DIRECTIVE	:	UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 30-91
TO	:	ALL STATE EMPLOYMENT SECURITY AGENCIES
FROM	:	DONALD J. KULICK Administrator for Regional Management
SUBJECT	:	Experience Rating Index for Rate Years 1988 - 1990

1. Purpose. To request that SESAs review and correct any erroneous data and interpret large changes in the Experience Rating Index (ERI) for Rate Years 1988 - 1990.

2. Reference. Manual Transmittal Letter No. 1460, Unemployment Insurance Program Letter (UIPL) No. 42-89, UIPL No. 33-90, Change 1, and Unemployment Insurance (UI) Occasional Paper 89-6, Experience Rating in Unemployment Insurance: Some Current Issues.

3. Background. ERIs by State for Rate Years 1988 and 1989 were published in the above noted UIPLs. The data extracted from the ETA-204, Experience Rating Report, are displayed in the Attachments to show how the ERI was derived. The UI Occasional Paper discusses the origin of the ERI; the Office of Inspector General (OIG) 1985 audit that showed the degree of experience rating decline from 1970 to 1983 in 9 of the 12 States audited and a response to the audit by Dr. Wayne Vroman.

   The Unemployment Insurance Service (UIS) plans to continue publishing the ERI on a yearly basis. It is expected that it will receive a great deal of attention over time as State legislatures and other interested parties consider changes that may affect UI financing. The ERI is another source of information that exists to further understand the dynamics of the UI system. It is, therefore, important to be sure the ERI accurately reflects a State's condition and that there are no errors in the data.

4. Concerns. The 1985 OIG audit report had one unresolved issue: lack of a mechanism for validating the accuracy of reported experience rating data. On January 25, 1990 the OIG issued a follow-up audit report entitled "The UI Program Needs to Improve Internal Controls over Trust Fund Accounting and Reporting Activities." This report made five specific recommendations which, when implemented, would resolve the outstanding 1985 issue. The five recommendations were: assist the SESAs to improve their accounting systems; instruct the SESAs to fully account for both employer and socialized cost elements of experience rating; implement a mechanism for validating the accuracy of reported experience rating data; perform a complete evaluation of Federal reporting requirements to ensure an integrated reporting structure; and provide support to upgrade State accounting system automation.

   The ETA 204, Experience Rating Report, was submitted to the Office of Management and Budget (OMB) in 1990 for approval through September 30, 1993 under the Paperwork Reduction Act. The OMB approved this request on October 12, 1990 with the following remarks:

   "We have approved this information collection for three years with the following conditions. If ETA submits the ETA 204 for another OMB clearance, the agency shall demonstrate that it has taken steps to: 1) improve the underlying State accounting systems which provide data for these reports and 2) review this report as it reassesses the entire UI reporting system in accordance with the DOL Inspector General's recommendations of January 1990."

   In response to these concerns, UIS has taken several actions, including: implementing a pilot program under Quality Control to assess the accuracy of benefit charging, undertaking a comprehensive review of reporting systems, and encouraging States to improve their tax and benefit accounting systems.

5. Discussion. Attachment I shows the ERI for all three rate years.  Additionally, Attachments II - IV show the components for calculating the ERI by State for rate years 1988 - 1990.

   Due to the significance of the ERI, it is important that the data be as accurate as possible so that the ERI correctly reflects the degree of experience rating in the States. In submitting the ETA 204, Experience Rating Report, States are reminded to refer to Manual Transmittal Letter No. 1460 for complete instructions on the proper format. Data received by the National Office have been subject to several problems, including: incomplete report sections (especially Section C); amounts in Section B not totalling correctly; data item 6(a)(1) in Section B not equal to the total of Section C, Column 6; and data in Section C not aggregated into tax rate intervals of 0.20 percent or more. SESAs should be aware of the concerns expressed in Section 4 above and ensure that data submitted on the ETA 204 agrees with data in the State's accounting system.

   The National Office will publish in another UIPL the index for all three years and the States' analyses of changes verbatim once all States have responded. Later this year, the opportunity will be provided, through a Federal Register Notice, for comments on the construction of the ERI, possible revisions of the formula, and potential uses of the index.

6. Action.  SESAs are requested to correct data displayed in the Attachments, if necessary, for any Rate Year and submit to the Regional Office these corrections along with an explanation for the correction (for example: calculation error, data error). A resubmission of the ETA 204 Report for the Rate Year in question is required for data errors. SESAs are also requested to examine significant ERI changes over the three Rate Years and compile a brief report concerning the factors causing these changes. Specifically, any changes of 10 or more points from one year to the next andor 15 or more points over two years should be addressed in the report. The changes may be legislative in nature, the result of a change in the tax structure, such as the introduction of a surcharge or a shift in the tax rate schedule, or due to a change in the State's economy or demographics. SESAs should provide the above report to the Regional Office within six weeks of the date of this UIPL.

7. Inquiries.  Direct inquiries to the appropriate Regional Office.

8. Attachments. 

   1. Experience Rating Index by State for Rate Years 1988 - 90

   2. Experience Rating Index by State for Rate Year 1990

   3. Experience Rating Index by State for Rate Year 1989

   4. Experience Rating Index by State for Rate Year 1988