In President Trump's fiscal year (FY) 2019 budget released in February 2018, are proposals to strengthen the solvency of state unemployment insurance (UI) trust funds and to implement a national paid family leave insurance program administered through the state workforce agencies.

A national paid family leave insurance system was one of the hallmarks of the President on his 2016 campaign trail and a benefit he pledged to support in his January 30, 2018 State of the Union speech.

Paid family leave insurance

As in the FY 2108 budget, the FY 2019 budget again proposes a national insurance system that would provide up to six weeks of paid family leave for new mothers, fathers and adoptive parents. The insurance system would be administered by the states and funded through unemployment insurance reforms. Some of these reforms would expand on current program integrity policies such as further curtailment of improper payments and speedier job placement of the unemployed. (An American Budget, FY 2019, page 78.)

Currently, six states (California, District of Columbia, New Jersey, New York, Rhode Island and Washington) have laws requiring that employers provide paid family insurance. Of the states that are actively administering their paid family leave insurance programs, only New York operates the insurance program outside of the unemployment insurance agency.

For more information on state paid family leave insurance requirements and their federal tax treatment, see our special report.

See also our 2018 rates and limits report for state paid family leave and disability insurance wage bases and contribution rates. You can download it here.

Proposed FUTA credit reduction expansion

In addition to a FUTA credit reduction for states' failing to repay federal UI loan balances, President Trump proposes that the credit reduction also apply if a state fails to meet a federally-specified solvency standard for two consecutive years. The proposal states that by expanding the FUTA credit reduction in this way, states would have an incentive to adequately fund their trust funds before they face debt and borrowing.

According to the U.S Department of Labor, as of January 1, 2018, an estimated 24 of 53 states and territories had trust fund reserves large enough to meet the Department's recommended minimum adequate solvency level of maintaining a reserve balance that would pay for one full year of benefits under an average recessionary level (known as the Average High Cost Multiple (AHCM)). In fact, the Department estimates that 12 states and territories have UI trust fund balances that are below 50% of the recommended minimum adequate solvency level. (Unemployment Insurance Outlook, President's Budget FY 2019.)

The Department recommends that states have a 1.0 AHCM as the standard for maintaining a "fund adequacy target" level — meaning that the state would have enough funds to pay one year of UI benefits at the average high cost.

The budget proposal would change FUTA credit reduction rules to apply a credit reduction to states that have an AHCM of less than 0.5 on two or more consecutive January firsts.

Unlike the Obama Administration's UI tax reform proposals, the President does not propose that the FUTA wage base be increased from the current $7,000. The former Administration had proposed that the FUTA wage base be increased to $40,000, which would have required that all of the states have at least a matching wage base.

Other changes proposed by the US Department of Labor would support UI program integrity

According to the U.S. Department of Labor's FY 2019 budget document, the following additional proposals would support UI program integrity:

 — Make Reemployment Services and Eligibility Assessments (RESEA) program permanent and mandatory. Beginning in 2020, the budget proposes a permanent, mandatory RESEA program. This program would provide states with funding to provide RESEA to one-half of claimants identified as most likely to exhaust benefits as well as to all Unemployment Compensation for Ex-Servicemember (UCX) claimants.

 — Require states to use UI SIDES. State UI agencies would be required to use the State Information Data Exchange System (SIDES) to electronically exchange information with employers concerning reasons for a claimant's separation from employment. 50 states currently are already voluntarily using the UI SIDES program.

 — Require states to cross-match against the National Directory for New Hires (NDNH). State UI agencies would be required to use the NDNH to better identify individuals continuing to claim UI benefits after returning to work, which is one of the leading root causes of UI improper payments

 — Allow the Secretary of Labor to establish UI corrective actions. The Secretary of Labor would be allowed to require states to implement corrective action measures for poor state performance in the UI program, helping to reduce improper payments in states with the highest improper payment rates.

 — Require states to cross-match with SSA's prisoner database and other repositories of prisoner information. Under current law, state UI agencies' use of this cross-match is permissible but the Social Security Administration's (SSA) Prisoner Update Processing System (PUPS) is currently only used by some states for UI verification.

 — Allow states to retain up to 5% of UI overpayments for program integrity use. States would be allowed to retain up to 5% of UI benefit overpayment recoveries to fund additional program integrity activities.

 — Require states to use penalty and interest collections solely for UI administration. States would be required to deposit all penalty and interest payments collected through the UI program into a special state fund to be used for improving state administration of the UI program and reemployment services for UI claimants. States with high improper payment rates would be required to use a portion of the funds for program integrity activities. Currently, states have discretion to use these funds for non-UI purposes.

For more on the President's proposed FY 2019 budget, see the White House budget website.

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