Unemployment Insurance Advisory Council Meeting Minutes

Thursday, March 26, 2009 – 9:30 A.M.

Dane County Job Center Ballroom
1819 Aberg Avenue
Madison, Wisconsin

Members Present

Management: James Buchen, Dan Petersen, Susan Haine, Ed Lump, and Earl Gustafson

Labor: Anthony Rainey, Sally Feistel, Patty Yunk

Chair: Daniel LaRocque

Department staff present: Hal Bergan, Tom McHugh, Troy Sterr, John Zwickey, Lutfi Shahrani, Amy Banicki, Carla Breber, Tracey Schwalbe, Dick Tillema, Mary Pronschinske, Jeff Becker, Bill Markhardt, Lynn Alten, Justin Allen

Others present: Others present: Michael Metz (WI Independent Businesses), Bob Andersen (Legal Action of Wisconsin), John Metcalf (WI Manufacturers and Commerce), Larry Smith (UC Management Services).


Mr. LaRocque calls the meeting to order at 9:55 a.m.

1. Opening Remarks – Hal Bergan

Mr. Bergan presents two handouts. The first handout shows Benefit Payments by Type. This gives a sense of the trends in benefit payments. This measures how much is paid in benefits each month. As of February, we were paying close to $220 million for February, and the number continues to go up. The chart also shows how much of the money paid is from the trust fund, how much reimbursable employers are paying and how much is from the federal government for emergency and extended benefits. We expect that the federal portion will get larger because they are paying more weeks than we are paying.

The second handout shows the change in the insured unemployment rate. It is currently 6.28% which is significantly higher than the 3.77% average for the prior two years.

Question (Buchen): What was the peak IUR in the 1980s?

Mr. Bergan responds that it was over 6%. The chart shows that initial claims in the current week of 2009 compared to the same week in 2008 are up by 64%. Year-to-date this is down from the average increase of 68%. Continued claims are up 90%, which indicates that people are staying on unemployment longer. For the federal benefits, we have initial claims of 2,900 but every week we are doing continued claims for federal benefits for another 48,000 people. The workload is large because these cases are not just paying additional checks, but the cases also generate issues. We have an adjudication backlog of about 24-25,000 cases. Decisions in some cases are taking 5-6 weeks. We are in the process of establishing some new work queues to bring that backlog down. The overall unadjusted unemployment rate in Wisconsin this week is 8.8% and the national rate is 8.9%. For the last year or so we have been trailing the national average by 1.0%. The adjusted rate is 7.7%. We are now running four programs: regular UI, EUC08, EUC08 Tier 2, and as of February 22, Extended Benefits. Each of those require separate handling and accounting in the division. Our systems are stressed, but they are large and stable and withstanding the onslaught pretty well. When we have to change the old systems, because they are mainframe based, and because one change affects many parts of the program, it is a cumbersome process. The changes are coming from the federal government awfully fast.

Question (Haine): Is the additional $25 per week benefit implemented now?

Mr. Bergan responds that it is. All of our UI recipients are receiving the additional $25 benefit. The launch of that additional program was not flawless. The programming for this has held up some of our other programming, and it took a few weeks to get those payments made. Some claimants will be getting catch up checks.

Question (Larry Smith, UC Management Services): Asks if the additional $25 checks are combined with weekly checks or if they are separate checks.

Mr. Bergan responds that they are added on to the regular checks; catch up checks will be separate.

The initial claims line is working reasonably well. It is busy on Mondays and Tuesdays, but for the rest of the week it works well. We continue to work on the inquiry line. We will get new adjudicators and claims specialists next week and we are optimistic that this will help us with this. If we get a big issue in the paper and everyone calls, the volume can spike up and we have a backlog on the inquiry line; we get not one but 10 calls from individuals. We try to anticipate when those inquiries will occur and will take special attention to try to mitigate those circumstances. We are making good progress switching claims to the internet. Last year about 8% of claims began and ended on the internet; this year it is 19%. Of those claimants who start their claims on the internet, 44% complete the claims without having to talk with a claims specialist, up from 31%. Our focus will be on holding the line and matching resources to the demand we have coming in.

The balance owed to the federal government to pay benefits as of yesterday was $235 million. That will get better when we get first quarter contributions, and can pay some of that down. Then we will need to borrow again. Essentially the balance will rise through the year. We expect that on December 31, we will have a $700 million deficit. In the President’s budget for the coming fiscal year, they reference improving the extended benefit program, and also a program integrity initiative. We do not have details on these initiatives yet.

Question (Gustafson): On handout #1, there are federal benefits listed for early 2008, before EUC08 and extended benefits; what are these federal benefits? Can you show which portion of the UI is borrowed money compared to received money from the federal government.

Mr. Bergan responds that the federal government routinely pays benefits for federal employees. The EUC08 benefits began in July 2008. Our systems are not set up to track the borrowed payments, but we can put together data to show that. The borrowing started in February 2009.

Comment (Buchen): On the second page of handout #2, the claims at the end of 2007 do not match the claims at the beginning of 2008 and the claims at the end of 2008 do not match the claims at the beginning of 2009.

Mr. Zwickey responds the last week of the year may represent the traditional spike in layoffs that week. It also may have been the way the days the holidays hit this year and when the staff was able to do the work.

Comment (Gustafson): It is more troubling for the continued claims because conceptually, the initial claims could drop.

Mr. Bergan will look over the data and check out if there are inconsistencies.

2. Minutes of Meeting of February 26, 2009

Motion (Yunk), seconded (Haine), to approve the Minutes of the February 26, 2009, meeting. Minutes are approved unanimously.

3. UI Treasurer’s Financial Statements.

Mr. McHugh, Treasurer of the Reserve Fund and Director for the Bureau of Tax and Accounting, indicates that as soon as you issue the financial statements they are outdated because things are moving so fast. We are $235.8 million in debt as of this week. This week we borrowed $28.3 million from the federal government. We are paying out money quickly. Next year we will be going into tax rate Schedule A. We are paying out 80-90% more in a given week compared to the same week in 2008.

Question (Yunk): On the financial statements, when the figures compare the current year from the prior year, does the “prior year” information reflect year-to-date data?

Mr. McHugh responds affirmatively.

4. Reserve Fund Solvency

Mr. Bergan indicates that the department will provide any information the Council needs to take steps to deal with the deficit. The interest has been forgiven for this year and next, so we have some breathing room, but the final gap will be a substantial gap and should be addressed sooner rather than later.

5. UI Modernization – discussion only, not for action by the Council

Mr. Bergan indicates that we received the guidance from the DOL. The Governor continues to be a strong supporter of this legislation and what it seeks to do to modernize our system. He is looking forward to the Council recommendations concerning the four options. We are making good progress reviewing those options. It is important to view the modernization act in the context of the larger recovery act. The resources that have come to Wisconsin in that act are extraordinary. The EUC08 benefits are $500 million for this year. The $25 add-on to benefits brings $170 million to the Wisconsin economy. The interest forgiveness for this year is $10-12 million; next year it will be $40 million+. The federal government is picking up the state’s share of Extended Benefits (EB) and we are still trying to figure out how much this is worth to us. The expenditures may be $100 million. With that kind of support for unemployment benefits, the other part of the legislation that deals with modernization seems to be a reasonable bargain.

DOL has confirmed that our existing provision on the alternate base period meets their requirements, so we know we qualify for the initial $44 million. We clarified what is needed for the remaining law provisions for the remaining $89 million. We knew we covered some of the subject matter, but we needed to know the details from DOL. Because this modernization act is essentially a live issue in 50 states, we are taking advantage of that and consulting with other states. Some states already have these provisions, so we talk with them to get some idea as to their estimate of cost and how they have been administering it. Other states are in the same position we are in and need to make changes. They are going through the same process and it is helpful to talk with them about what the law requires, what administrative strategies they are considering, and what they think the changes will cost. We take those comparisons and handle them carefully. It makes a difference what kind of system the changes plug into, but we would be remiss if we did not consider what other states are doing. As we have that information together, we will get it to you as soon as we can.

The first option is paying dependent allowances. This is an add-on if the claimant has dependents such as children or a spouse. We are checking with other states, but this is likely to be the most expensive option. We are doing due diligence on it, but it seems unlikely to be adopted.

Question (Gustafson): What would be the amount per dependent?

Mr. Bergan responds that the law requires an amount of at least $15 per dependent. States will define dependents. Some states say that if you claim someone on your taxes you are a dependent, other states have more exotic ways of defining who is a dependent.

Question (Yunk): Is there a limit on the number of dependents allowed?

Ms. Schwalbe responds that the federal law does not prescribe a limit on the number of dependents allowed, but it permits a state to impose a maximum cap for the allowances of $50 per week.

Mr. Bergan indicates that the second option is paying claimants who are seeking part-time work. Claimants who are seeking part-time work would be eligible for benefits. Currently our law requires that a claimant be seeking full-time work of at least 32 hours. This envisions a standard of 20 hours. From a policy standpoint, this is an option that is attractive. Many families have a worker who works part-time. Many states have this provision already and many states are considering this. The law provides that states can have a look-back provision to the person’s base period. If the person worked part-time during the base period they could seek part-time work in the benefit year. It has an effect of limiting the cost of this option, but we are also talking to other states about the administrative burden of looking back at base period hours. We do not have that data; we only have wage data. The question is if there is an efficient, sensible policy for using a look-back provision. Those are some of the things we are looking at with this option. When we speak with other states we are getting widely divergent estimates of what this would cost. Dick Tillema is working on our estimate and we are tempering that with what we are hearing from other states. It will be a test of our policy and fiscal savvy to come up with a solid fiscal note on this and how to administer it.

Question (Lump): Does the law require that states allow claimants to seek work of 20 hours per week, or can we raise that to, say, 25 hours per week?

Mr. Bergan responds that the law requires that states allow claimants to look for 20 hours per week; states can be broader than this and allow claimants to look for less work but states cannot require claimants to look for more hours than 20 hours per week. Although we ask people to tell us if they are searching for full-time work, and they do, it is hard to know what the existing practice is and if they are really looking for full-time work and what the change would be. That is why the methodology is important.

The third option is paying up to an additional 26 weeks of benefits to claimants in approved training after they have exhausted regular UI benefits. The idea here is to have a provision which supports training. In talking with other states, this is a provision that is most attractive to other states. As we look at it, it looks good as a policy. We also have an approved training framework that we can work with. We are looking positively on this and are working on the fiscal analysis.

The last option has to do with three quit exceptions having to do with “compelling family reasons.” The requirement is that we have to meet all three of the compelling family reasons. We knew we had some of these covered in our law, but until we got the guidance from DOL we did not know if we complied. The first exception has to do with domestic violence. We have a quit exception for this but it is very rigorous and requires the person to have a restraining order. The federal law requires a broader standard. Ms. Schwalbe indicates that the federal law does not allow states to limit evidence to a restraining order and requires states to consider other evidence from medical staff, counselors, shelters, etc.

Comment (Buchen): The restraining order requirement provides a bright line.

Mr. Bergan responds that our law currently has a bright line. The federal requirement would be less bright, but our best estimate is that the numbers on these would not be high. Minnesota has a different standard now and we are trying to get some data from them. The second quit exception has to do with a need to provide medical care for a family member. We have a provision now but we have a bright line and consider if you have no other alternative to providing this care. The federal law does not allow states to use this qualifier.

Question (Haine): Would the DOL allow states to consider other standards, such as what would qualify a person for FMLA, though not all employers are covered by the FMLA?

Ms. Schwalbe responds that the federal law does not allow a state to consider whether the person had any reasonable alternative to providing the care. However, states can have a qualification that the person must need to provide the care for longer than the employer will allow the person to go on a leave of absence. In order to qualify for the exception, the person would need to ask for a leave of absence and show that the employer did not allow the person to take leave for that period of time.

Question (Petersen): Are they entitled to unemployment benefits when they are on leave?

Mr. Bergan indicates that the person may be eligible for benefits if they are able and available for work.

Question (Lump): For employers subject to FMLA, they do not have to pay for the person on leave, they just need to grant the leave. This seems to provide a benefit while the person is on leave. How does this all fit together?

Mr. Bergan responds that because of the able and available requirement, it is a more limited provision than it might appear at first. Claimants may be eligible for benefits on a leave of absence if they are able and available to work, but if they are caring for a family member, they may not be available for work. Ms. Breber indicates that if someone is taking care of a family member, they have to be available for full-time work, not necessarily the same shift they worked before. Mr. Bergan indicates that these types of questions are why it takes so long to interpret these provisions.

Finally, the third requirement for the compelling family reasons is for quitting to follow a spouse who needs to move for work. This is one we do not have and several states do have and we are checking with them how they administer it and what it costs.

Question (Haine): The person who quits would still need to be able and available in the new market, correct?

Mr. Bergan responds affirmatively.

Question (Yunk): Does the department have information to compare the maximum benefit rates for all of the states? It would be helpful to know for the surrounding states.

Mr. Bergan responds generally that Wisconsin’s maximum benefit rate is below the median nationally; regionally we are near the bottom. The focus over the years has been on expanding the number of people who receive benefits rather than raising the maximum rate. The maximum rates vary from states to states.

Comment (Gustafson): Notes that there is a national handbook comparing the states’ UI programs.

Mr. Bergan indicates he will make that available. The last question on the modernization provisions is whether states have to adopt these provisions forever. DOL has said that states must adopt the provisions without a sunset and in good faith. When states apply for the money, the state has to certify that it is making the application in good faith. States do, however, have the ability to look at these later.

Comment (Gustafson): The legislature cannot bind future legislatures.

Comment (Yunk): She understands the federal law to say that the law cannot be designed with a stop date.

Mr. Bergan indicates that the deadline to take action on this is in 2011, but it makes sense to benefit people sooner rather than later. The department will get the information to the Council as soon as we can.

6. Extended Benefits

Mr. Bergan indicates that after EUC08, there is another mandatory federal-state program called “Extended Benefits” or EB. This program began in the 1970s and was last utilized in Wisconsin when we were borrowing in the 1980s. It is a mandatory program that is 50% federally funded and 50% state funded. The Recovery Act provided that in 2009, the federal government will pick up the state’s share, with some exceptions. Reimbursable employers are nonprofits and governments who elect not to pay contributions but to reimburse the program for each dollar paid in benefits. For EB, state and local governments and Indian tribes are on the hook for these payments. For nonprofits, the federal government will pay 100%.

Question (Haine): What percentage of nonprofits are reimbursable, and is the number declining?

Mr. Bergan is not aware of the percentage and has not heard if this is declining. In general, it is a pretty good option for these employers.

Comment (Larry Smith, UC Management Services): Ms. Haine may be thinking of the provision where you instituted the assessment each year to pick up the deficit amount from reimbursable employers that did not pick it up. Mr. Bergan indicates that this was for nonprofits going out of business.

Mr. Bergan continues that the EB program began making payments the week of February 22. As of yesterday, there were about 381 eligible participants. We could start to pay them next week. We set up a temporary system for paying them. We are pretending they are still on EUC08 in terms of what we are telling our system. We did this so people are not delayed in receiving payments while we implement the EB system changes. This is a reasonable alternative while the numbers are small, but the week of April 23 we will have many people exhaust EUC08 and move to EB. Now the people we are paying are mostly claimants from family corporations who are only eligible for a few weeks of benefits. In April substantially more claimants will become eligible for EB.

Question (Buchen): Is EUC08 fully federally funded for 33 weeks?

Mr. Bergan responds that this is correct. People who receive EB benefits would be eligible for up to 13 additional weeks. By the time someone is eligible for EB, they may have already received 59 weeks of UI & EUC08 benefits.

Question (Gustafson): Are school districts taxable or reimbursable?

Mr. Bergan indicates that they are generally reimbursable. For EB, there are also very strict work search requirements that go back to the 1980s. If you have been on benefits for so long, the idea was that a person had to do a more rigorous work search. This is not necessarily a good policy, especially when so many people are unemployed and there are not jobs out there. Also, the work search requirements apply to everyone, including people for whom it would normally be waived.

Comment (Buchen): If someone had a waiver from work because of an expected recall, they would not likely be thinking the waiver would still apply when they have been unemployed for 59 weeks.

Mr. Bergan indicates that the EB rules require all EB claimants to make a systematic and sustained search for work, document the effort and share the documentation with the department. If we do not have the documentation, we have to withhold the payment. Under the regular UI law, if someone does not do a work search, they lose benefits for that week. For EB, if someone does not do the work search, they are disqualified until the person worked for 4 weeks and earned wages equal to 4 times the weekly benefit rate.

Comment (Haine): A person would have 26 weeks of regular benefits, plus 33 weeks of EUC08, and then the strict work search would kick in for the additional 13 weeks, correct?

Mr. Bergan responds affirmatively. It does create a significant burden on the department. It is time consuming to notify claimants of the change in work search requirements, reviewing the forms. The test for us is to set up the system to make sure that when the work search requirements go into effect, it works smoothly for claimants. Now we are getting paper copies back from claimants. We are trying to move as much of that as possible to the internet and link them to www.jobcenterofwisconsin.com, which counts as one search. We are trying to facilitate work search. It is reasonably manageable now with 400 recipients, but it will be a more major test when we have thousands of claimants on EB.

Question (Buchen): Have the federal requirements for work search changed since the 1980s?

Mr. Bergan responds that they have not. Ms. Schwalbe responds that the federal requirements are incorporated into the state statutes in 108.141 as well. Mr. Bergan has heard on the employer side that while requiring a work search is philosophically a good idea, it can cause problems on the practical side.

Comment (Buchen): He has not heard rumblings, but it is annoying for employers to have workers constantly applying when there are no jobs.

Comment (Haine): She has heard in the past when employers were shut down for a few weeks and they were upset that employees had to look for other work. If you are out of work for 59 weeks, it is less likely someone will be called back.

Comment (Feistel): Employers who do not want to deal with applications often put signs or notices on their doors.

Question (Rainey): Under the systematic documented work, are the employers required to sign something?

Mr. Bergan responds no, and the notices specifically tell claimants not to ask employers to sign the forms. Based on what we know today, we know that there is a lot of money in the Recovery Act for the Office of the Inspector General to audit programs. Accountability is a big part of the funding.

Comment (Yunk): For someone who has been unemployed for 59 weeks, they are not likely readily employable. It is appropriate to see if training is more appropriate.

Mr. Bergan indicates that there is a substantial amount of money flowing into the Division of Employment and Training that is aimed specifically at UI recipients. There will be a lot more activity for that soon.

Question (Lump): Are you asking the Council to loosen up the work search requirements?

Mr. Bergan responds no. The work search requirements are required under federal law. It is an ongoing conversation with DOL as to what is appropriate in a down economy. There is also an expectation that what is suitable work changes as you are unemployed longer.

Question (Buchen): Is this to give us an idea of what options might be down the road for EB?

Mr. Bergan indicates that there is an option for high EB, but for that we would need to legislate. The rules are the same as EB. We are told that there is more guidance coming from DOL. We will get information to the Council on this as soon as we can.

Comment (Buchen): Looking at handout #1, we are paying about double the benefits we paid last year.

Mr. Bergan indicates that at the time we passed the legislation, we were looking pretty good and there was reason to feel confident.

7. Task Force on Misclassification of Workers – brief report

Mr. Bergan reports that the Task Force has been meeting since October and is close to making recommendations. This Task Force is comprised of agency personnel and from the building industry. The first recommendation likely will be to improve interagency cooperation for enforcement. All agencies deal with misclassification in some way, but we will try to increase compliance in the construction industry. This is a national problem. Many states have acted on this already and we have had the benefit of seeing what they have done. The second recommendation will be creation of a dedicated office to focus on misclassification. What is needed is people who can go to jobsites and enforce when action is required. The key enforcement tool would be a stop work order for a specific subcontractor. The goal of the SWO would be compliance. The Massachusetts model has a staff that issues a SWO that can be lifted if the people demonstrate compliance. It is not now contemplated to change the requirement as to who must get a worker’s compensation policy. The Department of Commerce has adopted a rule that will require anyone who is an independent contractor to be licensed with them. On a work site, the staff would enforce the independent contractors having the necessary licenses, and they have to meet the qualifications for being an independent contractor. We think our definitions are pretty strong now. The focus is on construction because it is where the problem was most profound. If workers could not demonstrate that they were licensed and that they did not have worker’s compensation, they may not be able to demonstrate that they are independent contractors.

Question (Lump): What is the effect of the Task Force’s work on the committee working on the definition of employee?

Mr. Bergan responds that the difference is that the Task Force is aimed at compliance and enforcement in construction. The committee for the Council is looking at the appropriateness of the definition used to determine who is an employee. The Task Force is more of an enforcement effort.

Comment (Petersen): The definition that the committee is working on will determine who is an independent contractor. The enforcement will be for all of the categories including unemployment, worker’s compensation, and revenue. The Task Force will be applying the definition that the committee comes up with. The committee will determine what the definition should be and the departments will enforce it.

Mr. Bergan indicates that we need a definition that is fast on its feet. Audits take huge amounts of resources. The companies that abuse this the most are here-today-and-gone-tomorrow, so an audit is not a useful enforcement tool for them.

Comment (Haine): This is an issue in construction, but the entire issue will be bigger with the bad economy as more people hold themselves out as independent contractors to get jobs. We heard testimony from a writer at an earlier meeting. The definition we come up with will go beyond construction.

Mr. Bergan indicates that the committee has the tougher assignment because they have to consider various types of workers. The Task Force is dealing with egregious noncompliance. The focus is on compliance. The system will fit together with the registration program at the Department of Commerce. It will focus on public information and education. It will provide penalties for the egregious violators.

Question (Buchen): Will the Task Force have proposed statutory changes for the Council to consider?

Mr. Bergan responds that he is not sure. It may or may not involve changes to Chapter 108 as an aid to enforcement.

Question (Haine): The focus of the enforcement seems to be at the employer level. There are two parties to the transaction. Are there penalties being considered for the person who acts inappropriately as an independent contractor?

Mr. LaRocque indicates that the burden is on the employer to report the wages and pay contributions. That is the act that demonstrates classification to us. The person who is paid is paid. They are not noncompliant with UI.

Comment (Lump): The committee is trying to make the system more usable for the employer so they do not get caught by doing the right thing while the employee is doing the wrong thing. We have spent time on that liability issue. It is different than what the Task Force is looking at.

Comment (Buchen): As we look at the issue of the definition, Labor has been reluctant to make any changes from the understanding that there has been widespread abuse, particularly in the construction industry. If this is going to fix this in the construction industry, maybe we are getting somewhere where we can take a hard look at the definition. He would like for everyone to understand what the Task Force is doing because it may change the dynamics of other issues.

8. Committee to Review UI Definition of “Employee” – brief report

Mr. LaRocque indicates that committee met on March 19 (Ed Lump, Dennis Penkalski, and Dan LaRocque). An employee is someone who performs services. The difficulty in interpretation is the exception to this definition that establishes someone who is not an employee, or is an independent contractor. The committee heard from someone who made a case for excepting services for home care or companion care or personal care. The individual was left without care for his father after his mother died. To his surprise, based on a claim by the individual, he discovered that he had an employment relationship with this individual. He paid the taxes but went through a lot of effort to understand how he got into that situation. He thinks the services are provided where there is no business being conducted. The employment relationship is with the person receiving the care. The observation is that these are complex laws to struggle with during stressful family times. The person met the test for employee; that was not an issue. This is an industry where care is provided in various ways. There are service agencies that organize these care providers and other models. We have a lot of research on this topic that we will review. There are some publications from the IRS that are confusing whether these people are employees. The IRS recognizes that some of these people are not employees for some purposes. We are trying to bring this into focus at these meetings.

Question (Buchen): Is there is a provision in the budget bill to require registration of these workers?

Comment (Yunk): Indicates that she is aware of registration for child care providers, but not all home health care providers.

Mr. LaRocque indicates that the committee also heard from a small business that requested a definition that is more predictable, simpler, clearer and easier to understand. The department can be clearer in its presentations to employers to communicate what the law means. The issue of compliance is a separate issue. Whatever the definition is, there are employer who will want more clarity. The next meeting is April 6th and the committee will discuss what the department sees as imperfections or flaws in the law.

9. Department proposals for changes to the unemployment insurance law, Wis. Stat. Chapter 108, presented at previous meetings and the following:

D09-17 Enable Intercept of Federal Tax Refunds for UI Fraud

Troy Sterr, Business Analyst, presents the proposal. This proposal is to modify chapter 108 to enable the intercept of federal tax refunds to collect fraudulent UI benefit overpayments and to permit the US Department of Treasury to deduct any fees for costs it incurs to implement the program. A federal law enacted last fall permits states to recover certain UI debts due to fraud from federal income tax refunds. The implementation of the program at the federal and state level is contingent on final federal rules which have not yet been promulgated. We are moving forward with the law change with the authority to collect these debts so that when the regulations are issued we are ready to pursue the program. We do have substantial benefit overpayments due to fraud. At the end of the calendar year 2008, we had over $22 million in benefit overpayments due to fraud. We think we could collect over $1 million each year. The other change is a technical change to bring into chapter 108 our authority to intercept state tax refunds. Our authority to do that is currently in the Department of Revenue statutes in chapter 71. We want to reference that in chapter 108.

Question (Yunk): Can you define fraud?

Mr. Shahrani indicates that fraud is defined as the willful and intentional misrepresentation of facts or concealment of information for which benefits payments were made.

Comment (Yunk): The proposed statutory language does not define fraud. As it is written, it does not reflect the concept of fraud. If it is not defined it becomes problematic. It could say that this is for debts as a result of fraud.

Mr. LaRocque indicates that the definition of concealment is in another statute and this provision is to identify the mechanisms for recovery. It could perhaps be made clearer with the word fraud or a reference to fraud so there is no mistaking that it is limited to fraud.

Question (Haine): As a process, can the statute refer to the other statute that defines concealment?

Mr. Sterr indicates that the proposed statutory language refers to the internal revenue code which is very clear that it is currently limited to fraudulent UI debt. Ms. Breber indicates that as a practical matter, the department codes all overpayments using the definition that is in the statutes. Ms. Schwalbe indicates that the department intended to tie the statutory language to the federal language. The federal law is now limited to overpayments due to fraud and by reference to that federal language this proposal is limited to intercepting federal tax refunds for fraudulent overpayments. The federal government may expand that at some time to increase UI program integrity and we want the ability collect non-fraud debts if the federal government authorizes states to do so at some point in the future. The proposed language will allow us to do that. The state tax intercepts are not limited to fraud but are for any overpayments and we have been collecting those for over 20 years. The intent with the proposal is that the federal intercepts would be limited to fraudulent overpayments by reference to federal law because that is all that is allowed by the federal government at this time, but if the federal government allows states to expand that for program integrity, we want the ability to do that.

D09-15 Enable Recovery of Misdirected Payments from Third Parties

This proposal is not being presented today.

D09-19 Enable Recovery of Unclaimed Transfers to Debit Card Accounts

Mr. Sterr presents the proposal. The catalyst for this proposal is the division’s plan to implement debit cards within the next 2 years as one method of benefit payment. The division is in the planning stages for implementing debit cards and is looking at what changes are needed in the statutes and rules. At the last meeting we talked about the proposed change to DWD 129 to include debit cards as one method of benefit payment. This proposal addresses what happens to the amounts in the debit accounts that become inactive. When we issue payments by check, the state’s trust fund is not debited for payment until the check is cashed. The funds remain in the account until the check is cashed. It is different with debit cards. The state’s trust fund will be debited when the funds are electronically transferred from the trust fund to the debit card account maintained by the vendor. The money has left the trust fund. When the money is in the debit card account, after a certain period of time, the vendor assesses fees for inactivity.

There is a statewide contract now for debit cards with JP Morgan Chase that after 360 days they can start assessing monthly fees of $1.50 per month against the account. In Minnesota, the contract allows the vendor to assess monthly fees of $2.00 per month after 120 days of inactivity. In addition to the inactivity fees, under current law, accounts that are inactive for more than 5 years fall under the state’s unclaimed property act. The funds revert to the state treasurer who deposits them in the state’s school fund or the general fund. The state treasurer publishes notices of abandoned property and handles any claims. We are proposing to streamline the process and reduce the time for when funds are considered unclaimed. We are proposing that after one year of inactivity in a debit card account, any unused funds would revert to the balancing account of the trust fund. The one-year limit coincides with the benefit check limit that provides that benefit checks are void after one year. We are estimating that between $170,000 and $250,000 of unclaimed debit card payments may return to the trust fund annually.

Question (Yunk): When you say revert to the fund, which fund are you referring to?

Mr. Sterr indicates that the funds would revert to the balancing account in the trust fund.

Question (Buchen): Are debit cards implemented yet?

Mr. Sterr indicates that the department is still in the planning stage.

Question (Haine): Do you know what the food share provisions are for those unused funds?

Mr. Sterr indicates that it is a little different because that is an electronic benefit transfer card and this would be an electronic payment card. He is not sure what happens to unused funds on the food share card. Other agencies vary. The child support program has had debit cards for about two years. Their program is set up to follow the unclaimed property law. Any amounts on their debit cards do revert to the school fund.

Comment (Haine): This is supposed to be replacement for income. If it is not spent in a year, it should be back in the fund to be used.

Question (Yunk): Does the department use direct deposit? Are there any statistics on how many debit cards are lost or stolen?

Mr. Sterr indicates that we could look at other states’ experience with debit cards to find this out. Thirty states have implemented debit cards and 10 states are considering it. For card replacement, it depends on how the contract is written with the vendor and whether there are any fees for replacement cards. In Minnesota, they do not charge for replacement cards. In Wisconsin, for the statewide contract, the first one or two replacement cards may be free, but then there is a charge.

Question (Haine): Are the debit cards being offered because there are claimants who are unbanked?

Mr. Sterr responds affirmatively. Currently, about 20% are direct deposit and the department is pursuing making direct deposit easier to sign up for. The department is pushing direct deposit as a primary option, but there will still be a population that is unbanked where the debit card would be an option. In child support, about 60% of their payments are made by direct deposit; they have a population of less than 1% that is still getting checks.

Question (Gustafson): What is the recovery estimate based on?

Mr. Sterr indicates that this was based on the benefit checks that were not cashed after one year, which was about $500,000. We are figuring that about 38-50% of that population would receive payments by debit cards. We applied that percentage to the $250,000.

D09-13 Treat Bonus Payments as “Earned” When Paid

Mr. LaRocque presents the proposal. This is an issue the department discussed with the Council some time ago. The department began the process of talking about a rule and had some discussions with some people on the Labor side. It is probably better placed in the statutes.

The proposal would specify that for purposes of calculating unemployment benefits, a bonus is considered earned in the week in which the bonus is paid by the employer. This is the issue of whether the bonus payment reduces or negates the benefit amount. There are provisions in the law now that reduce or negate the benefit amount. One broad category is wages. A bonus payment is wages and we are not proposing to change that. The question is when is the bonus payment earned. When a bonus is paid, it can vary from when services are performed. Some bonuses have less to do with services than other factors in a formula. The bonus payment raises challenging questions case by case as to when the bonus is actually earned. An example is an incentive payments paid after an annual review of the profits by the company. The process requires us to look at the provisions of the plan to figure out when all of the conditions for the bonus were satisfied.

The Labor & Industry Review Commission indicated in the Harley-Davidson decision about a year ago that the decision is determined by both the services and the conditions that led to the employee’s entitlement to the bonus. When we are looking at the conditions that led to the employee’s entitlement, we are looking at the formal plan documents. The employer may look at the profitability for the year, whether targets are met, whether the employee is employed on the date of the bonus, etc. We are looking at the plan and determining if all of those conditions were met. These plans often reserve the right to the employer to make the decision at any time. The plans vary a lot and there are all sorts of bonuses for all sorts of purposes. We have significant administrative challenges trying to figure out when the conditions of the plan have been met. This came up in a case before the Commission last fall and the Commission decided that the bonus was earned when it was paid. The department currently has to review the plan documents and try to figure out when the conditions for the bonus were satisfied and it is a lot of work. In most cases it ends up being earned when paid because the employer retained the right to revoke the payment or some other condition is only satisfied in the week the bonus is paid. We have some encouragement from the Commission’s recent decision, but it is not as clear as a statutory provision stating that bonuses are earned when paid. If that simple provision is enacted, it will make our job much easier on these.

Comment (Yunk): The proposal would disadvantage workers. It is not as simple as the department proposes. It is not something that will be negotiated. She has never been in negotiations where UI was the driving factor for when bonuses were issued.

Mr. LaRocque indicates that the proposal will provide an opportunity for predictability and certainty for employers and employees as to when the bonus is earned. It is a possibility that it could be steered to disadvantage an employee, but if it is paid in a week other than when benefits are paid, that is favorable to employees. He does not know how all of the cases will come out.

Comment (Buchen): An employee still could get the 26 weeks of benefits or the amount they are entitled to. The bonus would just mean that unemployment may not be paid for that week when they get the bonus to carry them through the week. They would still get the same amount they are entitled to. This is just a practical way to handle this.

Comment (Yunk): Suggests that the Council members read the case involving Harley-Davidson that explains the issue in greater depth.

Mr. LaRocque indicates that the Harley case involved a two-week layoff. Benefits were reduced in that week and there were a limited number of weeks the individual claimed. We are not saying that this will not result in disqualification in every case, however, there is an element of neutrality in how this would play out. If the department’s proposal is not the law, the question remains when the bonus is earned. Under current law, in most of these cases, it turns out it is the week it is paid anyway.

Question (Haine): In the absence of the state’s proposed solution, is the other possible solution to try to attribute the bonus back to prior weeks? I am thinking of the employer and employee, but also of the process. That alternative seems to be very hard to administer.

Mr. LaRocque indicates that going back over the past 52 weeks is not the answer for all bonuses, or bonuses that have other conditions that must be satisfied to qualify. It is not very practical and would be very hard to administer. It also could disadvantage claimants badly. Depending on what the law would be, it could result in disqualification for multiple weeks in that case.

Mr. Shahrani indicates that such a process would be very tedious and cumbersome to administer, and annoying to the employer and employee. For example, attendance bonuses provide a raise of a certain amount per hour if the person has good attendance. It is paid at the end of the quarter. When it is received and the claimant reports it to us, we start looking at when it was paid and what were the conditions that qualified the claimant for the bonus. Imagine the employer looking at its books for every week and telling how many hours the person worked versus the hours the person took for leave and which dollars are attributable to which weeks, and which weeks should be considered to do the math. Oftentimes, the delay in benefits would lead the claimant to say just forget it. If we have to hold the check for 5-8 weeks to check into all of that, and then charge the employee for overpaid benefits $5 for one week, $20 for another, it gets to be extremely nerve-wracking and irritating to all parties. The investigators have a lot of tedious work, the employers do not want to check all their records, and the claimants do not want to have to wait for checks. The result when you add it up is not any different.

Comment (Haine): For corporate taxes, the IRS guidelines are all cash basis. It is not an exact analogy, but it seems like that is a system that works for the IRS.

Ms. Breber notes that with the attendance bonus example, you are at least dealing with a specific period of time. The department deals with a large variety of types of bonuses that do not relate to a period of time all. They are paid because they are an employee at the time the bonus is paid. We see a lot of cases where in between the time when the employer says they will pay the bonus and the time it is actually paid, somehow the person quits or retires and they do not get the bonus.

Comment (Lump): His organization has given out bonuses at the last minute because they had a good year or someone did a good job.

Mr. LaRocque indicates that the real point is that it is wages and we have to determine when it is earned. It is difficult to rely just on a period of service when not all conditions of entitlement are satisfied. We are proposing this for administrative reasons. We think the outcomes will not vary much from where we are now.

10. Department proposals for law change:

Mr. LaRocque indicates that the rule proposals are on the agenda again to give the Council an opportunity to vote on them. They have been presented to the Council at prior meetings. These rules are at the initial stage and have not yet gone to public hearing. We are seeking to move forward with them.

11. Department proposal to revise DWD 128, Able to Work and Available for Work

Mr. LaRocque indicates that on DWD 128, he has had conversations with Bob Anderson who has had some questions and suggestions that will probably result in a further refinement of the rule by the department.

12. Annual Report on Detection and Prosecution of Fraud

Jeff Becker, Program Integrity Section Chief for the Bureau of Benefits, presents the highlights of the written fraud report submitted to the Council. The department operated the first full year with the National Directory of New Hires. This cross-check helps to reduce the time that an individual is able to claim fraudulently until they are detected. The results have been good. The department established about $3.2 million in overpayments over 2007. About 40% of that came from fraud. Forfeiture penalty dollars decreased from 2007 to 2008. We expected this because we had a law change with regard to forfeiture penalties that became effective in April 2008. All individuals started with a clean slate as non-previous offenders so they did not get increased penalties. As we move forward into later years, individuals who have been found to have concealed previously will get higher penalties. We were able to make a large effort on prosecutions in 2008 versus 2007. We had a 115% increase in convictions for 2008 compared to 2007 due to our ability to prosecute in Milwaukee County with the assistance of the Department of Justice. The .5 funded position for enforcing UI fraud in the DOJ is paying off for us. For overpayment collection and recovery, we did recover more in overpaid benefits in 2008 versus 2007 due to our increased ability and proficiency in collecting overpaid benefits.

Question (Yunk): Why do you think there was the 18% increase in benefit overpayments established from 2007 to 2009? Are there any categories for determining who is doing the fraud?

Mr. Becker responds that the law change in 2008 provided that if an individual concealed from the department information about work performed and wages earned, rather than calculating the amount that was overpaid for that week using the partial wage formula, we would simply consider all of the benefits overpaid for that week. When we find concealment for a week, we are always finding an overpayment for that week. In past years we may have considered overpaid only a portion of it. This is a contributing factor in the increases in overpayments. Historically, the major source of unemployment fraud is concealing work performed and wages earned. We find they conceal other things, but based on the determinations issued or dollars penalized, the largest segment of that is work and wage concealment. He cannot identify any particular industries.

Mr. Bergan indicates that this is a good question. He can think about this and see if we can determine that. It may be helpful for enforcement.

Motion (Yunk) to adjourn, seconded (Buchen).

Meeting is adjourned at 12:40 p.m.

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