Unemployment Insurance Advisory Council Meeting Minutes
Tuesday, September 1, 2009 – 9:30 A.M.
Wisconsin Department of Natural Resources
101 South Webster Street, Room G-09
Management: James Buchen, Dan Petersen, Susan Haine (9:55 a.m.), Ed Lump, and Earl Gustafson (via telephone)
Labor: Dennis Penkalski, Anthony Rainey, and Patty Yunk
Chair: Daniel LaRocque
Department staff present: Hal Bergan, Tracey Schwalbe, Tom McHugh, Troy Sterr, Lutfi Shahrani, Ben Peirce, Carla Breber, Dick Tillema, Mary Pronschinske, Mike Mathis, John Zwickey, Chris O’Brien.
Others present: Representative Mark Honadel (Wisconsin Legislature), Mary Beth George (Assembly State Rep.), Greg Packett (for Assembly Representative Sinicki), Representative Terry Van Akkeren (Wisconsin Legislature), Bob Andersen (Legal Action of Wisconsin), John Metcalf (WI Manufacturers and Commerce), Michael Metz (WI Independent Businesses), Tom Fonfara (DeWitt Ross), Brad Boycks (WI Builders Association), Mike Gotzler (QTI Group), Doug Grawe (Dart Transit Company), Tom Howells (Wisconsin Motor Carriers Assoc.).
Mr. LaRocque calls the meeting to order at 9:45 a.m.
1. Opening Remarks – Hal Bergan
Mr. Bergan notes that from an operational standpoint things are going reasonably well. The department is doing a good job keeping up with initial claims. However, adjudication is backlogged. With adjudication backlogged, claimants call asking about their cases which tends to tie up the inquiry line. The inquiry line is harder to keep up with. Many times we can only tell claimants what the status is of their cases. We are trying to get the inquiry line calls down by working on the adjudication backlog. We are focusing on nonautomated claims with good success. We are in the process of hiring 35 additional claims specialists, and 38 additional adjudicators to help with winter workload. This will help us to provide better service. We are still far from normal operations of the program. The sheer volume of claims continues to be very high.
We have a very high volume of benefit payments and also revenues are down. When there are substantial layoffs, there are more payments and there are no taxes on their wages. We are in the process of putting estimates together as to what to expect by the end of 2009 and 2010. We want to make sure the estimates are accurate because it is a dynamic environment in which to make estimates. It is hard to know month-to-month what benefits will need to be paid. We will have those within next few weeks, before the next meeting. We do not know what the numbers will be but we know they will be high. As of today, we have borrowed $569.1M. That balance will stay that way for a while because we just received the $89 million UI modernization payment from the federal government. We will pay benefits with that in the short term and then go back to borrowing. The UIAC will need to turn its attention to the reserve fund.
Mr. Bergan refers to two handouts. The first is a list of states that are borrowing. There are 19 states borrowing and the amount each state is borrowing is indicated. The states are generally industrial states in the northeast and California. Minnesota (MN) is shown as a borrowing state with a zero balance. They borrowed previously but when their second quarter contributions came in, that was paid off. They will be borrowing again. The director of the MN system visited Wisconsin last week. They shared strategies for dealing with the reserve fund. Their system is very different than ours, but it was helpful in identifying issues.
Question (Yunk): Is there a ranking of the states in terms of population? The numbers make more sense in relation to state population figures.
Mr. Bergan indicates that the DOL puts out a measure on borrowing that gives the amount of borrowing compared to the amount of payroll. He will provide that to the UIAC.
Mr. Bergan indicates that there is pending federal legislation proposed regarding UI. He expects action likely in September or October. One proposal is to extend the four federal benefit programs currently in effect. As a minimum, Congress will likely extend these programs through 2010. There is also a proposal to expand Extended Benefits (EB) for an additional 13 weeks. This would extend total benefits to 92 weeks. That is a less certain outcome. Finally, we are supposed to hear about another proposal to revamp EB going forward. We have been told to expect this from the Obama administration. This would be helpful rather than administering five different programs.
Question (Buchen): Would the proposed extensions be on same terms as now?
Mr. Bergan responds that this is his understanding. We are not sure if they did an extension of 13 weeks as EB or with some other program. With EB, we would have the strict work search requirements to deal with. Given the number of states borrowing now, which is more than those that borrowed in the early 1980s, Congress also may take action regarding borrowing as well.
The second handout shows the cumulative benefits that have been paid out since July 2008, which was when the first federal extension of benefits was enacted. The Federal Additional Compensation (FAC) of an additional $25 to every check might be close to $200 million by the end of the year. Page 2 shows a snapshot as of last week of the number of unique claimants that are receiving benefits under each of the current benefit programs we are running. Most of the checks are going for regular UI benefits. The additional federal extension of EUC is about half of that and then the numbers drop off. It is interesting that the EB and High EB numbers are lower and this shows people are reemployed or not filing. I would have expected these numbers to be higher.
Question (Buchen): People collecting from federal programs would have had to have gone through state programs, correct?
Mr. Bergan responds that this is correct. We are not double-counting people in the various programs.
Question (Yunk): Could you please explain the acronyms?
Mr. Bergan responds that EUC08 is from the Emergency Unemployment Compensation of 2008, the first benefit extension begun last July 2008. This provided an additional 13 weeks of benefits. The EUC-2 was the extension of the EUC08 done in November of 2008. This extended the original EUC08 benefits from 13 to 20 weeks and added an additional 13 weeks if a state reached a certain unemployment rate trigger. Some states still have not triggered onto these additional benefits. The EB is the regular Extended Benefits program that is for 13 weeks and is generally funded half by the states and half by the federal government. In the stimulus bill, the federal government is paying the states’ share. The High EB or HIEB is an additional 7 weeks of EB benefits. The HIEB is triggered on by an even higher unemployment rate. The UIAC approved adding HIEB when we made the UI Modernization changes.
Mr. Bergan notes that we will have a heavily substantive agenda for the next couple of months. We have a demanding legislative schedule as well. We need to meet relatively often and when we meet we will need to be diligent about getting things accomplished. We have had a habit of deferring action and coming back later. We should make these decisions and get them behind us so we can deal with the reserve fund issues. Be prepared for some long days.
Comment (Yunk): Strongly suggests that the meetings be set at one location and consistently use the same location. For people traveling from outside Madison, it is easier to get to and park at the job center. Also, from a public policy standpoint, if there is continuity in location, people do not have to scramble to find out where it is. She strongly suggests that when there are a lot of action items, that the department gets the agenda out 2 weeks in advance of meetings so they can arrange time to caucus. Also, from this time forward, the UIAC should not allow for public comment until after the UIAC has finished its discussion. As a practice, we should have board conversation and then have input before voting on the item.
Comment (Lump): He is concerned and wants to make sure that the UIAC hears the comments from those in the public who wish to speak on a topic before the UIAC takes action on an item.
Comment (Haine): Notes that comments from the public have been helpful to her as part of the discussion prior to making a decision.
Mr. LaRocque appreciates the suggestions and indicates that UIAC members can provide that type of suggestion to him at any time, including between meetings.
2. Minutes of Meeting May 28, 2009
Motion to approve the minutes of May 28, 2009 (Yunk), 2nd (Haine). Motion passes unanimously.
3. UI Treasurer’s Financial Statements
Mr. McHugh, Bureau of Tax & Accounting, Treasurer of UI, presents a handout of the Treasurer’s Report with markings to identify certain lines of the report. Page 1 is the July 31 balance sheet. The line marked 1 shows that benefit overpayments were $48 million, up $8 million from 2008. This is not a surprise; it is the result of the increased penalties adopted in the last bill cycle. The line marked 2 shows $53.3 million in employer receivables compared to $37.9 million in 2008.
Question (Buchen): What are the allowances for “doubtful accounts”?
Mr. McHugh indicates that doubtful accounts are old receivables out there. For overpayments, we collect about 78% of those, but we do not write them off. As they get older, it is more doubtful that they will be collected.
Question (Haine): This is a methodology for accounting for these doubtful accounts based on your prior experience with the percentage that are uncollectable, correct?
Mr. McHugh indicates that this is correct. If we wrote those off, it would decrease allowances. The line number 3 is the trust fund advance. This is the amount that has been borrowed to pay benefits. Line number 4 is the equity in the reserve fund. This is $290 million currently; it was over $1 million at this time in 2008.
Page 2 is the Receipts and Disbursement Statement for the month ending July 31, 2009. Line 1 shows that year-to-date tax receipts are $399 million; last year at this time the receipts were $442 million. You have to look at these numbers in conjunction with the solvency taxes because of the tax changes made in the last bill. Line 2 shows the solvency receipts. The year-to-date solvency receipts are $138 million compared to $96 million at this time in 2008. The solvency receipts are up about $40 million over last year because of the tax changes. Looking at both the tax receipts and solvency receipts together, we are down about $3 million in receipts over last year despite the increase in wage base.
Question (Buchen): Is this also because there are a smaller number of employees we are taxing because of the economy?
Mr. McHugh indicates that gross wages are down 8.05%, though taxable payroll went up 2.2%. Lines 3 and 4 show that benefits have increased for governments and nonprofits over 2008. Line 5 indicates the federal program receipts. Line 6 shows the federal loan amount. We have borrowed $805 million so far but we did pay back the amount on line 12 or $236 million, to give us the overall borrowed figured that Mr. Bergan mentioned of $569 million. Line 7 shows that charges to employers are $1.079 million so far this year compared to $514 million at this time in 2008, so that has nearly doubled. Line 8 shows the payments for quits which was $115 million so far this year compared to $66 million in 2008. Lines 9, 10 & 11 shows the payments made under the various federal benefit programs, FAC, EUC and EB.
Question (Haine): How long is the $25 add-on in effect?
Mr. Bergan indicates that it is through this year. It could be extended in federal legislation.
Mr. McHugh indicates that on page 3 of his handout, line 3 indicates the balance in the balancing account. There is an increase of $70 million to revenues to the balancing account due to the solvency tax changes. Charges to the balancing account have gone up from $88 million in 2008 to $159 million in 2009 year-to-date.
Comment (Lump): He appreciates the way Mr. McHugh identified the various lines and discussed them. It was much easier to follow.
4. Task Force on Misclassification of Workers – brief report
Mr. Bergan indicates that the task force completed its work and made its recommendations. The UIAC has received the report. There have been no substantial changes in the report. We got together with representatives from other agencies (Departments of Revenue and Commerce, and our counterparts in Workers Compensation and Labor Standards). We talked about some practical applications of implementation. One of the questions is where should this new office of worker misclassification reside? The idea is to provide continuing focus on the topic and some enforcement mechanisms that are quicker and more definitive than the audit processes we use now. The substantive recommendations have not changed, but as agencies we pretty much decided that the place for this to reside is in UI because we can get federally funded for this under program integrity. We have to put together a mechanism consistent with our existing law to handle the enforcement side of this. We are in the process of doing this. Ms. Schwalbe has done some work on this. This means this will be on the UIAC’s agenda because it will involve changes to chapter 108. We will get something to the UIAC when we have something ready.
Question (Buchen): Is the worker misclassification enforcement to be focused on construction exclusively?
Mr. Bergan responds that this will be the primary focus. It is a question that will be put before the UIAC whether to expand this to include more than just construction. As we have looked at other states and had other discussions, there is a disposition to look at this more broadly than construction.
Question (Lump): Will the worker misclassification enforcement provisions have an impact on the work done by the UIAC committee on the definition of employee?
Mr. Bergan indicates that they work together, but they are different topics. Essentially, the UIAC committee dealt with the definition of employee for UI purposes. The worker misclassification task force dealt more with the issue of compliance with existing laws for companies who routinely take advantage of their workers and misclassify them. They are appropriately treated as separate topics. When we act on it, we will have to make sure they work together.
Comment (Lump): The subject came up at every meeting of the committee on the definition of employee.
Comment (Penkalski): Indicates that he thinks it is a good idea to bring it over to UI.
Comment (Haine): Indicates that the work of the UIAC committee on the definition of employee was broader than just the construction industry and is for just UI.
Comment (Petersen): Indicates that the committees were dealing with different departments and with different definitions. The committees do not necessarily offset each other. Other departments use different definitions than UI. The UIAC committee was just looking at the UI definition.
Comment (Buchen): It sounds like this would be regulatory program that would be different than how we have dealt with independent contractors in the past. It is not something that the UIAC is going to slide into quietly. If it is extended beyond contractors, it would have huge consequences and be a huge workload. Also, he suggests that the office have a different name than “misclassification.”
Mr. Bergan indicates that the focus of the worker misclassification office would be to seek compliance with various laws. It would not necessarily add additional regulations, but it would be a system that encourages voluntary compliance with various laws. That is the bottom line and to do that, it needs to have some enforcement with teeth. The process needs to be designed to get people to comply rather than make life miserable for people.
Brad Boycks (WI Builders Association): Would it be the intent to have this move in the UI bill this session? We appreciate the opportunity to have input with the Task Force. We would like an opportunity to have more input on any legislation and would have questions if this were expanded beyond construction.
Mr. Bergan indicates that any legislation on this will be contingent on our ability to get these issues resolved.
5. Advisory Council committee to Review UI Definition of “Employee” – Recommendations to Improve Definition of “Employee” and Amend Definition of “Employment”
Mr. LaRocque indicates that the June 25 report has been transmitted to the UIAC. In every meeting the subject of worker misclassification came up. The committee succeeded, however, in separating the work of the worker misclassification task force and the committee on the UI definition of employee. The committee was to study and suggest any possible changes to the definition of employee for UI purposes. The committee recommended improvements to the 7-of -10 test, which applies to all for-profit employers except truckers and loggers. The recommended test will do a better job of separating those who ought to be covered for unemployment from those who for policy reasons ought not to be. That was the legislative mandate and the committee fulfilled it.
The committee went a little beyond the definition of employee and looked at the definition of “employment” as well. “Employment” defines the kind of services that result in coverage for benefits. We discussed home care workers and mystery shoppers. We also ranged into the subject of misclassification. We were also urged by the public comments to think about how the department serves customers, particularly employers but also workers who believe they are independent contractors. We were urged to think about how our website can be a valuable tool for them to make those determinations. The department agreed to make an effort to do a better job providing information on employee status on the website. The employer handbook reviews the employee tests. Whatever the test is or becomes, we will analyze the tests and display that analysis on the website. We recommended that the health care workers be excluded without deciding if they be excluded for just benefit purposes or for all purposes.
Comment (Penkalski): We also left open the possibility of registration of independent contractors.
Comment (Lump): The genesis of interest in this issue arose out of confusion over who is an independent contractor. Employers get caught in a web. They hire someone they think meets the test, but ultimately as time passes it turns out the person does not meet the test. We are trying to make that situation more definite for employers and employees so they don’t find themselves in this web and can identify whether they are independent contractors. That was the concern. Also, there were other items for possible exclusions that he would like to have explored further with UIAC. These include the writers, mystery shoppers, and home health care workers.
Mr. LaRocque indicates that the committee also recommended repeal of separate administrative rules for truckers in DWD 105. DWD 105 was adopted in 1985, at the behest of motor carriers. Since then we have experienced more issues with those rules, particularly in last couple of years. That is an important element of the proposal. Also, the committee recommended repealing DWD 107 regarding special rules for loggers.
The committee recommendation is focused primarily on what the law ought to be. The worker misclassification task force and the compliance mechanisms are about enforcing the law, whatever the law may be.
Mr. Bergan indicates that one of the elements in the misclassification task force recommendations was the issue of registration. The issue of worker misclassification is a problem broadly in the United States. One recommendation was for public education and we can do that without any legislation.
Question (Haine): On the Council committee’s report, p. 15-16, is the revised 7-of-10 test dated June 2, 2009, the summary of the final outcome of the committee; is that a fair characterization?
Mr. LaRocque responds that this is correct; it is the heart of the recommendation.
Question (Petersen): His reading is that an independent contractor would have to meet some or all of number one and then meet 6 of the other 9 parts of the test, is this correct?
Mr. LaRocque indicates that an independent contractor would have to meet criteria number one. How that is decided is based on some or all of its subparts.
Question (Petersen): He is concerned that every independent contractor might not be able to meet factor number one. We tell them how to do the work and when it must be done to meet specifications of the plans for the project. They all qualify as independent contractors because they still have risk of loss and to some extent have variance in when they do the work. In some cases, we may supply the equipment because they know how to operate it and we do not have anyone who can do that. It may be difficult to meet these requirements.
Mr. LaRocque indicates that this requirement for direction and control is in almost every test for employee. We thought it was an important element. How it plays out is always done case-by-case and individual-by-individual. We have had direction and control in other parts of our law. You have to have some faith that the decision makers will do it the way it tends to be done correctly elsewhere even though it has not been a large part of our test recently.
Comment (Petersen): It seemed expanded here compared to what he has seen in the past which was usually a one line sentence, e.g., the person is able to control his own work even if there may be specific instructions. He sees potential for questions down the road.
Comment (Buchen): When people interpret new language we will get different outcomes. The fact that the test goes beyond just direction and control and lists items that may be considered suggests that decision makers will try to apply those. It may lead to different outcomes. It does come across as adding factors.
Comment (Petersen): Also, making this a requirement before going onto the 6-of-9 part of the test may be difficult.
Mr. LaRocque indicates that there was a trade off with this. The committee wanted to spell the items out in the test a little more particularly so that people who need to determine if they meet the test have some firm guidance. If we take those items out, it leaves it more fluidity for decision makers. It is a trade off. The five items that are listed have been tested through time; we sifted the list and did not include several other items. In terms of how it will play out, in terms of administration, when something substantial is passed, the department would get out and provide strong guidance to department staff and comment to the administrative law judges and the Labor and Industry Review Commission, and display interpretations on the website.
Comment (Buchen): Direction and control is a basic test, but not necessarily the particular factors.
Mr. Mathis indicates that the federal common law test has 20 factors, most of which are concerned with direction and control. In this draft, the direction and control factors are nonexclusive factors. In the 1990s, our definition was to be “free from direction and control” with no further guidance than that. In 1996, the definition was changed to be more specific about what the department would look at. Here we wanted to have direction and control like we had before, but with additional guidance as to the things we will be looking at. They are there to give guidance to employers to see what the department will look at. Whether a person meets this test will be determined on a case-by-case basis. What might be dispositive in one case based on the industry involved might be different in another case. It will be up to the decision maker.
Tom Howells (President, Wisconsin Motor Carriers Association): The Association represents about 1,100 member companies. He has a concern regarding eliminating DWD 105. He apologizes that he did not catch this proposed change in April or May. He did not realize until July that repeal of DWD 105 was proposed. Written comments were distributed. They are very concerned with the elimination of DWD 105. The process to adopt this in the 1980s included the department and representatives from industry. There were a number of disputed cases in the 1980s regarding independent contractors. The Star Line case went to the Supreme Court and the department and industry decided that they had to get together and find something that would work for everyone.
DWD 105 is not perfect, but it has been well understood by the industry and used since 1985, and the number of litigation cases has been relatively small. We are very concerned that this would be eliminated. One of the keys in section DWD 105.02 is that it provides, “In determining whether the carrier exercises direction or control and whether the contract operator is engaged in an independently established business, the department may not use as evidence any factor to the extent that it is specified by the shipper or required by state or federal laws or regulations. The department believes it is unreasonable to consider mandates of law or specifications of shippers as evidence because they have not been imposed on the relationship between the contract operator and the carrier by those parties of their own volition.” That was the heart of it all.
The trucking industry regulations primarily come from the federal government and regulate the motor carrier whether they use an independent contractor or employee. This is for drug tests, equipment violations, and hours of service. The responsibility is placed on the motor carrier by the federal government. There are still sanctions against the carrier if they do not do those things. There are similarly demands on shippers, which may be considered direction and control of the independent operator. We are concerned about eliminating the whole rule. If the rule is eliminated and we are under the revised 7-of-10 test, there are two factors that cause concerns. Number 2 requires advertising. It presupposes that business model, but it does not make sense in the trucking business. An owner operator never advertises in the yellow pages. Factor 10 prohibits economic dependence on a company. Many carriers sign a lease with a company for many years. They all believe they are independent contractors, but they have a good working relationship and continue over several years. Many other people in the industry are concerned with the proposal. He would be happy to meet with the department or the committee. Please don’t eliminate DWD 105. If we need to tweak or modify since 1980s, that’s fine. People are very concerned.
Question (Lump): Do you view factor number 3 as a problem?
Mr. Howells responds that it is a bit of a problem, but numbers 2 & 10 are bigger problems. He would need to look at number 3 in more detail. If a separate business location is construed to mean the cab of a truck, it would likely be ok. If you have to have an office, he would not be ok with it.
Comment (Buchen): Was the current rule from a similar study committee? He thinks this was all part of the workers compensation contractor over provision and went with enhanced enforcement, uninsured employer fund. Other councils piggybacked on that.
Mr. Howells indicates that it was not the same as the current committee, but it dealt with other issues with workers compensation as well.
Mr. LaRocque indicates he will review Mr. Howells’ comments. The issue of federal and other state and federal regulatory controls and shippers’ demands is in DWD 105. It is not in the 7-of-10 test explicitly, although there is perhaps an accounting for that in the way cases are decided under the 7-of-10 test. The committee did not get into those details in the meetings. The Council may want to decide how explicitly this should be stated in order to account for the relief the carriers might legitimately need with the problems they face with being forced to do things federally. These are issues to be addressed. We may want to provide some department analysis of these things in terms of what would happen if we adopted the 7-of -10 test. It may be appropriate to make explicit reference to legal and shipper requirements imposed on carriers.
Comment (Gustafson): For DWD 107, he shared the information with the executive director of the Great Lakes Timber Professionals Association. They were reviewing it and had not provided feedback to him. They are otherwise occupied today on issues with the state managed forest law. He thinks some of 10-point test may be problematic in the logging industry, but he cannot say for sure at this time. They would have been at this meeting but they felt they needed to be at the Capitol for the managed forest meeting.
Comment (Buchen): He wants to reiterate that the employee definition is never going to be easy or clear. No matter how skilled we are at drafting a broadly applied test, there will be problems where industries have a long tradition of independent contractors but who just do not meet the test. That is why we have had exceptions from time to time. The committee is even recommending an additional exception for home care workers. He is not excited about rolling back existing exemptions that were justified in their day because they do not fit the general test. For example, real estate agents would never meet the broad test, but they are independent contractors. He is not excited about getting rid of those rules. Some modifications may be appropriate.
Mr. LaRocque points out that DWD 105 is not an exclusion from employment. It is a set of rules that applies to a lot of truck drivers but does not seem to fit short-haul truck drivers that have more like 9-to-5 work than long-haul truck drivers. That raised the concern with the committee. When he talks with Mr. Howells, we may agree that certain parts of the existing rule are hard to understand. Maybe the long-haul and short-haul truckers are different enough that different definitions should apply. The department has a case now before the court of appeals on the short-haul carriers that may or may not clarify the rule.
Comment (Haine): She hates to throw the baby out with the bath water. There seem to be some things we can keep in DWD 105.
Mr. Doug Grawe, in-house counsel for Dart Transit Company of MN, indicates they have a fairly substantial presence in Wisconsin and consider Wisconsin to be a friendly state. They currently have about 2500 units, or 2200 independent contractors. Many independent contractors own multiple trucks and have their own employees. Dart is more of an over-the-road operation, so he cannot speak to the Dunham Express case or that type of courier operation. He hands out written comments. Briefly, Dart believes in independent contractors. They provide better service and are safer on the roadways. The independent contractors have choices. They believe in DWD 105 because they think an industry-specific test is appropriate. They have studied this throughout the country. MN has an industry-specific test for only one industry – trucking. It has had a 3% misclassification rate, compared with real estate and construction that had 30-40% misclassification rates. The State of Illinois recently studied this and found that when they went away from industry-specific tests to broad tests, the misclassification rates went up. Dart supports industry-specific test for trucking because it involves a lot of regulations and if you do not work in trucking, you do not necessarily know how to apply them.
10. Reduction of benefits for receipt of pension payments
Mr. LaRocque introduces Wisconsin Assembly Representative Terry Van Akkeren. Rep.Van Akkeren introduces Nina Beck, of his staff, who did work on the specific issue. He met with Mr. LaRocque last week to discuss an issue involving how pensions are treated for unemployment purposes due to a constituent complaint. He hands out draft bill language. The constituent was involved in a plant closing in Sheboygan. Some of the laid off workers had loans from their 401(k) plans. Some of the loans may have been taken out 2 or 3 years prior to the lay off. At end of their employment, some of the loans went into default. When the loan goes into default, one of their options is to pay it out of the pension fund. When they pay it out of the pension fund, it is considered a distribution and the income counts against their unemployment benefits. We did not think that was fair because some of these loans were taken out years ago without the anticipation that they would be laid off. They did not take out the money to live on while they were on unemployment. Most of that money was gone and they did not have it to live on. The money may have been used medical reasons or a down payment on house, etc., but it is not used for living expenses. Under our law, it counts as a retirement plan distribution. We thought maybe it was just offsetting benefits for one week when it was paid out, but actually it is spread out and allocated by dividing the amount of the disbursement by their weekly wage. They may be ineligible for benefits for 15 or 20 weeks based on how much that loan was. He looked into whether we could change this in the law. Other states have different offset provisions for pensions. California provides that if there is any employee contribution to the pension, then it is not used to offset UI benefits. He is not trying to go that far. He wants to say that if it is a default of a loan taken 90 days prior to the lay off, when they default it would not count against them. The federal government allows states to exempt more, but his proposal is limited to the defaulted loans.
Comment (Haine): This would apply only to loans taken out more than 90 days before the person is unemployed. The premise goes back to the fact that a defaulted loan becomes income under the tax law.
Question (Buchen): What was the employee contribution rate to the plan?
Mr. Van Akkeren indicates that he believes it was a 50/50 contribution. Federal law allows states the flexibility to do whatever you want with that as long as there is any employee contribution. States can not count it or make any offset from 0 to 100%. He is looking only at the issue of the loan defaults, which are primarily hardship cases.
Comment (Buchen): You also indicated that the payment was spread out over several weeks. We had talked about limiting offsets to the week it was paid in the context of bonuses. This seems to be a subset of the problem or a parallel issue and could be an appropriate add-on to that proposal.
Comment/Question (Yunk): None of us can fail to recognize that we are living in a very skewed economic situation. The number of individuals in default situations is significantly higher than in normal times. The proposal is trying to codify that if someone receives money that is not available for daily living expenses, e.g., through a payout, that we would recognize that it is not a tangible resource available to the individual and is not replacing income. Does the UI law take into account pension money in a buyout, e.g., that is rolled over into another pension plan? Is that rolled over amount counted as income for them?
Mr. LaRocque indicates that if a claimant rolls over a pension payment within 60 days, it is not considered a pension payment for purposes of reducing benefits. Severance payments are treated differently. For severance payments, the law requires that the employer allocate a severance payment to a week or weeks before it will constitute wages for purposes of a benefit reduction. Employers seldom do that. If they do allocate it and provide notice to the employee, then it will constitute wages and reduce unemployment benefits.
Mr. LaRocque indicates that the UI law requires that the money be allocated over weeks depending on the amount of the loan. This is different than the allocation for severance pay. For the pension payment, it does not set off benefits for just that week, but it is spread out over weeks according to the formula in the statute. That is not required by federal law and we could be more generous to claimants if we wish to be.
Comment/Question (Haine): It is the allocation that bothers her. In some cases it may be arbitrary. In tax terms, money is income when received. If it is received in one week, does the law provide that it may be allocated over a number of weeks?
Rep. Van Akkeren indicates that for defaulted loans, the distribution is to pay off the loan. The person never receives the money because it goes back into the pension fund for the loan payment. It may have been used years ago.
Question (Buchen): How does this differ from someone putting money in a savings and drawing it out? If he had put the money in a savings account and took it out, we would not treat it as income.
Mr. LaRocque indicates that benefits may reduced by income received. Withdrawal of savings would not ordinarily be income. Pension distributions are taxable income.
Comment (Haine): This is unique in a sense because it is a combination of employer and employee money. It seems that it may be more of an employer-funded benefit.
Comment (Yunk): Not necessarily. The relative contributions by employers and employees could be very diverse.
Mr. LaRocque indicates that the law defines pension plan to include all types of retirement plans, including 401(k)s, among others.
Comment (Buchen): If we get rid of allocation, the person would have taken the hit in one week. That would provide some relief.
Mr. Van Akkeren indicates that anyone could probably take a one-week hit if they knew it was coming, but to do it continuously for 15 to 20 weeks is a long time without money in this economy.
Mr. Bergan indicates that under normal circumstances, if it were paid out as a regular periodic payment, it would be an offset to UI to the extent the employer funded part of it. Carla Breber, Bureau of Benefits, indicates that the department only reduces UI benefits based on the employer contributions, or 50% if we do not know the exact percentage of the contribution. Someone could borrow with the idea that they were going to be laid off and not want to have it count for UI.
Comment (Yunk): The 90-day requirement reduces the opportunity for fraud.
Comment (Haine): She would like to go back to the income earned, profit sharing, and bonus, and whether it would make sense to consider this altogether. There is always a point of receipt or multiple receipt. She is considering the issue of whether the money is in the hand of the claimant for one week or spread out over weeks. It seems this could be simplified.
Comment (Petersen): Bonus and retirement accounts are two different sources of income. In this case, the money has not been in his hands when he is claiming benefits.
Comment (Yunk): She is not aware of any pension plan or 401(k) that allows for discretionary loans. They are fairly rigid that they could have it for a principal residence, hardship, etc.
Comment (Buchen): Using the concept of “earned when paid” would go a long way to resolving this. The administrative side of this must be a nightmare.
Question (Rainey): Is it that the person would have to have contributed to the 401(k) or taken out the loan 90 days before the separation?
Mr. Van Akkeren indicates that it was that the person would have to have taken out the loan 90 days before becoming unemployed. A person may still contribute to a fund up to the last day of work. A loan default will usually be after the separation. In this case, the company was telling people that this was a way for people to pay money back, but they were not aware of the UI consequences.
Question (Rainey): Would this be with respect to the one pension payment, not if someone retired?
Mr. Van Akkeren indicates that this is correct.
Mr. LaRocque indicates that these situations are more numerous now. People are taking more pension distributions. Administratively, this is a challenge because we have to investigate how to do the proration and get at the percentages of contributions. It can be rough justice because the statute defaults to a 50/50 when there is no other evidence of the percentages and there is a question if that is fair.
Question (Buchen): Does the draft presented by Representative Van Akkeren work for the department’s purposes? It is narrow and he does not have a problem with it.
Mr. LaRocque indicates that the department has not studied it yet.
Mr. Van Akkeren thanks the UIAC for the time it puts in on unemployment issues. He indicates that the UIAC has respect of the Legislature. When the UIAC brings forth a recommendation, 99.9% of the time the UI legislation goes through. He prefers to have the provision included in the UI bill out of respect for the work of the UIAC.
Motion by Ms. Yunk, seconded by Mr. Buchen, to approve the concept as identified in the legislator’s proposal and refer the issue back to staff to review the specifications of the bill and report back to the UIAC at the next meeting as to the concurrence or suggested modifications so the proposal could be included in the UI bill. Motion approved unanimously.
6. Department proposals for changes to the unemployment insurance law, Wis. Stat. Chapter 108, presented at previous meetings.
Comment (Yunk): The Labor side is not prepared to act on the proposals today.
7. Department proposal D09-21 – Authorize Spending of Special Administrative Transfers
Mr. LaRocque indicates that we do not have the written proposal yet. The department received $9.6 million in connection with the UI modernization provisions of the UI recovery act. There are four categories of permissible uses for the money. The proposal is to enable the department to spend that money within those four permitted administrative uses. The proposal is not to appropriate the funds to any particular uses but only to allow the same latitude the federal government has given to the states to spend the funds within those four categories.
Question (Penkalski): What are the 4 categories?
Ms. Schwalbe indicates that they are UI administration to carry out modernization, outreach to individuals who might be eligible for benefits based on modernization, staff-assisted reemployment services and improvement of UI benefit and tax operations.
Mr. Bergan indicates that it was money given to the states both to facilitate the implementation of modernization and to undertake system improvements. This can include additional hiring.
Question (Buchen): Is this money you are spending that would be spent on something else or would you be doing new projects? Do you have a more specific idea of what the department would spend it on?
Mr. Bergan indicates that some of the money would be devoted to reemployment services, and most of the balance would be spent on technology. This is an area where the idea was to provide breathing space for UI agencies to accomplish some things over this difficult unemployment period.
Question (Yunk): In order to expand the use of the federal dollars, do we have to take action to allow the department to use the money? Is there a requirement under the federal parameters these have to be for new programs? What is the scope of the four federal categories?
Mr. LaRocque indicates that we have some provisions in the UI statutes that need to be amended so they do not get in the way of using this money. That is technical and should not be controversial. Under the federal law we are limited to spending the money on the four categories, but the categories are broad. The department will stay within the law.
Mr. Bergan indicates that the department will let the UIAC know how it uses the funds. However, the discretion rests with the department and not with the UIAC. We want flexibility at this point and we will be transparent. We have funding now to do what we need to do given the way the federal funding works. When times are tough and claims are high, there is funding available.
Comment (Haine): You might not know what you want to spend it on yet.
Comment (Buchen): We have a special assessment on employers to pay for technology that we took away from the reserve fund that would otherwise have been available for benefits. Maybe we can stop assessing employers and use this money for benefits if it is money you do not have a burning need for.
Mr. Bergan indicates that the assessment needs to be renewed if it is going to continue; it sunsets at the end of 2010. We are concerned that when this period of high claims is over we are still going to have the need to continue to modernize our systems. We will not have the resources we have now. We are concerned about that. The administrative assessment was more appropriately discussed in the context of whatever else we do with the reserve fund. He disagrees that we do not have a burning need for the money. The department has moved away from big IT model. We have been doing well with that and are on time and on budget. We have much more to do. We see that in this environment when we have so many claims.
Mr. LaRocque indicates that the federal government does not require a state level appropriation. The money is paid from the Social Security Act section 903 which contains, among other things, the Reed Act distributions. This is not a Reed Act distribution; it cannot be used for benefits. Our state constitution and law require an appropriation. We think it fits a current appropriation in Chapter 20 so we are not going to do a new appropriation. However, we are only going to have to amend chapter 108 to get that out of the way so the money can flow through the appropriation and be used for those four uses.
Question (Rainey): Will we see proposed language later?
Mr. LaRocque indicates that the written proposal will be presented at the next meeting.
8. Department proposal to revise DWD 128, Able to Work and Available for Work
Mr. LaRocque indicates that this is on the agenda so there can be action on the item. Since the May meeting, he met with Bob Andersen of Legal Action to address some concerns Mr. Andersen had. They came to consensus on the wording and have revised the proposal to take that into account. We are proposing to remove the word “any” from able to work. It softens the able requirement too much. In lieu of that, we substituted wording from Mr. Andersen that states that the person would be able to work if “they are able to engage in some substantial gainful employment.”
Another concern was that the rule contained a provision that someone could qualify as able to work if they could not qualify under any other criteria if the person could be qualified to perform other work within their restrictions with additional training. The department’s experience with that is that it is an exception that is not appropriate. We already have an approved training provision in the statute and it requires certain elements. This idea that any additional training would be an exception to able to work was excessive. We suggested removing that sentence and Mr. Andersen concurred.
Finally, the department had proposed that someone would not be considered able to work if their restrictions limit them to working 16 hours or less. We have removed this from the proposal.
The proposal would include language to protect claimants from the harshness of the availability part of the rule. The way this has been construed and applied was to say that if someone was not able to work for 32 hours, then you are not available to work full-time and are denied. We thought that was too harsh and proposed that you meet the able and available test if you are available for as many hours as you are able to work.
Bob Andersen, Legal Action of Wisconsin, indicates that the Labor caucus asked him to talk with Mr. LaRocque. The draft does reflect the discussion. Given the text changes, there may need to be some changes in the analysis language. He has not had a chance to talk with the Labor caucus about the changes.
9. Department proposal to revise DWD 128, Able to Work and Available for Work
Mr. LaRocque indicates that the proposal has two parts. One is to correct some awkwardness in the rule and wording of filing benefits claims. We would be protecting against some unintended legal interpretations down the road. It will not change how benefit claims are filed. The other part of the proposal is to authorize the department to make benefit payments by debit cards. The Labor side was interested to hear what the department intended to do with debit cards.
Troy Sterr, Project Manager with the UI Division, refers to the handout (goldenrod) regarding Electronic Payment Cards in the packet. Discusses what debit cards are, why debit cards are being considered by the department, what the benefits are to claimants, what the benefits and cost savings are to the department, what the challenges are for implementing a debit card program, and when the program likely would be implemented. The department’s preference is to have payments made by direct deposit. Claimants can have immediate access to their money and do not need to carry another card. However, there is a population that is unbanked who do not have an account. The preference will be for debit cards for these claimants. The risk of undelivered or lost checks is eliminated and claimants may have access to their payments more quickly. Debit cards eliminate the check-cashing fees which can be significant. The cost to the department is under 14 cents per check; the same payment by debit card is less than 2 cents per check; this would have saved the department $537,000 for the six-month period of January to June. For fiscal year 2009, the department spent over $2 million in postage. If the department can switch to providing benefits by direct deposit and debit cards, we can realize substantial savings in postage costs. Issuing checks would be the exception to the rule. Claimants may be subject to user fees. We need to be clear that claimants know what the fees would be. In recent months the user fees associated with debit cards have received negative public attention. The Department of Labor has issued guidance to states as to how to minimize user fees. We will require the vendor to allow the cardholder unlimited ATM withdrawals at in-network ATMs at no charge. We will also require that there be unlimited free teller withdrawals. For point of sale transactions, we would require that claimants have unlimited point of sale transactions. We are incorporating these into our requests for bids. Finally, the department is putting together the request for proposals that will be released this month. We will pilot the program before rolling it out to the full claimant population. We would request proposals by November and finalize a contract by early next year. At the earliest the program would be implemented by October of 2010.
Question (Penkalski): If a card is not drawn down all the way, what happens to the money?
Mr. Sterr indicates that the funds remain with the vendor and will frequently charge inactivity fees. The department has a law change proposal that these unclaimed funds would revert to the reserve fund if there is no activity in one year. We are proposing an exception to the unclaimed property act.
Question (Lump): If they assess an inactivity fee on a normal card, that would offset their administrative costs. If they do not get any fees, how do they pay for this?
Mr. Sterr indicates that the bank would still earn interest on the float and other fees they may charge. The bulk of their money is made by merchants who pay a fee for every transaction for every point of sale. Those earnings can be quite substantial.
Question (Haine): Would this be similar to the food stamp/food share program?
Mr. Sterr indicates that this is correct. Mr. Bergan indicates that claimants can get cash back at a point of sale using a debit card, and that would be true of this card as well.
Comment (Penkalski): He has concerns about the fees because that takes money out of the person’s pocket. If the money is transferred into the debit card accounts, doesn’t the department lose the interest on the float?
Mr. Sterr indicates that this is correct. He is not sure of the amount that this would be.
Comment (Haine): The cost of processing a paper check and postage may outweigh that loss of interest.
Mr. Bergan indicates that the security of the system is much better. Investigating missing checks is burdensome for claimants and the department. We cannot replace the check for 30 days and they do not have use of the funds. Avoiding those situations would be helpful for claimants. Mr. LaRocque indicates that we try to do direct deposit, regardless of whether we do debit cards. People can sign up on the internet for direct deposit. Though there may be fees with debit cards, the debit card is replacing a check and there frequently are fees involved with cashing checks as well. Check cashing operations can charge significant fees.
11. Exception to benefit disqualification for quit due to sexual assault
Mr. LaRocque indicates that this topic has been of interest to a legislator. It involves whether the exception to the quit disqualification is broad enough to cover all of the circumstances where sexual assault would occur. The language in the quit exception is “concerns about personal safety or harassment”, which seems to be broad enough to cover concerns about or actual sexual assault. The department will continue the discussions with the legislator to ensure that his concerns are addressed.
12. Letters to the Council
Please hold open September 22nd and October 5th. Mr. LaRocque will check with absent UIAC members and get back to everyone.