Legislature(1995 - 1996)
02/22/1996 01:40 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE LABOR AND COMMERCE COMMITTEE February 22, 1996 1:40 P.M. MEMBERS PRESENT Senator Tim Kelly, Chairman Senator John Torgerson, Vice Chairman Senator Mike Miller Senator Jim Duncan Senator Judy Salo MEMBERS ABSENT All present COMMITTEE CALENDAR SENATE BILL NO. 261 "An Act relating to the release of employment security records; relating to an injunction or an employer's security for delinquent unemployment insurance contributions; extending time periods for redeterminations and appeals for unemployment insurance; relating to the overpayment or the redetermination of unemployment insurance benefits; relating to availability for work, seeking work, and the calculation of wages for unemployment insurance purposes; relating to voluntary federal tax withholding from unemployment insurance benefits; relating to the binding effect of unemployment compensation decisions; relating to the definition of `waiting week' for employment security purposes; and providing for an effective date." SENATE BILL NO. 276 "An Act relating to the calculation of unemployment insurance benefits; and providing for an effective date." PREVIOUS SENATE COMMITTEE ACTION SB 261 - See Labor and Commerce minutes dated 2/13/96. SB 276 - See Labor and Commerce minutes dated 2/22/96. WITNESS REGISTER Dwight Perkins, Special Assistant Department of Labor P.O. Box 21149 Juneau, AK 99802-1149 POSITION STATEMENT: Supported and commented on SB 261 and SB 276. Ron Torgerson, Chief of Adjudications Division of Workers' Compensation Department of Labor P.O. Box 107019 Anchorage, AK 99510-7019 POSITION STATEMENT: Supported and commented on SB 261 and SB 276. ACTION NARRATIVE TAPE 96-14, SIDE A Number 001 SL&C SB 261 UNEMPLOYMENT COMPENSATION CHAIRMAN KELLY called the Senate Labor and Commerce Committee meeting to order at 1:40 p.m. and announced SB 261 to be up for consideration. DWIGHT PERKINS, Special Assistant, Department of Labor, said SB 261 is their housekeeping bill. One of the areas it covers is income tax withholding on unemployment checks and makes it current with federal guidelines. Another is confidentiality of records allowing the Department to provide additional specific unemployment insurance information to other entities under strict disclosure and guidelines. Two provisions would provide important tools for collecting delinquent contributions. First, the Department would be authorized to require a deposit or bond from an employer who is at least two quarters delinquent in making contributions to the Unemployment Compensation Fund. The bill also allows the Department to enjoin a delinquent employer who refuses to post a bond or pay contributions from operating as an employer. These uncollectible accounts are currently being subsidized by the rest of Alaska's employers. The standard for waiving benefit overpayments would be changed from great hardship to equity and good conscience allowing other factors like the claimant's degree of good faith in claiming benefits and the claimant's detrimental reliance on the benefits. It would also permit the Department to right of uncollectible overpayments after two years. Practice has shown that most recoverable overpayments are collected within two years. The Department would be given clear authority to correct any determination during the benefit year of an unemployment claim increasing the accuracy of claim adjudication. MR. PERKINS continued saying a proposed amendment would provide a uniform 30 day time period (currently only 15 days) for filing appeals from any determination. This impacts rural parties unfairly. It would also clarify the legal affect of appeal decisions. Findings of fact and conclusions of law would not be binding in another proceeding. This is to prevent excess litigation based on the affect the Department's rulings may have on later civil litigation. This will help keep unemployment hearings speedy. Both the extended 30 day appeals period and the provision restricting the scope of the Department decisions address concerns of a recent legislative audit of the Unemployment Insurance Appeals process. MR. PERKINS said there were other minor and technical changes which would allow an insured worker to continue receiving benefits while attending the funeral of an immediate family member, require a worker to file a compensable claim for the week immediately before jury duty or attendance at a funeral in order to receive an eligibility exemption for those reasons, exempt extended benefit claimants from the work search requirement while attending an approved training course, correct the definition of waiting week from the Employment Security Act, and clarify treatment of cafeteria plan payments under the wage definition of the Act. SENATOR KELLY asked what was the cafeteria plan payment. RON TORGERSON, Hearing Officer, explained that this change simply clarifies the definition of covered wages to exclude the cafeteria land payments. It also brings the wage definition in the Employment Security Act into conformity with the federal wage definition. Number 103 SENATOR MILLER asked for an example of the waiving of standards of great hardship to equity and good conscience and for an overpayment procedure. MR. TORGERSON explained that the current standard in statute is great hardship. They are proposing a more flexible standard so they can consider the elements of good faith and honesty, etc. He emphasized that under the new standard a person will not be getting more benefits than he would normally. He said the overpaid benefits would be charged against the account; they would not be offset later in the claim which would be a form of payment recoupment. Number 174 SENATOR KELLY said their concern was fraudulent claims. MR. TORGERSON said in that case there is a restitution requirement. They prosecute those cases regularly and they have had 100 percent conviction rate, averaging 30 - 45 per year. In addition, there is a 50 percent penalty attached (which is diverted to the general fund). MR. PERKINS said their concern at this point is not when the employee is at fault, but when it is an error in over-calculations by the Department or some system error. SENATOR MILLER said he understood that it was the Department's problem, but he said the employer was the one who would eventually pay for it, if it happened often enough. MR. PERKINS said he understood his concern, but that this is a situation that doesn't happen regularly. MR. TORGERSON added that this is a low traffic problem, something the Department would like to do for people who really need this money and very often virtually require it for survival. Sometimes the hardship standard is too rigid. He reiterated that they recover over 90 percent of all non-fraud overpays. SENATOR MILLER said he understood and his concern was if there were a lot of them, it would affect the rate and the employer would have to pay eventually. MR. PERKINS said the Department was trying to be more customer oriented and give themselves more flexibility to help the claimant rather than to "come down on them." He repeated that they are right on top of the fraud situations and the non-fraud cases are over 90 percent repaid. SENATOR MILLER asked if this legislation were adopted, what would that bring the percentage down to. MR. PERKINS said he didn't think it would make one percentage point difference. The ones they have are visible - the ones members of the legislature get calls on. He didn't thing the public was being served fairly with this restrictive of a standard. Number 290 SENATOR KELLY asked how long a person is eligible for unemployment insurance. MR. TORGERSON answered 26 is the maximum with an extension of 13 more. SENATOR KELLY asked how long after 39 weeks you had to wait to go back on unemployment. MR. TORGERSON replied that you would have to wait until you could establish a new benefit year and you would have to have base period wages. SENATOR KELLY said they would set SB 261 aside. SL&C 2/22/96 SB 276 CALCULATION OF UNEMPLOYMT INS BENEFITS SENATOR KELLY announced SB 276 to be up for consideration. Number 291 MR. PERKINS explained that the Unemployment Insurance System has enabled Alaskan workers, their families, and their communities to weather periods of unemployment with their economic well-being and dignity in tact. Recent events in Sitka, Wrangell, and Pelican and other areas affected by plant closures and lay-offs have demonstrated the importance of this safety net for our working men and women, he said. The schedule of benefits has not been adjusted to increase the maximum weekly benefit amount since 1990. Alaska currently ranks 49th in the nation in unemployment insurance wage replacement with the average weekly benefit amount only slightly more than 27 percent of the average weekly wage for the State. In terms of the maximum weekly benefit amount, Alaska ranks 35th in the nation, not withstanding the higher cost of living here. The current benefit schedule uses the workers yearly wage to determine the weekly benefit amount. The minimum qualifying amount is $1,000 which provides a weekly benefit amount of $44. For each $250 a worker earns over $1,000, two dollars is added to the benefit amount. Weekly benefits are now capped at $212 per week based on a maximum of $22,250. This bill would keep the current benefit schedule in place, but would replace the current fixed cap with a flexible cap. The new cap on wages would be 75 percent of the average annual Alaska wage, exactly the same as the wage base on which employers and workers are taxed to support the system. Bringing the maximum qualifying wages up to the wage base would raise the maximum benefit amount from $212 today to $238 in 1997. The average cost to employers in the year 2000 will be approximately $1 per week per employee. Thirty five states use a flexible benefit standard driven by changes in the average weekly wage. The advantage of such a system is that it integrates the benefit standard into a self adjusting unemployment trust fund formula which is directly tied to the State's economy. As average wages rise, the standard for unemployment insurance benefits keeps pace in terms of income replacement. If wages fall, as they did in the 1986-87 recession, the maximum weekly benefit decreases and the employer tax burden decreases. MR. PERKINS said this is a modest proposal; it would raise Alaska wage replacement less than one percent to a little over 28 percent. While it is not enough to change our wage replacement ranking amongst the states, the small change would provide a measure of additional security to Alaska's average wage earners and help slow the erosion of purchasing power during hard times. As we work to together to strengthen Alaska's economy to provide quality jobs for Alaska's families and to move certain low-income people from welfare to work, we must insure there is an adequate safety net to allow unemployed workers sufficient finances to remain in their homes and communities and in Alaska until they are reemployed. SENATOR KELLY noted that the Governor's proposal asked the employer to pick up the entire amount of the increase in insurance costs. He had asked him for a model where the increased costs would be split fairly between the employer and the employee. In statute the employer pays 82 percent of the insurance rate and the employee pays 18 percent. SENATOR KELLY said he asked for a scenario of 80 percent for the employer and 20 percent for the employee. MR. TORGERSON said he had copies of the figures they put together and passed them to the Committee members and answered their questions regarding its information. One of the questions SENATOR KELLY asked was how much the employers rate would go up under the 20/80 scenario. MR. TORGERSON replied irrespective of the other factors (how much is drawn against the fund or other factors that come from having a self regulating financing system) and all things being equal, the total employer tax would drop $2.5 million the first year. It would rise $9 million in 1999, but primarily because of other causes. The increased payout in benefits is a projected total of $7.5 million; they are looking at additional employer/employee taxes of $12 million. Part of that is just the natural projected rise in trust fund outlays for 1999 totally irrespective of the law change. The trust income and outflow fluctuates from $6 million - $10 million per year depending upon the economic cycle, MR. TORGERSON explained. SENATOR KELLY asked for a long-range graph of how they project that fluctuation. MR. TORGERSON explained that the fluctuation goes up and down. For example, 1996 was the sixth year in a row when the employer rate fell below the 85 - 94 average, about 2.7 percent. SENATOR KELLY said that if that is based on a higher average salary, then people would be actually paying more dollars. SENATOR KELLY, referring to workers' compensation, asked if it had dropped a bit this year. MR. PERKINS said he wasn't sure there was a direct correlation, but he thought some rates had gone down. SENATOR KELLY noted that they were now looking at proposal changing the 82/18 ration to 80/20. SENATOR MILLER noted that not all employer/employee contributions are 82/18; it depends on what your rate is. With this employment structure, if you are a seasonal business, you get hit very hard. Number 460 SENATOR KELLY asked for an explanation of the rating system. MR. TORGERSON explained in the first process, they figure out the benefit cost rate or what is the average tax rate the fund has to get back to stay solvent (2.17 last year). That has nothing to do with 82/18. Of that tax rate (2.17), the employer pays 82 percent and the employee pays 18 percent. That never changes. The reason employers' rates change is that they aren't all assessed at 2.17. To get an employer's rate, they take the benefit cost rate and multiply that times .82 to get the employer share, and then multiply that by the employer's experience factor. That will range, depending on a payroll, from .4 to 1.6. SENATOR MILLER noted that that is where seasonal employers are hit the hardest. SENATOR MILLER said he thought Mr. Perkins' typed statement, the last sentence of the second paragraph, was misleading. It says if wages fall as they did during the 1986-87 recession, the maximum benefit would decline and the employer tax would decline. That wasn't the case, because the system we have is based on the amount of money that's in there and there was a substantial draw on that money and the employer tax rates went up. Business were crying the blues at that time because their rates went up dramatically. MR. TORGERSON agreed, but said in this proposal, it is tied to wages, so if wages go up, the rate would go up and as wages go down, rates go down. He said he didn't mean to mislead them. SENATOR KELLY asked what was the philosophy behind the increase. MR. TORGERSON replied that the top one third would see an increase and the bottom one third would not see the increase. The way the system works now, the upper end sort of subsidizes the lower end. It isn't meant to favor one class or another. SENATOR KELLY said in his mind if one third of the folks making more than $22,000 per year go on unemployment, they come up against a cap that is fixed in statute. So while wages increase to pay for it and the employer/employee percentage continues to go up every year, the benefit amount is locked in by statute. So the people who are making the average weekly wage are paying a lot more percentage-wise than they ever get back. He said he was really concerned with the people who take advantage of the system who work for just the summer and go to Hawaii in the winter and collect unemployment. TAPE 96-14, SIDE B MR. TORGERSON said people at the bottom of the scale are not going to be affected by this change at all. The people who will benefit will be the average wage earners, the backbone of the State, who are accustomed to and need to work as much as possible - people who are supporting families. He thought the work disincentive would be minimal. SENATOR KELLY asked what percentage of the average weekly wage is the increased benefit. MR. TORGERSON said it wouldn't even run a percentage point. The benefit would be much lower than if they were actually working. SENATOR TORGERSON asked if some companies were self insured. MR. TORGERSON answered that this program covers about 98 percent of all employees, including municipal non-profits and governmental entities. They can choose whether to pay taxes or to simply reimburse the fund for benefits drawn by their employees. SENATOR KELLY asked what the other percentage did. MR. TORGERSON answered that he knew public officials, like the Senator, were in that category. SENATOR KELLY thanked everyone for their participation and adjourned the meeting at 2:30 p.m.