[Federal Register: June 30, 2004 (Volume 69, Number 125)]
[Notices]
[Page 39504-39505]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30jn04-119]
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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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Rescissions Expiration date
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None...................................... Continuing.
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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