Federal-State Unemployment Compensation Program: Unemployment Insurance Program Letters Interpreting Federal Unemployment Insurance Law

DEPARTMENT OF LABOR

Federal-State Unemployment Compensation Program: Unemployment

Insurance Program Letters Interpreting Federal Unemployment Insurance

Law

The Employment and Training Administration interprets Federal law

requirements pertaining to unemployment compensation as part of its

role in the administration of the Federal-State unemployment

compensation program. These interpretations are issued in Unemployment

Insurance Program Letters (UIPLs) to the State Employment Security

Agencies (SESAs). The UPLs described below are published in the Federal

Register in order to inform the public.

Unemployment Insurance Program Letter No. 13-94

This UIPL advises SESAs of the provisions of Public Law (Pub. L.)

103-152 which affect the unemployment compensation (UC) program. Public

Law 103-152 requires that States establish and utilize a system of

profiling all new claimants for regular UC in order to identify those

claimants most likely to exhaust regular UC and in need of reemployment

services in order to obtain new work. It also requires that an

individual identified pursuant to the profiling system must participate

in reemployment services as a condition of UC eligibility.

Unemployment Insurance Program Letter No. 14-94

This UIPL advises SESAs of the provisions of Public Law 103-182

relating to self-employment assistance as it affects the UC program.

Public Law 103-182 amended Federal law to give States the option of

permitting, for a five-year period, certain individuals to receive

payments from a State's unemployment fund for the purpose of assisting

such individuals in establishing businesses and becoming self-employed.

Dated: March 8, 1994.

Doug Ross,

Assistant Secretary of Labor.

Classification: UI.

Correspondence Symbol: TEURL.

Date: January 28, 1994.

Directive: Unemployment Insurance Program Letter No. 13-94

To: All State Employment Security Agencies

From: Mary Ann Wyrsch, Director, Unemployment Insurance Service

Subject: The Unemployment Compensation Amendments of 1993 (Pub. L.

103-152)--Provisions Affecting the Federal-State Unemployment

Compensation Program

Rescissions: None.

Expiration Date: January 31, 1995.

1. Purpose. To advise State employment security agencies (SESAs)

of the provisions of the Unemployment Compensation Amendments of

1993, Public Law (Pub. L.) 103-152, which affect the Federal-State

Unemployment Compensation (UC) Program.

2. References. Section 4 of Public Law 103-152; Titles III and

IX of the Social Security Act (SSA); Public Law 103-6; Public Law

102-318; UI Occasional Papers 89-3 and 91-1; and UIPL 45-93, dated

September 23, 1993.

3. Background. On November 24, 1993, the President signed into

law the Unemployment Compensation Amendments of 1993, Public Law

103-152. Public Law 103-152 extended the Emergency Unemployment

Compensation (EUC) program, and amended the SSA to require States,

as a condition of receiving administrative grants, to establish and

utilize a system of profiling all new claimants for regular UC for

purposes of identifying claimants who are likely to exhaust UC and

will need job search assistance to make a successful transition to

new employment. The SSA was further amended to require States to

disqualify an individual identified pursuant this profiling system

if the individual fails to participate in reemployment services. In

addition, Public Law 103-152 made a technical change to Title IX of

the SSA. States have already been advised of those provisions

affecting the EUC program in GAL 12-92, Change 6. This issuance is

limited to those amendments to the SSA affecting the Federal-State

UC program. These amendments are as follows:

(a) a new requirement that States establish and utilize a system

of profiling all new claimants for regular UC;

(b) a new requirement that State law require claimants

identified as most likely to exhaust regular UC to participate in

reemployment services as condition of UC eligibility; and

(c) a technical amendment to Title IX of the SSA pertaining to

the Unemployment Trust Fund.

4. Action Required. SESAs are requested to take the action

necessary to assure consistency with Federal requirements as amended

by Public Law 103-152. The effective dates for implementation of

these amendments are found in Attachment III.

5. Inquiries. Inquiries should be directed to your Regional

Office.

6. Attachments.

I. Unemployed Workers Profiling

II. Participation in Reemployment Services

III. Draft Language to Implement Section 4(b) of Public Law 103-152

IV. Technical Amendment Concerning the Unemployment Trust Fund

Attachment I to UIPL 13-94

Unemployed Worker Profiling

a. Text of Amendment--Section 4(a) of Public Law 103-152

Sec. 4. Worker Profiling.

(a) In General.--

(1) Establishment of Profiling System.--Section 303 of the

Social Security Act is amended by adding at the end thereof the

following new subsection:

``(j)(1) The State agency charged with the administration of the

State law shall establish and utilize a system of profiling all new

claimants for regular compensation that--

``(A) Identifies which claimants will be likely to exhaust

regular compensation and will need job search assistance services to

make a successful transition to new employment;

``(B) Refers claimants identified pursuant to subparagraph (A)

to reemployment services, such as job search assistance services,

available under any State or Federal law;

``(C) Collects follow-up information relating to the services

received by such claimants and the employment outcomes for such

claimants subsequent to receiving such services and utilizes such

information in making identifications pursuant to subparagraph (A);

and

``(D) Meets such other requirements as the Secretary of Labor

determines are appropriate.

``(2) Whenever the Secretary of Labor, after reasonable notice

and opportunity for hearing to the State agency charged with the

administration of the State law, finds that there is a failure to

comply substantially with the requirements of paragraph (1), the

Secretary of Labor shall notify such State agency that further

payments will not be made to the State until he is satisfied that

there is no longer any such failure. Until the Secretary of Labor is

so satisfied, he shall make no further certification to the

Secretary of the Treasury with respect to such State.''

b. Discussion.

Profiling--Situation Prior to Enactment of Public Law 103-152.

Profling is based on the premise that a set of characteristics--a

``profile''--can be developed to identify, at an early stage of

unemployment, which workers are likely to exhaust UC and will need

assistance to find new jobs. Research on this point sponsored by the

Department of Labor and conducted in the State of New Jersey found

that profiled claimants who received reemployment services returned

to work earlier than those who did not receive such services. (See

UI Occasional Papers 89-3 and 91-1 which contain reports on the New

Jersey project). In addition, studies on the long-term unemployed

have found that individual characteristics such as schooling and job

tenure relate to when the individuals return to work. Thus,

providing early reemployment assistance to individuals most likely

to remain out of work should result in an earlier return to work.

Section 4 of Public Law 103-6 addressed the establishment of a

system of profiling all new claimants for regular UC (including new

claimants under Federal unemployment benefit allowance programs) to

determine which claimants may be most likely to exhaust regular UC

and may need reemployment services to make a successful transition

to new employment. Although States were not required to establish a

system of profiling, the Secretary was directed to ``encourag[e]

[its] adoption and implementation by all States,'' as well as

provide ``technical assistance and advice to the States in the

development of model profiling systems.''

In response to this legislation, the Department took action to

develop a model profiling system. UIPL 45-93 was issued and States

were encouraged to provide comments on the profiling system and the

procedures needed to implement it. The Department was in the process

of developing this system and a strategy for its implementation when

Public Law 103-152 was enacted.

Profiling--Effect of Public Law 103-152. The amendments made by

Public Law 103-152 repealed section 4 of Public Law 103-6 and added

subsection (j) to section 303, SSA, to require States, as a

condition for receiving Title III grants, to implement and utilize a

system of profiling all new claimants for regular UC. Under section

303(j)(1), SSA, the system must include components which:

1. Identify which claimants will be likely to exhaust regular UC

and will need job search assistance services to make a successful

transition to new employment.

2. Refer the claimants described in item 1 above to reemployment

services, such as job search assistance services, available under

any State or Federal law. The conference Committee Report defines

``reemployment services'' as:

* * * job search assistance and job placement services, such as

counseling, testing, and providing occupational and labor market

information, assessment, job search workshops, job clubs and

referrals to employers, and other similar services. [H. Rep. No.

333, 103rd Cong. 1st Sess., 5 (1993)]

3. Collect follow-up information relating to the services

received by such claimants and their employment outcomes and use the

information for future profiling.

4. Meet ``such other requirements as the Secretary of Labor

determines are appropriate.''

The Department of Labor will provide further guidance concerning

``reemployment services,'' job search assistance,'' ``follow-up

information,'' ``employment outcomes'' and any other requirements

the Secretary of Labor determines to be necessary for the proper

implementation of a profiling system.

c. Technical Assistance and Report. Section 4(c) of Public Law

103-152 requires that the ``Secretary of Labor shall provide

technical assistance and advice to assist the States in implementing

the profiling system'' and that ``such assistance shall include the

development and identification of model profiling systems.'' The

Department of Labor plans to provide technical assistance to States.

Information concerning this assistance and the model profiling

systems will be provided in future issuances.

Section 4(d) of Public Law 103-152 requires that, not later than

the date three years after the date of enactment of Public Law 103-

152, the Secretary of Labor will report to the Congress on the

operation and effectiveness of the profiling system and of the

participation requirement described in Attachment II below. Since

Public Law 103-152 was enacted on November 24, 1993, the report is

due November 24, 1996.

d. Effective Date. Section 303(j)(2), SSA, requires that States

must comply substantially with the requirements of 303(j)(1), SSA as

a condition of receiving administrative grants under Section 303(a),

SSA.

Under section 4(f)(1) of Public Law 103-152, new section 303(j),

SSA, ``shall take effect on the date one year after the date of the

enactment of this Act,'' or November 24, 1994. In determining

whether to take action against a State which has not appropriately

amended its law and/or not established a profiling system by this

effective date, the Department of Labor will take into consideration

the feasibility of such State taking that action to meet the

requirements of the statute, as interpreted by the Department in its

operating instructions. These operating instructions will be

provided in future issuances.

Attachment II to UIPL 13-94

Participation in Reemployment Services

a. Text of the Amendment--Section 4(b) of Public Law 103-152.

(b) Participation Requirement.--Section 303(a) of the Social

Security Act is amended--

(1) By striking the period at the end of paragraph (9) and

inserting ``; and '', and

(2) By adding at the end thereof the following new paragraph:

``(10) A requirement that, as a condition of eligibility for

regular compensation for any week, any claimant who has been

referred to reemployment services pursuant to the profiling system

under subsection (j)(1)(B) participate in such services or in

similar services unless the State agency charged with the

administration of the State law determines--

``(A) Such claimant has completed such services; or

``(B) There is justifiable cause for such claimant's failure to

participate in such services.''

b. Discussion. Public Law 103-152 added section 303(a)(10) to

the SSA to require States, as a condition of receiving Title III

grants, to place an additional condition of eligibility on claimants

who have been referred to reemployment services pursuant to the

profiling system under subsection 303(j)(1)(B), SSA. A profiled

claimant, in order to be eligible for regular UC for any given week,

must participate in reemployment services or similar services unless

the State agency determines that (1) the profiled claimant has

already completed such services; or (2) there is a justifiable cause

for the claimant's failure to participate in such services. The

Department of Labor will provide further guidance to States

concerning participation in ``reemployment services'' or ``similar

services'' and ``justifiable cause.''

The Department believes States will need to amend their laws to

provide for a disqualification based on a profiled claimant's

failure to participate in reemployment services. If a State does not

need to make such a law change, it will be necessary to notify the

Department that such a disqualification can be accomplished without

amendment.

c. Effective Date. Section 4(f) of Public Law 103-152, requires

that new Section 303(a)(10), SSA, ``shall take effect on the date

one year after the date of the enactment of this Act,'' or November

24, 1994. In determining whether to take action against a State

which has not met this requirement by this effective date, the

Department of Labor will take into consideration the feasibility of

such State timely amending its law and establishing a profiling

system (which is a necessary requisite to this denial provision)

which meets the requirements established by the Department in its

operating instructions.

Attachment III to UIPL 13-94

Draft Language to Implement Section 4(b) of Public Law 103-152

States needing to amend their laws to incorporate the new

eligibility criteria established by Public Law 103-152, may wish to

use the following draft language.

(a) Eligibility for benefits.--An unemployed individual shall be

eligible to receive benefits with respect to any week only if the

individual:

* * * * *

( ) participates in reemployment services, such as job search

assistance services, if the individual has been determined to be

likely to exhaust regular benefits and need reemployment services

pursuant to a profiling system established by the Commissioner.

Attachment IV to UIPL 13-94

Technical Amendment Concerning the Unemployment Trust Fund

(a) Text of the Amendment--Section 5 of Public Law 103-152.

Sec. 5. Technical Amendment to Unemployment Trust Fund.

Paragraph (1) of section 905(b) of the Social Security Act is

amended to read as follows:

``(b)(1) Except as provided in paragraph (3), the Secretary of

the Treasury shall transfer (as of the close of each month) from the

employment security administration account to the extended

unemployment compensation account established by subsection (a), an

amount (determined by such Secretary) equal to 20 percent of the

amount by which--

``(A) The transfers to the employment security administration

account pursuant to section 901(b)(2) during such month, exceed

``(B) The payments during such month from the employment

security administration account pursuant to section 901(b)(3) and

(d).

If for any such month the payments referred to in subparagraph

(B) exceed the transfers referred to in subparagraph (A), proper

adjustments shall be made in the amounts subsequently transferred.''

(b) Discussion. The legislation proposed which eventually became

Public Law 103-318 contained a provision which would have amended

section 901(b)(1), SSA, to create new subparagraphs (A) and (B).

This provision was not enacted. However, corresponding amendments to

section 905(b) were included in the enacted version of Public Law

103-319. As these amendments referred to non-existent sections, the

amendments had no effect. Section 5 of Public Law 103-152 amended

Section 905(b), SSA, to delete the erroneously enacted language

pertaining to the non-existing section.

Classification: UI.

Correspondence Symbol: TEURL.

Date: February 16, 1994.

Directive: Unemployment Insurance Program Letter No. 14-94

To: All State Employment Security Agencies

From: Mary Ann Wyrsch, Director, Unemployment Insurance Service

Subject: North American Free Trade Agreement Implementation Act

(Pub. L. 103-182)--Provisions Affecting the Federal-State

Unemployment Compensation (UC) Program relating to Self-Employment

Assistance

Rescisions: None.

Expiration Date: February 28, 1995.

1. Purpose. To advise State agencies of the provisions of the

North American Free Trade Agreement Implementation Act which affect

the Federal-State UC Program.

2. References. The Federal Unemployment Tax Act (FUTA); Title

III of the Social Security Act (SSA); the Federal-State Extended

Unemployment Compensation Act of 1970 (EUCA), as amended; section

9152 of Public Law 100-203; section 507 of the North American Free

Trade Agreement Implementation Act (NAFTA), Public Law 103-182;

Unemployment Insurance Program Letter (UIPL) 29-83, Change 1:

General Administration Letter (GAL) 7-94; and UI Occasional Paper

92-2.

3. Background. On December 8, 1993, the President signed into

law the NAFTA, Public Law 100-182, which affects the UC program in

two ways. First, NAFTA created a transitional adjustment assistance

program designed to address worker dislocation caused by NAFTA. This

aspect of NAFTA was addressed in GAL 7-94. Second, NAFTA amended

Federal law to give States the option of permitting, for a five-year

period, certain individuals to receive a payment from the State's

unemployment fund for the purpose of assisting such individuals in

establishing a business and becoming self-employed. It is this

second aspect of NAFTA which is the subject of this UIPL.

4. Discussion.

a. In General. The ``withdrawal standard'' of Section

3304(a)(4), FUTA, and section 303(a)(5), SSA, limits withdrawals

(with specified exceptions not relevant here) from a State's

unemployment fund to payments of ``compensation'' and prior to the

enactment of NAFTA would have prohibited withdrawals for the purpose

of paying self-employment allowances. The term ``compensation'' is

defined in section 3306(h), FUTA, as ``cash benefits payable to

individuals with respect to their unemployment.'' Due to this

requirement that the payment be with respect to ``unemployment,''

the withdrawal standard has previously, with one temporary

exception, prohibited States from using unemployment funds to assist

individuals in establishing themselves in self-employment.

The previous temporary exception was created by section 9152 of

Public Law 100-203, the Budget Reconciliation Act of 1987. Public

Law 100-203 authorized three demonstration projects to test the

feasibility of providing self-employment allowances, payable from a

State's unemployment fund, to individuals. Only Massachusetts

operated a demonstration project. The initial report on this project

was issued in UI Occasional Paper 92-2, Self-Employment Programs for

Unemployed Workers, and is available by writing Ingrid Evans, United

States Department of Labor, Unemployment Insurance Service, 200

Constitution Ave. NW., room S-4231, Washington, DC 20210. A final

report will be available in 1994.

NAFTA amended Federal law to allow payments to self-employed

individuals under specified conditions during the five years

following NAFTA's date of enactment. The report of the House Ways

and Means Committee describes the intent behind the new Self-

employment provision:

Providing States the authority to establish and operate self-

employment programs would significantly benefit workers that may be

dislocated because of the NAFTA. The traditional system of

unemployment compensation is primarily designed to provide income

support for workers who are temporarily laid off or expect to be

unemployed for only a short time. However, as a result of the NAFTA,

some workers may lose their jobs permanently and need additional

tools besides the basic income maintenance provided by the

unemployment insurance system in order to re-enter the work force.

For some of those workers, access to a self-employment program would

be the best path for them to re-enter the work force. This provision

gives states the ability to add the tool of self-employment training

and support to the options available to help speed the transition of

dislocated workers back into the work force. [H. Rept. No. 361, Part

1, 103rd Cong., 1st Sess. 94 (1993).]

Specifically, section 507, NAFTA, amended the withdrawal

standard (and the definition of ``unemployment fund'' in section

3306(f), FUTA) to provide that amounts may be withdrawn from the

unemployment fund of a State ``for the payment of allowances under a

self-employment assistance program (as defined in section 3306(t)) *

* *'' FUTA. This exception to the withdrawal standard applies solely

to the self-employment assistance (SEA) allowances described in

section 3306(t), FUTA, which was also added to FUTA by section

507(a), NAFTA. Under new section 3306(t)(1), SEA allowances are

payable ``in lieu of regular'' UC for the purposes of assisting

individuals in establishing a business and becoming self-employed.

b. Eligibility for SEA Allowances. SEA allowances are to be

payable ``in the same amount, at the same interval [e.g., payment

with respect to a period will be made weekly if that is the State's

usual practice for claims for regular UC or every other week if that

is the usual practice], on the same terms, and subject to the same

conditions as'' regular UC. (Section 3306(t)(2), FUTA.) This ``equal

treatment'' provision applies to all monetary and nonmonetary

(including reporting and certification) eligibility requirements

except where specifically prohibited by other provisions of Federal

law pertaining to SEA allowances. It also applies to notice and

appeal rights.

Since individuals engaged in self-employment activities will

normally be disqualified if certain eligibility provisions for State

UC are followed, section 3306(t)(2), FUTA, provides that these

provisions of State law shall not be followed. Specifically, the

following provisions shall not apply:

(1) State requirements relating to availability for work, active

search for work, and refusal to accept work.

(2) State requirements relating to disqualifying income are not

applicable to income earned from self-employment by individuals

claiming SEA allowances.

In addition, individuals in the SEA program will be considered

to be ``unemployed'' for purposes of both Federal and State UC laws

provided the individuals meet provisions of State law subject to the

above equal treatment provision and four additional eligibility

provisions for SEA allowances discussed immediately below. (The

effect of this requirement on Federal law is discussed below in item

4.f.)

Section 3306(t)(3), FUTA, contains the four additional

eligibility provisions which individuals must meet to receive SEA

allowances:

(1) They must be eligible to receive regular UC under the State

law (or they would be eligible but for the requirements suspended by

the SEA provisions at section 3306(t)(2), FUTA, as discussed above).

This is basically a restatement of the ``equal treatment''

requirement of section 3306(t)(1), FUTA, and includes monetary as

well as initial and continuing nonmonetary eligibility. For purposes

of determining SEA eligibility, ``regular compensation'' includes UC

for ex-servicemembers (UCX) and former Federal employees (UCFE).

(See item 4.g below.)

Since the SEA allowance is ``in lieu of'' regular UC, the total

amount of SEA allowances that individuals may receive is equal to

their maximum benefit amount of regular UC less any regular UC

previously received. Similarly, the weekly SEA allowance amount must

equal the weekly benefit amount for regular UC. Also, SEA allowances

and regular UC may not be paid for the same period.

The term ``regular compensation'' is defined in section 205(2),

EUCA, as ``compensation payable to an individual under any State

unemployment compensation law (including compensation payable

pursuant to 5 U.S.C. chapter 85), other than extended compensation

and additional compensation.'' Thus, individuals who have exhausted

regular UC are ineligible for SEA allowances. Individuals may not

receive SEA allowances in lieu of Federal-State extended benefits

(EB), additional benefits (AB) entirely financed by the State, any

wholly funded Federal extension of UC, or other types of

compensation not meeting the definition of regular UC.

Individuals who are terminated from or voluntarily leave the SEA

program may collect regular UC with respect to the benefit year (if

otherwise eligible) until the total amount of regular UC paid and

SEA paid equals the maximum benefit amount. Such individuals may be

paid EB if otherwise eligible. This is because, under 20 CFR

615.5(a)(1), these individuals are ``exhaustees'' for EB purposes

because they have received ``all of the regular compensation that

was payable under the applicable State law * * *.'' Similarly,

individuals who exhaust the maximum benefit amount as SEA program

participants may also receive EB if otherwise eligible. Whether any

of the individuals discussed in this paragraph are eligible for

other Federal extensions will depend on the law creating the

extension. Whether individuals are eligible for AB will be

determined by State law.

(2) The individuals must be identified pursuant to a State

worker profiling system as likely to exhaust regular UC. For further

discussion of SEA profiling requirements, refer to items 4.d and 4.j

of this UIPL.

(3) The individuals are participating in self-employment

assistance activities which are approved by the State agency. State

agency is defined in Section 3306(e), FUTA, as the authority

``designated under a State law to administer the unemployment fund

in such State.'' The activities which must be offered the

individuals are entrepreneurial training, business counseling, and

technical assistance. (Information concerning these activities may

be found in UI Occasional Paper 92-2, which describes services

provided to claimants participating in the self-employment

demonstration programs in Washington and Massachusetts.) If these

activities are not available, an individual pursuing self-employment

will not be eligible for SEA allowances; determination of

eligibility for regular UC for such individuals will be made under

State law provisions relating to self-employment. The activities may

be offered by either private or public entities.

An individual who fails to participate in a scheduled activity

(e.g., failure to attend a scheduled training course) is not

considered to be participating in SEA program activities. However,

for purposes of receiving a SEA allowance, it is not always

necessary for the individual to have actually participated in SEA

program activities for the week claimed. What is, at a minimum,

necessary is that the individual be participating in a program

(approved by the State agency) which provides training programs on

an ongoing basis and allows individuals to avail themselves of other

SEA program services when they are needed. As long as individuals

are under such a program, even though no activities are scheduled

for a given week, they will be considered to be participating in SEA

program activities and may be paid SEA allowances. It is possible

that an individual may be eligible for both regular UC and the SEA

allowance. This will occur when the individual is participating in

training related to self-employment which is also approved training

under State law. In this instance, the State is free to determine

whether regular UC or the SEA allowance will be paid as long the

eligibility requirements for the respective program are met.

However, in no instance may both regular UC and the SEA allowances

be paid with respect to the same period.

Since States do not disqualify individuals under their regular

UC laws for failure to participate in SEA program activities, the

SEA ``equal treatment'' provision does not address what

disqualifications States may impose in these cases. It is

recommended that States disqualify these individuals from receipt of

SEA allowances only for the week the failure to participate occurs.

Such individuals may be eligible for regular UC for that week if

State law provisions relating to regular UC are met. Individuals who

fail to meet the participation requirement may be dropped by the

State from the SEA program.

(4) They are actively engaged on a full-time basis in activities

(which may include training) relating to the establishment of a

business and becoming self-employed. The Department of Labor

(``Department'') is researching the relationship of this requirement

to the Americans with Disabilities Act. When this research is

completed, guidance on what constitutes a ``full-time basis'' will

be provided.

As is the case with failing to participate in SEA activities,

States do not currently disqualify individuals under their regular

UC laws for failure to actively engage on a full-time basis relating

to the establishment of a business and becoming self-employed.

Therefore, the SEA ``equal treatment'' provision does not address

what disqualifications States may impose in these cases. It is

recommended that States disqualify these individuals from receipt of

SEA allowances only for the week the failure to actively engage on a

full-time basis occurs. Such individuals may be eligible for regular

UC for that week if State law provisions relating to regular UC are

met. Individuals who fail to meet the ``full-time'' requirement may

be dropped by the State from the SEA program.

c. 5 Percent Rule. Section 3306(t)(4), FUTA, places a limitation

on the number of individuals in a State who may receive SEA

allowances. Specifically, it provides that the aggregate number of

individuals receiving the allowance must ``not at any time exceed 5

percent of the number of individuals receiving regular unemployment

compensation under the State law at such time * * *.'' The

Department will monitor this ``5 percent test'' on a monthly basis.

Therefore, States must use at least a monthly measurement period as

well. The calculation relates to individuals actually receiving

(i.e., paid) SEA for the week as a percent of those receiving

regular UC for the same week. Thus, for example, if 10,000

individuals receive regular UC (including UCFE and UCX) for a given

week, then no more than 500 may receive SEA allowances (including

UCFE and UCX claimants).

Note: The 5 percent figure is not arrived at by taking 5 percent

of the sum of the number of individuals receiving SEA and the number

of individuals receiving regular UC.

The 5 percent figure is an express limitation which the State

may not exceed. Therefore, States must monitor SEA allowance

payments closely to assure that the 5 percent limitation is not

exceeded. The Department recommends that new individuals not be

added to the SEA program if it appears the 5 percent threshold may

be exceeded.

d. No Cost to Unemployment Trust Fund (UTF). Section 3306(t)(5),

FUTA, places an additional requirement on the States as a condition

of paying SEA allowances. It provides that the payment of SEA

allowances must not result in any cost to the UTF ``in excess of the

cost that would be incurred by such State and charged to such

[Unemployment Trust] Fund if the State had not participated in'' the

SEA program. Put simply, payment of SEA allowances may not result in

any additional benefit charges to the UTF. This limitation applies

only to the benefit costs associated with the payment of SEA/regular

UC. It does not apply to the charging of SEA allowances to

employers.

Since individuals successfully establishing themselves in self-

employment will not collect EB, the UTF will accrue some savings to

the Extended Unemployment Compensation Account and the State's

account. However, since EB is not always payable in a State, the

Department has determined that this ``no cost'' requirement will be

met only if:

(1) The State implements a profiling system which assures that

only claimants likely to exhaust regular UC will receive SEA

allowances. An inadequate profiling system were those likely to not

exhaust regular UC are allowed to receive SEA allowances will not

meet the ``no cost'' requirement.

(2) The State creates ``participation requirements'' designed to

assure SEA allowances are paid only to those who actually

participate in the SEA program. Participation requirements for

determining if an individual is actively engaged on a full-time

basis in SEA activities must be at least as stringent as the able

and available requirements for regular UC; otherwise the SEA program

will not meet the ``no cost'' requirement.

More information on what is required of States in these areas is

described in item 4.j below.

e. State Reports. Section 507(c), NAFTA, provides that any State

operating a SEA program authorized by the Secretary of Labor must

report annually to the Secretary the number of individuals who

participate in the SEA program, the number of individuals who are

able to develop and sustain businesses (e.g., business survival

data), the cost of operating the SEA program, and compliance with

program requirements. The report must also contain other relevant

data needed by the Department, including data related to business

income, number of employees and wages paid in the new businesses,

and incidence and duration of unemployment after business start-up.

State reports will be submitted with respect to a calendar year

and will be due the June 30 following the report year. This means

the first report may be for only part of a year. For example, if a

State's SEA program is effective April 1, 1994, then the first

annual report will be due on June 30, 1995 and will cover a nine-

month period.

Failure to submit the report as required will create an issue

under section 303(a)(6), SSA, which requires that, as a condition of

receipt of administrative grants for the UC program, State law

provides for ``the making of such reports, in such form and

containing such information, as the Secretary of Labor may from time

to time require * * *.''

Under section 507(d), NAFTA, the Secretary of Labor is required

to submit a report to Congress with respect to the SEA program not

later than four years after the date of enactment of NAFTA. Since

NAFTA was enacted on December 8, 1993, this report is due no later

than December 8, 1997. This report will be based on the reports from

the States operating SEA programs.

f. Individuals Receiving SEA considered to be Unemployed. As

noted in item 4.a, section 3306(h) defines ``compensation'' as

``cash benefits payable to individuals with respect to their

unemployment.'' Payments to self-employed individuals are not

compensation since they are not payable with respect to

unemployment. However, under section 3306(t)(2)(c), FUTA,

individuals to whom the SEA allowances are payable ``are considered

to be unemployed for the purposes of Federal and State laws

applicable to unemployment compensation, as long as such individuals

meet the requirements'' of section 3306(t). The effect of this

provision is that, with respect to SEA, individuals are considered

to be unemployed and payments made to them are considered to be

``compensation.'' Thus, the term ``compensation'' is considered to

include individuals eligible for SEA allowances. The term ``regular

compensation'' does not, however, include SEA allowances. This is

because under Section 3306(t)(1), FUTA, SEA is payable ``in lieu

of'' regular UC.

g. Equal Treatment Requirements Elsewhere in Federal Law. In

addition to the SEA ``equal treatment'' requirement in Section

3306(t)(2), FUTA, Federal law contains two other equal treatment

requirements mandating payment of compensation ``in the same amount,

on the same terms, and subject to the same conditions'' as UC

payable under State law. One requirement is found in section

3304(a)(6)(A), FUTA, and pertains to payment of UC based on services

performed for State and local governments and certain nonprofit

entities, commonly called ``reimbursing'' employers. The other

requirement is found in 5 U.S.C. 8502(b) and pertains to payment of

UCX and UCFE. As noted in item 1.f, above, the term ``compensation''

is considered to include SEA allowances. Therefore, individuals who

perform services covered under these two additional ``equal

treatment'' provisions must be given the option of receiving SEA

allowances. The payment of SEA allowances does not require an

amendment to the UCFE/UCX agreement.

The ``equal treatment'' requirement contained in section

3306(t)(2), FUTA, provides that SEA allowances will be ``payable in

the same amount, at the same interval, on the same terms, and

subject to the same conditions, as regular unemployment compensation

under the State law * * *.'' Thus, SEA allowances must be paid to

all eligible individuals to whom regular UC is payable under State

law, including individuals who performed services to which section

3304(a)(6)(A), FUTA, and 5 U.S.C. chapter 85 apply.

These equal treatment requirements extend to all aspects related

to the payment of SEA.

h. Financing of SEA Allowances. It will be necessary for States

to review their laws to determine how the allowances will be

financed. Financing depends on the type of employer for which the

individual receiving the allowance previously performed services.

(1) Experience Rated Employers. Section 3303(a)(1), FUTA,

requires, as a condition of employers in a State obtaining the

additional credit against the Federal unemployment tax, that no

reduced contribution rate be assigned an employer, except on the

basis of ``experience with respect to unemployment or other factors

bearing a direct relation to unemployment risk * * *.'' All but one

of the existing experience rating systems consist of charging

payments of compensation or benefit wages to an employer who had

previously provided employment to the compensated individual.

As noted in item 1.f, under section 3306(t)(2)(c), FUTA,

individuals to whom the SEA allowance is payable ``are considered to

be unemployed for the purposes of Federal and State laws applicable

to unemployment compensation * * *.'' Under this provision, SEA

allowances reflect ``experience with respect to unemployment or

other factors bearing a direct relation to unemployment risk'' for

purposes of section 3303(a)(1), FUTA. Therefore, the measurement of

an employer's experience through charges based on SEA allowances is

appropriate.

In charging SEA allowances, States must use the same method of

charging (e.g., charging base period employers proportionately) and

noncharge in the same situations (e.g., noncharging claims where the

individual has voluntarily quit) as apply to regular UC. To fail to

do this would raise an issue under the ``uniform method''

requirement of section 3303(a)(1), FUTA. See UIPL 29-83, Change 1,

dated September 24, 1991.

The Department will address the issue of whether SEA allowances

may be noncharged when it develops a comprehensive noncharging

policy.

(The one experience rating system not using payments of

compensation or benefit wages is Alaska which uses a payroll decline

system. The Department believes this system will not be affected by

the payment of SEA allowances.)

(2) Reimbursing Employers. Section 3309(a)(2), FUTA, provides

that costs ``of compensation attributable under the State law'' to

service performed for State and local governments and nonprofit

organizations to which that section pertains must be reimbursed by

such entities. Since, as discussed in item 1.f, SEA allowances are

considered to be compensation, this requirement also applies to SEA

allowances.

(3) Federal Military and Civilian Employers. Under 5 U.S.C.

8509(b), moneys in the Federal Employees Compensation Account shall

be ``available only for the purpose of making payments to States

pursuant to agreements'' with the Secretary of Labor. Since payments

of SEA are payments of compensation for purposes of Federal law, SEA

allowances attributable to Federal military or civilian service may

be charged to Federal employers.

i. Payment of Administrative Costs. Costs of administering SEA

allowances (including those paid to UCFE and UCX claimants) are

payable from grants received for the administration of State's UC

law under Title III of the SSA. Costs of providing SEA program

services such as entrepreneurial training, business counseling and

technical assistance are not, however, payable from these Title III

funds.

j. Required Plan. Section 3306(t)(6), FUTA, provides that a

State SEA program must meet ``such other requirements as the

Secretary of Labor determines to be appropriate.'' Secretary's Order

No. 4-75 (40 FR 18515) gives the Department the authority to make

this determination. The Department has determined that, prior to

implementing a SEA program, the Department must approve a State

plan. This approval process will assure an orderly start-up of the

SEA program in a State. To be approved the plan must contain:

(1) A description of the profiling system used to identify SEA

program participants. The State has three options for choosing a

profiling system:

(A) Using elements of the statistical model developed by the

Department for purposes of providing technical assistance in

implementing Section 303(j), SSA. (Section 303(j), SSA, requires

States to establish and use a system of profiling all new claimants

for regular UC.) The report on the profiling model, Profiling

Dislocated Workers for Early Referral to Reemployment Services by

Kelleen Worden (October 6, 1993), is available from the appropriate

Regional Office. If this model is used, States must re-estimate the

coefficients using State data.

(B) A statistical model developed by the State.

(C) Another profiling method developed by the State.

Regardless of which option is chosen, the State must demonstrate

that its system has a high degree of accuracy for purposes of

meeting the cost-neutrality requirement discussed in item 4.d. For

this reason, the State must submit with its plan a baseline analysis

of historical data indicating the extent to which the exhaustion

rate of individuals identified by the proposed system exceeds the

exhaustion rate of the population of all beneficiaries under the

regular UC program. The determination of whether the system is

sufficiently accurate will be made by the Department.

(2) Assurances that the annual report will be submitted as

required and contain such information as required by this UIPL.

(3) A description of participation requirements including:

(A) The structured set of services provided to individuals in

the SEA program. The description must address the working

relationship of the State agency with any entity (such as a State

economic development agency or an agency administering the Job

Training Partnership Act) providing services under the SEA program.

(B) A description of what actions (such as certification

procedures) the States will take to assure SEA participants are

engaged ``on a full-time basis'' in self-employment activities.

(4) Legislative language implementing the SEA program consistent

with the requirements of this UIPL. (Draft language is provided in

Attachment II and a Commentary in Attachment III.)

(5) A description of the source (and amount of) funds for paying

for SEA program activities such as entrepreneurial training,

business counseling, and technical assistance, and assurances that

Title III, SSA, funds will not be used for these activities.

(6) Assurances that the payment of SEA allowances will not

create any additional benefit costs to the UTF.

Since no State may commence operation of a SEA program without

approval of a plan by the Department, States may expedite

implementation of the SEA program by submitting their plans prior to

obtaining legislation. Although the Department may provide

provisional approval of a plan prior to enactment, it will not

approve any plan until certified copies of SEA legislation are

provided by the State. Any modifications to an approved plan are to

be submitted to the Department.

Proposed plans and modifications to approved plans are to be

submitted to the appropriate Regional Office.

k. Counting of SEA Claims for EB Trigger Purposes. SEA claimants

are to be included in the calculation of the insured unemployment

rate (IUR) for purposes of determining whether EB is payable in a

State.

l. Reporting Requirements. Any changes required in reporting to

the Department will be addressed in future issuances.

m. Effective Date and Termination Date of SEA Programs. Under

Section 507(e), NAFTA, the provisions of Federal law relating to SEA

programs are effective on the date of enactment of NAFTA. In

addition, these provisions provide only temporary exceptions to the

withdrawal standard. The authority to operate SEA programs expires

five years after the date of enactment of NAFTA. Since NAFTA was

enacted on December 8, 1993, the SEA program provisions were

effective on that date and expire on December 8, 1998.

5. Action Required. The establishment of SEA programs is

optional for States. However, States must enact enabling legislation

and obtain this Department's approval of a plan prior to

implementing a SEA program.

6. Inquiries. Inquiries should be directed to the appropriate

Regional Office.

7. Attachments.

I. Text of Section 507, NAFTA.

II. Draft Language to Implement a Self-Employment Assistance

Program.

III. Commentary on the Draft Language to Implement a Self-

Employment Assistance Program.

Attachment I to UIPL 94-

Text of Section 507, NAFTA

Sec 507. Treatment of Self-Employment Assistance Programs

(a) General Rule.--Section 3306 of the Internal Revenue Code of

1986 is amended by adding at the end the following new subsection:

``(t) Self-Employment Assistance Program.--For the purposes of

this chapter, the term `self-employment assistance program' means a

program under which--

``(1) Individuals who meet the requirements described in

paragraph (3) are eligible to receive an allowance in lieu of

regular unemployment compensation under the State law for the

purpose of assisting such individuals in establishing a business and

becoming self-employed;

``(2) The allowance payable to individuals pursuant to paragraph

(1) is payable in the same amount, at the same interval, on the same

terms, and subject to the same conditions, as regular unemployment

compensation under the State law, except that--

``(A) State requirements relating to availability for work,

active search for work, and refusal to accept work are not

applicable to such individuals;

``(B) State requirements relating to disqualifying income are

not applicable to income earned from self-employment by such

individuals; and

``(C) Such individuals are considered to be unemployed for the

purposes of Federal and State laws applicable to unemployment

compensation, as long as such individuals meet the requirements

applicable under this subsection;

``(3) Individuals may receive the allowance described in

paragraph (1) if such individuals--

``(A) Are eligible to receive regular unemployment compensation

under the State law, or would be eligible to receive such

compensation except for the requirements described in subparagraph

(A) or (B) of paragraph (2);

``(B) are identified pursuant to a State worker profiling system

as individuals likely to exhaust regular unemployment compensation;

and

``(C) are participating in self-employment assistance activities

which--

``(i) include entrepreneurial training, business counseling, and

technical assistance; and

``(ii) are approved by the State agency; and

``(D) are actively engaged on a full-time basis in activities

(which may include training) relating to the establishment of a

business and becoming self-employed;

``(4) the aggregate number of individuals receiving the

allowance under the program does not at any time exceed 5 percent of

the number of individuals receiving regular unemployment

compensation under the State law at such time;

``(5) the program does not result in any cost to the

Unemployment Trust Fund (established by section 904(a) of the Social

Security Act) in excess of the cost that would be incurred by such

State and charged to such Fund if the State had not participated in

such program; and

``(6) the program meets such other requirements as the Secretary

of Labor determines to be appropriate.''.

(b) Conforming Amendments.--

(1) Section 3304(a)(4) of such Code is amended--

(A) In subparagraph (D), by striking ``; and'' and inserting a

semicolon;

(B) In subparagraph (E), by striking the semicolon and inserting

``; and''; and

(C) By adding at the end the following new subparagraph:

``(F) Amounts may be withdrawn for the payment of allowances

under a self-employment assistance program (as defined in section

3306(t));''

(2) Section 3306(f) of such Code is amended--

(A) In paragraph (3), by striking ``; and'' and inserting a

semicolon;

(B) In paragraph (4), by striking the period and inserting ``;

and''; and

(C) By adding at the end the following new paragraph:

``(5) amounts may be withdrawn for the payment of allowances

under a self-employment assistance program (as defined in subsection

(t)).''.

(3) Section 303(a)(5) of the Social Security Act (42 U.S.C.

503(a)(5)) is amended by striking ''; and'' and inserting '':

Provided further, That amounts may be withdrawn for the payment of

allowances under a self-employment assistance program (as defined in

section 3306(t) of the Internal Revenue Code of 1986); and''.

(c) State Reports.--Any State operating a self-employment

program authorized by the Secretary of Labor under this section

shall report annually to the Secretary on the number of individuals

who participate in the self-employment assistance program, the

number of individuals who are able to develop and sustain

businesses, the operating costs of the program, compliance with

program requirements, and any other relevant aspects of program

operations requested by the Secretary.

(d) Report to Congress.--Not later than 4 years after the date

of enactment of this Act, the Secretary of Labor shall submit a

report to the Congress with respect to the operation of the program

authorized under this section. Such report shall be based on the

reports received from the States pursuant to subsection (c) and

include such other information as the Secretary of Labor determines

is appropriate.

(e) Effective Date; Sunset.--

(1) Effective Date.--The provisions of this section and the

amendments made by this section shall take effect on the date of the

enactment of this Act.

(2) Sunset.--The authority provided by this section, and the

amendments made by this section, shall terminate 5 years after the

date of the enactment of this Act.

Attachment II to UIPL 94--

Draft Language to Implement a Self-Employment Assistance Program

States wishing to amend their UC law to add the optional SEA

program provisions may use the following draft language. A

Commentary is provided in Attachment III.

Section ________. Self-Employment Assistance Program

(a) Definitions. As used in this section--

(1) ``Self-employment assistance activities'' means activities

(including entrepreneurial training, business counseling, and

technical assistance) approved by the commissioner in which an

individual identified through a worker profiling system as likely to

exhaust regular benefits participates for the purpose of

establishing a business and becoming self-employed.

(2) ``Self-employment assistance allowance'' means an allowance,

payable in lieu of regular benefits and from the unemployment fund

established under section ________ [enter relevant section], to an

individual participating in self-employment assistance activities

who meets the requirements of this section.

(3) ``Regular benefits'' means benefits payable to an individual

under this Act (including benefits payable to Federal civilian

employees and to ex-servicemembers pursuant to 5 U.S.C. chapter 85)

other than additional and extended benefits.

(4) ``Full-time basis'' shall have the meaning contained in

regulations prescribed by the commissioner.

(b) Amount of self-employment assistance allowance. The weekly

allowance payable under this section to an individual will be equal

to the weekly benefit amount for regular benefits otherwise payable

under section ________ of this Act. The sum of (1) the allowances

paid under this section and (2) regular benefits paid under this Act

with respect to any benefit year shall not exceed the maximum

benefit amount as established by section ________ with respect to

such benefit year.

(c) Eligibility for self-employment assistance allowance. The

allowance described in subsection (a) shall be payable to an

individual at the same interval, on the same terms, and subject to

the same conditions as regular benefits under this Act, except

that--

(1) The requirements of sections ________ [enter relevant

sections] relating to availability for work, active search for work,

and refusal to accept work are not applicable to such individual;

(2) The requirements of section ________ [enter relevant

section] relating to self-employment income are not applicable to

income earned from self-employment by such individual;

(3) An individual who meets the requirements of this section

shall be considered to be unemployed under section ________ [enter

relevant section]; and

(4) An individual who fails to participate in self-employment

assistance activities or who fails to actively engage on a full-time

basis in activities (which may include training) relating to the

establishment of a business and becoming self-employed shall be

disqualified for the week such failure occurs.

(d) Limitation on receipt of self-employment assistance

allowances. The aggregate number of individuals receiving the

allowance under this section at any time shall not exceed 5 percent

of the number of individuals receiving regular benefits. The

commissioner shall, through regulations, prescribe such actions as

are necessary to assure the requirements of this subsection are met.

(e) Financing costs of self-employment assistance allowances.

Allowances paid under this section shall be charged to employers as

provided under provisions of this Act relating to the charging of

regular benefits.

(f) Effective date and termination date. The provisions of this

section will apply to weeks beginning after the date of enactment or

weeks beginning after any plan required by the United States

Department of Labor is approved by such Department, whichever date

is later. The authority provided by this section shall terminate as

of the end of the week preceding the date when Federal law no longer

authorizes the provisions of this section, unless such date is a

Saturday in which case the authority shall terminate as of such

date.

Attachment III to UIPL 94-

Commentary on the Draft Language to Implement a Self-Employment

Assistance Program

This commentary should be used in conjunction with Section 4 of

this UIPL.

States will need to make adjustments in the draft language to

accommodate State law conventions. Blanks have been provided for

inserting cites to relevant sections of the State law.

(a) Definitions.

(1) Self-employment assistance activities. These activities are

defined consistent with section 3306(t)(3)(C) and (D), FUTA. States

should note that the approval of the State agency is limited to the

self-employment ``activities'' themselves. States may not base a

denial of approval on factors unrelated to the self-employment

assistance activities.

(2) Self-employment assistance allowance. This section defines

the SEA allowance and establishes that such allowances are to be

paid from the State's unemployment fund. States may also wish to

consider whether to amend the section of State law which governs

withdrawals from the unemployment fund.

(3) Regular Benefits. A definition of ``regular benefits'' (or

``regular compensation'') is necessary since SEA allowances are

payable ``in lieu of'' regular compensation. State law may already

contain a definition of regular benefits in which case the addition

of this definition may not be necessary. Some State laws contain a

definition of regular benefits in the sections pertaining to EB. In

these cases, the State will need to determine whether the definition

is limited to the EB section, and, therefore, whether a cross-

reference is necessary.

(4) Full-time basis. Since the Department is not at this time

providing a specific definition of ``full-time basis,'' it is

recommended that States reserve the right to prescribe the

definition in regulations in order to assure consistency with

Federal law.

(b) Amount of self-employment assistance allowance. This section

governs the weekly and maximum amount of SEA allowance payable. It

assures that SEA allowances are paid ``in the same amount'' as

regular UC. It also clarifies the relationship between payments of

regular UC and SEA allowances with respect to a benefit year.

(c) Eligibility for self-employment assistance allowance. This

section contains the ``equal treatment'' requirement of Section

3306(t)(2), FUTA (except for the requirement that SEA allowances be

paid ``in the same amount'' which is contained in subsection (b)

above). It also contains the three exceptions to the ``equal

treatment'' requirement which are found in subparagraphs (A) through

(C) of section 3306(t)(2), FUTA.

By cross referencing the definition of ``self-employment

assistance activities,'' this provision should assure payment only

to those participating in such activities. It also contains the

requirement of section 3306(t)(3) (D) that the individual be

actively engaged in a full-time basis in activities relating to the

establishment of a business and becoming self-employed.

States are free to establish their own disqualifications for

failure to meet these requirements. States should note that, like

unavailability for work, failure to participate may be only a

temporary condition which should not necessarily result in an

indefinite denial. Conversely, quitting the SEA program may be

grounds for a duration disqualification. The draft language provides

for a disqualification only for the week the failure occurred.

States also have the option of dropping an individual from the

SEA program for failure to meet SEA requirements. This may be

appropriate if, for example, the individual misses training

necessary to commence self-employment activities.

(d) Limitation on receipt of self-employment assistance

allowances. This section implements section 3306(t)(4), FUTA, which

limits the number of individuals receiving SEA allowances at any

given time to 5 percent of the number of individuals receiving

regular UC. Giving the commissioner authority to create regulations

to meet this requirement provides flexibility to the agency to

assure that necessary data will be collected as required by this

Department and that the five percent limit will not be exceeded.

(e) Financing costs of SEA allowances. Since State UC law may

provide only for the financing of regular UC and not SEA allowances,

it may be necessary to describe the financing mechanism for the

allowances. The draft language uses the same mechanism as is used

for regular UC.

Draft language for the noncharging of SEA allowances is not

provided at this time as the Department is not addressing the issue

of whether such allowances may be noncharged at this time.

(f) Effective Date and Termination Date. Since SEA allowances

may be paid only after enactment of State law and approval by this

Department, it will be necessary to specify that the allowances will

not become payable until both conditions are met. The draft language

assures that SEA allowances will not become payable until the first

week aster both conditions are met.

Since the authority under NAFTA for SEA programs terminates five

years after the date of enactment of NAFTA, it is recommended that

States ``sunset'' any SEA provisions. The draft language provided

does not provide a definite expiration date since States may wish to

continue operating a SEA program if the Federal authority is

extended either on a temporary or permanent basis. States may,

however, wish to include a specific expiration date. The draft

language takes into account an expiration of Federal legislative

authority which falls on a weekday by providing that the program

will terminate as of the end of the week preceding the week

containing the ending date of the Federal authority. If, however,

the ending date of the Federal authority as a Saturday, then the

State must end its SEA program on later than midnight on such

Saturday.

[FR Doc. 94-5889 Filed 3-11-94; 8:45 am]

BILLING CODE 4510-30-M