ex-servicemembers (UCX) and former Federal employees (UCFE).
(See item 4.g below.)
Since the SEA allowance is ``in lieu of'' regular UC, the total
amount of SEA allowances that individuals may receive is equal to
their maximum benefit amount of regular UC less any regular UC
previously received. Similarly, the weekly SEA allowance amount must
equal the weekly benefit amount for regular UC. Also, SEA allowances
and regular UC may not be paid for the same period.
The term ``regular compensation'' is defined in section 205(2),
EUCA, as ``compensation payable to an individual under any State
unemployment compensation law (including compensation payable
pursuant to 5 U.S.C. chapter 85), other than extended compensation
and additional compensation.'' Thus, individuals who have exhausted
regular UC are ineligible for SEA allowances. Individuals may not
receive SEA allowances in lieu of Federal-State extended benefits
(EB), additional benefits (AB) entirely financed by the State, any
wholly funded Federal extension of UC, or other types of
compensation not meeting the definition of regular UC.
Individuals who are terminated from or voluntarily leave the SEA
program may collect regular UC with respect to the benefit year (if
otherwise eligible) until the total amount of regular UC paid and
SEA paid equals the maximum benefit amount. Such individuals may be
paid EB if otherwise eligible. This is because, under 20 CFR
615.5(a)(1), these individuals are ``exhaustees'' for EB purposes
because they have received ``all of the regular compensation that
was payable under the applicable State law * * *.'' Similarly,
individuals who exhaust the maximum benefit amount as SEA program
participants may also receive EB if otherwise eligible. Whether any
of the individuals discussed in this paragraph are eligible for
other Federal extensions will depend on the law creating the
extension. Whether individuals are eligible for AB will be
determined by State law.
(2) The individuals must be identified pursuant to a State
worker profiling system as likely to exhaust regular UC. For further
discussion of SEA profiling requirements, refer to items 4.d and 4.j
of this UIPL.
(3) The individuals are participating in self-employment
assistance activities which are approved by the State agency. State
agency is defined in Section 3306(e), FUTA, as the authority
``designated under a State law to administer the unemployment fund
in such State.'' The activities which must be offered the
individuals are entrepreneurial training, business counseling, and
technical assistance. (Information concerning these activities may
be found in UI Occasional Paper 92-2, which describes services
provided to claimants participating in the self-employment
demonstration programs in Washington and Massachusetts.) If these
activities are not available, an individual pursuing self-employment
will not be eligible for SEA allowances; determination of
eligibility for regular UC for such individuals will be made under
State law provisions relating to self-employment. The activities may
be offered by either private or public entities.
An individual who fails to participate in a scheduled activity
(e.g., failure to attend a scheduled training course) is not
considered to be participating in SEA program activities. However,
for purposes of receiving a SEA allowance, it is not always
necessary for the individual to have actually participated in SEA
program activities for the week claimed. What is, at a minimum,
necessary is that the individual be participating in a program
(approved by the State agency) which provides training programs on
an ongoing basis and allows individuals to avail themselves of other
SEA program services when they are needed. As long as individuals
are under such a program, even though no activities are scheduled
for a given week, they will be considered to be participating in SEA
program activities and may be paid SEA allowances. It is possible
that an individual may be eligible for both regular UC and the SEA
allowance. This will occur when the individual is participating in
training related to self-employment which is also approved training
under State law. In this instance, the State is free to determine
whether regular UC or the SEA allowance will be paid as long the
eligibility requirements for the respective program are met.
However, in no instance may both regular UC and the SEA allowances
be paid with respect to the same period.
Since States do not disqualify individuals under their regular
UC laws for failure to participate in SEA program activities, the
SEA ``equal treatment'' provision does not address what
disqualifications States may impose in these cases. It is
recommended that States disqualify these individuals from receipt of
SEA allowances only for the week the failure to participate occurs.
Such individuals may be eligible for regular UC for that week if
State law provisions relating to regular UC are met. Individuals who
fail to meet the participation requirement may be dropped by the
State from the SEA program.
(4) They are actively engaged on a full-time basis in activities
(which may include training) relating to the establishment of a
business and becoming self-employed. The Department of Labor
(``Department'') is researching the relationship of this requirement
to the Americans with Disabilities Act. When this research is
completed, guidance on what constitutes a ``full-time basis'' will
be provided.
As is the case with failing to participate in SEA activities,
States do not currently disqualify individuals under their regular
UC laws for failure to actively engage on a full-time basis relating
to the establishment of a business and becoming self-employed.
Therefore, the SEA ``equal treatment'' provision does not address
what disqualifications States may impose in these cases. It is
recommended that States disqualify these individuals from receipt of
SEA allowances only for the week the failure to actively engage on a
full-time basis occurs. Such individuals may be eligible for regular
UC for that week if State law provisions relating to regular UC are
met. Individuals who fail to meet the ``full-time'' requirement may
be dropped by the State from the SEA program.
c. 5 Percent Rule. Section 3306(t)(4), FUTA, places a limitation
on the number of individuals in a State who may receive SEA
allowances. Specifically, it provides that the aggregate number of
individuals receiving the allowance must ``not at any time exceed 5
percent of the number of individuals receiving regular unemployment
compensation under the State law at such time * * *.'' The
Department will monitor this ``5 percent test'' on a monthly basis.
Therefore, States must use at least a monthly measurement period as
well. The calculation relates to individuals actually receiving
(i.e., paid) SEA for the week as a percent of those receiving
regular UC for the same week. Thus, for example, if 10,000
individuals receive regular UC (including UCFE and UCX) for a given
week, then no more than 500 may receive SEA allowances (including
UCFE and UCX claimants).
Note: The 5 percent figure is not arrived at by taking 5 percent
of the sum of the number of individuals receiving SEA and the number
of individuals receiving regular UC.
The 5 percent figure is an express limitation which the State
may not exceed. Therefore, States must monitor SEA allowance
payments closely to assure that the 5 percent limitation is not
exceeded. The Department recommends that new individuals not be
added to the SEA program if it appears the 5 percent threshold may
be exceeded.
d. No Cost to Unemployment Trust Fund (UTF). Section 3306(t)(5),
FUTA, places an additional requirement on the States as a condition
of paying SEA allowances. It provides that the payment of SEA
allowances must not result in any cost to the UTF ``in excess of the
cost that would be incurred by such State and charged to such
[Unemployment Trust] Fund if the State had not participated in'' the
SEA program. Put simply, payment of SEA allowances may not result in
any additional benefit charges to the UTF. This limitation applies
only to the benefit costs associated with the payment of SEA/regular
UC. It does not apply to the charging of SEA allowances to
employers.
Since individuals successfully establishing themselves in self-
employment will not collect EB, the UTF will accrue some savings to
the Extended Unemployment Compensation Account and the State's
account. However, since EB is not always payable in a State, the
Department has determined that this ``no cost'' requirement will be
met only if:
(1) The State implements a profiling system which assures that
only claimants likely to exhaust regular UC will receive SEA
allowances. An inadequate profiling system were those likely to not
exhaust regular UC are allowed to receive SEA allowances will not
meet the ``no cost'' requirement.
(2) The State creates ``participation requirements'' designed to
assure SEA allowances are paid only to those who actually
participate in the SEA program. Participation requirements for
determining if an individual is actively engaged on a full-time
basis in SEA activities must be at least as stringent as the able
and available requirements for regular UC; otherwise the SEA program
will not meet the ``no cost'' requirement.
More information on what is required of States in these areas is
described in item 4.j below.
e. State Reports. Section 507(c), NAFTA, provides that any State
operating a SEA program authorized by the Secretary of Labor must
report annually to the Secretary the number of individuals who
participate in the SEA program, the number of individuals who are
able to develop and sustain businesses (e.g., business survival
data), the cost of operating the SEA program, and compliance with
program requirements. The report must also contain other relevant
data needed by the Department, including data related to business
income, number of employees and wages paid in the new businesses,
and incidence and duration of unemployment after business start-up.
State reports will be submitted with respect to a calendar year
and will be due the June 30 following the report year. This means
the first report may be for only part of a year. For example, if a
State's SEA program is effective April 1, 1994, then the first
annual report will be due on June 30, 1995 and will cover a nine-
month period.
Failure to submit the report as required will create an issue
under section 303(a)(6), SSA, which requires that, as a condition of
receipt of administrative grants for the UC program, State law
provides for ``the making of such reports, in such form and
containing such information, as the Secretary of Labor may from time
to time require * * *.''
Under section 507(d), NAFTA, the Secretary of Labor is required
to submit a report to Congress with respect to the SEA program not
later than four years after the date of enactment of NAFTA. Since
NAFTA was enacted on December 8, 1993, this report is due no later
than December 8, 1997. This report will be based on the reports from
the States operating SEA programs.
f. Individuals Receiving SEA considered to be Unemployed. As
noted in item 4.a, section 3306(h) defines ``compensation'' as
``cash benefits payable to individuals with respect to their
unemployment.'' Payments to self-employed individuals are not
compensation since they are not payable with respect to
unemployment. However, under section 3306(t)(2)(c), FUTA,
individuals to whom the SEA allowances are payable ``are considered
to be unemployed for the purposes of Federal and State laws
applicable to unemployment compensation, as long as such individuals
meet the requirements'' of section 3306(t). The effect of this
provision is that, with respect to SEA, individuals are considered
to be unemployed and payments made to them are considered to be
``compensation.'' Thus, the term ``compensation'' is considered to
include individuals eligible for SEA allowances. The term ``regular
compensation'' does not, however, include SEA allowances. This is
because under Section 3306(t)(1), FUTA, SEA is payable ``in lieu
of'' regular UC.
g. Equal Treatment Requirements Elsewhere in Federal Law. In
addition to the SEA ``equal treatment'' requirement in Section
3306(t)(2), FUTA, Federal law contains two other equal treatment
requirements mandating payment of compensation ``in the same amount,
on the same terms, and subject to the same conditions'' as UC
payable under State law. One requirement is found in section
3304(a)(6)(A), FUTA, and pertains to payment of UC based on services
performed for State and local governments and certain nonprofit
entities, commonly called ``reimbursing'' employers. The other
requirement is found in 5 U.S.C. 8502(b) and pertains to payment of
UCX and UCFE. As noted in item 1.f, above, the term ``compensation''
is considered to include SEA allowances. Therefore, individuals who
perform services covered under these two additional ``equal
treatment'' provisions must be given the option of receiving SEA
allowances. The payment of SEA allowances does not require an
amendment to the UCFE/UCX agreement.
The ``equal treatment'' requirement contained in section
3306(t)(2), FUTA, provides that SEA allowances will be ``payable in
the same amount, at the same interval, on the same terms, and
subject to the same conditions, as regular unemployment compensation
under the State law * * *.'' Thus, SEA allowances must be paid to
all eligible individuals to whom regular UC is payable under State
law, including individuals who performed services to which section
3304(a)(6)(A), FUTA, and 5 U.S.C. chapter 85 apply.
These equal treatment requirements extend to all aspects related
to the payment of SEA.
h. Financing of SEA Allowances. It will be necessary for States
to review their laws to determine how the allowances will be
financed. Financing depends on the type of employer for which the
individual receiving the allowance previously performed services.
(1) Experience Rated Employers. Section 3303(a)(1), FUTA,
requires, as a condition of employers in a State obtaining the
additional credit against the Federal unemployment tax, that no
reduced contribution rate be assigned an employer, except on the
basis of ``experience with respect to unemployment or other factors
bearing a direct relation to unemployment risk * * *.'' All but one
of the existing experience rating systems consist of charging
payments of compensation or benefit wages to an employer who had
previously provided employment to the compensated individual.
As noted in item 1.f, under section 3306(t)(2)(c), FUTA,
individuals to whom the SEA allowance is payable ``are considered to
be unemployed for the purposes of Federal and State laws applicable
to unemployment compensation * * *.'' Under this provision, SEA
allowances reflect ``experience with respect to unemployment or
other factors bearing a direct relation to unemployment risk'' for
purposes of section 3303(a)(1), FUTA. Therefore, the measurement of
an employer's experience through charges based on SEA allowances is
appropriate.
In charging SEA allowances, States must use the same method of
charging (e.g., charging base period employers proportionately) and
noncharge in the same situations (e.g., noncharging claims where the
individual has voluntarily quit) as apply to regular UC. To fail to
do this would raise an issue under the ``uniform method''
requirement of section 3303(a)(1), FUTA. See UIPL 29-83, Change 1,
dated September 24, 1991.
The Department will address the issue of whether SEA allowances
may be noncharged when it develops a comprehensive noncharging
policy.
(The one experience rating system not using payments of
compensation or benefit wages is Alaska which uses a payroll decline
system. The Department believes this system will not be affected by
the payment of SEA allowances.)
(2) Reimbursing Employers. Section 3309(a)(2), FUTA, provides
that costs ``of compensation attributable under the State law'' to
service performed for State and local governments and nonprofit
organizations to which that section pertains must be reimbursed by
such entities. Since, as discussed in item 1.f, SEA allowances are
considered to be compensation, this requirement also applies to SEA
allowances.
(3) Federal Military and Civilian Employers. Under 5 U.S.C.
8509(b), moneys in the Federal Employees Compensation Account shall
be ``available only for the purpose of making payments to States
pursuant to agreements'' with the Secretary of Labor. Since payments
of SEA are payments of compensation for purposes of Federal law, SEA
allowances attributable to Federal military or civilian service may
be charged to Federal employers.
i. Payment of Administrative Costs. Costs of administering SEA
allowances (including those paid to UCFE and UCX claimants) are
payable from grants received for the administration of State's UC
law under Title III of the SSA. Costs of providing SEA program
services such as entrepreneurial training, business counseling and
technical assistance are not, however, payable from these Title III
funds.
j. Required Plan. Section 3306(t)(6), FUTA, provides that a
State SEA program must meet ``such other requirements as the
Secretary of Labor determines to be appropriate.'' Secretary's Order
No. 4-75 (40 FR 18515) gives the Department the authority to make
this determination. The Department has determined that, prior to
implementing a SEA program, the Department must approve a State
plan. This approval process will assure an orderly start-up of the
SEA program in a State. To be approved the plan must contain:
(1) A description of the profiling system used to identify SEA
program participants. The State has three options for choosing a
profiling system:
(A) Using elements of the statistical model developed by the
Department for purposes of providing technical assistance in
implementing Section 303(j), SSA. (Section 303(j), SSA, requires
States to establish and use a system of profiling all new claimants
for regular UC.) The report on the profiling model, Profiling
Dislocated Workers for Early Referral to Reemployment Services by
Kelleen Worden (October 6, 1993), is available from the appropriate
Regional Office. If this model is used, States must re-estimate the
coefficients using State data.
(B) A statistical model developed by the State.
(C) Another profiling method developed by the State.
Regardless of which option is chosen, the State must demonstrate
that its system has a high degree of accuracy for purposes of
meeting the cost-neutrality requirement discussed in item 4.d. For
this reason, the State must submit with its plan a baseline analysis
of historical data indicating the extent to which the exhaustion
rate of individuals identified by the proposed system exceeds the
exhaustion rate of the population of all beneficiaries under the
regular UC program. The determination of whether the system is
sufficiently accurate will be made by the Department.
(2) Assurances that the annual report will be submitted as
required and contain such information as required by this UIPL.
(3) A description of participation requirements including:
(A) The structured set of services provided to individuals in
the SEA program. The description must address the working
relationship of the State agency with any entity (such as a State
economic development agency or an agency administering the Job
Training Partnership Act) providing services under the SEA program.
(B) A description of what actions (such as certification
procedures) the States will take to assure SEA participants are
engaged ``on a full-time basis'' in self-employment activities.
(4) Legislative language implementing the SEA program consistent
with the requirements of this UIPL. (Draft language is provided in
Attachment II and a Commentary in Attachment III.)
(5) A description of the source (and amount of) funds for paying
for SEA program activities such as entrepreneurial training,
business counseling, and technical assistance, and assurances that
Title III, SSA, funds will not be used for these activities.
(6) Assurances that the payment of SEA allowances will not
create any additional benefit costs to the UTF.
Since no State may commence operation of a SEA program without
approval of a plan by the Department, States may expedite
implementation of the SEA program by submitting their plans prior to
obtaining legislation. Although the Department may provide
provisional approval of a plan prior to enactment, it will not
approve any plan until certified copies of SEA legislation are
provided by the State. Any modifications to an approved plan are to
be submitted to the Department.
Proposed plans and modifications to approved plans are to be
submitted to the appropriate Regional Office.
k. Counting of SEA Claims for EB Trigger Purposes. SEA claimants
are to be included in the calculation of the insured unemployment
rate (IUR) for purposes of determining whether EB is payable in a
State.
l. Reporting Requirements. Any changes required in reporting to
the Department will be addressed in future issuances.
m. Effective Date and Termination Date of SEA Programs. Under
Section 507(e), NAFTA, the provisions of Federal law relating to SEA
programs are effective on the date of enactment of NAFTA. In
addition, these provisions provide only temporary exceptions to the
withdrawal standard. The authority to operate SEA programs expires
five years after the date of enactment of NAFTA. Since NAFTA was
enacted on December 8, 1993, the SEA program provisions were
effective on that date and expire on December 8, 1998.
5. Action Required. The establishment of SEA programs is
optional for States. However, States must enact enabling legislation
and obtain this Department's approval of a plan prior to
implementing a SEA program.
6. Inquiries. Inquiries should be directed to the appropriate
Regional Office.
7. Attachments.
I. Text of Section 507, NAFTA.
II. Draft Language to Implement a Self-Employment Assistance
Program.
III. Commentary on the Draft Language to Implement a Self-
Employment Assistance Program.
Attachment I to UIPL 94-
Text of Section 507, NAFTA
Sec 507. Treatment of Self-Employment Assistance Programs
(a) General Rule.--Section 3306 of the Internal Revenue Code of
1986 is amended by adding at the end the following new subsection:
``(t) Self-Employment Assistance Program.--For the purposes of
this chapter, the term `self-employment assistance program' means a
program under which--
``(1) Individuals who meet the requirements described in
paragraph (3) are eligible to receive an allowance in lieu of
regular unemployment compensation under the State law for the
purpose of assisting such individuals in establishing a business and
becoming self-employed;
``(2) The allowance payable to individuals pursuant to paragraph
(1) is payable in the same amount, at the same interval, on the same
terms, and subject to the same conditions, as regular unemployment
compensation under the State law, except that--
``(A) State requirements relating to availability for work,
active search for work, and refusal to accept work are not
applicable to such individuals;
``(B) State requirements relating to disqualifying income are
not applicable to income earned from self-employment by such
individuals; and
``(C) Such individuals are considered to be unemployed for the
purposes of Federal and State laws applicable to unemployment
compensation, as long as such individuals meet the requirements
applicable under this subsection;
``(3) Individuals may receive the allowance described in
paragraph (1) if such individuals--
``(A) Are eligible to receive regular unemployment compensation
under the State law, or would be eligible to receive such
compensation except for the requirements described in subparagraph
(A) or (B) of paragraph (2);
``(B) are identified pursuant to a State worker profiling system
as individuals likely to exhaust regular unemployment compensation;
and
``(C) are participating in self-employment assistance activities
which--
``(i) include entrepreneurial training, business counseling, and
technical assistance; and
``(ii) are approved by the State agency; and
``(D) are actively engaged on a full-time basis in activities
(which may include training) relating to the establishment of a
business and becoming self-employed;
``(4) the aggregate number of individuals receiving the
allowance under the program does not at any time exceed 5 percent of
the number of individuals receiving regular unemployment
compensation under the State law at such time;
``(5) the program does not result in any cost to the
Unemployment Trust Fund (established by section 904(a) of the Social
Security Act) in excess of the cost that would be incurred by such
State and charged to such Fund if the State had not participated in
such program; and
``(6) the program meets such other requirements as the Secretary
of Labor determines to be appropriate.''.
(b) Conforming Amendments.--
(1) Section 3304(a)(4) of such Code is amended--
(A) In subparagraph (D), by striking ``; and'' and inserting a
semicolon;
(B) In subparagraph (E), by striking the semicolon and inserting
``; and''; and
(C) By adding at the end the following new subparagraph:
``(F) Amounts may be withdrawn for the payment of allowances
under a self-employment assistance program (as defined in section
3306(t));''
(2) Section 3306(f) of such Code is amended--
(A) In paragraph (3), by striking ``; and'' and inserting a
semicolon;
(B) In paragraph (4), by striking the period and inserting ``;
and''; and
(C) By adding at the end the following new paragraph:
``(5) amounts may be withdrawn for the payment of allowances
under a self-employment assistance program (as defined in subsection
(t)).''.
(3) Section 303(a)(5) of the Social Security Act (42 U.S.C.
503(a)(5)) is amended by striking ''; and'' and inserting '':
Provided further, That amounts may be withdrawn for the payment of
allowances under a self-employment assistance program (as defined in
section 3306(t) of the Internal Revenue Code of 1986); and''.
(c) State Reports.--Any State operating a self-employment
program authorized by the Secretary of Labor under this section
shall report annually to the Secretary on the number of individuals
who participate in the self-employment assistance program, the
number of individuals who are able to develop and sustain
businesses, the operating costs of the program, compliance with
program requirements, and any other relevant aspects of program
operations requested by the Secretary.
(d) Report to Congress.--Not later than 4 years after the date
of enactment of this Act, the Secretary of Labor shall submit a
report to the Congress with respect to the operation of the program
authorized under this section. Such report shall be based on the
reports received from the States pursuant to subsection (c) and
include such other information as the Secretary of Labor determines
is appropriate.
(e) Effective Date; Sunset.--
(1) Effective Date.--The provisions of this section and the
amendments made by this section shall take effect on the date of the
enactment of this Act.
(2) Sunset.--The authority provided by this section, and the
amendments made by this section, shall terminate 5 years after the
date of the enactment of this Act.
Attachment II to UIPL 94--
Draft Language to Implement a Self-Employment Assistance Program
States wishing to amend their UC law to add the optional SEA
program provisions may use the following draft language. A
Commentary is provided in Attachment III.
Section ________. Self-Employment Assistance Program
(a) Definitions. As used in this section--
(1) ``Self-employment assistance activities'' means activities
(including entrepreneurial training, business counseling, and
technical assistance) approved by the commissioner in which an
individual identified through a worker profiling system as likely to
exhaust regular benefits participates for the purpose of
establishing a business and becoming self-employed.
(2) ``Self-employment assistance allowance'' means an allowance,
payable in lieu of regular benefits and from the unemployment fund
established under section ________ [enter relevant section], to an
individual participating in self-employment assistance activities
who meets the requirements of this section.
(3) ``Regular benefits'' means benefits payable to an individual
under this Act (including benefits payable to Federal civilian
employees and to ex-servicemembers pursuant to 5 U.S.C. chapter 85)
other than additional and extended benefits.
(4) ``Full-time basis'' shall have the meaning contained in
regulations prescribed by the commissioner.
(b) Amount of self-employment assistance allowance. The weekly
allowance payable under this section to an individual will be equal
to the weekly benefit amount for regular benefits otherwise payable
under section ________ of this Act. The sum of (1) the allowances
paid under this section and (2) regular benefits paid under this Act
with respect to any benefit year shall not exceed the maximum
benefit amount as established by section ________ with respect to
such benefit year.
(c) Eligibility for self-employment assistance allowance. The
allowance described in subsection (a) shall be payable to an
individual at the same interval, on the same terms, and subject to
the same conditions as regular benefits under this Act, except
that--
(1) The requirements of sections ________ [enter relevant
sections] relating to availability for work, active search for work,
and refusal to accept work are not applicable to such individual;
(2) The requirements of section ________ [enter relevant
section] relating to self-employment income are not applicable to
income earned from self-employment by such individual;
(3) An individual who meets the requirements of this section
shall be considered to be unemployed under section ________ [enter
relevant section]; and
(4) An individual who fails to participate in self-employment
assistance activities or who fails to actively engage on a full-time
basis in activities (which may include training) relating to the
establishment of a business and becoming self-employed shall be
disqualified for the week such failure occurs.
(d) Limitation on receipt of self-employment assistance
allowances. The aggregate number of individuals receiving the
allowance under this section at any time shall not exceed 5 percent
of the number of individuals receiving regular benefits. The
commissioner shall, through regulations, prescribe such actions as
are necessary to assure the requirements of this subsection are met.
(e) Financing costs of self-employment assistance allowances.
Allowances paid under this section shall be charged to employers as
provided under provisions of this Act relating to the charging of
regular benefits.
(f) Effective date and termination date. The provisions of this
section will apply to weeks beginning after the date of enactment or
weeks beginning after any plan required by the United States
Department of Labor is approved by such Department, whichever date
is later. The authority provided by this section shall terminate as
of the end of the week preceding the date when Federal law no longer
authorizes the provisions of this section, unless such date is a
Saturday in which case the authority shall terminate as of such
date.
Attachment III to UIPL 94-
Commentary on the Draft Language to Implement a Self-Employment
Assistance Program
This commentary should be used in conjunction with Section 4 of
this UIPL.
States will need to make adjustments in the draft language to
accommodate State law conventions. Blanks have been provided for
inserting cites to relevant sections of the State law.
(a) Definitions.
(1) Self-employment assistance activities. These activities are
defined consistent with section 3306(t)(3)(C) and (D), FUTA. States
should note that the approval of the State agency is limited to the
self-employment ``activities'' themselves. States may not base a
denial of approval on factors unrelated to the self-employment
assistance activities.
(2) Self-employment assistance allowance. This section defines
the SEA allowance and establishes that such allowances are to be
paid from the State's unemployment fund. States may also wish to
consider whether to amend the section of State law which governs
withdrawals from the unemployment fund.
(3) Regular Benefits. A definition of ``regular benefits'' (or
``regular compensation'') is necessary since SEA allowances are
payable ``in lieu of'' regular compensation. State law may already
contain a definition of regular benefits in which case the addition
of this definition may not be necessary. Some State laws contain a
definition of regular benefits in the sections pertaining to EB. In
these cases, the State will need to determine whether the definition
is limited to the EB section, and, therefore, whether a cross-
reference is necessary.
(4) Full-time basis. Since the Department is not at this time
providing a specific definition of ``full-time basis,'' it is
recommended that States reserve the right to prescribe the
definition in regulations in order to assure consistency with
Federal law.
(b) Amount of self-employment assistance allowance. This section
governs the weekly and maximum amount of SEA allowance payable. It
assures that SEA allowances are paid ``in the same amount'' as
regular UC. It also clarifies the relationship between payments of
regular UC and SEA allowances with respect to a benefit year.
(c) Eligibility for self-employment assistance allowance. This
section contains the ``equal treatment'' requirement of Section
3306(t)(2), FUTA (except for the requirement that SEA allowances be
paid ``in the same amount'' which is contained in subsection (b)
above). It also contains the three exceptions to the ``equal
treatment'' requirement which are found in subparagraphs (A) through
(C) of section 3306(t)(2), FUTA.
By cross referencing the definition of ``self-employment
assistance activities,'' this provision should assure payment only
to those participating in such activities. It also contains the
requirement of section 3306(t)(3) (D) that the individual be
actively engaged in a full-time basis in activities relating to the
establishment of a business and becoming self-employed.
States are free to establish their own disqualifications for
failure to meet these requirements. States should note that, like
unavailability for work, failure to participate may be only a
temporary condition which should not necessarily result in an
indefinite denial. Conversely, quitting the SEA program may be
grounds for a duration disqualification. The draft language provides
for a disqualification only for the week the failure occurred.
States also have the option of dropping an individual from the
SEA program for failure to meet SEA requirements. This may be
appropriate if, for example, the individual misses training
necessary to commence self-employment activities.
(d) Limitation on receipt of self-employment assistance
allowances. This section implements section 3306(t)(4), FUTA, which
limits the number of individuals receiving SEA allowances at any
given time to 5 percent of the number of individuals receiving
regular UC. Giving the commissioner authority to create regulations
to meet this requirement provides flexibility to the agency to
assure that necessary data will be collected as required by this
Department and that the five percent limit will not be exceeded.
(e) Financing costs of SEA allowances. Since State UC law may
provide only for the financing of regular UC and not SEA allowances,
it may be necessary to describe the financing mechanism for the
allowances. The draft language uses the same mechanism as is used
for regular UC.
Draft language for the noncharging of SEA allowances is not
provided at this time as the Department is not addressing the issue
of whether such allowances may be noncharged at this time.
(f) Effective Date and Termination Date. Since SEA allowances
may be paid only after enactment of State law and approval by this
Department, it will be necessary to specify that the allowances will
not become payable until both conditions are met. The draft language
assures that SEA allowances will not become payable until the first
week aster both conditions are met.
Since the authority under NAFTA for SEA programs terminates five
years after the date of enactment of NAFTA, it is recommended that
States ``sunset'' any SEA provisions. The draft language provided
does not provide a definite expiration date since States may wish to
continue operating a SEA program if the Federal authority is
extended either on a temporary or permanent basis. States may,
however, wish to include a specific expiration date. The draft
language takes into account an expiration of Federal legislative
authority which falls on a weekday by providing that the program
will terminate as of the end of the week preceding the week
containing the ending date of the Federal authority. If, however,
the ending date of the Federal authority as a Saturday, then the
State must end its SEA program on later than midnight on such
Saturday.
[FR Doc. 94-5889 Filed 3-11-94; 8:45 am]
BILLING CODE 4510-30-M