Summary

More than one million Americans serve in the national reserves. When these reservists claim unemployment insurance (UI), they must report reserve income so that state UI programs can reduce benefits accordingly. In the seven states GAO reviewed, however, reservists filing for UI failed to report more than $7 million in reserve income during fiscal year 1994. This resulted in $3.6 million in UI benefit overpayments, of which federal trust fund losses were $1.2 million. GAO found that many UI claimants may be unaware of requirements to report reserve income. Moreover, many claimants are not specifically asked to report reserve income, and the incentives not to report reserve income are increased by the limited ability of states to detect nonreporting.

GAO found that: (1) active UI claimants did not report more than $7 million in reserve income for fiscal year 1994; (2) the average amount of nonreported income varied from $273 to $959 per claimant, and resulted in UI benefit overpayments of $3.6 million; (3) most UI benefit overpayments went to Army Reserve personnel; (4) federal trust fund losses from the Unemployment Compensation for Ex-Servicemen Program totalled $1.2 million; (5) the UI system paid over $25 billion in benefits and received over $26 billion in state and federal unemployment tax revenues; (6) the integrity of the UI system is adversely affected by improperly paid benefits; (7) these overpayments hinder the UI system's ability to provide unemployment benefits, contribute to high state employer payroll taxes and federal outlays, and lower claimants' benefit levels; (8) UI claimants do not report their reserve income because they do not understand the reporting requirements, receive improper information regarding their reporting responsibilities, and have incentives not to report reserve income; (9) claimants are rarely penalized for not reporting their reserve income; (10) states can withhold a portion of a reservists' future benefits until applicable overpayments are repaid; (11) it is difficult to verify reservists' benefit levels without online access to federal wage data; and (12) nonreporting of reserve wage income will not affect the military's retention rates.