Unemployment Insurance Update from IL Chamber President

 The close of 2011 brought a significant advancement for the business community on the issue of unemployment insurance. During the Fall Veto Session, legislation to avoid the need for continued reliance on federal loans passed the Illinois House 114-0 and the Illinois Senate 53-1. The bi-partisan support occurred after months of negotiation with lawmakers, the Illinois Chamber and other leaders of the business and labor communities. Governor Quinn signed the legislation into law as Public Act 97-621.

Last month, all Illinois employers received their 2012 Annual Contribution Rate Determination notice from the Illinois Department of Employment Security (IDES). Over 150,000 employers saw their rates reduced for 2012, representing 48% of Illinois employers. About 52% or over 167,000 Illinois employers received a 2012 increase to their unemployment insurance rates.  Had the agreement to resolve the state’s debt to the federal government not been reached, 2012 taxes for even more employers would have been higher. Illinois employers are also required to pay additional FUTA taxes (0.3% of the first $7,000 of 2011 wages for each employee) because Illinois had federal loan balances at the start of 2010 and 2011, triggering a credit reduction in the federal unemployment tax for 2011 that is payable in January 2012. 

The recession caused Illinois’ UI Trust Fund to end 2011 at $2 billion in the red. In 2009, benefit payouts exceeded tax collections by nearly $3 billion and in 2010 by $1.2 billion which wiped out the fund’s end of year 2008 reserves of nearly $1.5 billion. The new law allows Illinois to sell bonds to pay off the federal loan. You may ask, why anyone would agree to allow Illinois to borrow another $2 billion. However, while it is the State borrowing the funds it is technically a debt being paid by the state’s employers. Managing the debt this way is similar to refinancing a mortgage. It saves employers money because the interest rate on the new bonds is anticipated to be lower than the federal interest rate. Paying off the federal debt also reduces the federal tax rate for 2012 and beyond to its normal level, with the credit reduction not expected to reoccur. The new law is estimated to save Illinois employers more than $400 million over the next eight years.

The Illinois Chamber is pleased that the financial element of our unemployment insurance problem has been resolved. However, much more needs to be done to fix the other cost drivers in our unemployment system. At the outset of the negotiations, we pressed for the Department of Employment Security to more aggressively address the integrity of the UI Trust Fund. Like other states, Illinois must make fighting unemployment insurance fraud and prevention of improper benefit payments a higher priority. Current information and data passed between IDES and employers generally are paper-based, labor intensive and time-delayed. This lack of complete and timely information from employers results in millions of dollars in improper payments annually because IDES must make timely benefit determinations.

It is estimated by the US Department of Labor that nationally in 2010, 11.3% of unemployment insurance benefits were overpaid benefits. Illinois’ 2007-2010 rate was 12.79%.Based on calendar year 2010 benefit payments of over $3.1 billion, $400 million in overpayments could have been made in Illinois that year. Approximately half the UI debtaccumulated the past three years in Illinois ($1.2 billion) could be attributed to improper and overpayment of unemployment insurance benefits. Several administrative changes at IDES and provisions in PA 97-621 will begin attacking this side of the problem.

IDES requests your assistance in a renewed effort to prevent fraud in the UI program. Employers are required to report persons hired or rehired within 20 days of their first day of payroll.Employees can be reported at www.ides.illinois.gov under the category of EMPLOYERS. Click on REPORT NEW HIRES. Be prepared to provide your Federal Employer ID Number (FEIN), and the name, address, social security number and hire date of the employee. Provision of this information prevents individuals who collect UI benefits from receiving overpayments when they return to work.

As a direct participant in the negotiations with leaders from organized labor, I am concerned that the agreed bill process that was used during the fall proved it is unlikely to produce any additional meaningful reforms for our troubled system. During months of negotiation, labor stonewalled on addressing the financial issues that required immediate attention until the final hours. Because of the delicacy of just getting the financial problem resolved, we never got to other important issues, such as benefit eligibility, which are key to stabilizing the UI Trust Fund.

Labor also demanded the unemployment insurance trust fund balance be established at $4 billion. Given current economic estimates, the new law is expected to result in a breakeven balance for the UI Trust Fund at the end of 2019. Thus, the final version protected Illinois employers from an additional $4 billion in UI taxes that would have been applied if labor had gotten their way.

During the past 10 years, UI taxes paid by Illinois employers averaged $2.1 billion per year. For the next eight years, state taxes that Illinois employers will pay for unemployment insurance are estimated to average $3-3.2 billion. Only about $2.5 billion of that is the principle and interest due on the debt owed to the federal government. The additional $5.5 billion to $7.1 billion in higher average costs to employers will be going to meet ever increasing benefit payouts.  

Chamber members have no quarrel with paying benefits to workers who have lost their job due to no cause of their own. Much akin to Illinois workers’ compensation system, our state unemployment insurance system is getting too generous and benefits are being paid to individuals who may not truly be eligible or are unemployed because of their actions and not that of the employer. Like workers’ compensation, it is time for the Governor and the legislative leaders to step back from the agreed bill process and enact reforms to our UI system that takes care of the legitimately unemployed and creates a cost system that is more conducive to job creation.

Legislation to address some critical issues regarding eligibility developed by the Illinois Chamber Employment Law Council’s Unemployment Insurance Committee were recently introduced by Senators Kyle McCarter (R-Lebanon) and Sam McCann (R-Carlinville). I encourage you to contact your local legislators and ask them to co-sponsor and support these proposals.

Disqualifying income: SB 2540 provides that payments made pursuant to a collective bargaining agreement to an individual as vacation pay, vacation pay allowance, pay in lieu of vacation, or as standby pay during a period of shutdown for the taking of inventory or for vacation purposes shall be deemed “wages.” Also adds severance pay and payment in lieu of wages as constituting “disqualifying income.”

UI Fraud: SB 2541 provides that an individual that, for the purpose of obtaining UI benefits, knowingly makes a false statement or knowingly fails to disclose a material fact commits unemployment insurance fraud. The proposal also requires a statement on the Department of Employment Security’s website and on specified forms stating that it is a crime to knowingly provide false, incomplete, or misleading information to any party to an unemployment security benefits transaction for the purpose of committing fraud and outlines possible penalties. In addition, an employer or other person that law enforcement or the Department of Employment Security requests information from regarding unemployment insurance fraud shall take all reasonable actions to promptly provide the information requested and shall disclose information when he or she has a reasonable belief of a specified violation.

Misconduct: SB 2542 provides that misconduct need not be deliberate and willful when there is a violation of an employer’s reasonable rule or policy, in a provision determining eligibility for benefits after a discharge for misconduct. The bill makes a change concerning the nature of an employer’s warning or instruction in regards to repeated misconduct.

Minimum eligibility: SB 2543 requires for monetarily eligible for any benefits, a worker must have been paid wages of $4,290 or more in his or her base period by employers subject to the Unemployment Insurance Act and at least $2,145 of these wages must have been paid to him or her outside the calendar quarter in which he or she was paid the highest amount of wages.

Benefit requalification: SB 2544 provides that an individual shall be ineligible for benefits for any week in a benefit year which begins on or after January 1, 2013, unless, subsequent to the beginning of his immediately preceding benefit year with respect to which benefits were paid to him or her, he or she was reemployed and had earnings equal to or in excess of his or her current weekly benefit amount in each of four calendar weeks that are either for services in employment, or have been or will be reported pursuant to the provisions of the Federal Insurance Contributions Act by each employing unit for which such services are performed and that submits a statement certifying to that fact.

As always, Chamber members are encouraged to give us the benefit of your knowledge and experience regarding problems with IDES administration and the unemployment insurance laws of Illinois. Member input is extremely valuable as we seek to bring about meaningful changes to the state’s business climate.