Relating to employment security benefits

Description

House File 2355 relates to employment security benefits. The Bill:

• Revises the language of Iowa Code section 96.2 concerning guidance for unemployment insurance (UI).
• Reduces the maximum total amount of benefits payable from 26 weeks to 16 weeks.
• Reduces the maximum benefit payable from 39 weeks to 26 weeks for individuals whose employers have gone out of business.
• Allows an employer to seek a refund from an overpayment of unemployment benefits even if an employer fails to respond in a timely manner to the Iowa Workforce Development (IWD) due to insufficient notification from the IWD.
• Defines “misconduct” for the purposes of unemployment benefit determinations.
• Modifies the percentages of an individual’s average weekly wage for insured work paid to the individual that is considered suitable for an individual to apply for and accept work in order to remain eligible for UI. Modifications are shown in Table 1 below:
• Allows an administrative law judge’s decision to be appealed directly to district court.
• Prevents a shared work plan under the Voluntary Shared Work (VSW) Program from claiming a reduction of an employee’s work hours based on a workweek exceeding 40 hours.
• Automatically revokes approval of a shared work plan if an employer who entered into the plan lays off an employee.
• Makes part-time employees eligible for VSW Program benefits.Current Weeks Current Percentage of Weekly Wages HF 2355 Weeks HF 2355 Percentage of

Weekly Wages

0-1 100.0% 2-3 90.0% 4-5 80.0% 6-8 70.0% 13-18 70.0% 19+ 65.0% 6-12 75.0% 9+ 60.0% Table 1 — Percentage of Weekly Wages to Apply/Accept Suitable Work — HF 2355 0-5 100.0%

Background

The UI Trust Fund, administered by the U.S. Department of Labor, is used to pay UI benefits to eligible claimants. The balance of the Fund at the end of calendar year (CY) 2016 was $1.006 billion, rising to $1.252 billion at the end of CY 2019. The Fund balance as of December 31, 2021, was $1.391 billion. Table 2 below shows historical claims paid from the Fund to Iowans:

The UI Trust Fund is replenished through insurance taxes paid by Iowa employers based on a formula that includes an employer’s five-year average annual benefit payment and the employer’s five-year average annual taxable payroll. This formula results in a benefit ratio, which is compared to every other employer’s benefit ratio in determining the employer tax rate. The lowest employer benefit ratios receive the lowest tax rates. Table 3 below shows the tax rates paid by Iowa employers and is set on a scale of 1 (highest tax rate paid) to 8 (lowest tax rate paid). The Contribution Rate Table is calculated using overall recent benefits paid, statewide total wages, and the balance of the UI Trust Fund. For 2022, the Contribution Rate Table is set at 7, with tax rates ranging from 0.00% for those with the lowest benefit ratios to 7.50% for those with the highest benefit ratios. In 2020, $490.0 million was transferred from federal funds deposited into the Iowa Coronavirus Relief Fund to the UI Trust Fund, while in 2021, $237.5 million was transferred from federal funds deposited into the State and Local Fiscal Recovery Fund to the UI Trust Fund, both to keep the Contribution Rate at 7. Table 3 — Unemployment Insurance Taxes Contribution Rates Table Iowa Code section 96.3 details the current overpayment allowances by the IWD for employers, who are mandated to respond to the IWD’s request for information in order to receive a credit in their unemployment benefit accounts after an overpayment to an employee. Employees shallYear 2016 2017 2018 2019 2020 2021 Benefits 423,511,000$ 402,625,000$ 364,713,000$ 381,789,000$ 1,254,245,000$ 414,289,000$ *Source: U.S. Department of Labor Table 2 — UI Benefits Paid (CY 2016-2021)* be allowed to keep unemployment benefits if employers do not participate in the initial determination to award benefits.

Iowa Code section 96.40 details current laws for the VSW Program. The VSW Program is Iowa’s version of a Short-Time Compensation (STC) program. Under the VSW Program, work reductions are shared by reducing employees’ work hours, and UI partially replaces lost earnings. By avoiding layoffs, employees stay connected to their jobs and employers maintain their skilled workforce for when business improves. A VSW plan must affect at least five employees. VSW cannot be used for seasonal work reductions, and employees must be able and available to work their regular hours of work for the VSW employer.

Assumptions

• 2020 or 2021 UI data was not used as a model due to high claims paid from COVID-19 closures.
• Inflation at 2.5% beginning in FY 2024 was used for benefit savings.
• The number of claimants receiving benefits in 2019 past 16 weeks is 28,087, or 33.0% of all claimants, per IWD data. For the purpose of this estimate, the number of claimants receiving benefits between 16 weeks and 26 weeks is 27,218.
• The total amount of benefits affected by the Bill paid to claimants past 16 weeks in 2019 is $73.8 million, per IWD data, including those covered by the business failure section of the Bill.
• The population that is covered by the business failure section of the Bill is removed from the fiscal impact for the reduction of maximum benefits from 26 to 16 weeks.
• Business failure projections going forward are based on FY 2014 to FY 2019 data from the IWD, as an average of $4.6 million in UI benefits were paid out to 2,741 recipients due to closings.

Fiscal Impact

• Reducing the maximum allowable benefit from 26 to 16 weeks for most claimants is estimated to decrease benefits paid from the UI Trust Fund by $69.2 million in FY 2023 and $70.9 million in FY 2024. The Bill may also create a change order for the IWD’s new unemployment benefits system, which is currently being developed by a contractor.
• Reducing benefits from 39 to 26 weeks to claimants when employers go out of business will decrease benefits paid from the UI Trust Fund by approximately $4.6 million in FY 2023 and $4.7 million in FY 2024.
• The modification of suitable work percentages is expected to reduce benefit payments from the UI Trust Fund by an amount that cannot be estimated due to lack of data.
• Changes in the definition of “misconduct” will create a negligible fiscal impact to the UI Trust Fund.
• Employer taxes paid into the UI Trust Fund would be expected to decrease in future years, absent any other law changes, due to a reduction in benefit payments and a short-term increase in the UI Trust Fund balance. Tax implications cannot be estimated due to lack of data.
• Allowing an appeal directly to district court, bypassing the Employment Appeal Board and decreasing costs to the IWD, would reduce administrative expenditures in an amount that cannot be estimated due to lack of data.
• Allowing an employer to seek a refund of UI benefits due to insufficient notification by the IWD and changes to the VSW Program create a negligible fiscal impact to the State, as these sections of the Bill are already performed in practice by the IWD. See Table 4 below for the overall fiscal impact of the Bill.

The fiscal impacts of the Bill will continue indefinitely.

Sources

• Legislative Services Agency
• Iowa Department of Workforce Development
• United States Department of Labor
• United States Bureau of Labor Statistics
• Iowa Department of Management