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Department of Labor

Recommendations and Actions

DOL16: Increase Assistance to States in Collecting Delinquent Unemployment Insurance Trust Fund Contributions

Background

Employers covered by the state unemployment insurance program are assessed unemployment insurance contributions on the basis of the wages they pay to their employees. Although more than 90 percent of the contributions due are received on time and without any collection activity required by the State Employment Security Agency (SESA), some remain delinquent despite various collection efforts. From the beginning of the program to date, a cumulative $1.7 billion remain outstanding, which equates to 8.5 percent of the $20 billion collected.

Although no close statistical relationship exists between accounts receivable or changes in accounts receivable, and amounts borrowed from the Federal Unemployment Account by various states, all such shortfalls weaken the solvency of states' unemployment insurance programs and jeopardize their ability to pay benefits without borrowing. The states are forced into borrowing ever-increasing amounts of money due to the level of uncollected contributions.

Until recently, the individual states, using their own pilot projects, initiated most efforts to improve collections. Now, however, the Department of Labor (DOL) has begun to take an active role in helping the states improve their collection activities. The departmental effort is concentrated in the Revenue Quality Control Program, which is now being voluntarily implemented by the states. It seeks to improve collection operations in two ways. First, all states are implementing new methods of measuring how fully their employers comply with payment of contributions and the effectiveness of their collection operations. Second, all states will conduct a survey of the methods they use to collect accounts receivable. The department will correlate the measures of effectiveness with the methods used and notify the states of the methods that proved most effective.

Although DOL involvement in SESA collection activities has historically not been high, the Internal Revenue Service (IRS) and state agencies have worked closely to identify employers who do not file, or who pay state taxes but not federal taxes, or vice versa. This primarily has involved the exchange of tapes based on IRS Form 940, on which federal taxpayers identify by state the unemployment insurance payroll taxes they have paid. The exchange helps the states identify firms with state tax liability, and it helps IRS to identify firms that have paid state unemployment insurance taxes, but not the federal unemployment insurance payroll tax.

Action

The Department of Labor should work with state agencies to develop more effective programs for collecting delinquent unemployment insurance contributions.

These activities should include aggressive steps to ensure that the methods, surveys, and measures of collections effectiveness developed through revenue quality control are implemented by the states and their results analyzed and disseminated.

Implications

State agencies have bottom-line authority for operating their unemployment insurance programs, and they regularly change the emphasis of their spending. Bottom-line authority also means that the states are not required to spend any additional funds they receive for the purpose for which they were intended, e.g., collections. Improved collection methods, rather than increased funds, may induce states to emphasize collection activities and thus reduce outstanding accounts receivable.

The additional yield to be achieved through improved collection activities is not clear. Approximately 65 percent of the $1.7 billion in contributions due is 18 months or older and unlikely to be collected. The states are being encouraged to write them off or at least put them into a suspense account. Improved procedures may allow some contributions to be recovered more quickly. Many of the delinquent employers are small or in financial trouble. Bankruptcies may reduce the amounts to be recovered, and stretched-out payment plans may mean some recoveries will be delayed and temporarily add to the backlog of accounts receivable. Most delinquent contributions, however, can be attributed to slow payers and employers with temporary financial problems.

Fiscal Impact

This recommendation can be implemented without change to existing funding or staffing levels.

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