On July 13, 2012, the state of Illinois enacted HB 5632 in response to the Federal Trade Adjustment Assistance Extension Act of 2011 (TAAEA) which included (in it’s Section 252) a mandate for states to institute UI Integrity measures designed to restore the health of the floundering unemployment insurance system. Section 252 measures are part of a larger effort by the federal government to address the growing U.S. deficit, and are specifically designed to help prevent the improper payments which have long been a drain on the unemployment insurance system.
With TAAEA’s Section 252, the federal government has mandated the states to apply new, stricter rules and practices which place a greater burden on employers to respond quicker, respond better, be more on top of what their third party administrator (TPA) is doing on their behalf, and to be financially responsible for overpayments on unemployment claims charges whenever they hold any blame for the overpayment. Past DOL claims that 19% of UI benefit overpayments stem from employers’ untimely response and/or inaccurate information were a major impetus to hold employers accountable for these overpayments. For more information, see our earlier blog post here.
According to the Department of Labor, Illinois does not currently have an unpaid Federal Unemployment Account (FUA) loan balance as of September 24, 2012. Because of prior borrowing, however, they are carrying a significant amount of unpaid interest on the previous loan (as of July 30, 2012, that figure was $52 million, and would be higher by now). The good news for Illinois employers is that Illinois is not a credit reduction state, so they are not projected to lose part of their 5.4% FUTA credit for 2012.
Although they may be faring better than some other states, Illinois and its employers have great incentive to pay off the interest on their UI loan, which will continue to bloat employers’ taxes until its paid off.
The relevant portion of the new Illinois legislation updates Section 706 of their Unemployment Insurance Act as follows:
“If benefits are paid pursuant to a finding, determination, reconsidered finding or determination, or a decision of a Referee, the Board of Review, or a court which is finally reversed or modified in subsequent proceedings with respect thereto, the benefit charges, for purposes set forth in Section 1502.1, shall be treated in the same manner as if the finding, determination, reconsidered finding or determination, or decision of the Referee, the Board of Review, or the court pursuant to which benefits were paid had not been reversed if: (1) the benefits were paid because the employer or an agent of the employer was at fault for failing to respond timely or adequately to the Department’s request for information relating to the claim; and (2) the employer or agent has established a pattern of failing to respond timely or adequately to such requests.”
Although the new legislation references an “established pattern,” the criteria for what exactly constitutes a pattern has not yet been made available.
Illinois’ new law will take effect on January 1st, 2013.
If you are an employer with operations in the state of Illinois, now is an opportune time to ensure that your in-house and/or third party administrator is prepared to address the upcoming changes as a result of the newly-passed legislation.
With this, Illinois joins the ranks of other states that have recently enacted UC Integrity legislation, including North Carolina, Minnesota, Nebraska, Oklahoma, and West Virginia.
Employers in other states, be on the lookout for similar legislation likely headed your way.
How Will “Section 252” Impact You?
Download our one page Fact Sheet on Section 252 to get a better understanding of key provisions that will directly impact employers.
Disclaimer: This article is general in nature and is not intended to replace the guidance of an employment tax expert and/or legal professional with regards to an appropriate course of action in your particular circumstances. Please consult with a professional for appropriate advice in your case. Pursuant to IRS “Circular 230” rules, any information included herewithin is not intended or written to be used for the purpose of avoiding penalties under the federal Internal Revenue Code.