Employment and Training Administration
Washington, D. C. 20210






April 17, 1989




April 30, 1990











for Regional Management




Proposed Cash Management Performance Measurements


  1. Purpose. To provide for State review and comment on proposed revised Unemployment Insurance (UI) cash management performance measures and reports.

  2. Background. DOL has been conducting a long term review of the Federal/State UI Trust Fund cash management system with the goal of devising and implementing a revised comprehensive approach to UI cash management. A revised approach is needed for the following reasons:

    1. Changes to banking law, specifically the Depository Institution Deregulation and Monetary Control Act of 1980.

    2. Upgrading of cash management technology, specifically electronic funds transfers (EFTs), overnight investments, and expedited check clearings.

    3. Current performance measurements, Desired Levels of Achievement (DLAs), were instituted in 1981 and are becoming outdated.

    The revised approach to UI cash management will include performance measurements which accommodate these factors.

    Cash management performance is also an integral component of the current DOL initiative for the development of a cohesive, comprehensive approach to UI program performance measurement. This initiative includes the UI program Performance Measurement Review Project (see UIPL 10-89, dated January 4, 1989) and Revenue Quality Control (see UIPL 49-88, dated July 14, 1988).

    Federal UI performance measurements are being developed under the Performance Measurement Review Project (PMR) except for cash management. Federal cash management performance measurements will continue to be developed through the Cash Management Improvement Initiative begun in 1987. Key program measurements for the revenue/tax functions will be developed through the Revenue Quality Control (RQC) project.

    The final performance measures derived from the cash management initiative will be incorporated without change into the integrated oversight system coordinated through the PMR project. The PMR project will examine performance measures developed under the RQC initiative and will determine which measures are appropriate for Federal oversight purposes and as benchmarks of State performance and will incorporate revenue/tax function measures into the integrated oversight system. PMR will also determine the manner in which State performance in all areas will be assessed against numerical criteria established, i.e., standard, DLA, measure of achievement, etc.

    Therefore, for purposes of this directive, State input is being sought for determining cash management performance measures. A determination of the implementation vehicle (DLA, standard, etc.) will be made later.

    Authority for the performance measurement of State cash management resides in Section 303(a)(4) of the Social Security Act (SSA) which requires the immediate deposit of all employer contributions into the Unemployment Trust Fund (UTF), and Section 303 (a) (5) of SSA which requires that funds are to be withdrawn from the UTF only needed to pay unemployment compensation exclusive of expenses of administration. These requirements are also incorporated in the Internal Revenue Code, Federal Unemployment Tax Act (FUTA), Section 3304(a)(3) and (4).

    This directive contains proposed cash management performance measurements and reporting requirements. States are requested to review and comment on them, indicate their preferences, and information that may be useful in the determination of final performance criteria, and/or simulation of current performance as measured by the proposed performance measurements would be appreciated (for example, the percent of total employers whose contributions equal 90% of total taxes collected during the peak periods). Since performance measures derived from this review will be incorporated without change into the integrated over-sight system, States should give careful attention to the proposed performance measurements and reports in this directive. States, however, will have an opportunity to review and comment on a Federal Register notice detailing the complete revised cash management approach, including performance measurements, later this year.

  3. Proposed Performance Measures. Cash management performance is conceptually broken down into three parts -- deposit of employer contributions into State clearing accounts, transfer of unemployment funds from clearing accounts to the UTF, and withdrawal of funds from the UTF to pay benefits. The following proposed performance measurements represent minimum levels of acceptable performance for State UI cash management. Each proposed performance measurement will hereinafter be referred to be as a "criterion" and reporting systems/formats as "reports." A proposal and alternative for each criterion are offered. States are requested to carefully consider each and, if appropriate, propose other options for performance measurement.

    1. Deposit. 

        1)  Two-tiered Deposit Criterion. DOL is proposing that the deposit criterion for peak deposit periods (April and May) would be less stringent than for non-peak (all other) periods. During the peak period 90% of the dollar amount of employer contributions received by the State or agent of the State, e.g., lockbox, must be deposited into the clearing account by close of business (COB) the same day of receipt. During non-peak periods the criterion would be 98%. All other employer contributions, for peak and non-peak periods, must be deposited by COB the day after receipt by the State or agent of the State. States would be evaluated annually on two measures: deposit timeliness for peak and non-peak periods.

        2)  Single-tiered Deposit Criterion. An alternative proposal is that 95% of the total dollar amount of employer contributions received by the State, or agent of the State (e.g., a lockbox), be deposited into the clearing account by COB the same day or receipt. All other employer contributions must be deposited by COB the day after receipt by the State or agent of the State. This criterion would be an annual performance measurement. In other words, States would be evaluated on their success in meeting the criterion for an entire year.

    2. Transfer/Withdrawal Zero Excess Balance. 

        1)  Combined Account Measurement. DOL is proposing that balances in State clearing and benefit payment accounts be limited to the amounts necessary to compensate banks for providing standard account maintenance services (clearing and benefit payment accounts). The underlying premises are that banks will be fully compensated only for providing normal standard services, that only the amount of compensating balances necessary to offset these bank service charges will reside in UI accounts, and that al unemployment funds in excess of required compensating balances will remain in the UTF. States would be evaluated on their overall management of compensating balances. Total compensating balance levels -- clearing account and benefit payment account combined -- would be evaluated on an annual basis.

        Overcompensation in one account could be offset by under compensation in the other for measurement purposes.

        2)  Separate Account Measurement. An alternative proposal is that account balances be monitored for the clearing account and benefit payment account separately. In this scheme there would be two performance measurements -- the level of excess balances in clearing accounts and the level of excess balances in benefit payment accounts, measured separately.

    States that have laws and/or policies which require unemployment funds to be on deposit in benefit payment accounts before benefit checks are issued (positive balance States) are not necessarily prevented from meeting the proposed performance criteria. The State Unemployment Delivery System (SUDS) recently implemented by the U.S. Treasury provides the capability for same day funding of drawdown requests. Pursuant to Treasury instructions unemployment funds are electronically transferred from the New York Federal Reserve Bank to banks maintaining benefit payment accounts on a daily basis by 5:00 p.m. Eastern time. In addition, some positive balance States now treat State UTF immediately available for the payment of benefits.

  4. Variation from Current DLAs. 

    Current DLAs measure the timeliness of cash flows from employers to benefit recipients. The aforementioned proposed criteria directly measure timeliness only for depositing employer contributions in State clearing accounts. Account balances and level of bank compensation are monitored to measure transfer and withdrawal performance. Measurement of performance in maintaining zero excess balances implies timeliness of cash flows, but does not measure timeliness directly.

    A consequence of this revised performance system is that bank arrangements should stipulate that excess credits for compensating balances be carried forward to offset future bank charges thereby eliminating over/undercompensation over the cycle of the arrangement (or one year, whichever is shorter).

    If States believe that timeliness of cash flow or any other measure is a more appropriate performance measurement, they may offer alternative performance measurements accordingly.

    These alternative measurements should reflect that advances in EFT technology and check clearing capability compel changes to current DLAs.

    If alternative measurements are proposed, the following issues should be considered and addressed:

    1. Recent Federal statue (Expedited Funds Availability Act) and accompanying Federal Reserve regulation (Regulation CC) requiring banks to provide fund availability for deposited checks more quickly.

    2. The capability of SUDS to provide same day funding of drawdown requests from the UTF. States can treat balances in their accounts in the UTF as being immediately available. Adoption of a checks paid system (drawdowns based on daily check clearings) should also be considered.

    3. States which do not use lockboxes can simulate lockboxes in-house during peak periods -- earlier and more frequent mail pickup, extra processing staff, and later bank cutoff times for deposits.

  5. Reporting. Manufacturers Hanover Trust (HMT) recommended that bank-generated account analyses be used to monitor cash information on bank services, service charges, account balances, and bank compensation which can be used by State and Federal staff for monitoring and performance measurement. Per instructions in UIPL 53-88 dated August 16, 1988, States have been requested to submit bank prepared account analyses with their required monthly 8413 and 8414 reports for the period July, 1988, through July, 1989. ETA is conducting in-house review and analysis of the practically of utilizing account analyses to capture essential information to measure performance. State comments and recommendations regarding reporting and the utility of account analysis vs. 8413s and 8414s are needed to complete the review and analysis process. State Treasurers, Comptrollers, and any other State officials involved in UI cash management should also be consulted as appropriate.

    Proposed reporting options are:

    1. Replace 8413s and 8414s with account analyses.

    2. Complement 8413s and 8414s with account analyses.

    3. Maintain 8413s and 8414s and forget account analyses.

    4. Develop and obtain approval for an alternative report, e.g., revised 8413s and 8414s to capture relevant information.

  6. Action Required. States are requested to:

    1. Review the contents of this directive with appropriate State staff, especially State Treasurers and Comptrollers, and any other parties involved in the UI cash management process.

    2. Analyze impacts of the various options listed on State cash management performance.

    3. Provide comments, recommendations, concerns, etc., to the appropriate Regional Office by May 5, 1989, after which they will be forwarded to the National Office. Responses are requested for the following issues:

      1. Cash management performance criteria: Deposit, transfer, and withdrawal.

      2. Reporting.

      3. Other performance measurement issues.

  7. Questions. Direct questions to the appropriate Regional Office.