Employment and Training Administration
Washington, D. C. 20210






June 23,1993














for Regional Management




Unemployment Fund Cash Management: Interim Guidance and Instructions


  1. Purpose. To provide State Employment Security Agencies (SESAs) guidance and instructions on unemployment fund cash management for the period between July 1, 1993 (the effective date of Treasury regulations implementing the Cash Management Improvement Act of 1990 (CMIA)) and the publication of Department of Labor (DOL) regulations governing unemployment fund cash management.

  2. References. Public Law (P.L.) 101-453 (CMIA); P.L. 102-589 (CMIA effective date extended); 31 CFR Part 205 (CMIA Final Rule), 57 Fed. Reg. 44272 (September 24, 1992); Employment Security Manual, Part V, Sections 9300-9315; ETA Handbook No. 336, 10th Edition.

  3. Background. The DOL, in consultation with the States and other interested parties, has been developing a comprehensive, integrated approach to unemployment fund cash management for an extended period. The goal of this approach is to combine modern cash management practices with the immediate deposit and limited withdrawal requirements of the Social Security Act (SSA) at Section 303(x)(4) and (5) and the Federal Unemployment Tax Act (FUTA) at Section 3304(x)(3) and (4).

    DOL published for comment a proposed State unemployment fund cash management program in the Federal Register on May 16, 1990. However, enactment of the CMIA compelled modifications to this program. Among other things, the CMIA amended 31 U.S.C. 6503. 'Section 6503(c)(3)(B) requires that "actual interest earnings" less "related banking costs" be returned to . the State's account in the Unemployment Trust Fund (UTF).

    The Treasury Department published a proposed rule to implement the CMIA at 57 Fed. Reg. 10102 on March 23, 1992. Subpart B of that proposed rule addressed UTF issues. However, the final rule, 57 Fed. Reg. 44272, 44278-44279 deleted Subpart B. Treasury's rationale for the deletion was that Subpart B went beyond strict CMIA issues because it contained unemployment fund cash management program issues best left to DOL regulations. After publication of the final rule, the effective date of the CMIA regulations was extended to July 1, 1993, by P.L. 102-589.

    DOL plans to develop regulations which will spell out, subject to the constraints of the CMIA, specific requirements for State compliance with the immediate deposit and limited withdrawal requirements of the SSA and the FUTA. However, a final rule cannot be published by July 1, 1993, the effective date of the CMIA regulations. Therefore, States are provided this controlling interim guidance, which will remain in effect until the effective date of DOL regulations. States may not vary from this guidance without the prior approval of DOL.

  4. Interim Guidance and Instructions. The following sections provide interim guidance and instructions on the unemployment fund cash management program issues affected by the CMIA. All current UTF cash management requirements not addressed in the following sections remain unchanged (specifically the Desired Level of Achievement (DLA) for the deposit of funds for the UTF into State clearing accounts and the transfer of those funds to the UTF, and fund management requirements in the-Employment Security Manual Sections 9300-9315). See ETA Handbook 336, 10th edition, for DLAs.

    Current ETA cash management reports (specifically, the ETA 8401, 8405, 8413, and 8414) will continue unchanged during the interim period. The DOL has requested the Office of Management and Budget to extend the expiration date of these reports to September 30, 1995.

    1. Performance Measures. State benefit payment account cash management performance is currently monitored through the Quality Appraisal (QA) process. State cash management performance is measured by a DLA. This DLA limits withdrawals from the State account in the UTF to an amount sufficient to maintain in the benefit payment account a balance equivalent to not more than one day's benefit payments. The CMIA makes this DLA obsolete; therefore this DLA is now rescinded. During the interim period, a State will be required to comply with the following:

      The withdrawal of funds from the State account in the UTF must adhere to the funding technique specified in the Treasury - State agreement executed under 31 CFR 205.9. In the absence of such an Agreement, the default provisions of the CMIA regulations will apply (Section 205.9(f)).

      Section 205.9 of the CMIA final rule describes the Federal-State Agreements and the essential components thereof. One required component is the selection and specification of a "Funding Technique" (Section 205.9(b)(2)). In effect, benefit payment account balance levels are now controlled by the permissible funding techniques described in Section 205.6 of the CMIA rule and, to support the CMIA, the focus for DOL performance measurement is changed from a benefit payment account balance amount to compliance with the stipulated withdrawal technique.

    2. Program Requirements. 

        (1).  Interest Earnings. States may have balances in their benefit payment account; in some cases these balances will be significant. Good cash management dictates that States take steps which ensure that benefit payment account balances provide value to the State unemployment fund through generation of interest or earnings credits which may be used to pay-"related banking costs". Related banking costs are charges by commercial banks or State Treasurers for the maintenance of a State's benefit payment account relating to the drawdown of unemployment funds from the UTF and the disbursement of unemployment compensation checks or warrants.

        These steps must conserve the-security and liquidity of unemployment funds. To this end, for the benefit payment account only, States may:

          (A)  Use earnings credits generated by balances in benefit payment accounts, including benefit payment accounts residing with State Treasurers, to offset related banking costs for the maintenance of said benefit payment accounts.

          (B)  Invest from the close of bank business one night to the opening of bank business the next business day in repurchase agreements in U.S. Government securities or securities backed by or insured by the full faith of the U.S. Government. Broker/Dealers used in such repurchase agreements must be subject to and in compliance with Treasury regulations issued under the Government Securities Act of 1986, at 31 U.S.C. 3121(h) and, 9110, and must conform in substance to the Public Securities Association master repurchase agreement.

          Interest earnings must be deposited into the State's account in the UTF unless used for the payment of related banking costs defined as stand-alone, non-credit services which are considered necessary and/or customary for sustaining an account in a financial institution, whether in a commercial institution or State Treasurer account. Investment service fees are not considered related banking costs under CMIA. See 31 CFR

          205.13(i) for the description of the interest calculation process and 31 CFR 205.15(a)(6) for the annual requirements for reporting actual interest earned and related banking costs.

        (2).  Federal Funds. Funds originating in the Federal Employees Compensation Account (FECA) and the Extended Unemployment Compensation Account (EUCA) are not subject to the same treatment provided funds withdrawn from the State's account in the UTF Instead, FECA and EUCA funds are excluded under 31 CFR Part 205.13(i)(3) and are subject to the same conditions and requirements as other funds under the CMIA. Therefore, interest on FECA or EUCA funds must be returned to the respective account, and interest earned may not be used to pay related banking costs.

        (3).  Tracking and Accounting for UTF funds. All State unemployment funds must be identifiable at all times, separately and completely accounted for, so that all types and volumes of transactions can be tracked as they flow through the State bank accounts. Moneys withdrawn from the State's account, the FECA, the EUCA, and the Federal Unemployment Account in the UTF may be deposited into the same benefit payment account. Separate tracking, accounting, and record keeping must be maintained for these commingled funds from the source in the UTF through redemption of the payment instrument. Related banking costs and actual interest earning on funds withdrawn from the State's account in the UTF must be allocated reasonably according to the appropriate source of funds. See 31 CFR Part 205.13.

  5. Action Required. SESA Administrators are requested to:

    1. Review the guidance and instructions in the UIPL;

    2. Implement changes that may be required due to the CMIA;

    3. Relay to the appropriate Regional Office any comments and concerns by July 15, 1993.

    States will be regularly apprised of the progress of the development of DOL regulations.

  6. Questions. Questions should be addressed to the respective Regional Office.