SB 261 - UNEMPLOYMENT COMPENSATION Number 1742 CHAIRMAN KOTT announced the next order of business would be SB 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," sponsored by the Senate Labor and Commerce Committee. SHERMAN ERNOUF, Legislative Assistant to the Senate Labor and Commerce Committee, Alaska State Legislature, explained the SB 261 was introduced by request of the Department of Labor. He explained it is a cleanup bill of the unemployment Security Code. Mr. Ernouf then referred the committee to Dwight Perkins. Number 1784 DWIGHT PERKINS, Special Assistant, Office of the Commissioner, Department of Labor, read his statement into the record: "The bill before the committee makes several changes to the Employment Security Act in six major areas: Federal income tax withholding; confidentiality of records; contributions and collection; benefit overpayments; finality of determinations; and appeals. In addition, the bill contains a few minor and technical amendments. "Regarding income tax withholding, one important change brings the Employment Security Act into conformity with a new federal provision that requires states to allow claimants to have income withheld from their benefits to cover their federal income tax liability. "In the confidentiality of records section, proposed changes to AS 23.20.110 would allow the department to provide additional specific unemployment insurance information to other entities under strict disclosure guidelines. This information exchange will support and enhance the department's own programs, as well as assisting other state programs. The information would be used only to protect the unemployment compensation fund; enhance employment, training, and labor market information programs; and assist state eligibility verification and collection functions. These changes do not rescind the public disclosure prohibitions already in As 23.20.110. They are intended only to increase efficiency of state government while retaining current privacy safeguards. "In the contributions and collection section, Mr. Chairman, 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. The department would use these provisions only in situations where existing remedies in the Employment Security Act are not effective, as for example, where an employer operates without significant assets subject to lien or seizure. These uncollectible accounts are currently being subsidized by the rest of Alaska's employers who pay contributions on a timely manner. An additional change allows the department to notify employing units of their contractor's or subcontractor's liability for contributions to the unemployment compensation fund. This information will help employers to meet their obligation to require contribution bonds of their subcontractors before making contract payments. "In the benefit overpayments section, the standard for waiving unemployment insurance overpayments would be changed from `great hardship' to `equity and good conscience.' The new standard would allow the department to consider other factors, such as the degree of good faith in claiming benefits and the claimant's detrimental reliance on these benefits. The bill would also permit the department to write off uncollectible overpayments after two years. Practice has shown that most recoverable overpayments are collected within two years. "In the finality of determinations, the department would be given clear authority to correct any determination during the benefit year of an unemployment claim. This change will increase the accuracy of claim adjudication. "In our appeals section, a proposed amendment would provide a uniform 30 day time period for filing appeals from any determination made by the department. The current 15 day period probably impacts rural parties unfairly and may not allow enough time to review and consider an appeal. A longer period would still allow for prompt disposition of claims and assessments. "The bill would also clarify the legal effect of appealed decisions. It would make it clear that findings of fact and conclusions of law in unemployment hearings are not binding in another proceeding. The purpose of this amendment is to prevent parties from excessively litigating issues based on the effect the department's rulings may have on later civil litigation. This change will help keep unemployment hearings speedy, informal and inexpensive. "Both the 30 day appeal period and the provision restricting the scope of department decisions address concerns of a recent legislative audit of the unemployment insurance appeals process. "Finally, Mr. Chairman and committee members, the minor and technical changes that I spoke about earlier are additional amendments would allow an insured worker to continue receiving unemployment 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 required while attending an approved training course; correct the definition of the `waiting week' in the Employment Security Act; and finally, clarify the treatment of `cafeteria plan' payments under the wage definition in the Act." MR. PERKINS said that concludes his testimony. Number 2222 REPRESENTATIVE ROKEBERG referred to page 8, line 14, Section 14, where the bill lowers from six years to two years the period in which the commissioner shall seek to make recovery for overpaid benefits and said his first impression is it seems like we're not being diligent enough to collect these overpayments. MR. PERKINS said he would defer that question to Mr. Torgerson. He said regarding the recoverable payments, he believes the department is at 90 percent of payments that are overpaid. Number 2332 RON TORGERSON, Chief Hearing Officer, Division of Employment Security, Department of Labor, explained he worked on the drafting of the bill. He said most of their overpayments are recovered. He said their non-front recovery rate is better than 90 percent. Most of them are recovered or offset from benefits within about two years. Mr. Torgerson explained this won't cause the department to walk away from the overpayments at all. It is not prescriptive and doesn't require the department to write off the overpayment, it just allows it. He explained there have been instances where they've written off an overpayment and then determined somebody has returned to Alaska and have reinstituted it and collected it. This wouldn't significantly impact collection. REPRESENTATIVE ROKEBERG asked why we are doing this. MR. TORGERSON said he believes the department's point is just to not carry uncollectible overpayments on the books. It does drag down the recovery rate (indisc.). If they're uncollectible, it seems expedient to write them off. He noted some stats don't ever write them off, some states write them off after six months, two years is sort of medium period to keep the overpayment on the books [END OF TAPE....] TAPE 96-33, SIDE A Number 001 MR. TORGERSON continued, "It isn't a vital position, I don't believe, it is simply that there is no reason for showing overpayments on the books that are uncollectible." REPRESENTATIVE ROKEBERG noted his concern that they aren't being carried on the record. It says in the provision that a record could also be thrown out. He pointed out that a six year holding period for records is similar to the Internal Revenue Service's standards for record keeping. Representative Rokeberg referred to throwing the record out and questioned how would you collect on a claim. Number 081 MR. PERKINS said he believes that even after six years, if a person returns to the state they would be able to collect those funds. He stated it is not a complete deletion of the case file. It is a measure of time in a window period that they can look back and see what is outstanding or what is not outstanding after two years. Mr. Perkins stated that in no way do they intend to delete the file. If the person comes back to the state, the department plans on diligently collecting those funds. He again pointed out that they have had a 90 percent recovery rate. CHAIRMAN KOTT asked if the 90 percent recovery rate fell within the two year time period or over six years. MR. TORGERSON explained most of the overpayments are collected fairly quickly and usually by offsetting against benefits that the person may be eligible for down the line. He said he can't confirm, without more research, exactly how many overpayments are recovered within two years. He noted they are working on a new system which is called a "Bart System" which is being instituted under a federal grant. It would allow the department to monitor and discover overpayments much more quickly. It should increase the department's collection rate even more. REPRESENTATIVE ROKEBERG asked what a typical circumstance is that creates an overpayment. MR. TORGERSON said a majority of the overpayments are because of misreported wages on claims. Wages and other income are deductible from benefits and, in most instances, it is not fraudulent misreporting, it is just incorrect answers on claim forms. He informed the committee the average overpayment is about $216 which is slightly over the maximum benefit amount for one week. The vast majority of the overpayments are recollected very quickly by offset from any future benefits. REPRESENTATIVE ROKEBERG pointed out that in Alaska there is seasonal work. He asked if the department carries the outstanding balances to the following calendar year. MR. TORGERSON said they do. The current system the department is operating under, basically cross matches, every quarter, the claims filed against the wage reports of every employer in the state. If the program sees that an individual files a benefit claim in a quarter in which the employer has reported wages for him, the probability of a waited match is assigned to that and the case is investigated. He noted the new system will do this more efficiently. Number 371 REPRESENTATIVE SANDERS said the file isn't being thrown away, it is just being put into a file drawer somewhere. If something comes up, they can go and get it back out of the drawer. MR. TORGERSON said it gets cases out of the system that has a much lower probability of collecting so that they can focus on the cases that are collectable. Number 412 REPRESENTATIVE PORTER asked what would trigger the ability to go back to a case. MR. TORGERSON said he wasn't sure exactly how long the computer system keeps claims archived, but it is a good many years. He said the department has had cases where the head of the benefit payment control unit has reinstituted the overpayment and collected it after it becomes obvious that, through a tip or any other information, that the overpayment is collectable. Number 458 MR. PERKINS said once there is a qualifying event by a claimant, then that would raise a red flag, or possibly through employment security taxes that the employer pays on an individual. REPRESENTATIVE PORTER said if the file is purged, how would the red flag get raised. MR. TORGERSON said he can't say for sure. He said he wants to emphasize that this particular section doesn't require the department to write off anything. The department isn't required to write off after six years. Number 516 CHAIRMAN KOTT said in the provision, it indicates that the commissioner may declare the sums uncollectible and cancel both the resulting shortage and related records. It doesn't mean that the commissioner will. Chairman Kott said he would suspect that in some circumstances he won't. MR. TORGERSON said that is correct. He said the commissioner would like the discretion to be able to write off what appears to be uncollectible overpayments quickly. The commissioner isn't necessarily going to write those overpayments off. REPRESENTATIVE ROKEBERG asked if this wouldn't have the net affect of making the commissioner's record of collection look better. MR. TORGERSON indicated it would. He pointed out Oklahoma has one of the worst overpayment recovery records simply because they write off nothing. They're still collecting on overpayments made after World War II. He said the department is subject to a variety of federal oversight and one of the components is overpayment recovery rate. Mr. Torgerson said the commissioner is not extremely interested in having the records burdened with uncollectible accountants. He stated Alaska has been first in the nation in overpayment recovery. In past years we were fourth or sixth. Number 769 CHRIS CHRISTENSEN, Staff Counsel, Office of the Administrative Director, Alaska Court System, was next to come before the committee. He explained when a bill is labeled "housekeeping and cleanup" sometimes it is easy for it to fall through the cracks. He said there is one very substantial change to current law in Section 3 which was added at the Court System's request by the Department of Labor prior to introduction. Mr. Christensen said both the state and federal constitutions provide that if a person is charged with a crime and can't afford a lawyer, the state has to provide one for free. The Court System has the prime responsibility for determining indigency and does the best job they can, but they are funded by the legislature with only four people statewide, two in Anchorage and two in Fairbanks. Section 3 provides the Court System with a very important new tool to determine indigency. It says the court system will have access to the Department of Labor's employment security tax records for purposes of determining indigency. Mr. Christensen said this will make it much easier for the Court System to determine if a person is truly eligible. He said they also requested that an additional section be put into Section 3 which would give the Department of Law's Finance Collection Unit access to the same data. He noted the Finance Collection Unit is funded by program receipts. It has responsibility for collecting criminal fines that are unpaid as well as collecting the monies which the Court System orders indigent defendants to pay for their public defender services once they acquire money in the future. Mr. Christensen explained that currently, the Finance Collection Unit primarily goes after permanent fund dividends because there is no easy and inexpensive way to do anything else. Once they have got access to these records, they'll be able to garnish paychecks because they'll know when somebody has gone back to work and is making money. Number 800 There being no further witnesses, REPRESENTATIVE ROKEBERG made a motion to move SB 261 out of committee with individual recommendations and a zero fiscal note. CHAIRMAN KOTT asked if there was an objection. Hearing none, SB 261 was moved out of the House Labor and Commerce Committee.