Unemployment Insurance Advisory Council Meeting Minutes

Monday, October 5, 2009 – 9:30 A.M.

Offices of the State of Wisconsin Investment Board
Room 226 (Board Room)
121 East Wilson Street
Madison, Wisconsin

Members Present

Management: James Buchen, Dan Petersen, Susan Haine, Ed Lump, and Earl Gustafson

Labor: Phil Neuenfeldt, Dennis Penkalski, Anthony Rainey, and Patty Yunk

Chair: Daniel LaRocque

Department staff present: Hal Bergan, Andy Reid, Tracey Schwalbe, Tom McHugh, Troy Sterr, Pam James, Lutfi Shahrani, Amy Banicki, Carla Breber, Ben Peirce, Dick Tillema, Chris O’Brien, John Zwickey, Jessica Erickson, Amesia Ngialah, Robin Gallagher, Diane Kraft.

Others present: Mary Beth George (Representative Christine Sinicki), Jason Vick (Representative Mark Honadel), Bob Andersen (Legal Action of Wisconsin), John Metcalf (WMC), Michael Metz (WI Independent Businesses), Tom Fonfara (DeWitt Ross).


Mr. LaRocque calls the meeting to order at 9:37 a.m.

1. Opening Remarks – Hal Bergan

Mr. Bergan indicates that the federal 13-week benefit extension has passed the House. There is some concern about the bill in the Senate among states that are not eligible for the benefit extension. Wisconsin would be eligible for the extended benefits under the bill as drafted with the required 8.5% total unemployment rate.

Question (Neuenfeldt): Could you please explain the programs that are in effect now?

Mr. Bergan responds: regular state benefits of up to 26 weeks; 20 weeks of Emergency Unemployment Compensation (EUC08); 13 weeks of Tier 2 EUC08; 13 weeks of Extended Benefits (EB); and 7 weeks of High EB. The total is a potential for 79 weeks of benefits. We are seeing the first wave of exhaustions at 79 weeks. It has not been a large number, but it will continue to increase. The first group to exhaust all 79 weeks was about 3,500, and now we are seeing about 1,000 per week.

Question (Buchen): If the new federal program is passed, will those claimants be eligible for the additional 13 weeks?

Mr. Bergan responds affirmatively. The administrative challenge will be to get ready to pay those benefits as soon as possible. We need to hear from DOL about any new wrinkles in the laws or program. We have tried to get a head start on the programming that will be needed so we can move quickly when we hear from DOL.

Question (Gustafson): If someone has exhausted before the 13-week extension is passed, would the benefits be paid retroactively?

Ben Peirce, Central Operations Manager, indicates that the legislation as drafted would not be effective retroactively; it would apply to benefits for weeks after the extension bill is passed.

Question (Neuenfeldt): Why would some states not be eligible for the additional benefits?

Mr. Bergan responds that the bill as drafted requires a state to have a total unemployment rate of 8.5%. Currently, 27 states would qualify, including Wisconsin. Wisconsin has an 8.7% total unemployment rate.

It is not clear there will be an extension of the Recovery Act (ARRA) provisions. These are important to the department and claimants for several reasons. The Recovery Act provides for federal payment of the state employers’ share of EB. It would be a hardship to have that discontinue. Recovery Act also provided claimants the additional $25-per-week benefit. There is a lot at stake and the fiscal cost to the federal government is high. The presumption is that Congress will extend these provisions, perhaps for 6 months, with the option of extending it again.

Question (Buchen): When do the provisions expire?

Mr. Bergan responds that they end as of January 1, 2010, with a phase out period into 2010. If Congress does not do something, it would be a dramatic change from what we are doing now.

Mr. Bergan reports that the department continues to prepare for the winter workload increase. We are much better prepared than we were last year, particularly in claims. We have a continuing effort to add personnel. We have 75 currently in training or about to train and will be available for the winter workload. There are some additional administrative personnel. We have twice as many claims requiring behind-the-scenes administrative work. We are hopeful to add positions for that. The federal government has provided funding; we have the resources we need in the short run. We do not know how long we will need the additional staff.

We have made significant headway in nonautomated claims. These are claims that cannot be handled by the automatic system and require hands-on attention by a claims specialist. A lot of that work comes from the fact that we are operating several programs; the changes in a claim over time can create time-consuming work to adjust claims. A few months ago, the backlog for nonautomated claims was about 7,000 cases and it took weeks to get things through which delayed benefits for those waiting. Now that number is down to 1,500 and going down further. We have also been focusing on the work that we do that can be done by people with less training so we can free up the more experienced resources to do what needs to be done in claims.

3. Next steps to address Reserve Fund solvency

Mr. Bergan states that the Legislature is willing to entertain two UI bills. A routine bill would be on what could be agreed upon today and that bill would be passed by November. A more general bill that would focus on the reserve fund would be done in January. Our hope is that that is how we will proceed.

Question (Neuenfeldt): Is the goal to have the bill completed in January?

Mr. Bergan responds affirmatively. The next Council meeting is October 21. The department is working on a list of options for the Council to consider and to see how the various options might work and what their fiscal effects would be. That work is underway. As we do that, it would be helpful if Council members let the department know if they have particular options that might not be on the list and we will do what we can to get ready and have some of that information completed by the 21st.

We are also looking at the federal requirements relating to borrowing. We will be prepared to spend some time on borrowing on the 21st.

On the revenue side, the DOL has a lot of comparative information on revenue systems across the 53 UI jurisdictions. Some of that work would be helpful for the Council. Mr. Bergan will put something together for the 21st as to what DOL views as best practices in other state systems. The triggers for the Wisconsin tax tables are slow to respond. We are in debt and are still not in the highest tax table. We need a more responsive system. The context from other states is helpful.

Mr. Bergan refers to a large sheet handout. This shows a history of the Wisconsin UI tax changes from 1982. This does not show the effects of those changes, but it gives a historical perspective about where we are today.

Question (Haine): What will be the taxable wage base in 2011? How relevant is it that the federal taxable wage base has not changed in a long time?

Mr. Bergan responds that the Wisconsin taxable wage base will be $13,000 in 2011 and $14,000 in 2012. Nationally, one of the things people suggest is raising the federal taxable wage base. The state wage base can make a big difference. For instance, Minnesota has the same top rate as Wisconsin, but Minnesota has a taxable wage base of $26,000. For the same employee, they take in twice as much in revenue as we do. This is a significant difference for some of our categories where the heavy benefits come from. The federal wage base is $7,000. The federal wage base is not a big issue for us though it would be an excellent thing if it were higher.

Comment (Buchen): The federal taxable wage base does not affect our system one way or another.

Tracey Schwalbe, UI Research Attorney, indicates that it sets a minimum taxable wage base for the states.

Question (Buchen): On the bottom of the handout, what is meant by the dollars per $1,000? Does it apply to the same limited wage base? They are robust numbers.

Tom McHugh, UI Treasurer and Director of Bureau of Tax and Accounting, responds that this refers to per $1,000 of taxable payroll and applied to the limited wage base. We would set the amount we wanted to collect for the interest assessment based on the estimated taxable payroll.

Mr. Bergan invites the Council to let him know if there is anything the department can do to provide material to facilitate the meeting on the 21st. The department is very focused on providing the best possible service during the winter workload and on providing information to the Council to get a handle the reserve fund issues.

Comment (Neuenfeldt): In addition to best practices of other states, it would be helpful to have information about where Wisconsin sits compared to other states in terms of benefits and tax rates.

Mr. Bergan indicates he has that information for the most recent quarter.

Comment (Penkalski): The most recent projections on where the reserve fund will be in the next year or two will be helpful. The unemployment projections seem to change every month.

Mr. Bergan responds that we will have that information. The numbers change but not dramatically month to month. On the 21st, we will start with the data previously provided by the department. We anticipate that the toughest year will be 2012. The projections go through 2013 and we do not see substantial reductions during that time if we do nothing. Doing nothing is really not an option so we will run those numbers as we talk about the different options. Some options provide for recurring revenue; for example, when you increase the wage base, you get more money first year or so and then it flattens out. We can start with the baseline projections we have at this point.

2. Minutes of Meeting September 22, 2009

Motion (Haine), seconded (Rainey), to approve the minutes of September 22, 2009, passes unanimously.

4. Proposal to modify reduction of benefits for receipt of pension payments

Mr. LaRocque indicates that reduction of benefits for receipt of pension payments is an item brought back to the Council at its request. Representative Van Akkeren proposed changes related to the reduction of benefits for a claimant’s receipt of pension payments.

Ms. Schwalbe handed out draft language that is a department response to Rep. Van Akkeren’s proposal. At the September 1 meeting, the Council passed a motion to approve the legislator’s proposal and refer the issue back to staff to review the specifications of the bill and report back to the Council at the next meeting so the proposal could be included in the UI bill.

Rep. Van Akkeren proposed language that would provide for no benefit offset if a claimant received a distribution of their pension payment to satisfy a default of a loan taken more than 90 days prior to their discharge from employment. That was the language that was drafted in the LRB draft bill circulated to the Council. The Council discussed at the September 1 meeting whether to have no offset or to offset benefits in the week the distribution was considered paid. Because that is a little more consistent with what the department does with other things, the Department drafted language (handed out) that would allocate the lump sum pension payment to the week in which the pension payment is made. The draft is an alternative for the Council to consider. The language in LRB’s draft bill would make no offset for the lump sum pension payment that is applied to a defaulted loan by the pension plan.

If the pension payment offsets benefits for one week (the week the lump sum payment is made), the fiscal effect would be to increase benefits annually by less than $100,000 per year. If we were to eliminate the benefit offset (by eliminating the allocation) for any lump sum pension payment, the cost would be $200,000 per year. Eliminating or simplifying the allocation of lump sum pensions to particular weeks reduces administrative effort.

Determining the amount of a pension payment that is attributable to the employee and the amount attributable to the employer remains necessary and generally takes a lot of administrative time.

Question (Lump): What do the references to “Section 32 and 33” mean?

Ms. Schwalbe responds that in the LRB draft bill, sections 32 and 33 contain the proposal to eliminate the offset for lump sum pension payments that originated with Rep. Van Akkeren. The handout shows language for these sections in the bill for the option of offsetting for defaulted loans in the week paid.

Comment (Haine): The Council has not yet voted on the bonus and profit sharing language in 108.05(3)(e) that would treat bonuses as received when paid. She is concerned with consistency. The pension payment is somewhat similar to that situation. She would like to see the bill internally consistent and consistent with tax law that says that things are generally taxable when received. She does not like the idea of the allocation over a period of time that is difficult to figure out and difficult for claimants to understand. The two statutes should be consistent.

Question (Yunk): You referenced that the proposal for having the reduction in the week the payment is received is consistent with what we do in other situations. If the concept of the proposal to make an offset for one week is consistent with how we apply offsets in other like situations, could you identify those other situations?

Ms. Schwalbe indicates that she was referring to how the department treats other pension payments when they are taxable. DOL makes a distinction for pension payments when they are taxable versus nontaxable. If a pension payment is taxable, we generally do an offset; if it is nontaxable we do not do an offset. If the person rolls over a pension payment and it is nontaxable, we are prohibited from offsetting the nontaxable distribution. The DOL distinguishes between taxable versus nontaxable distributions. Under the Van Akkeren proposal, the pension distribution would be taxable, but we would not offset even though it was taxable which would not be consistent with our treatment of other taxable pension distributions.

Question (Buchen): If a person saved and invested money and chose to cash it in, creating a taxable transaction with capital gains, they do not get an offset for that because it is their money, correct? Is it the same for a 401(k)?

Mr. LaRocque indicates that Wisconsin does not offset for all types of income. A 401(k) is considered a pension payment and would reduce benefits. Lutfi Shahrani, Director of Bureau of Benefits, notes that the offset is only for the pensions involving employer contributions, and only under certain conditions. The reduction is not for the part of the pension attributable to employee contributions.

Comment (Buchen): An IRA would not be offset and a defined benefit plan that is totally employer funded would offset. The taxability is not the trigger as much as whether it is an employee or employer contribution, and then if it is an employer contribution, if it is taxable.

Comment/Question (Buchen): Is this situation a loan against a pension and the payment is the proceeds of the loan?

Mr. LaRocque indicates that the situation identified by Rep. Van Akkeren involved a distribution from the pension plan to satisfy the loan when the loan was in default.

Comment (Petersen): The person might not get any cash out of the transaction. The person just has a taxable distribution to pay back the loan when the person has not been making any payments.

Comment (Haine): The issue here is when the person is involuntarily separated from their employment and they have an outstanding loan. At separation the loan would go into default and become income. The money for the loan could be employer or employee money in a pension plan.

Mr. LaRocque indicates that it is the employer-funded part of the plan that would lead to the offset and that is causing the issue. In general, the situation might be regarded as a hardship situation.

Comment (Buchen): It is a hardship situation because there is no money going to the person for living. They are paying off a loan.

Ms. Schwalbe indicates that the Council approved the Van Akkeren idea in concept [and broadened it to extend to all lump sum pension payments that might otherwise reduce benefits], but it was still undecided whether there should be any offset or one offset or how to deal with allocation.

Question (Buchen): Is the fiscal effect for the no offset option $200,000?

Ms. Schwalbe indicates that the fiscal effect for the no offset option is $100,000; the $200,000 is the fiscal effect if we get rid of all allocation regardless of whether it is a default on a loan or not. When someone gets a lump sum, currently the department may allocated that over several weeks.

Comment (Buchen): The direction of eliminating allocation is attractive. If someone gets the money and considers it income, otherwise allocating it every time is difficult.

Mr. LaRocque indicates that determining the relative portions of the pension is awkward and very imprecise. Trying to figure out how much money an employee put in over time can really be imprecise. It is a challenge to do the work and it does not necessarily lead to better or fairer results.

Question (Lump): Is it possible that the costs associated with administering this are greater than the estimated fiscal costs?

Ms. Schwalbe indicates that the administrative costs are not charged to the reserve fund. Primarily, this delays benefits because it involves a lengthy investigation.

Question (Neuenfeldt): How do you monitor the investigations? How do you know that people are taking out their pensions and borrowing?

Mr. LaRocque indicates that it is a case-by-case investigation with questions to plan administrators, employees and employers. Mr. Bergan indicates that there are a variety of ways these issues might come up and then we would investigate it. Sometimes it happens without our knowledge.

Question (Lump): What does Rep. Van Akkeren have to say about the alternative proposal?

On September 1, Rep. Van Akkeren indicated at that time that he would be okay with a one week offset and that anyone could live with a one week offset if they know to expect it. In summary, there are three options. The first option is Rep. Van Akkeren’s proposal to have no offset for a pension payment that is a payment resulting from a default of a loan from a pension. Another option is to eliminate the allocation and have one-week offset for a lump sum pension payment that includes an employee contribution. The third option to have no offset for any lump sum pension payment amount that includes an employee contribution. The third option has the $200,000 fiscal effect.

Question (Buchen): Does the broader picture option cover the Van Akkeren situation?

Ms. Schwalbe responds affirmatively.

Question (Petersen): Would the third option be a one-week offset regardless of the lump sum amount? If someone gets $10,000, would it offset only one week of benefits? In the loan situation, the person does not receive any money, but the benefits would be offset.

Ms. Schwalbe responds that this is correct. Presumably if someone is taking out a pension and not rolling it over they are likely doing it as a hardship. Then the department is taking the lump sum amount and allocating it over several weeks that the person may not be eligible for benefits.

Comment (Yunk): This was exactly the genesis of the issue. People are being caught in a Catch-22.

Comment (Petersen): There are likely penalties for the person for taking out the pension payment as well.

Comment (Haine): There are tax penalties for taking out the pension. It is fair to say that allocations do not make a lot of sense in terms of administrative time, accuracy, etc. If we are going to do anything in terms of receipt of money, it should just be the week paid.

Question (Buchen): How often are lump sum distributions more than $10,000?

Comment (Haine): She used to manage many businesses; lump sum distributions could be more than $10,000 often.

Carla Breber, Disputed Claims Lead Worker, indicates that it is not infrequent.

Question (Buchen): Does the department get 1,000 of these cases per year?

Dick Tillema, Policy Research Director, indicates that we get 200 per year in terms of lump sums. For most people, if they have an opportunity to do so, they would roll a pension over if they could.

Question (Rainey): Is the 200 per year based on past years or for this year? Is it trending higher?

Mr. Tillema indicates that it was based on the past 5 years. Mr. Bergan indicates that these would be more frequent now given the circumstances we are in. That is why Representative Van Akkeren came to the Council; these situations are more likely to occur in these economic times.

Mr. LaRocque indicates that the rest of the items on the agenda have been presented to the Council and are on the agenda so the Council can take action today.

Question (Buchen): Are these all of the unresolved department proposals that would go into a UI bill at this time?

Mr. LaRocque responds affirmatively. The bill draft includes everything that has been proposed except the approved training proposal presented at the last meeting.

5. Advisory Council Committee Recommendations Regarding Definition of “Employee”

  1. Improve seven-of-ten test for “employee”
  2. Repeal DWD 105 (Truckers)
  3. Repeal DWD 107 (Loggers)


6. Advisory Council Committee Recommendations Regarding Definition of “Employment”

  1. Exclude from “employment” personal care services for family
  2. Review mystery shoppers
  3. Review writers and news reporters

7. Department proposals for changes to the unemployment insurance law, Wis. Stat. Chapter 108, presented at previous meetings

8. UI Bill: LRB Draft 09-3069/6

9. Department proposal to revise DWD 128, Able to Work and Available for Work

10. Department proposal to revise DWD 129, Benefit Claiming Procedures

Motion to meet in closed session

Motion (Yunk), seconded (Buchen), is passed 9 - 0 to go into closed session pursuant to section 19.85(1)(ee) of the Wisconsin Statutes to discuss items 5 through 10 on the agenda. Closed sessions by the management and labor members of the Council, respectively, began at 10:24 p.m.

Meeting in open session resumed at 12:30 p.m.

Motion (Buchen), seconded (Neuenfeldt), to approve D09-04 Protect Employees and Witnesses in UI Cases from Retaliation with the amendment that the maximum penalty be $1,000 rather than $2,000, and to approve D09-10 Amend Disqualification for Hours Worked: Reduce from 35 to 32 Hours, D09-12 Amend Exceptions to Quit Disqualifications: Change Thresholds to 32 Hours, and D09-13 Treat Bonus Payments as “Earned” When Paid expanded to also include all lump sum pension payments so that they offset in the week they are paid, and also to approve DWD 128 Able to Work and Available for Work and DWD 129 Benefit Claiming Procedures to go to hearing, reserving the right to give final approval after the hearings.

Discussion of the Motion:

Question (Mr. Bergan): For the pension payment item, does this mean bonuses will be earned in the week paid and that pension payments will be offset in the week paid?

Mr. Buchen responds affirmatively.

Question (Haine): For the pension payment issue, is there a broader word that can be used to include 401ks, etc., such as “retirement plan”?

Mr. LaRocque indicates that the statute defines “pension payment” to include 401ks, etc. To clarify, the motion is to approve D09-13 to consider bonus payments as earned when paid and as an adjunct to that proposal, to deal with the pension issue and treat lump sums as paid in the single week paid. It does not deal with any other types of pay.

Question (Buchen): Would this be inclusive of the Van Akkeren proposal?

Mr. LaRocque responds affirmatively.

Comment (Neuenfeldt): On the debit card issue, it is good the issue will go to a public hearing. Before final approval, as the department does the RFP it will be important to see what the fees are. It will be hard to give final approval without knowing the fee information.

Mr. LaRocque indicates that approval of the rule changes to DWD 128 and DWD 129 today is with the understanding that after the public hearing the rules will come back to the Council for approval.

Question (Neuenfeldt): When is the RFP process?

Mr. Bergan responds that the RFP is almost ready.

The Motion is approved 9 - 0.

Mr. LaRocque indicates that an issue was raised in closed session regarding the proposal previously approved on the federal tax intercept of fraud overpayments. The statute as drafted does not use the term “fraud” but it has a reference to the federal law in effective as of June 1, 2009, which is limited to recovery of fraud overpayments. We can put the word fraud in the statutory language. It will be at worst redundant and harmless.

Comment (Buchen): That is fine.

Question (Neuenfeldt): What can the Council expect from the department on October 21?

Mr. Bergan indicates that the department would have some general information from DOL characterizing our tax system generally. We will complement that by summarizing the key issues and comparing our provisions with other states. He has suggested giving a history on benefit side similar to one provided on tax side today if that would be helpful. We will also provide a list of alternative options and possibilities. In broad terms, he suggests we spend some time at the outset of the meeting setting a context for where we are and what we need to accomplish. Then discuss in open session any clarifications needed on any of the options available. Then the Council can decide if it should caucus.

Comment (Neuenfeldt): That sounds good. We can also look at adding additional proposals at that point when we caucus.

Meetings are scheduled for Wednesday October 21, Thursday November 19 and Thursday December 17. Mr. Bergan indicates that the Council should keep the option open for additional meetings in between if necessary.

The Council and the department will plan for approximately a four-hour meeting on October 21. The next meeting of the Council will be held at the Department of Corrections. The department will send information about parking.

Comment (Neuenfeldt): He would like a list of occupations that are not in the above average category in growth in numbers of jobs and not considered “high demand.”

Motion (Buchen), seconded (Yunk), to adjourn passes 9 - 0.

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