[Federal Register Volume 69, Number 125 (Wednesday, June 30, 2004)]
[Notices]
[Pages 39504-39505]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-14782]


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DEPARTMENT OF LABOR

Employment and Training Administration


Workforce Security Programs: Unemployment Insurance Program 
Letter Interpreting Federal Law

    The Employment and Training Administration interprets Federal law 
requirements pertaining to unemployment compensation. These 
interpretations are issued in Unemployment Insurance Program Letters 
(UIPLs) to the State Workforce Agencies. UIPL 7-04 is published in the 
Federal Register in order to inform the public.
    This UIPL advises states of the Federal law requirements applicable 
to the use of unemployment fund money to repay loans obtained from non-
Federal sources that were used to pay unemployment compensation under 
state law.

    Dated: June 24, 2004.
Emily Stover DeRocco,
Assistant Secretary of Labor.

Employment and Training Administration Advisory System, U.S. Department 
of Labor, Washington, D.C. 20210

CLASSIFICATION--Withdrawal Standard.
CORRESPONDENCE SYMBOL--DL
DATE--December 17, 2003

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    Advisory: Unemployment Insurance Program Letter No. 7-04
    To: State Workforce Agencies
    From: Cheryl Atkinson
    Administrator
    Office of Workforce Security
    Subject: Repayment of Non-Federal Loans Used to Pay Unemployment 
Compensation
    1. Purpose. To provide the Department of Labor's position on the 
use of unemployment fund money to repay loans obtained from non-
federal sources that were used to pay unemployment compensation (UC) 
under state law.
    2. References. Sections 3304(a)(4) and 3306(h) of the Federal 
Unemployment Tax Act (FUTA); Section 303(a)(5) of the Social 
Security Act (SSA); Title XII, SSA; Unemployment Insurance Program 
Letter No. 39-87; and Training and Employment Guidance Letters Nos. 
18-01 and 18-01, Change 1.
    3. Background. Instead of obtaining advances from the Federal 
Unemployment Account as provided under Title XII of the SSA, states 
may obtain loans from other sources to pay UC. These loans may come 
from state revenues or from selling bonds. Some states have asked 
whether these loans

[[Page 39505]]

(including bonds) may be repaid with unemployment fund money in view 
of the requirement in Federal law that a state not withdraw money 
from its unemployment fund for any purpose other than the payment of 
UC.
    Specifically, Section 3304(a)(4), FUTA, provides, as a condition 
of employers in a state receiving credit against the Federal 
unemployment tax, that ``all money withdrawn from the unemployment 
fund of the State shall be used solely in the payment of 
unemployment compensation * * * .'' (The sole germane exception--
Reed Act money--is discussed below.) A similar ``withdrawal 
standard'' is found in Section 303(a)(5), SSA, as a condition of 
states receiving grants for the administration of their UC laws. 
``Compensation'' is defined in Section 3306(h), FUTA, as ``cash 
benefits payable to individuals with respect to their 
unemployment.''
    4. Repayment of Principal. The Department's position is that the 
principal on a loan from any source that is used to pay UC may be 
repaid from unemployment fund money if the following conditions are 
met:
    a. The loan is made for the purpose of paying UC under the state 
law, and the proceeds of the loan have either actually been used for 
the payment of UC or have been deposited in the state's account in 
the Unemployment Trust Fund from which they may be withdrawn only 
for the payment of UC. Because there is a direct relationship 
between the loan and the payment of UC, the withdrawal standard's 
requirement that money be withdrawn only for the payment of 
compensation is met.
    If the loan is not limited to the payment of UC (for example, if 
a bond issuance also finances workers compensation or temporary 
disability payments), the amount that may be repaid from the state's 
unemployment fund is limited to the amount actually used for the 
payment of UC plus any amount deposited in the state's account in 
the Unemployment Trust Fund that is limited to the payment of UC.
    b. The money used for the payment of UC is explicitly 
characterized as a loan for the payment of UC at the time it is 
dedicated to the payment of UC. If it is not so characterized, there 
is no loan for the payment of UC. To be permissible under the 
withdrawal standard, there must be a direct relationship between the 
payment of UC and any withdrawal from the unemployment fund. A 
withdrawal to ``repay'' money not initially characterized as a loan 
will not clearly be for the payment of UC, but instead could be for 
another purpose such as making up a shortfall in the fund from which 
the money came.
    c. The loan and repayment are consistent with the state law as 
interpreted by competent state authority. This assures that the 
expenditure of the loan for UC was lawful and that repayment of the 
loan is a proper withdrawal from the unemployment fund.
    5. Payment of Interest and Fees. Unemployment fund money may not 
be used to pay interest, loan/bond fees, or other administrative 
costs. However, a state may use Reed Act money, if appropriated by 
its state legislature, to pay any of these costs associated with the 
principal described in ``a.'' above. Since these interest/
administrative costs are related to obtaining sufficient funds to 
cover the costs of paying UC, they are costs of administering a 
state's UC law and permissible under the Reed Act. (See Unemployment 
Insurance Program Letter No. 39-87; and Training and Employment 
Guidance Letter Nos. 18-01 and 18-01, Change 1, for discussions of 
Reed Act money and their permissible uses.)
    Note, however, that grants received from the Department of Labor 
for the administration of a state's UC law may not be used to pay 
interest. Unlike Reed Act money, UC grants are subject to 29 CFR 
97.22, which provides that allowable costs will be determined under 
OMB Circular No. A-87. Item 26 of Attachment B of the Circular 
provides that ``[c]osts incurred for interest * * * however 
represented, are unallowable'' with certain exceptions related to 
real property and equipment.
    6. Use of Title XII Advances. The Department will not approve 
requests for Title XII advances to pay outstanding loans/bonds. The 
intent of Title XII is to allow states to continue to pay UC even 
though their accounts in the Unemployment Trust Fund are at zero. 
Thus, to obtain these advances, there must be an immediate need for 
money to pay benefits directly to individuals. This immediate need 
is expressed in Section 1201(a)(1)(B), SSA, which limits the amount 
that may be requested to a ``3-month period;'' and Section 
1201(a)(3)(B), SSA, which requires that, in requesting an advance, 
the state take ``into account all other amounts that will be 
available in the State's unemployment fund for the payment of 
compensation in such month.''
    This reverses the position taken in Field Memorandum No. 64-83, 
a 1983 communication from the National to the Regional Offices, 
which apparently did not take this analysis into account.
    7. Action required. Administrators should provide this 
information to appropriate staff and assure that unemployment fund 
money is used consistent with this advisory.
    8. Inquiries. Direct questions to the appropriate Regional 
Office.

[FR Doc. 04-14782 Filed 6-29-04; 8:45 am]
BILLING CODE 4510-30-P