Unemployment Compensation--Trust Fund Integrity Rule: Birth and
Adoption Unemployment Compensation; Removal of Regulations [12/04/2002]
Volume 67, Number 233, Page 72122-72126
[[Page 72122]]
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DEPARTMENT OF LABOR
Employment and Training Administration
20 CFR Part 604
RIN 1205-AB33
Unemployment Compensation--Trust Fund Integrity Rule: Birth and
Adoption Unemployment Compensation; Removal of Regulations
AGENCY: Employment and Training Administration, Labor.
ACTION: Notice of proposed rule making (NPRM).
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SUMMARY: The Department of Labor (Department or DOL) is proposing to
remove the Birth and Adoption Unemployment Compensation (BAA-UC)
regulations. Those regulations provide an experimental opportunity for
states to provide, in the form of unemployment compensation (UC),
partial wage replacement for parents taking approved leave or otherwise
leaving employment while caring for their newborns or newly-adopted
children.
DATES: DOL invites written comments on this proposal. Comments must be
submitted by February 3, 2003.
ADDRESSES: Submit written comments to Cheryl Atkinson, Administrator,
Office of Workforce Security, Employment and Training Administration
(ETA), U.S. Department of Labor, 200 Constitution Avenue, NW., Room S-
4231, Washington, DC, 20210. E-mail: trustfundintegrity@doleta.gov.
FOR FURTHER INFORMATION CONTACT: Gerard Hildebrand, Office of Workforce
Security, ETA, U.S. Department of Labor, 200 Constitution Avenue, NW.,
Room C-4518, Washington, DC 20210. Telephone: (202) 693-3038 (voice)
(this is not a toll-free number); 1-800-326-2577 (TDD); facsimile:
(202) 693-2874; e-mail: ghildebrand@doleta.gov.
SUPPLEMENTARY INFORMATION: On June 13, 2000, the BAA-UC Final Rule was
published in the Federal Register at 65 FR 37210 (June 13, 2000) and
codified at 20 CFR Part 604. It implemented an experimental opportunity
for state agencies responsible for administering the Federal-State UC
program to provide partial wage replacement for parents taking approved
leave, or otherwise leaving employment, following the birth or
placement for adoption of a child. In qualifying for UC, the individual
would not have to be able to or available for work, commonly known as
the able and available (A&A;) requirements, in the sense traditionally
used by the Department. Instead, parents of newborns and newly-adopted
children would be viewed as meeting the federal A&A; requirements (as
implemented in state law) under the premise that the parents' long-term
attachment to the workforce would be strengthened and promoted by the
payment of UC, which would provide some financial support to accompany
the introduction of a new child into the family.
As we noted during the final rulemaking, the BAA-UC experiment was
``a reversal of our position taken in 1997,'' when the Department
advised a state that UC could not be used in this manner. (65 FR 37212
(June 13, 2000).) The BAA-UC experiment was described as ``part of an
evolving interpretation of the Federal A&A; requirements that recognizes
practical and economic realities.'' (Id.) Simply stated, the A&A;
requirements were interpreted in a new and different way that
emphasized the individual's potential attachment to the workforce. BAA-
UC was intended to test whether individuals would be more attached to
the workforce, even if their current separation from the workforce was
either a conscious decision on their part, or due to compelling
personal and family reasons relating to the birth or adoption of a
child. Significantly, since the Department made the BAA-UC experiment
available in 2000, no state has elected to participate.
The Department has now reviewed the BAA-UC Final Rule as part of a
Department-wide review of all regulations. This review was conducted in
the context of a substantial downturn in the economy, resulting in
substantially lower state unemployment fund balances than in 2000. The
review was also conducted in the context of a legal challenge in
federal district court that the BAA-UC rule was inconsistent with
federal UC law. Although the case was dismissed on procedural grounds,
LPA, Inc. v. Chao, 211 F.Supp. 2d 160 (D.D.C. 2002), it did cause the
Department to scrutinize the underlying statutory authority for BAA-UC.
Upon completion of this review, our conclusion is that the BAA-UC
experiment is poor policy and a misapplication of federal UC law
relating to the A&A; requirements. Therefore, we are proposing to remove
the BAA-UC regulations. As will be discussed below, the UC program is
designed to provide temporary wage replacement to individuals who are
unemployed due to lack of suitable work. However, the intended
recipients of BAA-UC generally do not meet this test as they have
initiated their separation from the workforce and it is their personal
situation, rather than the lack of available work, that has removed
them from the labor market. Because the BAA-UC experiment is based on
an assumption of increased future labor force attachment, the payment
of BAA-UC will likely be made for periods where parents have completely
suspended their labor force attachment. Indeed, in cases where the
parent is on approved leave from a job, BAA-UC more closely resembles a
paid-leave program than a UC program.
As noted above, to date no state has elected to participate in the
BAA-UC experiment. Therefore, terminating the experiment will not
result in any state withdrawing benefits it previously granted. The
only effect of the removal of the regulations is that it reduces state
flexibility since a state could no longer elect to use its unemployment
fund to pay BAA-UC. The Department's position on the A&A; requirements
will revert to that in existence before publication of the BAA-UC rule.
Thus, to be eligible for UC an individual must, among other things,
demonstrate current labor force attachment by meeting the A&A;
requirements. Each state remains free to create a paid family leave-
type program using state moneys from sources other than its
unemployment fund. Indeed, as discussed below, one state has already
done so.
Policy. The UC program is designed as wage insurance for
individuals who are unemployed due to lack of suitable work. This would
generally not be the case for parents who would avail themselves of
BAA-UC. Such parents would be out of work because they both initiated
their separation from the workforce and are currently unavailable for
work; they would have effectively withdrawn from the labor market for a
brief period. For those individuals who were taking approved leave when
an employer is holding a job open for them, BAA-UC would be a payment
for voluntarily taking time off work rather than payment due to lack of
suitable work. As such, it would be paid leave, which was not
envisioned in the design of the UC program.
We again note that no state has actually enacted BAA-UC legislation
since being given DOL clearance to do so. While we recognize that
declining unemployment fund balances may have some bearing on this, the
fact that one state has enacted a broad paid leave program suggests
that there may be other factors. California recently passed legislation
(enacted Senate Bill 1661; Chapter No. 901) that contains features of
BAA-UC, as well as many features beyond the scope of BAA-UC. Notably,
[[Page 72123]]
it authorizes payments to certain individuals who take time off from
work to care for a sick or injured child, spouse, parent or domestic
partner as well as for foster care placements of a new child. The
California law does not use its unemployment fund as a funding source,
but instead uses employee contributions to its Temporary Disability
Insurance fund.
The restrictive nature of the BAA-UC rule, which limits the
eligible population to parents taking leave or otherwise leaving
employment to be with their newborns or newly-adopted children, would
not have granted California the flexibility it desired. Similarly, the
BAA-UC rule limits the types of eligibility conditions that may be
imposed on individuals. Other flexibility issues may also exist. For
example, we expressed concern with a state bill that appeared to be
close to enactment because it appeared to be inconsistent with Section
3304(a)(6)(A) of the Federal Unemployment Tax Act (FUTA). This bill
would have made BAA-UC mandatory for all services performed in the
state, except for services performed for certain governmental and
nonprofit entities that could elect to participate. Since federal law
requires that, with respect to these governmental and nonprofit
services, UC must be paid ``in the same amount, on the same terms, and
subject to the same conditions'' as UC payable on other services
performed under state law, we advised the state that this legislation,
if enacted, would be inconsistent with Section 3304(a)(6)(A) of the
FUTA. In sum, it appears that the limited flexibility of the BAA-UC
approach may not be conducive to state needs and, therefore, may have
contributed to the lack of state enactments.
Finally, since the implementation of the BAA-UC Final Rule in 2000,
many states have seen a drastic decline in their unemployment fund
balances, and most states are below our recommended 1.00 average high-
cost multiple. (The average high-cost multiple indicates how many years
of benefits a state has available under a recessionary scenario. A
rating of 1.00 indicates the state has one year's worth of benefits on
hand. The Department recommends a 1.00 high-cost multiple as a
reasonable margin of safety to ensure trust fund solvency in periods of
high unemployment.) Recognizing that fund levels were dropping, the
Administration supported Congress's enactment of legislation
distributing $8 billion to states to assist in the payment of UC and
for other purposes. (Section 209 of Public Law 107-147, March 9, 2002.)
Indeed, but for this extraordinary infusion of funds, some states would
have had to borrow money from the federal government to keep their
unemployment funds solvent. While we recognize that some states still
have adequate reserves, we are concerned that current fund balances
would be even lower had states enacted the BAA-UC experiment. Indeed,
one of the policy arguments made for using a state's unemployment fund
for BAA-UC was the claim that states had ``surpluses'' in their
unemployment funds, which funds could be made immediately available to
implement a BAA-UC experiment. The sudden and rapid decline in fund
balances undercuts this argument.
Legal. The Department and its predecessors (the Social Security
Board and the Federal Security Agency) have interpreted and enforced
federal A&A; requirements since the inception of the federal-state UC
program. Although no A&A; requirements are explicitly stated in federal
law, the Department and its predecessors interpreted four provisions of
federal UC law, contained in the Social Security Act (SSA) and FUTA, as
requiring that states condition the payment of UC upon a claimant being
able to and available for work. Two of these provisions, at section
3304(a)(4), FUTA, and section 303(a)(5), SSA, limit withdrawals, with
specific exceptions, from a state's unemployment fund to the payment of
``compensation.'' Section 3306(h), FUTA, defines ``compensation'' as
``cash benefits payable to individuals with respect to their
unemployment.'' The A&A; requirements provide a federal test of an
individual's continuing ``unemployment.'' (The meaning of
``unemployment'' in this statutory framework is discussed below.) The
other two provisions, found in section 3304(a)(1), FUTA, and section
303(a)(2), SSA, require that compensation ``be paid through public
employment offices.'' The requirement that UC be paid through the
public employment system (the purpose of which is to find people jobs)
ties the payment of UC to both an individual's ability to work and
availability for work. These A&A; requirements serve, in effect, to
limit UC eligibility.
The basis for the federal A&A; requirements was summarized in a
March 11, 1939, letter from the Chair of the Social Security Board to
the Governor of California, concerning whether the state could make
payments with respect to temporary disability from its unemployment
fund:
The entire legislative history [of the UC titles of the original
SSA] including the Report to the President of the Committee on
Economic Security, the report of the House Committee on Ways and
Means, the report of the Senate Committee on Finance, and the
Congressional debates all indicate, either expressly or by
implication, the compensation contemplated under [these titles] is
compensation to individuals who are able to work but are unemployed
by reason of lack of work. Several provisions of those titles are
meaningful only if applied to State laws for the payment of such
compensation. For example, the requirement that compensation be paid
through public employment offices, or the requirement that States
make [certain information] available to agencies of the United
States charged with the administration of public works or assistance
through public employment, are obviously without reasonable basis if
applied to payments to disabled individuals. Many of the standards
contained [in the experience rating provisions] are similarly
without reasonable basis if applied to a State law for the payment
of disability compensation.
For these reasons, the Board is of the opinion that the [UC
titles of the SSA] are applicable solely to State laws for the
payment of compensation to individuals who are able to work and are
unemployed by reason of lack of work.'' [Emphasis added.]
That involuntary unemployment due to lack of suitable work was the
key test is supported by the Congressional Committee Reports:
The essential idea in unemployment compensation* * * is the
accumulation of reserves in time of employment from which partial
compensation may be paid to workers who become unemployed and are
unable to find work.* * * In normal times it will enable most
workers who lose their jobs to tide themselves over, until they get
back to their old work or find other employment without having to
resort to relief.* * * [H. Rep. 615, 74th Cong. 1st Sess. 1935 Page
5.]
The essential idea in unemployment compensation is the creation
of reserves during periods of employment from which compensation is
paid to workmen who lose their positions when employment slackens
and who cannot find other work. Unemployment compensation differs
from relief in that payments are made as a matter of right, not on a
needs basis, but only while the worker is involuntarily unemployed.*
* * Payment of compensation is conditioned upon continued
involuntary unemployment. Beneficiaries must accept suitable
employment offered them or they lose their right to compensation.
[S. Rep. 628, 74th Cong. 1st Sess. 1935 Page 11.]
* * * In normal times most workers will secure other employment
before exhaustion of their benefit rights.* * * For the great bulk
of industrial workers unemployment compensation will mean security
during the period following unemployment while they are seeking
another job, or are waiting to return to their old position. [Id.
Page 12.]
As illustrated by the above, the Federal A&A; requirements are
placed on claimants to test whether the fact that they did not work for
any week was
[[Page 72124]]
involuntary due to the unavailability of work. Since the BAA-UC
experiment did not examine the Federal A&A; requirements from this
perspective, it permits the payment of UC to individuals for whom
suitable work may exist, thus contradicting the basic purpose of the
A&A; requirements.
The legislative history quoted above indicates that eligibility for
UC is not based on the individual's personal need, except to the extent
that his/her ``need'' is created by lack of suitable work. (Note that
this test looks only to whether the unemployment is due to lack of work
for each given week of benefits claimed. That is, it does not require
that states hold an individual ineligible based on the reason for
separation from employment, except to the extent that the individual
may have not been A&A; for the particular week of the separation.) BAA-
UC, however, extended eligibility for UC to parents based on
considerations of compelling personal or family need regardless of
whether there is a lack of work. While the idea of providing UC to
parents or families experiencing birth or adoption may be admirable, it
is not in keeping with the fundamental limitation of paying UC only to
individuals who are unemployed due to lack of work.
The legislative history also establishes a link between the public
works programs in existence in 1935 and the UC program that bears on
the A&A; requirements. As noted in the Social Security Board's
contemporaneous interpretation, an SSA provision (section 303(a)(7))
requires that states make available to agencies of the United States
charged with the administration of public works or assistance through
public employment, the name, address, ordinary occupation, and the
government's employment status of UC recipients. This requirement is
predicated upon the understanding that UC recipients must be out of
work due to a lack of available work. It would make no sense to refer
an individual, for whom work was available, to a public works program,
which should be the employer of last resort. Senator Wagner, who
introduced the SSA in the Senate, described the relationship between
the proposed UC program and the government's public works programs (as
well as public employment offices) as follows in the floor debate on
the SSA:
[unemployment insurance] is not designed to supplant, but rather
to supplement the public-works projects which must absorb the bulk
of persons who may be disinherited for long periods of time by
private industry.* * * A provision in the present bill requires that
the Federal tax rebate shall be used to encourage a close connection
between State job-insurance laws and unemployment-exchange offices.
This provision emphasizes the fact that the [monetary] relief of
existent unemployment is but a subordinate phase of the main task of
providing work for all who are strong and willing. [79 Cong. Rec.
9284 (June 14, 1934).]
Thus, Congress intended the UC system to be subordinate to the main
task of getting people back to work, which is, as noted above,
implemented through the A&A; requirements. BAA-UC is not consistent with
this goal since it encourages parents to refuse available work.
Finally, as noted in the Social Security Board's letter, experience
rating standards are meaningless if the test of involuntary
unemployment due to lack of work is not used. Experience rating was
originally established to ensure an equitable distribution among
employers of the cost of the system, and to encourage employers to
stabilize their work forces. (``Credits'' will be provided ``in the
form of lower contribution rates * * * to employers who have stabilized
their employment.'' (S. Rep. 628, 74th Cong. 1st Sess. 1935 Page 14.))
BAA-UC contradicts the intent of experience rating since it allows
payments based on a worker's own actions without regard to an
employer's attempt to stabilize employment by offering suitable work to
its current and former employees. Indeed, if BAA-UC (and similar-type
payments which might be allowed) is paid to individuals who are not
A&A;, the states' experience rating systems could be overwhelmed to the
point where an employer's efforts to stabilize its workforce through
its continuing willingness to employ the worker is ignored, thereby
effectively nullifying one of the primary purposes of experience
rating.
In the preamble to the BAA-UC Final Rule, we addressed four
situations--illness, jury duty, approved training, and temporary
layoffs--that affected individuals' ability ``to meet the stricter
interpretations of the A&A; requirements.'' (65 FR 37213 (June 13,
2000).) Although we also noted that ``none of these situations
precisely parallels the payment of BAA-UC, they do operate on the same
premises: that situations exist in which it is important to allow a
flexible demonstration of availability and in which attachment to the
workforce can be demonstrated, and indeed strengthened, without
requiring a current demonstration of availability.'' (Id.) Upon re-
examination, we note that, unlike the BAA-UC experiment, none of these
situations permit a voluntary withdrawal from the workforce:
[sbull] Illness. The interpretation pertaining to illness applies
only to individuals who initially meet the A&A; requirements, but who
then become ill and who do not refuse suitable work. Until work is
refused, the unemployment is due to lack of work, which is what the A&A;
requirements are designed to test. The A&A; requirements are preserved
because the individual must initially demonstrate availability before
the illness and must be held ineligible if s/he refuses suitable work
offered.
[sbull] Jury Duty. The interpretation pertaining to jury duty
applies only to individuals who initially meet the A&A; requirements,
but who are then called for jury duty. It is unreasonable for a state
to compel jury service for previously eligible individuals and at the
same time hold such individuals ineligible for complying. Indeed,
attendance at jury duty may be taken as evidence that the individual
would otherwise be available for work.
[sbull] Approved training. Approved training is limited to
situations where the state determines that short-term training will
improve an individual's job prospects. Attendance at such training is
accepted as evidence of availability for work. Indeed, if the
individual refuses training, or fails to attend training, the states
will evaluate eligibility under their A&A; provisions.
[sbull] Temporary lay-offs. An individual on temporary layoff must
be available to work for the employer who laid-off the individual.
While this requires an individual's availability for work with only one
employer, it is nonetheless a test of whether the unemployment is due
to lack of suitable work.
None of these precedents is consistent with BAA-UC. Unlike the
illness exception, an offer of suitable work under BAA-UC may be
refused with no effect on eligibility. Unlike the illness and jury duty
exceptions, no initial establishment of A&A; is required. Unlike jury
duty, there is no governmental compulsion. Unlike approved training,
BAA-UC does not address a situation where an individual is attempting
to remedy his or her continuing unemployment; indeed BAA-UC addresses a
situation where a parent is responsible for his or her separation from
the workforce. Also, for approved training, the state must approve the
training as increasing the individual's job prospects; no similar
requirement exists for BAA-UC, with the result that increased
attachment to the workforce for any one individual is highly
speculative. Finally, unlike temporary lay-offs, there is no
requirement that the individual be available for at least one job;
indeed, an offer of suitable work may be refused
[[Page 72125]]
with no effect on eligibility. These precedents differ from BAA-UC in
that they do not permit an individual to voluntarily remove him/herself
from the labor market for a given week. BAA-UC, on the other hand,
allows parents who have initiated their separation from the workforce
and whose personal situation, rather than the lack of available work,
that makes them unavailable for other employment.
In summary, A&A; tests involuntary unemployment due to a continuing
lack of suitable work. The legislative history amply supports this. The
BAA-UC rule not only failed to recognize this, but is in fact contrary
to the A&A; requirement.
Executive Order 12866
This proposal to remove 20 CFR part 604 is a ``significant
regulatory action'' within the meaning of section 3(f)(4) of Executive
Order 12866 because it raises novel legal or policy issues arising out
of legal mandates, the President's priorities, or the principles set
forth in the Executive Order. Accordingly, this proposal was submitted
to, and reviewed by, the Office of Management and Budget.
Before publication of the BAA-UC final rule (65 FR 37210 (June 13,
2000)), the Department prepared a Regulatory Impact Analysis, which
estimated that the rule would result in costs ranging from zero to $196
million, depending upon the number of states enacting BAA-UC. Since
publication of the BAA-UC final rule, no state enacted BAA-UC meaning
that no benefits have been paid, nor administrative costs expended.
Removing the BAA-UC rule would end the possibility that BAA-UC and its
associated administrative costs will be paid out of state unemployment
funds with the result that the estimated costs would not be incurred.
Therefore, the removal of the rule would result in no costs or cost
savings and potentially prevent costs from being incurred in the
future. Because the Department expects the immediate economic impact of
removing the rule to involve no costs, this regulatory action is
unlikely to have an annual effect on the economy of $100 million or
more and, consequently, is not ``economically significant'' within the
meaning of Section 3(f)(1) of that Executive Order.
Finally, we have evaluated this regulatory action and find it
consistent with the regulatory philosophy and principles set forth in
Executive Order 12866. Though this action would remove authority for
states to fund family leave from the state's unemployment fund, states
would have flexibility to provide paid family leave from other funding
sources. Further, because no state has enacted BAA-UC, no state would
be adversely affected in a material way by having to dismantle such an
experiment. Finally, this action removes a regulation and imposes no
alternative regulatory requirements.
Paperwork Reduction Act
This regulatory action contains no information collection
requirements.
Executive Order 13132
We have reviewed this proposal in accordance with Executive Order
13132 regarding federalism. That order requires agencies, when
formulating and implementing policies that have federalism
implications, to refrain from limiting state policy options, to consult
with states before taking any action which would restrict states'
policy options, and to take such action only where there is clear
statutory or constitutional authority and the presence of a problem of
national scope. Policies with federalism implications are those with
substantial direct effects on the states, on the relationship between
the national government and the states, or on the distribution of power
and responsibilities among the various levels of government.
Because this regulatory action would limit state policy options, by
eliminating authority to pay for family leave out of unemployment
funds, we will consult with organizations representing state elected
officials at the Department of Labor in the upcoming weeks. We solicit
comment on the federalism implications and the impact of this
regulation on the relationship between the national government and the
states.
Executive Order 13084
This regulatory action does not impose any regulatory requirements
on Indian tribal governments and therefore does not impose substantial
direct compliance costs on Indian tribal governments.
Executive Order 12988
This proposal has been drafted and reviewed in accordance with
Executive Order 12988, Civil Justice Reform, and will not unduly burden
the federal court system. The proposal, a mere one sentence, removes 20
CFR part 604. In its brevity, it is not likely to lead to litigation
resulting from drafting errors or ambiguities.
Unfunded Mandates Reform Act of 1995
This proposal has been reviewed in accordance with the Unfunded
Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1501 et seq.) and does not
include any unfunded federal mandate.
Regulatory Flexibility Act
This regulatory action will not have a significant economic impact
on a substantial number of small entities. This action affects states
and state agencies, which are not within the definition of ``small
entity'' under 5 U.S.C. 601(6). Under 5 U.S.C. 605(b), the Secretary
has certified to the Chief Counsel for Advocacy of the Small Business
Administration to this effect. Accordingly, no regulatory flexibility
analysis is required.
Effect on Family Life
We certify that this regulatory action has been assessed in
accordance with section 654 of Public Law 105-277, 112 Stat. 2681, for
its effect on family well-being. We conclude that this action would not
adversely affect the well-being of the nation's families. No state has
enacted BAA-UC; consequently no families would experience a termination
of BAA-UC benefits. Though this proposed rule would withdraw
authorization for states to pay for such benefits from the state's
unemployment fund, paid family leave could be provided from other state
funding sources. This proposal would preserve the availability of state
unemployment funds for times when workers, who may support families,
are unemployed due to lack of work.
Congressional Review Act
This proposed rule is not a ``major rule'' as defined by the
Congressional Review Act (section 804 of the Small Business Regulatory
Enforcement Fairness Act of 1996). This proposed rule would not result
in an annual effect on the economy of $100 million or more; a major
increase in costs or prices; or significant adverse effects on
competition, employment, investment, productivity, innovation, or the
ability of United States-based companies to compete with foreign-based
companies in domestic and export markets.
Catalogue of Federal Domestic Assistance Number
20 CFR Part 604 is listed in the Catalogue of Federal Domestic
Assistance at No. 17.225, Unemployment Insurance.
List of Subjects in 20 CFR Part 604
Unemployment compensation.
[[Page 72126]]
Signed at Washington, DC on November 25, 2002.
Emily Stover DeRocco,
Assistant Secretary of Labor.
Words of Issuance
For the reasons set forth in this preamble, Chapter V of Title 20,
Code of Federal Regulations, is proposed to be amended by removing part
604.
[FR Doc. 02-30316 Filed 12-3-02; 8:45 am]
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