RD108 - Commission on Unemployment Compensation Executive Summary of 2016 Interim Activity And Work - February 2017


    Executive Summary:
    I. BACKGROUND

    Chapter 33 (§ 30-218 et seq.) of Title 30 of the Code of Virginia establishes the Commission on Unemployment Compensation (UC Commission). The UC Commission is charged with:

    • Evaluating the impact of existing statutes and proposed legislation on unemployment compensation and the Unemployment Trust Fund;

    • Assessing the Commonwealth's unemployment compensation program and examining ways to enhance effectiveness;

    • Monitoring the current status and long-term projections for the Unemployment Trust Fund; and

    • Reporting annually its findings and recommendations to the General Assembly and the Governor.

    The UC Commission's membership is composed of Delegates Lee Ware, Kathy Byron, Riley Ingram, and Joseph Lindsey and Senators Frank Wagner, Rosalyn Dance, and Glen Sturtevant. One position is vacant. Delegate Ware chairs the Commission. Senator Wagner serves as the Commission's vice-chairman.

    The UC Commission met on August 15, 2016, and January 5, 2017. Due to delays in obtaining data from the U.S. Department of Labor, the Virginia Employment Commission (VEC) provided the UC Commission with updated forecasts dated January 12, 2017.

    This executive summary of the interim activity and work of the UC Commission is submitted pursuant to § 30-224 of the Code of Virginia and is provided in lieu of an annual report.

    II. ISSUES ADDRESSED

    1. Status of the Unemployment Trust Fund

    The account of the Commonwealth in the Unemployment Trust Fund in the U.S. Treasury (Trust Fund) is composed of state unemployment tax (SUTA) collected from Virginia employers. Virginia employers are assessed SUTA on the first $8,000 of each employee's wages. Moneys in the Trust Fund are used solely for paying unemployment compensation benefits to eligible unemployed Virginians. Since 1982, Virginia has measured Trust Fund adequacy by use of a statutorily prescribed average high cost multiple approach. Section 60.2-533 of the Code of Virginia requires the VEC to determine the "adequate balance" of the Trust Fund as of the end of each fiscal year. The solvency level, measured by dividing this adequate balance by the actual balance in the Trust Fund, is used, with other factors, in determining employers' SUTA rates.

    The solvency level of the Trust Fund increased from 57 percent on June 30, 2015, to 68 percent on June 30, 2016. Based on the January 2017 forecast of the VEC, the Trust Fund's June 30 solvency level will reach 73 percent in 2017 and 72 percent in each of 2018 and 2019. The increase to a solvency level in excess of 50 percent is relevant because the fund builder tax is suspended for years when the solvency level exceeds 50 percent.

    The Trust Fund's balance as of June 30, 2016 was $1.029 billion; one year earlier, the balance was $825 million. The balance in the Trust Fund is expected to continue increasing, with the balance projected to be $1.105 billion on June 30, 2017, and remain over $1.1 billion in each of the ensuing three years.

    After peaking at $236 in 2012, the average annual total SUTA per employee fell to $234 in 2013, to $221 in 2014, to $194 in 2015, and to $147 in 2016. The average annual total SUTA per employee is forecast to decline in each of the next three years ($122 in 2017, $109 in 2018, and $107 in 2019). Much of the decline is attributable to the suspension of the fund builder tax for years after 2015 and reductions in the pool tax, which dropped from a high of $42.40 per employee in 2012 to $5.60 in 2016, and is projected to continue shrinking to $2.40 in 2017. The per-employee pool tax is projected to increase to $4 in 2018, $7.20 in 2019, and $8 in 2020.

    The increase in the solvency level in upcoming years is expected to occur at the same time that state unemployment tax revenue is declining. In 2016, SUTA revenues are expected to be $565.9 million; in 2015, such revenues were $678.2 million. Part of the decline is due to the shift in the distribution of employers' tax rates. The percentage of employers charged the lowest state unemployment tax rate of 0.10 percent (excluding the pool tax) increased from 59.3 percent in 2015 to 60.4 percent in 2016 and is projected to reach 64.5 percent in 2017. The percentage of employers for whom the tax rates are computed, rather than assigned, at the highest state unemployment tax rate of 6.2 percent decreased from 7.3 percent in 2015 to 6.0 percent in 2016 and is expected to be 5.2 percent in 2017.

    2. Claims, Unemployment, and Payment Data

    Total initial claims for unemployment benefits for 2016 were projected to be 183,000; in 2015, total initial claims were 186,887. Virginia's unemployment rate (not seasonally adjusted) for November 2016 was 4.0 percent. One year previously, Virginia's not seasonally adjusted unemployment rate was 3.9 percent.

    The seasonally adjusted unemployment rate for November 2016 placed Virginia as the 17th lowest ranking among the states. Virginia's corresponding ranking for October 2015 was 15th lowest. The national seasonally adjusted unemployment rate for November 2016 was 4.6 percent. The state with the lowest seasonally adjusted unemployment rate in November 2016 was New Hampshire (2.7 percent), and the state with the highest rate was Alaska (6.8 percent).

    The number of final payments, which reflects those claimants who received benefits for the maximum number of weeks for which they were entitled (and thus did not return to work while eligible to receive unemployment benefits) in November 2016 was approximately 2,300. Final payments of benefits in the first 11 months of 2016 were down 9.9 percent from the same period in 2015 and down 30.4 percent from the same period in 2014. The exhaustion rate, which reflects the percentage of unemployment compensation recipients who use up all of the weeks of regular unemployment benefits for which they are eligible, was 38.9 percent in November 2016; in the same month of the previous year, the exhaustion rate was 41.6 percent.

    Virginia's maximum weekly unemployment benefit is $378. The national average maximum weekly unemployment benefit in 2016 was $436. Virginia's maximum weekly unemployment benefit is third-highest among the six jurisdictions composing the area within the Fourth Circuit Court of Appeals. In 2016, Virginia's weekly benefit replacement rate was 38 percent of the state's average weekly wage; in 2015, the corresponding rate was 39 percent. The national average weekly benefit replacement rate for 2016 was 43 percent. One of these six jurisdictions (the District of Columbia) had an average weekly benefit replacement rate in 2016 that was lower than Virginia's rate. The average state unemployment tax per employee in Virginia of $162 for the year ending March 31, 2016, was the lowest of these six jurisdictions. The national average for the same period was $346, and the highest among the six jurisdictions was the $448 assessed in North Carolina.

    3. Military Trailing Spouse Program

    During the 2014 Regular Session, the General Assembly enacted Senate Bill 18 to establish a military trailing spouse (MTS) program. The MTS program provides that good cause for leaving employment exists if an employee voluntarily leaves a job to accompany the employee's spouse, who is on active duty in the military or naval services of the United States, to a new military-related assignment established pursuant to a permanent change of duty order from which the employee's place of employment is not reasonably accessible. VEC data shows that 213 claimants were paid $341,484 in benefits during the period of July 1 through November 30, 2016. During fiscal year 2016, the VEC paid out $231,050 in unemployment benefits to 76 claimants. The payment of benefits under the MTS program reduced the Trust Fund solvency level by 0.1 of a percentage point and had no effect on either the 2017 base tax rates or the pool tax rate.

    4. Social Security Offset Issue

    Section 60.2-604 of the Code of Virginia requires the VEC to reduce unemployment insurance (UI) benefits otherwise payable to a claimant by the amount of certain pensions or other retirement payments. The Commonwealth has required this offset of pension benefits since 1977, when the General Assembly added the provision that conformed the UI law to changes in federal law. As originally enacted, the pension offset provision applied to social security benefits received by a claimant. However, in 2003, the offset for social security benefits was reduced from 100 percent to 50 percent of the amount of such benefits received by a claimant. In 2005, the General Assembly enacted a measure that suspended the social security offset provision in years when the solvency level of the trust fund exceeded 50 percent. For the ensuing several years, the VEC did not offset any claimant's social security benefits against UI benefits because the solvency level exceeded 50 percent.

    In 2009, the trust fund solvency level fell to 24 percent, which triggered the reinstatement of the 50 percent social security offset commencing with weeks in January 2010. The solvency level remained below 50 percent until 2015. However, in the 2011 Regular Session, the General Assembly amended § 60.2-604 to eliminate the social security offset completely, commencing with weeks starting after July 1, 2011.

    Ronald Green of Norfolk, next friend and father of Tiffany Green, testified to the UC Commission at its August 15, 2016, meeting regarding the circumstances under which the social security offset provision was applied to Ms. Green's UI benefits. Ms. Green has been receiving social security benefits since incurring a traumatic brain injury in 2000. She later obtained employment, which continued until early in 2011. Following her loss of employment, she filed for UI benefits. According to an opinion of Judge John Brown of the Circuit Court of the City of Chesapeake, the VEC determined properly that one-half of Ms. Green's social security benefits of $100 per week was required to be offset against her weekly UI benefits of $66 per week, resulting in Ms. Green's being eligible for $16 per week in UI benefits for the period under review.

    Mr. Green recounted his unsuccessful appeals of the decisions of the VEC and the circuit court. He decried the inequity of the application of the provisions of § 60.2-604 as it was then in effect, which required the VEC to reinstitute the 50 percent social security offset for the period that his daughter had applied for UI benefits. The fact that his daughter's UI benefits were reduced during the period between the date the General Assembly adopted the legislation repealing the social security offset requirement and the date the legislation became effective concerned him greatly. He noted that there may be other persons who were also affected by the reinstatement of the partial social security offset.

    Delegate Lionell Spruill, who was a member of the UC Commission until his election to the Virginia Senate, questioned whether the Green family has suffered an injustice, and he characterized the situation as tragic. VEC Commissioner Ellen Marie Hess noted that while the outcome may be tragic, the circuit court found in the case of Ms. Green's appeal that the VEC applied the law properly. Senator Wagner mentioned that there may be options for providing relief for the Green family, including a claims bill or legislation creating a program under which affected persons could apply for compensation. The VEC was asked to determine the number of claimants whose UI benefits were reduced as a result of the social security offset's reinstatement for weeks between January 2010 and July 2010 and to calculate the potential cost of compensation.

    According to data provided by the VEC, of the 4,867 claims to which the social security offset was applied (some of which have been purged over the passage of time), the agency paid out $13,422,238.42 in unemployment benefits. Without the deduction for the social security offset, the VEC would have paid $25,762,407.24. Based on these figures, the cost of retroactively increasing the payments to all claimants who were adversely affected by the 2011 reinstatement of the 50 percent social security offset would exceed $12 million.

    III. CONCLUSION

    Materials provided by speakers at the UC Commission's meetings in 2016 may be found on the UC Commission's website at http://dls.virginia.gov/commissions/ucc.htm?x=mtg.