 |
February 2, 2000
Grace Kilbane
RE: Proposed Birth and Adoption Unemployment Compensation (BAA-UC) Rule Federal Register, Vol. 64, No. 232/Friday, December 3, 1999
I am writing on behalf of the Association of Private Pension and Welfare Plans (APPWP-The Benefits Association) to urge you to withdraw the proposed Birth and Adoption Unemployment Compensation (BAA-UC) Rule (Federal Register, Vol. 64, No. 232, Friday, December 3, 1999). The Department's BAA-UC proposed regulation would result in an adverse financial impact on the economy and on APPWP's member companies in excess of that contemplated in the proposed rule. The regulation will also have unintended adverse consequences that will impinge on private employers' ability to provide their employees with the most advantageous combination of benefit plans.
APPWP is a public policy organization representing principally Fortune 500 companies and other organizations that assist companies of all sizes in providing benefits to employees. Collectively, APPWP's members either sponsor directly or provide services to retirement and health plans that cover more than 100 million Americans.
APPWP's members offer a wide range of benefit and leave programs, including leave for the birth or adoption of a child. We are very concerned about the proposed BAA-UC rule. Government-paid child care leave would not only undermine the financial soundness of the Unemployment Insurance (UI) system, but would negatively affect the benefits our members currently offer their employees, as well as inhibit any expansion of benefits that our members may offer in the future. In short, the unforeseen negative consequences would be more far-reaching than any short-term benefit that policy makers might intend from this proposal.
Authority
The DOL claims to base its interpretation of the Federal UC statutes' longstanding "able and available" requirements on the President's Executive Memorandum. The agency fails to acknowledge, however, that the proposed rule is contrary to the federal "able and available" requirement as it has been interpreted for decades.
Allowing states to utilize the Unemployment Insurance Trust Fund for individuals who are not able and available to work is a dangerous precedent. Using UI funds for a fundamentally different program will effectively shred the safety net that was created and designed to protect involuntarily unemployed individuals. Moreover, the proposed regulation contradicts the DOL's expressed concerns that the UI program is already underfunded, even under current favorable economic conditions. According to the DOL's own solvency standard, over a third of all states currently do not have adequate UI reserves. During the last recession, many states depleted their UI reserves and were forced to borrow from the federal government. The DOL's statistics demonstrate that, if another similar recession occurs, states will need to borrow an additional $2 to $4 billion, even before the addition of the BAA-UC program.
Beyond our concern that the DOL currently lacks the authority to so dramatically expand the scope of the UC program, we are also concerned that the expansion of UC benefits to individuals taking BAA leave is an unacknowledged, and certainly unfunded, private benefit mandate inasmuch as employers would be required to pay for such employee leave. Employers and employees (together with unions that represent them, where applicable) rather than the federal government, are best suited to determine the benefits preferences of the workforce. Any federal initiative that removes or restricts the flexibility of employers and employees to determine such leave benefits will ultimately harm employees, since employers will be forced to reduce or eliminate other, possibly preferred benefits in order to mitigate the increased costs of having to fund BAA benefits.
The Cost of the Benefits and the Administration of the Program are Vastly Underestimated
We believe that the DOL has severely underestimated the cost of this regulation in two significant ways. First, APPWP believes that, once the regulation is implemented, the number of BAA-UC claims will rise significantly. Based on the experience our members have had with the FMLA, to the extent employers provide paid leave for these absences the number of leave-takers has risen significantly. If FMLA leave is paid for by the UC program, the utilization rate will increase far in excess of the rate contemplated in the regulation. Some private sector organizations that manage unemployment expenses for employers estimate that the direct costs of the regulation will be closer to $18 billion. Factoring in other items such as lost productivity, training and retraining, and the administrative tracking of these benefits could result in costs in excess of $80 billion.
The second way in which the cost impact of the regulation is underestimated is in terms of states' administrative costs. The regulation states that allowing BAA-eligible workers to collect UC will not impose any new requirements on states. We respectfully disagree. The proposal requires that compensation be paid through public employment offices. The UI system is not designed or equipped to provide and administer an entirely new, unrelated benefit of this magnitude. State UI agencies will have to establish a new tracking system and reporting mechanism to determine to what extent each individual recipient is otherwise eligible for paid leave, (i.e., how much compensation, if any, the individual has received from employers each week).
An examination of employer experience and costs under the FMLA administration and tracking provides a preview of the costs and administrative problems that states would incur to provide BAA-UC payments and track BAA-UC. Some of our member companies have hired third party administrators to ensure full compliance. Others have added staff members to the human resources department to track and implement the FMLA. Based on these experiences, APPWP believes that state unemployment insurance departments would have to add staff as well to handle the paperwork requirements and process payments as a result of this huge expansion of their responsibilities.
There would be a number of responsibilities with filing a claim. They would include obtaining copies of letters from doctors and adoption agencies, verification of these filings, employer verifications, and return to work papers and verifications. Just the paperwork handling alone would require an increase in state agencies' staff.
The Effect on Private Sector Leave and Benefits Policies
In addition, if an individual is unemployed for purposes of BAA-UC in order to receive UI payments, an issue arises as to the individual's continued eligibility under the company's pension and welfare benefit plans which, by their terms, only apply to active employees. Additional issues arise with regard to the application of COBRA to individuals who are deemed "unemployed" for purposes of BAA-UC. For example, it is not clear whether BAA-UC would be deemed a qualifying event for COBRA purposes.
Conclusion
Thank you for your consideration of our comments. If you have any questions or need any additional assistance, please contact Lynn Dudley, APPWP's Vice President and Senior Counsel, at (202) 289-6700.
Sincerely,
Director
Unemployment Insurance Service
Employment and Training Administration (ETA)
U.S. Department of Labor
200 Constitution Avenue, NW
Room S-4231
Washington, DC 20210
Dear Ms. Kilbane:
The proposed regulation states that, in response to President Clinton's May 24, 1999, Executive Memorandum, "the DOL is exercising its authority to interpret Federal UC statutes…by implementing an experimental program to examine the use of the UC program as a means for providing partial wage replacement to employees who desire to take approved leave or otherwise leave their employment following the birth or placement for adoption of a child." We disagree that the DOL has the authority to make a change like this through the regulatory process rather than through specific enabling legislation passed by Congress. The BAA-UC proposed rule violates the clear and unambiguous intent of the letter and the spirit of both the Unemployment Insurance and the Family and Medical Leave Act (FMLA) laws.
The proposed regulation states that the annual aggregate BAA-UC cost could range from $0 to $68 million, depending on the number of states that implement BAA-UC and the number of eligible leave-takers who will in fact apply for BAA-UC. The DOL derives this latter number from the 1997-1998 CPS and a report by the Commission on Family and Medical Leave published in 1996. 64 Fed. Reg. 67975 (1999).
Providing family leave income under the BAA-UC removes incentives for employers to offer their own paid leave plans which, in many cases, are more generous and expansive than what the BAA-UC provides. For many employers, the BAA-UC is likely to become a ceiling on benefits, since the expectation will be that employees will receive these payments through the employer-funded UI system. In addition, in states where the cost (experience) of UI claims is spread to all employers, the program would be especially unfair to employers with paid leave-another incentive for these employers to drop their own paid leave programs.
We urge the Department to withdraw this proposed regulation. The regulation, however well intentioned, will dramatically increase costs for employers and state governments. The Unemployment Insurance System would be at risk, as the significantly increased number of claimants will deplete any existing UI reserves. As a result, all UI beneficiaries, including BAA claimants, will be harmed. In addition, rather than raising the floor on employers' existing BAA leave benefits, this proposal would lead to a rapidly lowering ceiling.
James A. Klein
President