US Department of Labor announces final rule for Unemployment Compensation Program funding goals

WASHINGTON – The U.S. Department of Labor's Employment and Training Administration today announced a final rule regarding the Unemployment Compensation Program. This rule implements federal legislation requiring the department to establish criteria for states to qualify for interest-free federal loans for the payment of unemployment compensation.

"The past few years have really tested the unemployment programs. For that reason, and the future health of unemployment trust funds, it is especially important that states make reasonable efforts to maintain the solvency of their unemployment compensation systems before receiving interest-free federal loans," said Secretary of Labor Hilda L. Solis.

The Social Security Act provides for the federal government to make advances to states that deplete their unemployment trust fund accounts. This arrangement ensures that eligible unemployed workers receive benefits to which they are entitled. These advances are generally interest-bearing; however, states may obtain interest-free advances under certain conditions. Under current law, states owe no interest on amounts they obtain from the federal government during a calendar year if the advances are repaid by Sept. 30 of the same year and no additional advances are made that year.

The purpose of the legislation spurring today's final rule was to encourage states to adequately forward fund their unemployment compensation systems to minimize the need for advances. The final rule conditions a state's receipt of interest-free advances upon the state meeting new funding goals as well as existing requirements.

The rule requires that a state:

1. meet a solvency goal based on a generally accepted measure of trust fund solvency in at least one of the five years preceding the year the advance occurs; and
2. has had no significant tax reductions in the years between the last that the solvency measure was met and the year in which the advance occurs.

Implementation of the final rule will be phased in beginning in 2014 in order to allow states additional time to repay current advances and build sufficient reserves to meet the new requirements for interest-free loans. Full implementation will occur in 2019.