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U.S. DEPARTMENT OF LABOR
Employment and Training Administration
Washington, D. C. 20210

CLASSIFICATION

UI

CORRESPONDENCE SYMBOL

TEURL

ISSUE DATE

August 11, 1989

RESCISSIONS

None

EXPIRATION DATE

August 31, 1990

DIRECTIVE

:

UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 45-89

 

TO

:

ALL STATE EMPLOYMENT SECURITY AGENCIES

 

FROM

:

DONALD J. KULICK
Administrator
for Regional Management

 

SUBJECT

:

Permissible Deductions from Payments of Unemployment Compensation

 

  1. Purpose. To Advise State agencies of the Department of Labor's interpretation of those provisions of Federal law relating to permissible deductions from payments of unemployment compensation to individuals and to correct an error in UIPL 15-82 concerning the deduction of spousal support from payments of unemployment compensation.

  2. References. Sections 303(a) (1), 303(a) (5), 303(d) (2), 303(e) (2), and 303(g) of the Social Security Act; and Sections 3304(a) (4), 3306(f), and 3306(h), of the Federal Unemployment Tax Act; 20 CFR 616.8(e); and UIPL 1-82, UIPL 15-82, UIPL 41-83, UIPL 28-84, UIPL 37-86, UIPL 50-86 and UIPL 25-89.

  3. Background. In recent years, legislation has been considered in many States which would permit deductions from unemployment compensation which are not authorized by Federal law. ; In addition, several State court rulings have permitted or required similar deductions. In light of these events, this UIPL is being issued to set forth DOL's interpretations of the Federal laws concerning permissible deductions from payments of unemployment compensation prior to receipt by the claimant. This UIPL does not interpret Federal law concerning the delivery of full payments of compensation to someone other than the claimant where it is impossible or infeasible to make the payment directly to the claimant (e.g., when the claimant is deceased), nor does it interpret Federal law concerning the exemption of compensation from levies after receipt by the claimant.

    This UIPL does not change previous interpretations of Federal law concerning permissible deductions from compensation payable to a claimant. It does, however, correct an error in UIPL 15-82 which incorrectly stated that spousal support may be deducted from compensation payments consistent with Federal law. As discussed below, there is no authority in Federal law for this position. In addition, prior to the recent amendment requiring the intercept of child support obligations to be withheld from compensation. As will be discussed below, this advice also was in error.

    The relevant provisions of Federal law are:

    1. Section 3304(a) (4) of the Federal Unemployment Tax Act (FUTA) requiring, as a condition of employers in a State receiving credit against the Federal unemployment tax, that "all money withdrawn from the unemployment fund of the State shall be used solely in the payment of unemployment compensation, exclusive of expenses of administration......"

      Section 303(a) (5) of the Social Security Act (SSA) contains the same requirements as a condition for receiving administrative grants.

    2. Section 303(a) (1), SSA, requiring that a State law include provision for "Such methods of administration... as are found by the Secretary of Labor to be reasonably calculated to insure full payment of unemployment compensation when due."

    3. Section 3306(f), FUTA, defines "unemployment fund," in pertinent part, as "a special, established under a State law and administered by a State agency, for the payment of compensation. An unemployment fund shall be deemed to be maintained during a taxable year only if throughout such year... no part of the moneys of such fund was expended for any purpose other than payment of compensation...."

    4. Section 3306(h), FUTA, defines compensation as "cash benefits payable to individuals with respect to their unemployment."

    Since the inception of the unemployment insurance program, DOL and its predecessor agencies have interpreted these provisions as requiring that all unemployment compensation must be paid directly, as a matter of right, to the individual whose unemployment is being compensated, except for some narrowly limited statutory exceptions. Therefore, unemployment compensation may not be levied, attached, or otherwise encumbered to satisfy any public or private debt.

    These positions were based on the language of the Federal law provisions cited above, which were interpreted as reflecting the intent and purpose of the unemployment insurance program which is to provide compensation to individuals who are unemployed through no fault of their own for the purpose of maintaining theses individuals' purchasing power. To deduct compensation to pay debts, or to otherwise provide for payment to someone other than the claimant personally, would defeat the intent and purpose of the program.

    This interpretation is supported by the legislative history of the Social Security Act of 1935 which created the Federal-State unemployment insurance program. The Senate report on S. 1130 stated that unemployment compensation differed from a general relief program in that payments were made as a matter of right, not on the basis of need (S. Rep. No. 628, 74th Cong. 1st Sess. 11 (1935)), and that the States were permitted to draw from the unemployment trust fund solely for unemployment compensation purposes (Id. At 15). During the debate on the passage of the Social Security Act, the original sponsor, Senator Wagner, stated that the only important requirement [of the Social Security Act's unemployment compensations provisions] is that the State law shall be genuinely protective and that its revenues shall be devoted exclusively to the payment of insurance benefits. 79 CONG. REC. 9284 (June 14, 1934).

    Since the enactment of the Social Security Act in 1935, four amendments have been made to the Federal law which affect the payment of unemployment compensation to individuals. In 1981, Section 303(e), SSA, was amended to provide that certain child support obligations must be deducted from unemployment compensation and paid over to a State or local child support enforcement agency operating under a plan approved under Title IV.D, SSA. See UIPL 1-82 and UIPL 15-82.

    In 1983, new subparagraph (C) was added to Section 3304(a) (4), FUTA, and comparable language was added to Section 303(a) (5), SSA. These amendments permitted States, under certain circumstances, to make deductions from compensation for the payment of health insurance premiums. See UIPL 41-83 and UIPL 28-84.

    In 1985, Section 303(d) (2), SSA, was added to give States the option of deducting unrecovered overissuances of food stamp coupons from compensation for purposes of paying these amounts to the State food stamp agency. See UIPL 37-86 (51 Fed. Reg. 29713, 29717).

    Finally, in 1986, Section 303(g) was added to the Social Security Act with conforming amendments to Section 303(a) (5), SSA, and Sections 3304(a) (4) and 3306(f), FUTA. These amendments gave States the option, under prescribed conditions, of deducting from unemployment compensation an overpayment made to the claimant under an unemployment benefit program of another State or of the United States. See UIPL 50-86 (51 Fed. Reg. 27713, 34273).

    These recent amendments confirm DOL's position that deductions may be made only when authorized by Federal law. It is a general rule of statutory construction that Congress does not enact unnecessary statutes. Therefore, these amendments would not have been made had Federal law already included provision for the assignment or other deduction from compensation.

    Further, when the amendment authorizing child support intercept was under consideration, the House Committee on the Budget noted in its report that "[u]nder existing law, there is provision allowing for the withholding of unemployment benefits in cases of outstanding child support obligations." (H.R. Rep. No. 158, 97th Cong., 1st Sess. 260.) Similarly, the optional health insurance assignment, the optional deduction of overpayments made under the unemployment compensation laws of the United States or other States, all required amendment to Federal law to be permitted. In addition, by creating certain procedural or legal requirements for these optional provisions, Congress made it clear that the payment of unemployment compensationto someone other than the claimant personally may be made only under the limited conditions expressly provided for in the applicable Federal statutes.

    In a December 16, 1988, decision in a conformity proceeding involving the State of Minnesota, the Secretary of Labor affirmed DOL's position that compensation must be paid as a matter of right to eligible claimants and that deductions may be made from compensation only when authorized or required by Federal law. In that decision, Secretary McLaughlin adopted the Administrative Law Judge's conclusion "that the statutory language is clear and unambiguous, and that the legislative history and historical application of the FUTA and SSA provisions support the limiting of the use of unemployment fund monies to cash benefits for unemployed claimants or to certain other specifically stated expenditures." This decision was transmitted to the States by UIPL 25-89.

  4. Interpretation. Provisions of Federal law relating to the payment of unemployment compensation to individuals are interpreted as follows.

    1. Payment to Claimant.  State law must include provision for the payment to the claimant, as a matter of right, of unemployment compensation to which the claimant has been determined to be entitled, promptly and in the full amount which is due.  However, no conflict with Federal law is created when:

        (1)  Payment of unemployment compensation is made to another government agency as specifically required or permitted by Federal law; or

        (2)  Offset is made, consistent with Federal law, against unemployment compensation due a claimant to recover an overpayment of unemployment compensation the claimant is legally liable to repay.

    2. No Waiver or Levy.  State law must provide that no waiver, assignment, pledge, or encumbrance of any right to unemployment compensation shall be valid; and that unemployment compensation payments shall be exempt from levy, execution, attachment, order for the payment of attorney fees or court costs, or any other remedy for the collection of public or private debts, prior to receipt by the claimant.

  5. Specific Situations in which Deductions May or Must be Made from Unemployment Compensation. A State law may (or must) include provision for deducting and withholding any sum from compensation payable to an individual only if specifically permitted (or required) by Federal law.  These exceptions are limited to the following circumstances:

    1. If the claimant is legally liable to repay an overpayment of compensation made from the State's unemployment fund, that amount owed may be deducted from compensation currently payable from such fund under State law. This is permissible because the amount previously overpaid is tantamount to a prepayment of compensation currently due the claimant.

      In addition, under 20 CFR 616.8(e), the offset of overpayments of compensation made under the law of a transferring State is required when compensation is payable under a Combined-Wage Claim.

      The offset of overpayments of compensation made under the unemployment compensation program of another State is permitted, but only in accordance with Section 303(g) (1), SSA. Finally, the offset of overpayments of compensation made under a Federal unemployment compensation program is permitted, but only in accordance with Section 303(g), SSA. See UIPL 50-86 (51 Fed. Reg. 29713, 34273).

      Deductions to recover overpayments are limited to the offset of the overpayment itself. Offset may not be used to recover any additional interest or penalties due under State law as these additional amounts do not constitute a prepayment of compensation. Further, the offsetting of past due contributions, penalty, interest or costs incurred while the claimant was an employer is not permitted. See the Secretary's decision in the Minnesota conformity proceedings, dated December 16, 1988, and transmitted to the States by UIPL 25-89.

    2. If the claimant owes an uncollected overissuance (as defined in Section 13(c) (1) of the Food Stamp Act of 1977) of food stamps coupons, the State may, under provisions of State law consistent with Section 303(d) (2), SSA, deduct amounts from compensation for the purpose of paying these amounts over to the State food stamp agency. See UIPL 37-86 (51 Fed. Reg. 29713, 29717).

    3. If the claimant owes child support obligations (as defined in Section 303(e) (1), SSA), a deduction from compensation shall be made in accordance with provision of State law consistent with Section 303(e) (2), SSA, for the purpose of paying these amounts over to the appropriate State or local child support enforcement agency. See UIPLs 1-82 and 15-82.

      Section 303(e) (2) authorizes only deductions for the payment of "child support obligations" as defined in Section 303(e) (1), SSA. See Section 303(e) (2) (A) (i), SSA. Section 303(e) (1) provides that "[f]or purposes of this subsection, the term 'child support obligation' only includes obligations which are being enforced pursuant to a plan described in Section 454 of this Act [i.e., the SSA] which has been approved by the Secretary of Health and Human Services under part D of title IV of this Act." Although certain spousal support obligations are required to be included in the plan described in section 454, these spousal support obligations are not "child support obligations" and may not, therefore, be deducted under the authority contained in Section 303(e) (2). This corrects and supersedes an erroneous statement on page 2 of UIPL 15-82.

      Deduction from unemployment compensation to satisfy child support obligations not subject to the plan approved under Section 454, SSA, including when such deduction is ordered by a court, is not permitted under the authority of Section 303(e) (2) and is therefore prohibited. States may deduct child support obligations from unemployment compensation subject to the plan approved under Section 454 only under conditions fully consistent with the requirements of Section 303(e) (2).

    4. If the claimant so elects, a deduction from compensation may be made to pay health insurance premiums in accordance with the provisions of Section 3304(a) (4) (C), FUTA, and the third proviso of Section 303(a) (5), SSA. See UIPL 41-83, and UIPL 28-84.

    5. If Federal law is amended to permit (or require) any further exceptions, then deduction from compensation may (or shall) be made consistent with such amendment and DOL's interpretation of the amendment.

  6. Action. State agency administrators are requested to review existing State law provisions and agency practices involving payment of unemployment compensation to ensure that Federal law requirements as set forth in this program letter are met. Prompt action, including corrective legislation, should be taken to assure Federal requirements are met.

  7. Inquiries. Please direct inquiries to the appropriate Regional Office.