Attachment I, UIPL No. 41-83
Section by Section Explanation and Interpretation of Amendments Made Sections 515 and 521 Through 524 of P.L. 98-21
1. Section 515--Sanctions for Failure to Pay Interest
Section 303(c) of the Social Security Act is amended by the addition of a new paragraph (3), and Section 3304(a) of FUTA is amended by redesignating paragraph (17) as paragraph (18) and by inserting a new paragraph (17). New paragraph (3) Section 303 (c) provides that if any interest due on advances under Title XII of the Social Security Act is not paid by the due date, or if such interest has been paid directly or indirectly (by an equivalent reduction in State unemployment taxesor otherwise) by the State from amounts in its unemployment fund, the Secretary shall make no certification for payment of a grant to the State for administration of its unemployment compensation law until the interest due has been properly paid.
New paragraph (17) of Section 3304(a) includes requirements similar to those of new paragraph (3). Failure to conform the State law to, or to comply with, those requirements will be grounds for withholding certification of a State under Section 3304(c), FUTA, on October 31 of any year beginning with 1983. With respect to both the new Title III and the new FUTA requirements, certification may be withheld by the Secretary of Labor only after he has offered the State agency an opportunity for a hearing on the matter and he has made a finding adverse to the State. As in the case of other requirements, the State has a statutory right to seek review of the Secretary of Labor's finding by a United States Court of Appeals.
States must include provisions in their laws consistent with Section 3304(a)(17). States should, in addition, assure that proper measures are taken to pay interest, from funds other than the State's unemployment fund, in a timely manner to preclude the loss of certifications as described above.
Due Dates for Payment of Interest
Interest, when payable, is due on various dates depending on particular circumstances. If there is an outstanding balance of an advance or advances made during the 12-month period from October 1 to September 30 (the Federal fiscal year), interest is ordinarily due before the first day of the following fiscal year (October 1). If, however, an advance was made in the last five months of a fiscal year (May, June, July, August, or September), a State may, at its option, defer payment of interest due until the last day of the following calendar year (December 31). Interest does not accrue on such deferred interest.
If there was repayment in full of an advance or advances made in the same calendar year (a cash flow loan) to avoid interest, but there is a subsequent advance after September 30 of the same calendar year, interest on the repaid advance or advances will become due and payable on the day after the date of such subsequent advance.
If a State's insured unemployment rate (IUR) was at least 7.5 percent during the first six months of the preceding calendar year, it may, at its option, defer payment of, and extend the payment for, 75 percent.of the interest charges due before October 1. One third of the deferred interest, i.e., 25 percent of the original amount is due and payable before October l of each of the following calendar years. Interest does not accrue on such deferred interest.
With respect to interest due before October 1of 1983, 1984, and 1985 (other than interest previously deferred), a State may, at its option, pay 20 percent and defer 80 percent in four annual installments equal to at least 20 percent of the original amount, under conditions set forth in paragraph (8) of Section 1202 (b) added by Section 511(a) of P.L. 98-21.
Any interest due before October 1 may be deferred, at a State's option, without interest on such deferred interest, for a grace period not exceeding 9 months (i.e., before the following July 1) if, for the most recent 12-month period for which data are available, the State's average total unemployment rate (TUR) was at least 13.5 percent. This deferral authority is provided by paragraph (9) of Section 1202 (b) added by Section 511(a) of P.L. 98-21.
Sections 303(c)(3) and 3304(a)(17) apply to any failure
to pay interest by the above-described due dates. The first interest
due date to which these provisions apply is September 30, 1983.
The above described change to FUTA and SSA became effective upon enactment of P.L. 98-21, which was April 20, 1983.
2. Section 521--Treatment of Employees Providing Services to Educational Institutions
Section 3304(a)(6)(A), requires that a State law, as a condition for approval of Federal unemployment tax credit by the Secretary of Labor, provide that benefits be payable based on services performed for State and local government entities and certain nonprofit organizations in the same amount, on the same terms, and subject to the same conditions as benefits payable on the basis of other covered service. Prior to amendment by P.L. 98-21, the only permitted exceptions to this "equal treatment" requirement were specified in clauses (i) through (iv) of, that same subparagraph as described briefly below. (Note: The word "professional" is used herein for convenience in referring to individuals working in an instructional, research or principal administrative capacity while the word "nonprofessional" will refer to services performed in all other capacities.)
Clause (i) requires the denial between academic years or terms of benefits based on professional work for any educational institution under certain conditions. Clause (ii)(I) permits the denial between academic years or terms of benefits teased on nonprofessional work for any educational institution, under certain conditions. Clause (iii) permits the denial during an established and customary vacation or holiday period based on professional work or nonprofessional work for any educational institution, under certain conditions. Clause (iv) permits the denial as specified in clauses (i), (ii), and (iii) of benefits based on services described in clauses (i) or (ii) to "any individual who performed such services in an educational institution while in the employ of an educational service agency" (ESA). P.L. 98-21 amended Section 3304 (a) (6) (A), FUTA, by adding a new optional clause (v) and made the provisions in clauses (ii) through (iv) mandatory rather than optional.
Specifically, Section 521(a)(1) of P.L. 98-21 amended Section 3304 (a) (6) (A) , FUTA, by adding new clause (v) as follows:
"(v) with respect to services to which section 3309(a)(1) applies, if such services are provided to or on behalf of an educational institution, compensation may be denied under the same circumstances as described in clauses (i) through (iv), and..."
The provisions in new clause (v) , provide States with the option to deny benefits under the conditions specified by clauses (i) through (iv) to individuals who are not subject to the provisions in those clauses; because they are not employees of an educational institution or performing services for an educational institution while in the employ of an educational service agency as that term is specifically defined in clause (iv). As written it will permit States at their option to apply the denials in those clauses to benefits based on any services performed by employees of a nonprofit organization or a governmental entity who provide services to or on behalf of an educational institution. However, if adopted, the provision must be accepted in toto and must be applied equally to all classes of services, both professional and nonprofessional, and must apply equally to all categories of services within classes. Patterns of denial that would provide distinctions between either classes or categories of services would be inconsistent withclause (v).
In addition, Section 521(a)(2) of P.L. 98-21 amended Section 3304 (a) (6) (A) to provide as follows:
"Clauses (ii)(I), (iii), and (iv) of such sections are each amended by striking out "may be denied" and inserting in lieu thereof "shall be denied".
This amendment to the cited clauses in Section 3304(a)(6)(A), FUTA, means that the States no longer have the choice of applying the provisions of those clauses at their election, and instead are now required to do so as a condition for certification of the State law. Accordingly, for consistency with the new mandated requirements all States must: 1) deny benefits based on nonprofessional services performed by employees of an educational institution between academic years or terms under clatuse (ii)(I); 2) deny benefits based on professional and nonprofessional services performed by employees of an educational institution during an established and customary vacation period or holiday recess under clause (iii); and 3) deny benefits based on professional and nonprofessional services performed by employees of an ESA who perform such services in an educational institution between academic years or terms or during an established and customary vacation period or holiday recess under clause (iv).
Both of the above changes made by Section 521(a)(1) and (2) of P.L. 98-21 become effective in the case of compensation payable for weeks beginning on or after April 1, 1984. An additional provision provides a grace period beyond the April 1, 1984 effective date for meeting the mandatory requirements imposed by Section 521(a) (2) of P.L. 98-21. The explanation for this grace period is provided under a specifically identified heading at the end of the discussion on this section.
Application of Optional Clause (v) of Section 3304 (a) (6) (A), FUTA
Prior to enactment of the optional clause (v) provision added to Section 3304 (a) (6) (A) , FUTA, by Section 521 (a) (1) of P.L. 98-21, States were not permitted to deny benefits "between terms" and "within terms" or during an "established and customary vacation period or holiday recess" to any employee of a governmental entity or nonprofit organization who "provided" services "to or on behalf of" an educational institution. They could deny benefits during the prescribed periods only if the individual was in the employ of the educational institution. The only exception was the denial allowed under the terms in clause (iv) of Section 3304(a)(6)(A) which was limited to services performed by an employee of an ESA who performed services in an educational institution. Even under clause (iv) any services provided by an employee of the ESA to or on behalf of the ESA are not subject to the denial provisions, unless the services are performed in the educational institution.
The optional denial provision of clause (v) relaxes the employee-employer relationship requirement in clauses (i) through (iv) by allowing the denial to be applied if the services were "provided to or on behalf of an educational institution" irrespective of an employment relationship with the educational institution. Specifically, employees of a State or local governmental entity or a nonprofit organization who provide services "to or on behalf of" an educational institution can be denied benefits in the same circumstances as, described in clauses (i) through (iv) pursuant to new optional clause (v). The organizational structure or function of such entities or organizations is of no consequence for purposes of clause (v). They are not required to be established and operated exclusively for purposes of providing services to or on behalf of an educational institution. (This latter requirement applies solely to an educational service agency under the provisions of clause (iv)).
The words "on behalf of" are not specifically defined in the statute, and in the absence of an express definition, we believe the terms must be given their common, ordinary meaning. According to The American Heritage Dictionary, 1976 edition, published by Houghton Mifflin Company, Boston, the term "behalf" is defined to mean "interest, support, or benefit." However, it has a distinctly different meaning when used in the phrase "on behalf of" as opposed to "in behalf of". The two are not interchangeable. As used in the phrase "on behalf of" it is restricted to situations in which the individual acts "as the agent of", or "on the part of" someone else. In the context of the provision in which the words are used, we believe it must be construed to apply only to those employees of governmental entities or nonprofit organizations who perform services as an agent of or on the part of an educational institution. This situation could arise, therefore, only where anemployee of a governmental entity or nonprofit organization performed services as an agent of or on the part of an educational institution in such a representative capacity. For example, a school board attorney acting in such a capacity in performing services in the employ of the school board could be denied benefits under a clause (v) provision of the State law during periods of unemployment if all of the conditions provided in clauses (i) , (ii) , or (iii) were met.
The words "provided to" in clause (v) are less restrictive than "on behalf of", and do not require that the individual be acting as the agent of or in a representative capacity for the educational institution. It requires only that the services provided to the educational institution give some benefit or support to the institution. For example, under clause (v), employees,who perform services as school crossing guards and who are employed by a "City Department of Law Enforcement," or employees who perform services as school bus drivers and who are employed by a "City Department of Transportation", orcafeteria workers employed by the State or local government or a nonprofit organization, may be denied benefits under the same circumstances as described in clauses (ii) through (iv). In such cases such individuals may be considered as providing services to the educational institution since they supported transportation needed for the institution, provided safety measures for and satisfied nutritional needs of its students.
This situation could also arise in the case of services
performed by employees of an educational service agency (BSA) who
perform their services in the ESA rather than in
the educational institution. The services may consist of
administrative functions such as establishing course
criteria or schedules. The individuals performing such services for
an educational institution can not be denied benefits
during the prescribed period pursuant to clause (iv) of Section 3304 (a)
(A) since their, services are notperformed in the educational institution as required by those provisions. However, they can
be denied benefits for those periods if a State includes the optional clause (v) in its law. Their services would be considered
to have been "provided to" the educational institution, and if all other conditions provided in clauses (i) through (iii) were
met, then benefits could be denied accordingly.
In addition, since clause (v) provides that benefits
"may be denied under the same circumstances as described in clauses (i)
through (iv)," a State will be allowed to deny benefits to individuals providing services to or on behalf of an educational
institution only if each of the conditions prescribedby those clauses has been satisfied. That is, benefits may be denied only
for the periods between academic years or terms (or for a similar period between two regular but not successive terms as
specified in clause (i)) and during an established and customary vacation period or holiday recess. Furthermore, the
individual must have performed the services in the first of such academic years or terms, or immediately before such
vacation period or holiday recess, and must have a reasonable assurance (contract or reasonable assurance in the case of
employees who perform professional services) that such services will be performed after the designated periods.
Additionally, the required retroactive payment of benefits provided for nonprofessional employees under Section 3304 (a)
(6) (A) (ii) (II) , FUTA, must also be applied under the same terms and conditions as specified therein to denial on the basis
of nonprofessional services performed by employees of governmental entities and nonprofit organizations that provide
services to or on behalf of an educational institution. In other words, every aspect of the conditions provided in clauses (i)
through (iv) must be applied to individuals whose services fall within the purview of clause (v) in order to deny them benefits
consistent with the Federal law requirements. It is not enough that they simply provide services to or on behalf of an
Mandatory Denial of Benefits to Employees Performing
Services for an Educational Institution Under Clauses (ii), (iii),
and (iv) of Section 3304 (a)(6)(A) , FUTA
Section 521(a) (2) of P.L. 98-21 amended Section
3304 (a) (6) (A) (ii) (I) , (iii), and (iv), FUTA, by establishing as a
condition for certification for tax offset credit by the Secretary of Labor that States amend their laws to require denial of
benefits to employees performing services for an educational institution in the circumstances prescribed by the above cited
clauses. Prior to the amendment madeby Section 521(a)(2) of P.L. 98-21 States could enact all or certain prescribed parts
of clauses (ii) through (iv) at their option. For instance, instead of requiring a reasonable assurance as specified under clause
(ii), the State law could include a more restrictive provision requiring a contract to return to work in the next year or term.
Also, under those optional provisions, a State could have decided to enact the option only partly with respect to either
professional or nonprofessional services. The optional feature in those clauses offered the States those alternatives.
However, now that the provisions in these clauses are mandated by Federal law those distinctions are no longer permissible.
As in the case of the required provisions in clause (i) States must deny benefits to the full extent of and consistent with the
requirements in clauses (ii) through (iv). Consequently, States that previously exercised the options by making distinctions as
described above must amend their law to assure that those distinctionsare no longer applicable. Conversely, States that
have not provided for the denial of benefits to employees performing services for educational institutions under the
circumstances and in the capacities describedin clauses (ii) through (iv) of amended Section 3304 (a) (6) (A) , FUTA, must
amend their laws to provide for denial of benefits as provided in those clauses.
We recommend that States carefully follow the draft
language provided in Attachment III of this UIPL when preparing State
legislation modeled on clauses (ii), (iii), and (iv) of Section 3304(a)(6)(A), FUTA, for consistency with Federal law
The above paragraphs supersede Question and Answer
2, p. 7 on the same subject in Supplement 3, 1976 Draft
Legislation, dated May 6, 1977, to the extent it authorizes clause (iii) to be applied only in part or describes those provisions
as optional. It also supersedes the paragraphs in Question 1 and Answer on page 21 of Supplement 5, 1976 Draft
Legislation, dated November 13, 1978 which formerly permitted States to require a written contract rather than a
reasonable assurance in applying the between-terms denial provided by Section 3304 (a) (6) (A) (ii), FUTA.
Effective Date of Provisions in Section 521
The provisions of Section 3304(a)(6)(A), FUTA as
amended by Section 521 of P.L. 98-21 will require changes in current
State laws that have not adopted all or only parts of the between terms and within terms denial provisions contained in
provisions modeled on clauses (ii) , (iii) , and (iv) of section 3304 (a) (6) (A). Such changes will be necessary for conformity
with the new Federal law requirements in Section 3304(a)(6)(A), FUTA. Adoption of the provisions in clause (v) is entirely
optional with the States.
Section 521(b)(1) of P.L. 98-21 provides that the
amendment made by Section 521 "shall apply in the case of
compensation paid for weeks beginning on or after April 1, 1984." Albeit, a State may enact or modify existing provisions
for consistency with clauses (ii), (iii), and (iv) of Section 3304 (a) (6) (A) , FUTA, prior to the April 1, 1984 effective date.
Similarly, a State may enact a provision to implement
clause (v) prior to the April 1, 1984 effective date. A State is
required to enact clause (v), but if it decides to do so, it must adopt the provision in toto, as described herein, may not adopt
only part if it, and may not apply the denial authorization beyond the express terms of the Federal statute.
Additional Time Allowed to Amend State Law to
Conform With Amended Clauses (ii), (iii) and (iv) of Section 330 4 (a)(6)
(A) , FUTA
There is an exception to the April 1, 1984 effective
date for implementation of the requirements in clauses (ii) through (iv)
Section 3304(a)(6)(A). States are provided additional time to add to or amend provisions in their State laws to conform
with the requirements imposed under Section 521(a)(2) of P.L. 98-21 where the Secretary of Labor determines that
legislation is necessary for consistency with the amendments made by that section. Specifically, Section 521(b)(2) provides
"In the case of a State with respect to which the Secretary of Labor has
determined that State legislation
is required in order to comply with the amendment made by this section, the amendment made by this section shall
apply in the case of compensation paid for weeks which begin on or after April 1, 1984, and after the end of
the first session of the State legislature which begins after the date of the enactment of this Act, or which began prior
to the date of the enactment of this Act and remained in session for at least twenty-five calendar days after such date
of enactment. For purposes of the preceding sentence, the term 'session' means a regular, special, budget, or other
session of a State legislature."
Pursuant to the above quoted provisions when the
Secretary of Labor determines, after analysis of the State laws and
appropriate inquiry of the States involved, that legislation is needed to conform with amended Section 3304 (a) (6) (A)
for weeks beginning on or after April 1, 1984, the State may be given additional time to amend its law for this purpose. The
State will have until the end of the first session of the State legislature which begins after April 20, 1983 (the date of
enactment of P.L. 98-21), or April 1, 1984, whichever is later. If the State legislature is in session on April 20, 1983 and
remains in session thereafter for at least 25 calendar days, the April 1, 1984 date is applicable to that State. The "session"
to which paragraph (2) applies is specifically defined to include a regular, special, budget, off; other session of the State
legislature and it is irrelevant whether within that 25 days the legislature meets or is in recess. For example, if the State
legislature first meets in session on January 4, 1984, and adjourns on June 6, 1984, the amendments in Section 521 of P.L.
98-21 would be effective with respect to that State for weeks which begin after June 6, 1984. If the session ended before
April 1, 1984, the required effective date for the subject amendments would be April 1, 1984 rather than the earlier ending
date on which the legislature adjourned.
Because of the different periods that State legislatures
are in session, the effective dates for the amendments in Section 521
for those States given the so-called "grace period" provided therein, will vary depending on the beginning and ending dates of
such sessions. State agencies will be asked to confirm the status of their parallel State law provisions modeled onsection
3304 (a) (6)(A), FUTA, and about the need-for legislative amendments. If the analysis made of the State law and
information providedby the States indicates that legislative action is needed, it will form the basis for a determination by
the secretary allowing a "grace period" as .provided in paragraph (2).
3. Section 522--Application of Actively Seeking Work Requirement
to EB Claimants Who Are Hospitalized Or Are On
Under the terms of the provisions in-Section 202(a)(3)(A)(ii)
of the Federal-State Extended Unemployment Compensation
Act of 1970 (EUCA), a State law must provide that an extended benefit claimant who fails to actively engage in seeking
work will be disqualified for the week in which such failure occurred and until he or she has been employed at least 4 weeks
and earned a total of at last 4 times the individual's extended weekly benefit amount (4 x 4 disqualification). This requirement
is applicable to extended benefit claimants irrespective of provisions in State laws which excuse claimants for regular benefits
from the active search for work provisions in any week that the individual is not actively seeking work because of jury duty
or emergencies requiring hospitalization.
This prohibition against application of provisions
of this type to extended benefit claimants has now been relaxed by revisions
made to Section 202 (a) (3) (A) (ii) by Section 522 of P.L. 98-21. As revised that section now provides that payment of
extended compensation shall not be made to an individual for any week:
"(ii) during which he fails to actively engage in seeking work [.],unless
such individual is not actively
engaged in seeking work because such individual is, as determined in accordance with State law-
before any court of the United States or any State pursuant to a lawfully
issued summons to appear
for jury duty (as such terms may be defined by the Secretary of Labor, or
(II) hospitalized for treatment of an emergency or a life-threatening
condition (as such term maybe defined by such
"If such exemptions in clauses (I) and (II) apply to recipents of regular
benefits, and the state chooses to apply
such exemptions for recipients of extended benefits. " (New language underlined, bracketed language deleted.)
The purpose of the above amendments is to allow States
that apply corresponding provisions in their laws to claimants for
regular benefits, to also apply them to claimants for extended benefits. If a State so elects, the active search for work
requirement in the provision quoted above will not apply for any week that an individual satisfies the conditions in clause (I)
or (II). However the option may not be applied solely to extended benefit claimants. The exemptions may be applied by a
State to extended benefit claimants only if "recipients of regular benefits" are also exempted under the State law from the
active search for work requirements in the specified circumstances. That means that no distinctions can be made between
claimants for regular or extended benefits in applying the State law as authorized by the amendment to Section
202(a)(3)(A)(ii) by Section 522.
However, a State is not required to apply both of
the exemptions allowed by clauses (I) and (II) if it does not choose to
so. It has the option of electing either one or the other of the two exemptions and apply it to claimants for extended benefits.
Whatever the choice it must be made applicable to both claimants for regular and extended benefits.
The conditions under which an individual may be exempted
from the 4 x 4 disqualifications are specifically set forth under
clauses (I) and (II). Under clause (I) an exemption is allowed if a State determines pursuant to its law, that the failure to
actively seek work was because the individual was serving on jury duty. The jury duty must be required by a lawfully
issued summons which orders the individual to appear for such duty before a court of either the United States or a State.
Under clause (II) an extended benefit claimant can
be relieved of the 4 x 4 disqualification only if he or she has been actually
hospitalized. Furthermore, the exemption only applies in cases where the individual has been hospitalized as an in patient "for
treatment of an emergency or a life-threatening condition." The exemption cannot be allowed if the treatment given by the
hospital is not for the designated purposes.
Under clauses (I) and (II) the terms "jury duty"
and hospitalized for treatment of an "emergency or a life-threatening
condition" are as such terms may be defined by the Secretary of Labor. Accordingly, these terms are defined generally as
term "jury duty" means the performance of service as a juror, during all
periods of time an individual. is engaged in
such service, in any court of a State or the United States pursuant to the law of the State or the United States and the
rules of the court in which the individual is engaged in the performance of such service."
phrase "hospitalized for treatment of an emergency or life-threatening
condition" has the collective meaning of each
of its terms within the context of that phrase. An individual is "hospitalized" when admitted to a hospital as an
inpatient for medical treatment. Treatment for an "emergency or life-threatening condition" shall be considered for those
purposes if determined to be such by the hospital officials or attending physician that provide the treatment for a
medical condition existing upon or arising after hospitalization. For purposes of this definition the terms "medical
treatment" refer to the application of any remedies which have the objective of effecting a cure of the emergency or
life-threatening condition. Once an "emergency condition" or a "life-threatening condition" has been determined to exist,
the status of the individual as so determined shall remain unchanged until release from the hospital.
application of these exemptions is to be "as determined in accordance with
State law", the above terms have
been defined broadly to set only the outer bounds of those terms. This leaves the State the choice to establish the
exemptions anywhere within those bounds. Therefore in adopting the amendment authorized by Section 202 (a) (3)
(A) (ii) , a State may adopt either or both exemptions to the full extent permitted by the definitions given above, or it
may adopt more narrowly drawn definitions to limit the scope of the exemption. Adoption of either of these
exemptions by a State must be accomplished, however, by the inclusion of provisions in the State's unemployment
compensation law which are applicable to claimants for regular benefits as well as claimants for extended benefits.
definitions given the terms above will be incorporated in amendments tothe
extended benefit regulations at 20
CPR Part 615 which will be published as proposed regulations with opportunity for comments. In the meantime, the
definition as stated above will be applied.
It is emphasized however, that these exemptions from
the actively seeking work requirement for EB claimants may be
applied by the States only to the extent of and under the conditions prescribed by clauses (I) and (II). State law provisions
applicable to claims for regular benefits which go beyond or are different from these conditions for excusing an individual
from the active search for work requirement still cannot be applied to extended benefit claimants. This would be the case
for example, where State laws permit exemption from the active search for work requirements for claimants who are not
actively seeking work because of illness not requiring hospitalization or hospitalization for treatment of other than an
emergency or life-threatening condition, or because of disability, death in the family and other reasons. None of those
situations are recognized under revised Section 202 (a) (3) (A) (ii) , EUCA, and consequently, those State laws which
recognize them may not operate to exempt individuals who file claims for extended benefits from the 4x 4 disqualification in
cases where the failure to actively seek work resulted from such causes.
The amendments made to Section 202(a) (3) (A) (ii)
, EUCA, as described above became effective on the date of
enactment of P.L. 98-21, which was April 20, 1983.
4. Section 523-- Deductions From Unemployment Benefits For Health Insurance Premiums
Under the provisions of Section 3304 (a)(4), FUTA,
and Section 303 (a)(5), SSA, monies withdrawn from an
unemployment fund of a State must be used solely for the payment of unemployment compensation with certain specified
exceptions. Both of these provisions were amended by Section 523 of P.L. 98-21 to permit States to make deductions
from the amount of benefits payable to an individual at the option of theindividual, and use those deductions for paying
health insurance premiums under a program for such insurance that has been approved by the Secretary of Labor.
Specifically, Section 3304 (a)(4) FUTA was amended by adding the following new subparagraph (C):
"(C) nothing in this paragraph shall be construed to prohibit deducting
an amount from unemployment compensation
otherwise payable to an individual andusing the amount so deducted to pay for health insurance if the individual
elected to have such deduction made and such deduction was made undera program approved by the Secretary of
In similar fashion, Section 303 (a) (5), SSA, was amended by adding the following new provision at the end thereof::
"Provided further, That nothing in this paragraph shall be construed to
prohibit deducting an amount from
unemployment compensation otherwise payable to an individual and using the amount so deducted to pay for health
insurance if the individual elected to have such deduction made and such deduction was made under a program
approved by the Seca:ptary of Labor; and".
These two provisions require specific implementing
language in State law to establish the conditions under which a state may
deduct sums from an individual's entitlement to unemployment compensation for the designated purpose. Specifically, the
deduction may be made by the State only if the individual elects to have the State do so. The individual's election to have the
amount deducted is essential if the deductions are to be made consistent with the new conditions continued in FUTA and
the SSA. A State may not require mandatory deduction of monies from the claimant's unemployment compensation forthis
Furthermore, the deduction must be used only "to
pay for health insurance." Thatphrase is interpreted as applying
payments for the premiums required by the provisions of an approved health insurance program. Premiums for this purpose
only include the sum of money agreed to be paid by the insured claimant to the underwriter as consideration for the
insurance. Deductions for any other purpose or use in connection with the health insurance program would not be
permissible under the Federal law authorization.
Additionally, deductions may be made only for premiums
payable under a health insurance program that has been approved
by the Secretary of Labor. No deductions are allowed for programs that have not received such approval.
The criteria that are being established for approval
of health insurance programs and the procedures applicable for obtaining
such approval are being provided in a separate program letter. That program letter also will include instructions on funding
the costs of administering the health insurance program in a State.
Impact of Waiver Provisions Under State Laws
Since all state laws contain provisions voiding any
agreement to waive benefit rights or any assignment of benefits, States
should consider whether it is necessary to amend such provisions to permit proper implementation of deduction provisions
for a health insurance premium. Amendments for this purpose should be carefully phrased to avoid interpretations allowing
any expansion of the exception allowed to the withdrawal requirements in State law provisions corresponding to Section
3304(a)(4), FUTA, and Section 303 (a) (5) , SSA.
The amendments made to Section 3304(a)(4), FUTA and
Section 303(a) (5), SSA as described above took effect on the
date of enactment of P.L. 98-21, which was April 20, 1983.
5. Section 524--Treatment of Certain Employers Granted Section 501 (c)(3) Status
Unemployment insurance coverage was extended in 1972
to employees of nonprofit organizations described in section
501(c)(3) of the Internal Revenue Code of 1954 which are exempt from income tax under section 501(a) of the Coce,
pursuant to P.L. 91-373, which also gave those organizations the option of financing benefits through reimbursements rather
than contributions. Prior to 1972, some of those organizations had elected unemployment insurance coverage for their
employees and had paid contributions. The 1976 amendments (P.L. 94-566) extended coverage to practically all nonprofit
organizations in 1978 and also included the option of making payments (reimbursements) lather than contributions as a
method of financing benefits.
Those nonprofit employers who had voluntarily covered
their employees prior to enactment of P.L. 91-373 and P.L.
94-566 and had been required to finance their benefit costs by the contributions method, and chose after passage of the
1970 and 1976 UI legislation to switch to the reimbursement method of financing, were permitted to apply any positive
balance in their experience rating accounts toward benefit costs incurred later and paid for on a reimbursement basis.
However, authority to take advantage of such an offset was available for only a short time after enactment of the legislation.
As a result of the provisions in Section 524 of P.L.
98-21, the above described offset has been made available again for
certain organizations that have been determined to be 501(c)(3) organizations retroactively. Specifically, a State may, at its
option, permit certain nonprofit organizations that switch from the contributions to the reimbursement method to apply an
accumulated balance in its experience rating account to claims costs incurred after the switch, if the switch occurs under the
following conditions and involves the following organizations:
1. The organization did not elect the reimbursement
option under prior authority because before April 1, 1972, it was
treated as a Section 501(c)(4), Internal Revenue Code of 1954 (IRC), organization by the Internal Revenue Service (IRS):
2. The IRS subsequently determined such organization to be retroactively a Section 501(c) (3) , IRC, organization;
3. Such organization elects to switch to the
reimbursement method before the earlier of 18 months after such election
first available to it under State law or January 1, 1984; and
4. Such organization paid contributions before January 1, 1982.
Section 524 of F.L. 98-21 provides that if the organization
meets the conditions stated above, then Section 3303(f) shall be
applied as though it did not contain the requirement that the election to reimburse benefits be made before April 1, 1972 and
did contain "January 1, 1982" in place of "Januaby 1, 1969."
As indicated by the above described conditions in
item 1, the State may only apply these provisions to organizations that
were formerly exempt under section 501(c)(4). The provision has no applicability to organizations that were previously
classified under some other provisions of Section 501(c), IRC. Note also that Section 3303(f), FUTA, can apply to groups
of nonprofit organizations in the same manner that it applies to a single nonprofit organization.
If the nonprofit organization meets all of the above
conditions, then the State may provide by law that the organization will
not be required to make any reimbursement payments until, the total of compensation claimed and paid equals the amount--
1. by which the contributions paid by the organization, during a period specified by the State and before the election, exceed
2. the unemployment compensation for the same
period which was charged to the experience rating account of the
organization or paid under the State law on the basis of wages paid by it or service performed in its employ, whichever is
The draft legislation and most of the Commentary
in DRAFT LEGISLATION to Implement the Employment Security
Ame-nMeNts of 1970... H.R.14705 will help explain a manner in which a state may apply the above described provisions in
Section 3303(f), FUTA, as they pertain specifically to the use of prior contributions to offset current benefit reimbursements.