DIRECTIVE	:	UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 12-91
TO	:	ALL STATE EMPLOYMENT SECURITY AGENCIES
FROM	:	DONALD J. KULICK Administrator for Regional Management
SUBJECT	:	The Omnibus Budget Reconciliation Act of 1990 (Public Law 101-508)--Provisions Affecting the Federal-State Unemployment Compensation Program

1. Purpose. To advise State agencies of the provisions of the Omnibus Budget Reconciliation Act of 1990, P.L. 101-508, which affect the Federal-State Unemployment Compensation Program.

2. References. Sections 5021, 11333, 11403, and 11404 of P.L. 101-508.

3. Background. On November 5, 1990 the President signed into law the Omnibus Budget Reconciliation Act of 1990 (OBRA 90), P.L. 101-508. OBRA 90 contains four provisions which affect the Federal-State unemployment compensation (UC) program. Following is a summary of the changes made.

   Section 5021 amends Sections 903(a)(2) and 903(c)(2) of the Social Security Act (SSA). Section 903(a)(2), SSA, is amended to specify that future Reed Act distributions will be based on the Federal taxable wage base rather than the State taxable wage base, and to change the basis upon which determinations concerning such distributions are to be made by the Secretary of Labor. Section 903(c)(2) (D), SSA, is amended to delete the 35-year limitation on the obligation of Reed Act funds for administration. In practical effect, this means Reed Act funds may be appropriated and obligated for administrative purposes indefinitely. However, because this provision is not effective until October 1, 1991, all States will experience a period during which some Reed Act funds may not be obligated. In addition, a clarification concerning the time when a charge against Reed Act funds must be made was added, as was a requirement that States account for Reed Act money in accordance with standards established by the Secretary of Labor.

   Section 11333 amends Section 3301 of the Federal Unemployment Tax Act (FUTA) to extend the 0.2 percent temporary tax under FUTA through December 31, 1995. The gross FUTA tax remains at 6.2 percent, the maximum offset at 5.4 percent, and the net tax at 0.8 percent. OBRA 90 did not extend Section 901(g)(1) of the Social Security Act which governed the transfer from the Employment Security Administration Account (ESAA) of an amount equal to the 0.2 percent temporary tax for calendar years 1988, 1989, and 1990, with fifty (50) percent allocated to the Extended Unemployment Compensation Account (EUCA) and fifty (50) percent allocated to the Federal Unemployment Account (FUA). Therefore, for calendar years 1991 through 1995, there will be no special rule for transfers from the ESAA. Instead, 10 percent of the 0.8 percent net tax will be transferred to the EUCA pursuant to Section 905(b)(1) of the Social Security Act.

   Sections 11403 and 11404 amend the Internal Revenue Code (IRC) to extend, with certain changes, until December 31, 1991, exclusions from an employee's gross income for amounts paid by an employer for certain educational assistance and amounts contributed by an employer to a qualified group legal services plan for an employee. Such amounts excluded from an employee's gross income are excluded from the definition of "wages" under Sections 3306(b)(12) and 3306(b)(13), FUTA.

4. Action Required. SESAs are requested to notify appropriate staff of these provisions.

5. Inquiries. Inquiries should be directed to your Regional Office.

6. Attachments. 

   1. Text, explanation and interpretation of changes affecting the Federal-State Unemployment Compensation program

   2. Draft Language for State Laws