In reply referto


Unemployment Compensation Program Letter No. 78




Non-Charging of a Portion of Benefits (or Other FactorsRelated to Unemployment Risk) Under Pooled-Fund Laws


The attached statement is being sent to all State agencies in order to clarify the position of the Social Security Board with respect to experience-rating provisions in State laws. We believe that this statement will be helpful to the States in the consideration of legislative amendments (particularly in connection with disqualification provisions) in the coming sessions of the State legislatures. Furthermore, we believe that it will meet all the situations which have been brought to our attention. If, after considering this statement, you believe there are any further problems, will you please notify us promptly.


Sincerely yours,

Evan Clague,


Index entries:







UC 78 December 29, 1944

Federal Security Agency


Noncharging of a Portion of Benefits (or Other Factors
Related to Unemployment Risk) Under Pooled - Fund Laws

Several State agencies have informally suggested the desirability of liberalizing the eligibility and disqualification provisions of their State unemployment compensation laws and have indicated that such liberalization is not possible if benefits paid under certain circumstances are charged to employers accounts under the experience-rating provisions of their laws.

Many experience-rating systems have had a marked effect upon the disqualification provisions in State laws. This is because experience-rating laws have had a tendency to merge two different determinations, the one as to whether the worker is entitled to benefits and the other as to whether an employer should be charged with those benefits. One major difficulty in the operation of experience rating to date is that the issues involved in these two determinations are not identical and the decisions may be different. The consequence has been to distort the disqualification provisions of the law. Severe penalties have been imposed in cases of disqualification because it has not appeared reasonable that benefit payments in such cases should be charged to a specific employer. Further, the rapid spread of the idea of cancelling wage credits of disqualified workers has developed out of the charging problems of experience rating. In some States this has led to the carrying forward of voluntary quits and other potentially disqualifying acts of the employee to subsequent periods of time, so that a genuinely unemployed worker, who has been laid oft by his last employers is deprived of benefits because of some black mark arising from a former change of work.

The only solution would seen to be to separate, to the extent necessary, the decisions with respect to the workers' rights to benefits from the charging decisions with respect to experience rating. This can be accomplished by the noncharging of benefits which may be considered not a reasonable charge against individual employers, or it can be done by divorcing completely benefit payments from the charges to employers as is done under the "pay-roll variation" plan devised by the Board.

Since this problem may arise in a number of States in the coming legislative sessions, the Social Security Board has taken this occasion to restate its position with respect to the charging or noncharging of benefits under the experience-rating provisions of pooled-fund laws.

The Internal Revenue Code, section 1602 (a )(1), contains only the very general conditions that:

No reduced rate of contributions to a pooled fund or to a partially pooled account, is permitted to a person (or group of persons), having individuals in his (or their) employ except on the basis of his (or their) experience with respect to unemployment or other factors bearing a direct relation to unemployment risk during not less than the three consecutive years immediately preceding the computation date."

The Board has interpreted this broad language to signify the intent of Congress that wide latitude should be permitted to the States in developing methods of experience rating. Consequently, the Board has accepted as satisfying the requirements of this section a wide variety of methods developed in the States to measure experience with unemployment risk and of methods used for charging unemployment against the records of individual employers. For example, the Board has approved experience-rating plans which charge benefits to the last employer or charge benefits proportionately to the wages paid by employers in the base period, and those which base experience rates upon compensable separations. These plans constitute evidence that there is no one approved method of measuring the risks of unemployment; there are a variety of methods designed to achieve this common result.

Section 1602(a)(1) of the Internal Revenue Code, for pooled fund laws, as interpreted by the Board standards (Employment Security Memorandum No. 9), does not require that all benefits paid be charged as a part of the experience of employers, provided that those which are charged assure a reasonable measurement of the experience of employers with respect to unemployment risk. The same general principle is true if separations, periods of unemployment, or benefit wages are used for the measurement of experience. The test is one of reasonableness in the measurement of each employer's experience in relation to other employers and to the purposes of experience rating.

Specifically, noncharging of an employer's account in the following situations is consistent with section 1602(a)(1) of the Internal Revenue Code:

  1. When benefits are paid, without any disqualification, to a worker who has left work voluntarily for good cause not attributable to the employer;

  2. When benefits are paid for unemployment immediately after the expiration of a period of disqualification for (a) voluntary leaving without good cause, (b) discharge for misconduct, or (c) refusal of suitable work without good cause;

    Note: In addition to the situations in 1 and 2, charges may be omitted as to all employers preceding a worker's discharge for misconduct or voluntary leaving without either good personal cause or good cause attributable to the employer.

  3. When benefits are paid on the basis of a period of military or other noncovered service;

  4. When benefits are paid to ex-servicemen on the basis of frozen wage credits;

  5. When extended benefits are paid during a period of vocational training;

  6. When benefits are increased by dependents' allowances, to the extent of such increase;

  7. When benefits are paid in accordance with a double affirmance clause and the decision awarding benefits is subsequently reversed.

Thus restrictive disqualification provisions are not necessary to prevent the charging of benefits to employers accounts under certain conditions. Therefore, States should give consideration to the reduction of specified disqualification periods and to the elimination of disqualifications for the duration of the unemployment, and of provisions for cancelling and reducing benefit rights and for keeping disqualifications alive throughout 1 or 2 benefit years.

In determining the circumstances under which there will be no charging of employers' accounts, it is important to consider the potential quantitative effect of such noncharging upon employers contribution rates, to the end that the ability of the States unemployment fund to finance the payment of benefits over a reasonable period of time will not be impaired.

Charging methods under individual State laws will affect the details of any legislation designed to accomplish such results consistently with section 1602(a)(1). The Bureau will furnish technical assistance to any State agency requesting it in working out individual amendments.