ETA Final Rule ETA Final Rule
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Part II
Department of Labor
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Employment and Training Administration
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20 CFR Part 604
Birth and Adoption Unemployment Compensation; Final Rule
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DEPARTMENT OF LABOR
Employment and Training Administration
20 CFR Part 604
RIN 1205-AB21
Birth and Adoption Unemployment Compensation
AGENCY: Employment and Training Administration, Labor.
ACTION: Final rule.
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SUMMARY: The Department of Labor (Department) is issuing this Final
Rule to create an opportunity for State agencies that administer the
Unemployment Compensation (UC) program to provide partial wage
replacement, on a voluntary, experimental basis, to parents who take
approved leave or who otherwise leave employment following the birth or
placement for adoption of a child. This regulation permits interested
States to experiment with methods for allowing the use of the UC
program for this purpose.
EFFECTIVE DATE: This Final Rule is effective August 14, 2000.
FOR FURTHER INFORMATION CONTACT: Gerard Hildebrand, Office of Workforce
Security, Employment and Training Administration (ETA), U.S. Department
of Labor, 200 Constitution Avenue, N.W., Room S-4231, Washington, DC
20210. Telephone: (202) 219-5200 ext. 391 (this is not a toll-free
number); facsimile: (202) 219-8506; e-mail: ghildebrand@doleta.gov.
SUPPLEMENTARY INFORMATION:
I. Introduction
A. Overview
On December 3, 1999, we published for comment in the Federal
Register a Notice of Proposed Rulemaking (NPRM) proposing to add new
part 604 to 20 CFR. Part 604 will permit the State agencies that
administer the UC program to provide partial wage replacement, on a
voluntary, experimental basis, to parents who take approved leave or
who otherwise leave employment following the birth or placement for
adoption of a child.
The preamble in the NPRM contained a detailed explanation, by
subpart, of each proposed section. Much of the material in the NPRM is
repeated in this document to adequately respond to comments and to
eliminate the need for readers to refer to the NPRM for context. Where
substantive changes to the proposed rule are made, the changes are
discussed in the relevant preamble section of this Final Rule.
Technical revisions, however, are not discussed in this preamble.
Unless otherwise mentioned, references in this preamble to changes are
comparisons between the NPRM and Final Rule.
The NPRM was published with two appendices: Model State Legislation
(Appendix A), which is optional draft legislation that States may use
as a guide in developing legislation, and a Commentary (Appendix B) in
question-and-answer format that provides information on the Model State
Legislation and will aid States in making policy decisions. Comments
received regarding these appendices are discussed in this preamble. The
appendices are attached to this notice in the form of an Unemployment
Insurance Program Letter (UIPL). The appendices will not appear in the
CFR.
The NPRM invited the public to comment over a 45-day period. We
believed this period was ample because of the simple nature of the
experiment and the relatively short length of the proposed rule,
although we did receive a number of requests for additional time. To
accommodate the holiday season, we extended the comment period 15 days,
through February 2, 2000. Comments were accepted by mail and electronic
media. All comments submitted by this date, including correspondence
received prior to publication of the proposed rule, were considered in
developing this Final Rule.
B. Background
Based on findings from a 1996 study conducted by the Commission on
Family and Medical Leave, which indicated that parents were not able to
take needed leave because they could not afford it, and in response to
the legislative efforts by some States to provide UC to parents, the
President directed the Secretary of Labor on May 23, 1999, to propose
regulations allowing unemployment fund moneys to be used to provide
partial wage replacement to mothers and fathers on leave following the
birth or adoption of a child. The President elaborated on this Birth
and Adoption UC (BAA-UC) proposal in a May 24, 1999, memorandum to the
heads of executive departments stating that ``the Department of Labor
is to evaluate the effectiveness of using the system for these or
related purposes.''
Through the BAA-UC experiment, States will be able to provide
partial wage replacement to enable some parents, who otherwise would
not have taken any leave, to do so. Others, who took leave but were
compelled to return to work prematurely because they could not afford
to be off work, may be able to take longer leave periods. We believe
this increase in both the incidence and duration of leave-taking will
benefit these parents and their children by allowing more time for
parent-child bonding and for arranging stable child care. The BAA-UC
experiment will test whether enabling these parents to have this time
to be with their newborns and newly-adopted children by providing them
with partial wage replacement will promote their long-term attachment
to the workforce.
C. The Federal-State UC Program
The Federal-State UC program is administered as a partnership of
the Federal government and the States. States collect State UC taxes
used to pay compensation while the Federal government collects taxes,
used for grants for State UC administration, under the Federal
Unemployment Tax Act (FUTA). (The FUTA is codified at 26 U.S.C. 3301-
3311.) The Department has broad oversight responsibility for the
Federal-State UC program, including determining whether a State's law
conforms and its practices substantially comply with the requirements
of Federal UC law. If a State's law conforms and its practices
substantially comply with the requirements of the FUTA, then the
Secretary of Labor issues certifications enabling employers in the
State to receive credit against the Federal unemployment tax, as
provided under section 3302, FUTA. If a State and its law are certified
under the FUTA, and the State's law conforms and its practices
substantially comply with the requirements of Title III of the Social
Security Act (SSA), then the State receives grants for the
administration of its UC program. (Title III of the SSA is codified at
42 U.S.C. 501-504.) The Department enforces Federal UC law requirements
through the FUTA credit and grant certification processes.
D. Ability To Work and Availability for Work
The Department has the authority and responsibility to interpret
the provisions of Federal UC law such as the requirements that
individuals must be ``able to work and available for work'' (known as
the A&A requirements) to be eligible for UC. Although no explicit A&A
requirements are stated in Federal law, the Department and its
predecessors (the Social Security Board and the Federal Security
Agency) interpreted Federal UC law as requiring participating States to
have A&A requirements.
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In response to practical economic and societal concerns, we have,
on several prior occasions, exercised our authority to interpret
Federal UC statutes regarding the A&A requirements to address several
specific areas: approved training, illness, jury duty and temporary
layoffs.
(1) Approved Training
Prior to incorporating the training provision into the Federal
laws, we encouraged States to treat individuals in training approved by
the State agency as meeting the A&A requirements since such training
represents the most effective step available to the individual to
return to work. We cautioned that State agencies should only approve
short-term training that would make individuals job ready. In 1970,
Congress, recognizing the importance of training in remedying
unemployment, made this training provision mandatory for all States.
(Section 3304(a)(8), FUTA.)
(2) Illness
Eleven States allow an individual who initially meets the A&A
requirements, but then becomes ill, to receive UC payments without
interruption, provided that no suitable work is offered and refused. We
approve such State laws in an effort to deter disqualification for UC
where a claimant was not able and available for perhaps one day, or
even one hour, out of a week. Two States, Alaska and Massachusetts, cap
the number of weeks ill claimants can collect UC at six weeks and three
weeks, respectively; the other States have no statutory limitations.
The Federal A&A requirements are preserved because claimants must
initially demonstrate their ability to and availability for work before
the illness and must be held ineligible if they refuse an offer of
suitable work.
Similarly, under the Federal-State Extended Unemployment
Compensation Act of 1970 (EB) (26 U.S.C. 3304, note), an ill individual
may receive UC only if no suitable work is rejected. The EB program
provides additional weeks of compensation to individuals who have
exhausted their rights to regular compensation during times of high
unemployment and contains a specific ``work search'' requirement. This
work search requirement is suspended for EB claimants who are
hospitalized for an emergency or life-threatening condition (20 CFR
615.8(g)(3)(i)(B)). This suspension is permitted only if the State law
contains a similar provision to those explained above, which must be
consistent with the Federal A&A requirements.
(3) Jury Duty
We accept that States may pay UC to individuals serving on jury
duty consistent with the Federal availability requirement. This is
reasonable because individuals are compelled under the threat of
contempt of court by the judicial branch of the government to go on
jury duty, and attendance at jury duty may be taken as evidence that
the employee would otherwise be available for work. It would be
inconsistent for the State to compel jury service and at the same time
disqualify unemployed persons from UC for complying. Most employment is
not considered an excuse for avoiding jury duty, and unemployment would
also likely not be an excuse from jury duty. Indeed, EB claimants are
exempt from the work search provision while on jury duty (20 CFR
615.8(g)(3)(i)(A)).
(4) Temporary Layoffs
In a temporary layoff, the employer is unable to provide work for a
short period of time, but both the employer and the employee have the
expectation that the employee will return to work on a specific date.
When the employer recalls the employee, the employee must accept or be
denied UC. In these cases, the availability requirement is essentially
limited to the employer who laid off the employee. This recognizes that
such employees are frequently career employees who would likely quit a
new job to return to their former employer when the layoff ends;
therefore, other employers would not likely hire such employees.
E. The BAA-UC Experiment
Under its authority to interpret Federal UC law and consistent with
its broad oversight responsibility, we interpret the Federal A&A
requirements to include this voluntary experiment for examining the use
of the UC program to provide partial wage replacement to employees who
take approved leave or who otherwise leave employment to be with their
newborns or newly-adopted children. This experiment will allow parents
of newborns and newly-adopted children to strengthen their availability
for work by providing them with the time and financial support to
address several vital needs that accompany the introduction of a new
child into the family. The experiment will test whether this
opportunity for parents to provide the initial care that the child will
need, to form a strong emotional bond with the child, and to establish
a secure system of child care, will promote the parents' long-term
attachment to the workforce.
II. Comment Overview
A. Pre-NPRM Publication Correspondence
Approximately 500 pieces of correspondence were received before the
NPRM was published in the Federal Register. These comments came largely
from employers, both for-profit and not-for-profit, and employer
associations. We also received comments from members of Congress, State
legislators, and private citizens.
The bulk of the pre-NPRM publication correspondence addressed
compensation to individuals on leave under the Family and Medical Leave
Act (FMLA) without regard to the differences between the FMLA and the
Birth and Adoption UC (BAA-UC) experiment. Because the majority of the
comments stated opinions regarding compensating employees on leave
under the FMLA and because the correspondence preceded publication of
the NPRM, we cannot discern specifically many writers' opinions
concerning BAA-UC. (For example, concerns about the costs of wage
replacement for employees on leave under the FMLA do not necessarily
translate into concerns about the costs of BAA-UC which apply to a
different, though partially overlapping, universe of potential
recipients.) However, the specific issues (i.e., the reasons that
support the opinions) noted in the pre-NPRM publication correspondence
are included, as appropriate, with the post-NPRM publication comments.
B. Post-NPRM Publication Comments
Approximately 3,800 pieces of correspondence were submitted by the
close of the comment period. Of those expressing an opinion, the post-
NPRM publication correspondence indicated almost equal levels of
support for and against BAA-UC. As with the pre-NPRM publication
correspondence, the respondents included employers and employer
associations, members of Congress, State legislators, State Employment
Security Agencies (SESAs), and private citizens. As with the pre-NPRM
publication correspondence, much of the post-NPRM correspondence solely
addressed the FMLA without distinguishing the FMLA from the BAA-UC
experiment. All the timely comments were considered and all
correspondence is included in the rulemaking record.
We also received comments that were beyond the realm of both the
BAA-UC regulation and the UC program (e.g., prison reform, income tax
reform, Federally-mandated vacations, availability of compensatory time
in lieu
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of overtime pay under the Fair Labor Standards Act, eligibility of BAA-
UC recipients for employer-paid benefits). Because these comments
exceed the parameters of the UC program and this regulation, they are
not addressed herein.
We appreciate the time and attention that respondents gave to
reviewing the NPRM. Although some respondents requested that we contact
them individually about their comments, the large volume of comments
prevented us from doing that and we believe this document adequately
responds to their comments.
III. The Issues
A. General Overview
Generally, proponents of BAA-UC commented that BAA-UC is a logical
extension of the UC program that would help new parents balance work
and family responsibilities, would keep people off welfare, and could
be easily and inexpensively administered. Many proponents referred to
studies that discussed the positive effects on the workforce attachment
of individuals who receive paid parental leave. Conversely, those
opposing the rule urged that we withdraw the rule because the costs
would be too great, child care and rearing are the personal
responsibility of parents and beyond the scope of government, and the
BAA-UC initiative runs counter to the intent of both the UC program and
the FMLA. Some respondents consider the idea of partial wage
replacement for new parents who are not working commendable, but they
think that the UC program is the incorrect vehicle for such a benefit.
B. Misconceptions About the Rule
Analysis of the comments revealed two significant misconceptions
regarding BAA-UC: (1) that BAA-UC is for leave under the FMLA, and (2)
that BAA-UC is a new program, separate and apart from the regular UC
program.
(1) Relationship Between BAA-UC and the FMLA
Many respondents referred to BAA-UC as ``paid FMLA'' leave or
``paid family leave.'' It was also apparent from the many comments
expressing concerns about the potential for employee abuse, personal
illness, and time away from work to care for family members, as well as
the administrative burdens on employers in regard to the FMLA, that
respondents viewed BAA-UC as tied to FMLA leave. The misconception that
BAA-UC is for leave taken under the FMLA is understandable, as an
impetus for BAA-UC was the finding in the 1996 study conducted by the
Commission on Family and Medical Leave, A Workable Balance: Report to
Congress on Family and Medical Leave Policies (April 30, 1996)
(hereinafter called the ``FMLA study''), that new parents were not
taking available unpaid leave because they could not afford it.
Although there may be many cases where parents of newborns and newly-
adopted children will be simultaneously eligible for BAA-UC and leave
under the FMLA, the two are legally unrelated to each other. For
example, the FMLA applies to employers with 50 or more employees and
provides eligible employees with up to 12 weeks of unpaid, job-
protected leave for their own or a family member's serious health
condition, or to care for a newborn or newly-adopted child. The BAA-UC
initiative, on the other hand, is voluntary on the part of the States,
may not be made contingent on employer size, is limited to parents of
newborns and newly-adopted children, does not guarantee leave, and has
no job protection component.
(2) BAA-UC Is Not a ``New'' Program
Some respondents commented that BAA-UC is a new program, separate
and apart from the regular UC program. Some comments included
administrative questions regarding the relationship between ``the new
benefit program'' and the UC program. Other respondents referred to
BAA-UC as ``a new and disparate benefit unrelated to legitimate'' UC
and stated that development of BAA-UC was beyond our authority.
Concerns were also expressed that this ``entirely different benefit''
would artificially inflate the unemployment rates that trigger the
extended benefit program. Based on the idea that BAA-UC is a separate
program, many respondents contended that the unemployment funds that
would be used to finance BAA-UC should be refunded to the employers.
BAA-UC is not a new program. Rather, it creates a new basis for
eligibility under the ``regular'' UC program. BAA-UC is an experimental
opportunity that is based on an expanded interpretation of the Federal
requirements that UC recipients be able to work and available for work.
As discussed, interpretation of Federal UC requirements is our
responsibility and within our authority.
The comments regarding the NPRM fell into broad categories and are
discussed, by category, in the following section.
C. The Comments
(1) Legal Authority For BAA-UC
(a) Presidential Directive
We received comments arguing that Congress should act on this
proposal through legislation and that the President's directive to the
Department to use the UC program to pay benefits in this manner is
unconstitutional and violates the Administrative Procedure Act (APA).
As the agency overseeing the Federal-State UC program, the Department
has the authority to interpret the Federal UC laws, and we are
exercising this authority through notice-and-comment rulemaking. The
President's directive in no way limits the Secretary's discretion to
consider comments in developing a final BAA-UC rule. Nor does this
rulemaking usurp Congress's legislative authority; this rule represents
the Department's interpretation of existing Federal UC law
requirements.
(b) Federal Authority
We received comments regarding the Federal government's authority
under the Federal UC laws to authorize the payment of BAA-UC. Several
respondents suggested that no Federal A&A requirements exist and that
States do not need a regulation to permit BAA-UC and can provide even
broader coverage regarding eligibility beyond the payment of BAA-UC.
Some respondents argued that Federal law sets a floor, but not a
ceiling or cap, on UC coverage so that the States may pay benefits to
whomever they wish (e.g., even those on leave to care for a parent).
Other respondents argued that the Federal UC laws necessarily prohibit
the payment of BAA-UC and others suggested that the BAA-UC proposal is
inconsistent with the Federal A&A requirements, as they have been
interpreted in the past, as part of the Federal-State UC program.
The Department and its predecessors (the Social Security Board and
the Federal Security Agency) have interpreted and enforced Federal A&A
requirements since the inception of the Federal-State UC program.
Several respondents noted that the A&A requirements are not clearly
stated in the Federal UC statutes. Although no explicit A&A
requirements are stated in Federal law, the Department and its
predecessors interpreted four provisions of Federal UC law, contained
in the Social Security Act (SSA) and Federal Unemployment Tax Act
(FUTA), as requiring that UC claimants be able to and available for
work. Two of these provisions, at section 3304(a)(4), FUTA,
[[Page 37213]]
and section 303(a)(5), SSA, limit withdrawals, with specific
exceptions, from a State's unemployment fund to the payment of
``compensation.'' Section 3306(h), FUTA, defines ``compensation'' as
``cash benefits payable to individuals with respect to their
unemployment.'' The A&A requirements provide a test of an individual's
``unemployment.'' The other two provisions, found in section
3304(a)(1), FUTA, and section 303(a)(2), SSA, require that compensation
``be paid through public employment offices.'' The requirement that UC
be paid through the public employment system (the purpose of which is
to find people jobs) ties the payment of UC to an individual's ability
to work and availability for work. These A&A requirements serve, in
effect, to ``cap'' UC eligibility.
Some respondents noted that we could authorize the payment by
States of BAA-UC simply by issuing a UIPL rather than issuing a
regulation. Other respondents encouraged notice-and-comment rulemaking,
rather than issuing a UIPL. Because permitting States to pay UC for
birth and adoption represents a change in interpretation and in order
to permit public input into the decision-making process, we engaged in
notice-and-comment rulemaking.
In addition to interpreting Federal UC laws to include A&A
requirements, we have previously interpreted the A&A requirements in
some specific areas: approved training, temporary layoffs, illness, and
jury duty. We received some comments suggesting that existing
interpretations of the A&A requirements, such as those regarding
approved training and temporary layoffs, are not comparable to the
payment of BAA-UC because they are directed toward re-employment.
However, the goal of the BAA-UC experiment is to test the proposition
that providing UC to new parents can enhance and strengthen their
attachment to the workforce through the provision of benefits during a
time when they are faced with the added responsibilities of a newborn
or newly-adopted child so that they will remain in the workforce.
While paying BAA-UC is a departure from past interpretations, it is
a permissible departure which we see as a natural progression evolving
from our prior interpretations. At the inception of the Federal-State
UC program, the A&A requirements were narrowly interpreted, but the
realities of working life have, over the years, led us to revise our
interpretation. We have gone from a strict interpretation of the A&A
requirements to a more flexible one. While the A&A requirements are a
test of unemployment measuring an individual's attachment to the
workforce, our interpretation recognizes that people can still be
attached to the workforce even though there are situations and
circumstances affecting their lives, like illness, jury duty, approved
training, or temporary layoffs that affect their ability to meet the
stricter interpretation of the A&A requirements.
Each of our four prior interpretations of the Federal A&A
requirements recognize situations in which the classic definitions of
A&A should not apply for reasons of practicality or economic reality.
The illness interpretation recognizes that it is unreasonable to
penalize an individual who has already established that s/he is
available for work simply because s/he becomes ill for a short time.
The jury duty interpretation recognizes that it is unreasonable to hold
an individual unavailable for work when the State has compelled his or
her attendance in court for jury service. Both of these interpretations
derive from a flexible application of the A&A requirements because we
want a practicable, sound, workable system. The purpose of UC is to
provide partial wage replacement during temporary spells of
unemployment. Terminating or denying UC to someone for serving on a
jury or because the individual has a short illness undermines this
purpose by leaving the individual without financial support for no good
reason. It would deprive the individual of UC support without regard to
the realities of working life, that is, that no one can be constantly
available for work. The approved training interpretation recognizes the
economic reality that, in some cases, making oneself unavailable for
immediate work opportunities produces a greater benefit to an
individual's ability to obtain good work and strengthens his or her
attachment to the workforce. The temporary layoff interpretation
recognizes the economic reality that when an individual already has a
job to which s/he will return, it does not make sense to compel him or
her to be able and available for other work. All of these
interpretations recognize the reality that attachment to the
workforce--the ultimate aim of the A&A requirements--can be
demonstrated in other ways than by a continuous availability for any
job. While none of these interpretations precisely parallels the
payment of BAA-UC, they do operate on the same premises: that
situations exist in which it is important to allow a flexible
demonstration of availability and in which attachment to the workforce
can be demonstrated, and indeed strengthened, without requiring a
current demonstration of availability.
Thus, in response to practical economic and societal concerns, we
have revised our interpretation of the A&A requirements for the limited
purposes of the BAA-UC experiment to include parents of newborns and
newly-adopted children. States may wish to experiment by providing UC
to these individuals to measure whether such payments will increase
these individuals' attachment to the workforce.
We acknowledge that this is a reversal of our position taken in
1997, denying the State of Vermont's proposal to use UC in this manner
to pay individuals on family and medical leave. The subsequent interest
shown by several States, by various members of Congress, and by private
organizations in using the UC program in this manner led us to analyze
and re-evaluate our policy on this subject. While the interpretation
that supports this rule is a change from the interpretation we
expressed in our 1997 letter to Vermont, we believe that the change is
supported by studies showing the benefits of providing cash benefits to
those seeking to take parental leave. As demonstrated above, our new
interpretation is part of an evolving interpretation of the Federal A&A
requirements that recognizes practical and economic realities.
Several studies potentially relevant to BAA-UC were mentioned in
the comments submitted by BAA-UC proponents. A few of these studies
examined United States (U.S.) parental leave practices, while others
studied European or other parental leave systems. A few studies
examined paid leave, while others studied unpaid leave; at least three
studies examined both, to some extent. The studies also examined
differing time periods, controlled for different factors, and used
differing statistical methodologies. Nonetheless, these studies
collectively contained the following potentially relevant findings: (1)
Family leave coverage increased the likelihood that a woman will return
to her employer after childbirth in the U.S., Britain, and Japan
(Waldfogel, Jane, et al. ``Family Leave Policies and Women's Retention
After Childbirth: Evidence from the United States, Britain, and
Japan.'' J. Popul. Econ. (1999) 12:523-545); (2) U.S. women with fully-
paid leave worked later into their pregnancies than women with
partially paid leave or women with no leave (O'Connell, Martin.
``Maternity
[[Page 37214]]
Leave Arrangements: 1961-85.'' Work and Family Patterns of American
Women. U.S. Bureau of the Census, Current Population Reports, Special
Studies Series P-23, No. 165. (March 1990), 17-20); (3) U.S. women with
paid leave started back to work sooner than women with unpaid leave
once their infants were at least two months old (Joesch, Jutta M.
``Paid Leave and Timing of Women's Employment Before and After Birth.''
J. Marriage & Fam. (November 1997). Vol. 59, No. 4, 1008-1022); (4)
women, as opposed to men, account for almost all parental leave taken,
and rights to paid leave were found to raise the percentage of women
employed in nine European countries (Ruhm, Christopher J. ``The
Economic Consequences of Parental Leave Mandates: Lessons From
Europe.'' Q. J. Econ. (February 1998). Vol. CX 113, Issue 1, 285-317 );
(5) extending paid maternal leave programs was shown to raise rates of
labor force participation for women in the prime child-bearing years in
17 industrialized countries (Winegarden, C.R. and Bracy, Paula M.
``Demographic Consequences of Maternal-Leave Programs in Industrial
Countries: Evidence from Fixed-Effects Models.'' S. Econ. J. (April
1995). Vol. 61, No. 4, 1020-1035); and (6) U.S. women, who stayed at
their existing jobs instead of quitting or changing jobs, were those
with the longest maternity leaves and highest levels of ``workplace
social support'' (Glass, Jennifer L. and Riley, Lisa. ``Family
Responsive Policies and Employee Retention Following Childbirth.''
Social Forces (June 1998). 76(4):1401-35.).
As discussed below, while we do not find these studies definitive,
they do appear to support the premise of the BAA-UC experiment, that
BAA-UC will strengthen workforce attachment.
(2) Funding Issues
(a) Costs
A number of respondents viewed the proposal's costs as minimal,
while others believed that the costs would be quite high. Comments also
indicated that the use of abundant State unemployment funds for this
purpose is beneficial and would have the long-term effect of keeping
individuals off welfare. Many respondents mentioned that high State
unemployment fund balances have allowed employers in a number of States
to receive contribution rate reductions. Some of these respondents also
believed that the costs of administration would be limited because
systems for providing UC are already well established.
Some respondents raised general concerns regarding costs. Some also
disagreed with our BAA-UC cost estimates. While some stated that our
estimate was too high and costs would be minimal, others felt the
estimate was too low, suggesting figures in excess of $36 billion per
year. Some respondents presented alternative methodologies which did
not account for some important factors that would significantly reduce
the cost of BAA-UC.
For example, several respondents assumed that all States would
provide 12 weeks of BAA-UC and that all leave-takers would take all 12
weeks. UC data collected by the Department as well as independent
research suggest duration would be lower than 12 weeks. Our estimate
combines data on distribution of leave duration from the FMLA study,
with an assumed increase in duration, based on several independent UC
duration studies, due to the availability of BAA-UC. This results is an
estimated BAA-UC average duration of about 6 weeks (including any
waiting week) for unpaid leave-takers.
Another cause for overestimation was the assumption of a 100% take-
up rate for both States and individuals. Several respondents assumed
all States would provide BAA-UC, and all parents would receive
benefits. As explained below, we do not think all States will adopt
BAA-UC. Also, not all new parents are employed or covered by UC, either
because they are self-employed or they do not have a sufficient work
history to be eligible. Of those who are eligible, some will receive
some form of income support from their employers such as paid annual
leave. These individuals either would not apply for BAA-UC or would
receive BAA-UC for a shorter duration. Even among those who are not
paid by their employer, not all leave-takers would apply for BAA-UC.
Based on studies on UC take-up rates, about 65% of eligible workers
actually applied for UC before phone claims were available. The
introduction of phone claims is estimated to increase take-up rates by
about 10 percentage points.
Several respondents provided alternative methodologies for
estimating the cost of BAA-UC. For example, one respondent suggested
starting with the overall employment-population ratio and adjusting it
to the participation rates for women ages 16 to 44, assuming that the
majority of women taking leave for a child under one year old would be
under 44. This methodology gives a less precise estimate of the
relevant employment-population ratio than the data we relied on from
the Current Population Survey, published in the Bureau of Labor
Statistics publication, ``Employment Characteristics of Families in
1998.'' This publication provides the employment-population ratio for
mothers with a child under one year old (54%). This same respondent
also pointed out that parents adopting children from foreign countries
should be included in the estimate. These parents were excluded from
the original estimate; however, based on the number of immigrant visas
issued to orphans by the State Department, foreign adoptions represent
only 0.4 percent of the number of women with children under one year
old. (For the number of immigrant visas issued to orphans, see the
State Department website at
http://travel.state.gov/orphan_numbers.html.>) Although the effect of
foreign adoptions is small, we have now included these adoptions in our
cost estimate.
Another respondent cited problems with using data from the FMLA
study. Although we did use some of the percentages gathered in this
study, the findings were adjusted for the differences between the FMLA
and BAA-UC. On one hand, the BAA-UC proposal has a broader scope, in
some respects, because those who work for companies with fewer than 50
employees will be able to receive BAA-UC while they would be ineligible
for FMLA leave. Therefore, the percentages of men and women taking
leave are found by weighting the average percentages of both FMLA-
covered and non-covered leave-takers. On the other hand, BAA-UC is more
limited than FMLA-covered leave because it covers only those taking
leave to care for a newborn or newly-adopted child. The respondent was
concerned that the FMLA study did not account for incentives and
changes in leave-taking patterns since the FMLA was enacted, thus
representing a ``premature look at the FMLA.'' The FMLA study provided
some categorized data showing that, in fact, 98% of women needing leave
for newborn care actually took some leave. There is, therefore, only a
small margin for an increase in leave-taking by women because of
incentives under either the FMLA or BAA-UC. Even so, we increased the
percentage of women leave-takers by 1 percentage point to account for
these potential incentives and increased the percentage of men by 5
percentage points, from 63% to 68%, for the same reason. According to
the study, 91% of all women and men needing leave for birth or adoption
took some leave; however, many felt compelled to cut short their leave
[[Page 37215]]
because they could not afford to be off work.
In the NPRM, we estimated that the BAA-UC costs would range from
zero to approximately $68 million per year. This figure was based on
the ``expressed interest'' of a small number of States as measured by
whether BAA-UC legislation was introduced in a State. A respondent
suggested that the four States specifically cited would not enact BAA-
UC legislation; other respondents indicated more States would enact
BAA-UC legislation.
Since the publication of the NPRM, a significant number of
additional States have introduced BAA-UC legislation indicating that
potentially more States than were included in our original estimate may
enact BAA-UC. We do not know at this time which States will enact BAA-
UC legislation; consequently, as described below, we revised the method
of selecting States for inclusion in the cost estimate. This revised
methodology and minor revisions in various estimating factors have
changed the possible annual aggregate BAA-UC cost to an estimated range
from zero to approximately $196 million.
In our revised methodology, we relied on past enactment of UC
benefit expansions as an indicator of possible State participation in
the BAA-UC experiment. We think this history of benefit expansions is a
better indicator than introduced legislation because: (1) Additional
States will likely introduce legislation in the future, and (2) it is
extremely difficult to predict whether a particular State will actually
enact legislation. Thus, to determine the number of States that may
enact BAA-UC legislation, we grouped the States based on population as
large, medium, and small. We then found the average number of States,
by population group, that had enacted certain UC benefit expansions.
Based on these findings, we estimated that 3 large states, 6 medium
states and 4 small states may enact BAA-UC legislation. We then
assigned to each State the average cost for its group. We assumed that
States would gradually enact BAA-UC legislation over a 5-year period.
We assumed that two States would enact BAA-UC legislation in the first
year after the rule becomes effective, two more in the second year, and
three more in each of the subsequent three years. The resulting year-
by-year costs were then converted to their present value and averaged
over the five-year period. The resulting average annual cost, $196
million, is the upper limit of our cost range. More detail on the cost
calculation can be found in the Regulatory Impact Analysis which is
part of the rulemaking record and available to the public.
Costs beyond the cost specific to BAA-UC were also discussed in the
comments. For example, some respondents believe that the costs to
government would be reduced because BAA-UC would increase individuals'
workforce attachments and keep them off welfare. We expect to have more
information in this area as a result of the BAA-UC experiment.
Other respondents, however, expressed concern about additional
costs, citing lost productivity as a key problem of paying BAA-UC.
However, the FMLA study found that most employers found no effect of
the FMLA itself on productivity, and if they did report an effect, it
was ``as likely to be positive as negative on business productivity and
growth'' (p. xviii). Another study of nearly 300 employers in November
1993 also found that mandated leave policies can improve morale, public
relations, and supervisory relationships, as well as decrease the level
of absenteeism. (William M. Mercer et al. ``Survey Results: Family and
Medical Leave Act'' (January 1994); see Final Rule for Family and
Medical Leave Act, 60 FR 2237 (January 6, 1995).) Another concern was
the loss of income taxes as a result of increased leave-taking.
However, those receiving BAA-UC benefits would be required to pay taxes
on their benefits. Therefore, although some individuals will pay income
taxes on reduced income, some individuals who would have taken unpaid
leave will pay more taxes than otherwise. Also, many employers use
temporary employees to perform the duties of a person taking leave to
care for a new baby. Thus, we believe there would be a minimal loss in
income taxes collected.
(b) Experience Rating
Several respondents expressed concerns regarding the effect of BAA-
UC on State experience rating systems and employer contribution rates.
They argued that contribution rates will go up as a result of
replacement employees being laid off; that charging employer accounts
for BAA-UC payments conflicts with Section 3303(a)(1), FUTA; that
noncharging will shift the costs from one group of employers to
another; and that employers who reimburse States for payments of UC
(e.g., local governments and non-profit organizations, such as
hospitals, school districts, and health care organizations) would have
no relief from charges in some States. A respondent also suggested that
contributing employers would be subsidizing reimbursing employers.
Concerning the statements that contribution rates will go up as a
result of replacement employees being laid off, we believe that,
because many employers already respond to leave-taking by using
temporary employees or shifting the duties of current employees, the
effect on contribution rates is likely to be small.
Regarding the comment that charging employers for BAA-UC would
conflict with Section 3303(a)(1), FUTA, we see no cause for concern.
Section 3303(a)(1), FUTA provides that ``no reduced rate'' of
unemployment insurance taxes may be assigned except on the basis of an
employer's ``experience with respect to unemployment or other factors
bearing a direct relation to unemployment risk.'' The objections to
charging employers for BAA-UC costs are apparently premised on the fact
that the employer may exercise little or no control over an employee's
taking of leave. While this may be true, it is well established that
employers may be charged for situations where they did not create the
unemployment; section 3303(a)(1), FUTA, permits a State to charge an
employer so that the employer possibly pays a higher tax rate. For
example, we do not require a State to ``noncharge'' (i.e., spread the
costs among all employers) an employer when an employee quits for good
cause not attributable to the employer; however, a State may choose to
noncharge these costs.
Concerning the statements that noncharging employer accounts for
BAA-UC costs would shift costs from one group of employers to other
employers, effectively creating a situation where BAA-UC payments
attributable to employers whose employees receive BAA-UC are being
subsidized by employers whose employees may not receive BAA-UC, we note
that this is not an issue specific to BAA-UC. States currently
noncharge employers in specific situations, especially when the
separation is beyond an employer's control. Just as States currently
consider the effects of noncharging, we expect States to consider the
effects of noncharging BAA-UC payments on the overall contribution
system. Recognizing the arguments on both sides, we think that
spreading BAA-UC costs among all employers is the most equitable means
of financing this experiment. Consequently, our Model State Legislation
provides for noncharging, and we encourage States to include such a
provision in their legislation.
[[Page 37216]]
As with experience-rated employers, States may noncharge
reimbursing employers. Specifically, in situations where the State
determines that the UC paid is not attributable to service in the
employ of the reimbursing employer, States may choose not to require
reimbursement. As the commentary in Appendix B of the NPRM pointed out
(64 FR 67979 (December 3, 1999)), reimbursing employers may be
noncharged for BAA-UC payments just as the accounts of contributing
employers may be noncharged. A respondent suggested that we make
noncharging options for reimbursable employers more clear; however, the
BAA-UC regulation makes no changes to the experience rating or
reimbursement requirements and we see no reason to single out this one
facet of the UC program for elaboration. For more information regarding
the noncharging of reimbursable employers, interested individuals are
referred to UIPL No. 21-80 and UIPL No. 44-93 (58 FR 52790, 52792
(April 12, 1993)).
(c) Other Funding Methods
Some respondents suggested that benefits like BAA-UC could be
funded in ways other than the current method of financing benefits
through employer contributions to State UC programs. Suggested funding
methods for BAA-UC included using Federal unemployment tax revenues,
using Social Security funds, allowing tax-free withdrawals from
retirement plans, and creating Federal loan programs similar to student
loans. Suggestions for State funding included the introduction of an
employee-paid tax, such as currently exists for temporary disability
insurance in some States. There was also a suggestion that individuals
obtain private insurance.
Federal law governs how Federal unemployment tax revenues may be
used. Nothing in Federal law authorizes the Department to use these
revenues for purposes such as the BAA-UC experiment. The other
suggested Federal funding mechanisms are beyond the Department's
jurisdiction. As for the suggested State funding mechanisms, States are
(and always have been) free to develop means outside the UC program to
provide income support for new parents who are not working. Also, if a
State elects to use a funding source outside the UC program, the
State's program would not be subject to the requirements of the BAA-UC
regulation.
(d) Potential Loss of Administrative Funding and Employer Tax Credits
We also received some comments expressing concern about the loss of
Federal unemployment tax credits and UC administrative funding if,
after a State enacts BAA-UC, a Federal court were to strike down our
regulation authorizing it. We are the only agency authorized to
institute conformity and compliance proceedings against States which
could result in the loss of these tax credits to employers. We will not
withhold certification for administrative funding and employer credits
for States participating in an effort that we have sanctioned. While we
do not believe a court would strike down this rule, prior to any
conformity and compliance proceeding, we would follow the normal
procedures outlined in 20 CFR 601.5(b) to permit the State a reasonable
time to change its laws in order to come into compliance.
(e) Unemployment Fund Solvency
Some respondents expressed concern that BAA-UC would jeopardize the
financial solvency of the UC program, in particular the program's
ability to handle future recessions. Others thought we should require
States that enact BAA-UC to meet and maintain an unemployment fund
solvency requirement of a 1.00 average high cost multiple (AHCM) or
another measure that reflects a reasonable index of fund solvency. Some
respondents recalled that we have expressed concern over many States'
insufficient unemployment fund balances and pointed out that the
Federal Government has had to ``rescue'' State unemployment funds in
the past.
We have never interpreted Federal law to require ``solvency.''
While we will continue to encourage all States to meet and maintain an
AHCM of 1.00, we do not think we should tie BAA-UC specifically to fund
solvency. A State in a weak solvency position should not conduct a BAA-
UC experiment without also creating a means of financing it. Just as
States currently assess the costs to their unemployment funds whenever
coverage, benefit expansions, or tax changes are considered, we expect
States to consider the costs of BAA-UC before enactment. We will
provide technical assistance to States needing assistance in
determining their solvency positions and, if requested, will work with
States to determine financing options.
(3) Fundamental Program Changes
(a) The FMLA Program
As stated above, we received many comments that relate the BAA-UC
proposal to the FMLA. The respondents see the payment of BAA-UC as an
attempt to require paid leave under the FMLA, which contains no such
requirement. They contended that this proposal violates and/or amends
the FMLA by converting unpaid leave under the FMLA into paid leave
under the Federal-State UC program and runs counter to the notion that
the FMLA would never require paid leave. Other respondents questioned
whether BAA-UC requires the employer to hold the job for a BAA-UC
claimant.
The FMLA is a distinct and entirely different statute from the SSA
and FUTA which established the Federal-State UC program. The FMLA
guarantees certain eligible employees unpaid, job-protected leave for
up to 12 weeks for their own or a family member's serious health
condition, or to care for a newborn or newly-adopted child. While the
FMLA in no way mandates paid leave, it does not prohibit employers from
providing paid leave to employees exercising their right to leave under
the FMLA. Furthermore, the FMLA provides that nothing in it should be
construed to supersede State or local laws that offer benefits greater
than those contained in the FMLA. Consequently, neither the BAA-UC
regulation nor the implementation of BAA-UC in the States would violate
the FMLA. This regulation does not impose paid leave or address
employment rights. Rather, it permits the States, through the UC
program, to pay partial wage replacement to employees who choose to
take time off for the very narrow purpose of being with a new child.
The provision of BAA-UC is voluntary for States, and this regulation
does not amend or change the FMLA. Thus, while nothing in BAA-UC
changes the basic understanding that the FMLA does not require paid
leave, States are free to enact BAA-UC as part of an effort to provide
benefits greater than those contained in the FMLA. Indeed, we are not
interpreting the FMLA, but the Federal UC laws.
(b) The UC program
Based on the premise that Federal UC law requires recipients to be
involuntarily unemployed and actively seeking work, many respondents
view BAA-UC as a fundamental change to the UC program. We received many
comments suggesting that the group covered under this experiment
constitutes persons not entitled to UC because they presumably would be
voluntarily leaving their employment to be with their newborns or
newly-adopted children. However, we have never interpreted Federal UC
law to require that an individual's separation from employment be
``involuntary'' as a condition of entitlement to benefits.
[[Page 37217]]
Indeed, in those situations where a job relocation forces a spouse to
quit his/her job to follow the other, some States allow the payment of
UC without disqualification.
We also received many comments alleging that the group of employees
covered by the proposed regulations are not truly ``unemployed'' as
that term has been understood in common usage. The comments focused on
the fact that these new parents would not, for the most part, be laid
off by their employers but would be leaving a job the employer would
continue to allow them to have. These comments appear to assume that
there is a requirement in the UC program that in order to be considered
unemployed, the employment relationship must be severed. This is not
the case as illustrated by the payment of UC to individuals on recall.
Whether an individual is unemployed within the meaning of Federal law
depends on whether the individual has experienced an actual reduction
in hours worked. (See UIPL 08-98, 63 FR 6774, 6776 (February 10,
1998)). (Most States define ``unemployment'' as a reduction in hours
worked. See also 20 CFR 625.2(w)(1).) Persons receiving BAA-UC would
come under this definition since they would have suffered a loss of
work. Moreover, an individual need not completely sever his or her
connection to his or her employment to qualify for UC as Federal law
also permits payments to individuals for partial unemployment.
We also received comments expressing concern that the regulation
does not require BAA-UC recipients to demonstrate, prior to the end of
the leave period, that they intend to go back to work. There was a
similar concern that individuals who otherwise leave employment, but do
not intend to return to the workforce, will receive BAA-UC. Still other
respondents were concerned that BAA-UC recipients are not required to
actively seek work and that the regulation will eliminate the ``refusal
of suitable work'' disqualification. Respondents also noted that BAA-UC
would conflict with existing eligibility requirements under State UC
laws.
The BAA-UC regulation defines ``approved leave'' as ``a specific
period of time, agreed to by both the employee and employer or as
required by law or employment contract (including collective bargaining
agreements), during which an employee is temporarily separated from
employment and after which the employee will return to work for that
employer.'' Therefore, by definition, BAA-UC recipients on approved
leave from their employers have demonstrated their intent to return to
work by agreement or by contract. States may establish BAA-UC
overpayments if individuals on approved leave choose not to return to
work. As for individuals who otherwise leave employment, the BAA-UC
experiment will also test whether their workforce attachment is
strengthened.
As for work search requirements and the ``refusal of suitable
work'' disqualification, these are not generally applicable Federal UC
requirements but are permissible restrictions contained in various
State UC laws. Except for the extended benefits program, there is no
Federal requirement that States ensure that UC recipients be actively
seeking work. While the BAA-UC experiment neither specifically mandates
nor eliminates these State-imposed requirements, States would need to
amend their State UC laws with regard to these requirements to the
extent they interfere with the payment of BAA-UC should they wish to
implement BAA-UC.
(4) Scope
Several respondents stated that BAA-UC should be extended to all
adults who fulfill parental responsibilities, such as foster parents,
step-parents, domestic partners, or any individual who stands in loco
parentis to a child. Still others think that experimental BAA-UC should
be expanded to other types of medical and family leave, such as leave
during pregnancy, for personal illness, and to care for ill family
members. There was also a suggestion that we clarify that States may
provide ``supplemental'' BAA-UC.
No decisions regarding expanding the potential universe of
recipients will be made until we have evaluated BAA-UC. Because BAA-UC
is an experimental effort, there must be limitations, as with any
experiment. Consequently, we have limited BAA-UC to the parents of
newborns and newly-adopted children. This small, easily-defined group
can be used to test whether compensating absences from employment will
assist individuals to maintain, or even improve upon, their connection
to the workforce. Changing the definition of parents to include all
parents as defined under the FMLA or to extend UC to all FMLA leave
will not enhance the experiment.
As for ``supplemental BAA-UC,'' States currently have the authority
to provide supplemental (commonly known as additional) UC. For example,
some States provide supplemental UC to ``displaced'' workers or to
workers in State-approved training. BAA-UC is no different. While the
regulation does not prohibit supplemental BAA-UC, we had not
contemplated its provision when developing the experiment.
(5) Eligibility
A number of respondents noted with approval that the States would
have the opportunity to determine eligibility criteria (work history
requirements) and benefit amounts and durations, as is currently done.
Others indicated that the BAA-UC regulations should be more
prescriptive in terms of eligibility and benefits for BAA-UC. A few
respondents felt the UC program would discriminate against the poorest
workers by tying benefit levels to past wages. Others said that BAA-UC
claimants should receive the same benefit levels as regular UC
claimants.
(a) Breadth of Eligibility
We received comments characterizing the potential eligible
population as overly broad. The stated concerns included:
<bullet> No limitations on the number of times parents may claim
BAA-UC, allowing parents to take extensive periods of leave multiple
times (for example, BAA-UC eligibility is not restricted to a specific
number of births or adoptions);
<bullet> No limitation on the number of parents per child who may
make a claim for BAA-UC, thereby allowing both the biological and
adoptive parents of a child to claim benefits;
<bullet> No requirement that the child actually live with the
parents or be cared for by the parents; and
<bullet> Silence in the regulations regarding continuing
eligibility in cases where an adoptive parent ceases to be the parent
or in cases where the child dies.
States have broad latitude regarding UC eligibility requirements.
Consequently, we designed the regulation in a manner, consistent with
the general structure of the UC program, that is not overly
prescriptive. By so doing, the States have the flexibility necessary to
best meet the needs of their respective populations. States are free to
consider these kinds of issues in developing eligibility rules for
their BAA-UC experiments.
Although State flexibility and innovation are key elements of BAA-
UC, all Federal UC law requirements must be maintained, such as making
payments when due (which also means not making payments that are not
due) as required by section 303(a)(1), SSA, and not introducing
eligibility factors unrelated to the fact or cause of an individual's
unemployment. For example, restricting BAA-UC eligibility based on the
number of births or
[[Page 37218]]
adoptions for which an individual has previously received BAA-UC is
unrelated to the fact or cause of the individual's unemployment, and,
therefore, would be inconsistent with Federal law.
(b) Length of Eligibility Period
One respondent felt that the availability of BAA-UC any time within
the year following the birth or placement for adoption of a child was
longer than needed for parent/child bonding. Several respondents
advocated a period of at least one year because they believed it would
encourage breast-feeding for the health and well-being of the child,
while shorter periods may encourage premature weaning. Another
respondent stated that, as long as benefits began within the first
year, States should be allowed to extend the eligibility period beyond
the first year. Some respondents advocated that BAA-UC be provided
intermittently throughout the eligibility period, in some cases in time
frames as short as one-half hour.
Research suggests that parental leave is beneficial for early
childhood development. In terms of the eligibility period, we selected
one year as the eligibility period because it correlates the needs
related to introducing a new child into a family with the current
benefit year under the UC program: States could establish a shorter
eligibility period. Our Model State Legislation provides for a 12-week
benefit period within a one-year eligibility period, and we encourage
States to include such a provision in their legislation.
The BAA-UC regulation does not require that BAA-UC be paid only for
consecutive weeks; therefore, as part of the regular UC program, BAA-UC
may be provided intermittently throughout the benefit year. Partial
BAA-UC may also be claimed for weeks in which an individual is
partially unemployed; however, BAA-UC may be reduced under State law by
wages earned during a week of partial unemployment. Typically, wages
earned during one-half week or more exceed the available UC; therefore,
very short time frames of unemployment (such as one hour per day) would
not be compensable.
(c) Employer-Provided Benefits
Some respondents expressed the opinions that employers should be
able to require employees to take employer-paid leave before being
eligible for BAA-UC, and that employers who provide paid leave or
disability coverage should be excepted from BAA-UC coverage. Other
respondents suggested that employers who currently provide paid leave
will reduce or eliminate those benefits to avoid paying twice.
BAA-UC is part of the UC program and applies to all employers
covered by State UC law. Therefore, just as there is no basis for
excepting employers who provide private unemployment insurance to their
employees, there is no basis for excepting employers from BAA-UC based
on employer-provided benefits. As stated earlier, the introduction of
factors unrelated to the fact or cause of an individual's unemployment
would be inconsistent with Federal law. Consequently, even though
employers may require employees to take employer-paid leave before
taking unpaid leave under the FMLA, States may not make BAA-UC
eligibility contingent upon the exhaustion of employer-paid leave.
States may, however, reduce BAA-UC by the amounts of the employer-paid
benefits and wages. Generally, States and employers could have lower
costs if employers continue to provide benefits. Our Model State
Legislation provides for employer-provided wages and benefits to be
deducted from BAA-UC, and we encourage States to include such a
provision in their legislation.
(d) BAA-UC Exhaustions
A few respondents requested clarification as to what happens after
BAA-UC is exhausted. These respondents questioned whether States could
pay UC where conventional A&A requirements apply upon exhaustion and
whether States could demand repayment of BAA-UC if an individual failed
to return to work.
BAA-UC is a part of the States' regular UC programs. States are,
therefore, free to determine BAA-UC's relationship to UC where the
conventional A&A requirements apply. Thus, a State could pay an
individual conventional UC after BAA-UC is exhausted if the individual
meets all conventional UC eligibility requirements. Whether BAA-UC
counts toward the maximum number of weeks of conventional UC in this
case is also a State decision. Our Model State Legislation provides for
counting BAA-UC weeks toward the maximum UC entitlement, and we
encourage States to include such a provision in their legislation.
Concerning overpayments, the questions and answers that accompanied
the NPRM indicated that a State may declare an overpayment of BAA-UC
when the individual did not return to work after receiving BAA-UC. We
note, however, that there may be cases where the individual is unable
to return to work. For example, the employer may have had a general
layoff. In cases such as this, a more equitable approach is to
determine whether the individual meets all other State UC requirements,
including actively seeking work. For these and operational reasons, our
Model State Legislation does not provide for recoupment of
overpayments.
(6) Experimental Nature of BAA-UC
(a) Experiment Versus Non-Experiment
We received numerous comments concerning the experimental nature of
BAA-UC. Some respondents argued that we do not have the authority to
conduct an experiment. Some respondents stated that there was no need
to experiment because other studies have already proven the benefits of
compensated parental leave. Noting that the Department did not require
a period of experimentation in other areas, such as allowing payment of
UC to individuals in approved training programs or to ill individuals,
some respondents asked why experimentation was necessary for BAA-UC. A
respondent suggested that if we intended to conduct a test we should
fully fund a pilot involving a few States.
Other respondents questioned whether BAA-UC really is an
experiment. Among the comments were claims that it would be difficult
and politically unpopular to stop once started, and that the purpose of
the experiment (that is to test whether the provision of BAA-UC would
promote a continued connection to the workforce) ``is an unmeasurable,
wholly subjective concept.'' Other respondents suggested that BAA-UC
was not truly experimental because the proposed regulation did not
include specific measures and lacked definitive beginning and ending
periods. Still other respondents saw BAA-UC as the first phase of an
inevitable, continued expansion of the UC program.
Some respondents approved of our approach. They likened the BAA-UC
experiment to the UC program design and quoted President Franklin
Roosevelt in his message to Congress encouraging enactment of the SSA:
``[T]he Federal act should require high administrative standards, but
should leave wide latitude to the States in other respects, as we deem
varied experience necessary within particular provisions in
unemployment compensations laws in order to conclude what types are
most practicable in the country.'' 79 Cong. Rec. 546 (1935).
BAA-UC is indeed an experiment. We have the authority to interpret
Federal
[[Page 37219]]
UC law, and we chose an experimental approach to test whether BAA-UC
promotes parents' continued connection to the workforce. Thus, through
voluntary State participation, the BAA-UC experiment will allow us to
gather the necessary facts on whether a positive correlation exists
between the provision of UC to parents of newborns and newly-adopted
children and a demonstrated connection to the workforce by these
parents. The fact-finding in this experiment is critical in assisting
us to fulfill our authority and responsibility to assure that the
States' UC programs conform to Federal UC law.
As stated in the NPRM, this experiment recognizes the impact of
women in the workforce and responds to the societal and economic
changes resulting from the large number of families where both parents
work. We intend to gather information and evaluate the impact of the
provision of partial wage replacement on employees, employers, and
States' unemployment funds. We have chosen to adopt an experimental
approach because the introduction of BAA-UC represents a significant
shift in our view of the Federal UC requirements. We think the impact
on not only employees, but also on employers and State unemployment
funds should be studied. Consequently, rather than developing a pilot
that might be less flexible, we chose an experimental approach that is
designed to promote State innovation.
Several respondents suggested that the U.S. lags behind other
developed countries in providing paid family and medical leave and
pointed to studies that discussed the positive effects of paid leave in
other countries. However, the benefits programs of other countries are
dissimilar to the UC program in the U.S. Other respondents pointed to
existing studies in this country that indicated positive effects on
workforce attachment from paid parental leave. While these studies
support our initiative, we believe it advisable to independently study
the effects of partial wage replacement for parents of newborns and
newly-adopted children on the States' UC programs, since no study was
specific to the UC program. Therefore, we see experimentation with BAA-
UC as a logical step.
Statistics reported for the regular UC program will include all
data related to BAA-UC. Additional administrative data will be
collected, using an existing data collection mechanism, from
participating States as soon as they implement experimental BAA-UC.
Several respondents proposed specific elements that should be
evaluated. While the specifics have yet to be determined, we anticipate
that the administrative data will include, among other items, initial
claims, weeks claimed, weeks compensated, and benefits paid. As States
gain experience with BAA-UC, we will evaluate the effect of BAA-UC on
each implementing State's UC program as part of an ongoing evaluation.
Some respondents criticized the regulations for not placing any
formal sunset or termination provisions or time frame for the study.
Because of the flexible nature of the BAA-UC regulations and the
potentially different enactment dates, we have set a target that would
trigger a comprehensive evaluation of BAA-UC when at least four States
have implemented legislation and operated BAA-UC for a minimum of three
years, as noted in section I. B. (4) of the preamble to the NPRM (64 FR
67974).
We believe an evaluation based on this target will provide reliable
information that takes into account the variations among the States'
BAA-UC experiments and allows us to ascertain the impact of BAA-UC on
States' unemployment funds, employees, and employers' contribution
rates, in addition to determining the workforce connections of BAA-UC
recipients. While all these factors are important, we note that many
respondents were interested in the impact of BAA-UC on State
unemployment funds. Therefore, even though we are not establishing a
solvency requirement, we will thoroughly evaluate how States determined
their solvency positions and the impact of BAA-UC on State unemployment
funds.
BAA-UC legislation introduced in States prior to the issuance of
the NPRM varied substantially--an early indication that BAA-UC
experiments among the States could differ greatly. In addition,
regardless of whether States enact vastly different BAA-UC legislation
or enact similar legislation, demographics, take-up rates, benefit
levels, and benefit charging methodologies could vary substantially
among the States. A comprehensive evaluation, therefore, will be
conducted when at least four States have operated BAA-UC for at least
three years. We are committed to completing a comprehensive evaluation,
and this evaluation will serve to determine whether to make BAA-UC
permanent, to expand it, or to end it entirely. If four States do not
enact BAA-UC legislation, we will then consider how best to
comprehensively evaluate the experiment given the limited data.
(b) Impact of Experimental BAA-UC on Employees, Employers, and Families
Employees. Numerous respondents commented on the potential negative
impact of BAA-UC on employees. Some speculated that, because of costs
associated with BAA-UC, employers would be discouraged from providing
employer-paid benefits to employees or from hiring individuals of
childbearing age. Others asked about the effects of BAA-UC on an
individual's eligibility for various employer-paid benefits and on
Federally-mandated benefits, such as private health insurance benefits
under the Consolidated Omnibus Budget Reconciliation Act of 1985 and
the Health Insurance Portability and Accountability Act of 1996. Others
expressed concern that employers would move jobs out of the country,
causing employees to lose jobs. Some, noting that the work of absentee
employees would likely be spread among co-workers, predicted ``negative
effect[s] on co-workers and their families.'' Among claims that BAA-UC
discriminates against employees who do not meet the eligibility
requirements, there was speculation that implementation of BAA-UC would
pit childless employees against employees with children in addition to
pitting employees unemployed as a result of economic downturns against
BAA-UC recipients vying for benefits from diminishing unemployment
funds.
There were also numerous comments focusing on the positive impact
of BAA-UC on employees. Respondents suggested that providing BAA-UC
would decrease worker anxiety and reduce employee turnover, resulting
in greater productivity.
Employers. As with employees, we received many comments about the
impact of BAA-UC on employers. Many speculated that employer costs and
administrative burdens would be excessive, that litigation would
increase, and that worker shortages would be exacerbated because
employees would be more able to take off work. Some employers worried
that their global competitiveness would suffer, and some small
employers were concerned that they would be subsidizing leave taken by
employees of FMLA-covered businesses. Many employers urged a tax cut
for businesses instead of expanding UC. A few respondents suggested
that, as increased employer State UC taxes are passed on, employees and
consumers will suffer. Others suggested that employer costs would be
minimal and employers would benefit from a more stable workforce
resulting in lower employee turnover and greater
[[Page 37220]]
productivity. Respondents also referred to studies that indicate that
women who have paid maternity benefits take less time from work and are
less likely to quit their jobs than women with access to unpaid leave
or women who have no leave available. Others suggested different ways
of reporting FMLA leave on UC forms as an alternative to providing BAA-
UC.
Families. There seems to be general agreement in the comments that
families would benefit from parents and children having the opportunity
to bond. Many respondents commented that quality day care is expensive
and scarce. However, as noted above, some respondents think that there
will be a negative impact on the families of the co-workers of BAA-UC
recipients due to increased workloads and overtime required to cover
for persons on leave. There were also comments that BAA-UC would be bad
for families because it would encourage both spouses to work and
promote parental attachment to the workforce instead of the family.
Some respondents criticized us for encouraging population growth, and
others stated that income tax cuts or child tax credits would be more
beneficial than BAA-UC in helping families with children.
Although the effects of BAA-UC on employers, employees, and
families have not yet been documented, these effects concern us, and we
expect that States will consider potential effects prior to enacting
BAA-UC. As part of our study of the BAA-UC experiment, we will compile
the necessary information needed to evaluate the effects of BAA-UC on
employees and employers.
As stated in the NPRM, we believe that providing BAA-UC will have a
positive impact on families because it will allow more parents to take
leave to be with their newborns or newly-adopted children. Although
studies suggest a positive impact on the workforce from compensated
maternity and family leave, this is the first test of the effects on
employers and employees of using the UC program to provide partial wage
replacement for parents following the birth or adoption of a child.
Because our cost estimates for the BAA-UC experiment are relatively low
as a percentage of overall UC costs, we do not believe that BAA-UC will
move jobs out of the country, impair U.S. global competitiveness, or
otherwise adversely affect employers. For that same reason, we do not
believe that litigation or employer administrative burdens would
significantly increase.
Regarding size-of-employer concerns, BAA-UC applies to employees of
both small and large employers. Small employers not subject to the FMLA
may well approve leave without the compulsion of the FMLA. Also, States
are free to offer BAA-UC to individuals who otherwise leave their
employment as a result of being ineligible for leave under the FMLA.
The effect that the receipt of BAA-UC might have on either employer-
paid benefits or non-UC Federally-mandated benefits would be determined
by those programs and/or applicable statutes. But these effects are
among the things we will review when evaluating the BAA-UC experiment.
Finally, we have no data to suggest that providing partial wage
replacement promotes higher birth rates, discriminates against
individuals of childbearing age, or creates worker shortages; and, as
we noted earlier, other options to help families, such as tax cuts or
credits, are outside our purview.
(7) Voluntary Effort
Some respondents referred to BAA-UC as a mandate by the
Administration. There were also some comments maintaining that the
experiment is not really voluntary in that all States will be impacted
because of interstate and combined-wage claims. (In an interstate
claim, the individual has worked in one State, but files a claim in
another. In a combined-wage claim, an individual has worked in more
than one State and combines the work into one State for purposes of
qualifying for UC or for receiving higher benefit amounts or longer
duration. (See 20 CFR Part 616.)) Noting that each State participating
in the Interstate Arrangement for Combining Employment and Wages must
act as an agent for other participating States, one respondent held
that it would be ``impossible for one [S]tate to have an experimental
program without impacting other [S]tates.''
BAA-UC is a State option, not a mandate. States currently have wide
latitude in determining most eligibility criteria. Indeed, with a few
exceptions, States determine most aspects of their UC programs, such as
earnings requirements, ``good cause'' for voluntary quit occurrences,
disqualifications, benefits amounts and durations, and continuing
eligibility requirements. In this regard, there are substantial
variations among the State UC programs. As a result, there are
situations where benefits are paid in one State that would not be paid
in another, and this is reflected in combined-wage claims. We agree
that, just as there now is some financial impact on States resulting
from combined-wage claims, there will be some impact on non-BAA-UC
States resulting from combined-wage claims which are also BAA-UC
claims. That impact is the result of State participation in the
Federal-State UC program.
(8) Administration
Some respondents, particularly SESAs, submitted a broad range of
administrative questions. The scope of the questions included how to
count BAA-UC claims on Federal reporting forms, required documentation
for eligibility determinations, and confidentiality of information.
We will issue specific reporting and other administrative guidance
on these issues and others to SESAs in a directive separate from this
rule. States will be required to report specific BAA-UC claims data.
When States implement BAA-UC, statistics reported for the regular UC
program will include all data related to BAA-UC. To identify only BAA-
UC activity, we will use the ``Quick Response Report'' (the report used
when collections involve fewer than 10 States, assuming that fewer than
10 States implement BAA-UC) under the standard reporting requirement
authority in section 303(a)(6), SSA. This report provides for the
collection of up to 12 items of information. It is anticipated that
data collected will include, among other items, initial claims, weeks
claimed, weeks compensated, and benefits paid. If 10 or more States
enact BAA-UC, reporting requirements will be issued in a separate
information collection request in accordance with the Paperwork
Reduction Act.
Concerning administrative methods, States are required under
section 303(a)(1), SSA, to have ``methods of administration * * *
reasonably calculated to insure the full payment of unemployment
compensation when due.'' For BAA-UC, this means that, as is the case
for all types of UC, States must have reasonable administrative methods
to assure that an individual is eligible. States are expected to obtain
the requisite documentation, for example, that an individual is on
approved leave or has left his or her employment, that the individual
has a newborn child under one year old, or that a child has been placed
for adoption. States must have reasonable methods to assure that the
individual is eligible for each week claimed and methods for detecting
and collecting overpayments. Each State already has all of these
methods in place for the regular UC program; States need only modify
them as appropriate to accommodate BAA-UC requirements. If
[[Page 37221]]
we identify a need for further guidance on any ``methods of
administration,'' we will issue guidance as appropriate. Concerning
confidentiality of information, States must treat BAA-UC claims
information in the same manner as claims information for the regular UC
program. Guidance on confidentiality is found in UIPL No. 34-97 (62 FR
40118, 40119 (July 25, 1999)).
(9) Inconsistency With Welfare to Work (WtW) and Workforce Investment
Act (WIA) Initiatives
Some respondents contended that experimental BAA-UC is inconsistent
with the WtW and WIA initiatives. As they pointed out, these programs
are designed to help and encourage individuals to join the workforce.
Comparing BAA-UC to the pre-1996 welfare program, one respondent
asserted that BAA-UC was counter to the WtW and WIA initiatives in that
it would ``create a disincentive for individuals to access WIA training
and child care programs, and encourage them not to enter or stay in the
workforce.'' Respondents also were concerned that BAA-UC would
discourage personal responsibility.
We view BAA-UC and the WtW and WIA initiatives as compatible
efforts. Just as the WtW and WIA initiatives help individuals enter
into the workforce, BAA-UC may help them maintain a connection to the
workforce. As with all UC recipients, experimental BAA-UC recipients
must have a sufficient work history, as determined by each State, to be
eligible for benefits. Consequently, implementation of BAA-UC provides
no inducement to avoid entering into the workforce. Indeed, the whole
premise of BAA-UC is that individuals who receive these benefits will
be more attached to the workforce. Because, as with all UC programs,
experimental BAA-UC will provide only short-term, partial wage
replacement, we see no disincentive to individuals to remain in the
workforce.
(10) Fraud and Abuse
Some respondents expressed concern about the potential for fraud
and abuse, noting that the regulation does not condition receipt of
BAA-UC on any evidence of parent-child bonding efforts, on the
parent(s) and child sharing a residence, or on whether the parent(s)
support and/or actually spend time with the child. Some respondents
surmised that BAA-UC would be ``a paid vacation plan.''
The purpose of the regulation is to test whether compensating
absences from employment will help parents of newborns or newly-adopted
children maintain or improve their connection to the workplace; it is
not designed to test whether the parents and children actually bond. We
do not presume that any specific parental activity or circumstance is
more (or less) appropriate for promoting bonding between parents and
children. The regulation, therefore, does not impose upon States the
burden of verifying specific bonding activities. As is the current
practice, methods of fraud detection and overpayment collection will be
developed as deemed appropriate by the SESAs.
(11) UC Program Reform
We received several recommendations that BAA-UC should be aligned
with other State UC program reform efforts and that we should track and
measure all reform efforts of States that implement BAA-UC. We believe
that UC reform is of the utmost importance and have been diligently
working to promote UC reform through the legislative process and have
tracked and evaluated such efforts. Although we would like to see broad
reform of the UC program, such reform is beyond the scope of this rule.
(12) Comment Period
Under the Administrative Procedure Act (APA), an agency is required
only to provide a 30-day comment period and public hearings are not
required by the APA for notice-and-comment rulemaking. We received
several hundred responses from interested parties requesting that we
extend the initial 45-day comment period ending on January 18, 2000,
and/or that public hearings be held in venues around the country. Given
the simple nature of the experiment and the relatively short length of
the proposed rule, we thought that a 45-day comment period was adequate
and that hearings were unnecessary. Some of the initial comments noted
that the comment period fell during the holiday season, so we decided
to extend the comment period 15 days through February 2, 2000, for a
total 60-day comment period.
A few respondents requested in their timely submissions that we
permit them to submit additional comments after February 2, 2000.
However, the sheer volume of comments, as well as the extensive detail
of some of the comments received, including the timely comments from
the respondents asking to submit additional comments, convinced us that
sufficient time was allotted for comments and that additional time was
not necessary.
(13) Rulemaking Requirements
We received comments that this rule is subject to the Regulatory
Flexibility Act requirements because it will have a significant
economic impact on a substantial number of small entities, and it
violates the Unfunded Mandates Reform Act of 1995.
Respondents challenging our conclusion that BAA-UC is not subject
to the Regulatory Flexibility Act requirements suggested that the
experiment will undoubtedly have a significant economic impact on a
substantial number of small entities since the experiment will result
in a potentially higher payment of UC due to the expansion of coverage
to include new parents, thus requiring a regulatory flexibility
analysis. However, the BAA-UC regulations impose no regulations upon
small entities (American Trucking Association v. EPA, 175 F.3d 1027,
1044 (D.C. Cir. 1999)), rather, we are regulating the States that
choose to experiment with BAA-UC. Furthermore, the Unfunded Mandates
Reform Act of 1995 (UMRA) is not applicable to this regulation since
this is not a ``Federal intergovernmental mandate'' as defined in
section 421(5) of the Congressional Budget and Impoundment Control Act
of 1974 (2 U.S.C. 658), as amended by section 101(a)(2) of the UMRA.
Indeed, we are not mandating that a State, local or tribal government,
or the private sector implement BAA-UC.
(14) Model State Legislation
We received some comments about the Model State Legislation that
was appended to the proposed rule in the NPRM. Some comments indicated
that respondents interpreted the Model State Legislation to be required
legislative language. Others suggested that the Model State Legislation
be restructured with affirmative language to guarantee payment of BAA-
UC and suggested that the Model State Legislation be changed to read
``compensation shall be provided'' rather than stating that
compensation ``shall not be denied'' as published in the NPRM.
The Model State Legislation is provided only as a guide to aid the
States that enact BAA-UC in developing State legislation: States are
not required to use it. The Model State Legislation is written in the
style that States typically use in their statutes. We think there is no
substantive difference between the suggested language style and the
style used in the Model State Legislation; therefore, no stylistic
changes were made. States that elect to follow the
[[Page 37222]]
Model State Legislation must adapt it to their State UC laws.
IV. Explanation of Final Rule and Changes to Proposed Rule by
Section
There is little difference between the proposed rule and the Final
Rule. An explanation is provided where differences occur. Technical
changes are not discussed.
Subpart A--General Provisions
Subpart A of rule discusses the purpose of the rule, the scope of
the rule and critical definitions. The definitions of ``approved
leave,'' ``newly-adopted child,'' ``placement,'' and ``parents''
warranted amendment and are discussed below. All other aspects of
Subpart A remain unchanged from the proposed rule.
Definition of ``Approved Leave''
Respondents raised two concerns about ``approved leave'' as it is
described in the NPRM--one that it would make individuals eligible for
benefits while still employed and the other that it would inhibit
eligibility by forcing legally permissible leave to pass an employer
approval test.
In the preamble to the NPRM, ``approved leave'' was described as
``an approved, temporary separation from a specific employer.''
Pointing to the phrase ``specific employer,'' concerns were expressed
that this would permit employees who work for multiple employers to be
eligible for BAA-UC based on a separation from one employer while
continuing to work for other employers and that the individual's UC
would be charged to the other employers. We also received comments
about whether individuals could receive partial BAA-UC while working a
reduced number of hours for the same employer.
The Federal-State UC program already is designed to accommodate
situations where an individual separates from one job while continuing
another and where individuals are continuing to work at reduced hours.
We expect States to handle these types of BAA-UC situations just as
they currently handle similar situations. For example, an individual
continuing to hold a job will have earnings; these earnings will affect
the individual's eligibility, including the amount payable, under BAA-
UC.
Other respondents expressed concern that the ``approved leave''
definition limits the availability of BAA-UC; some respondents
suggested that the definition of ``approved leave'' be amended to
include ``required'' leave. The concern was that some employees are
granted leave under law or contract, regardless of whether the employer
``approves'' the leave. The respondents were concerned that, under the
definition of ``approved leave'' in the NPRM, these employees would not
be eligible for BAA-UC.
We do not intend to exclude from BAA-UC eligibility employees who
are provided leave by law or contract. To assure that this group of
employees is not unintentionally excluded from BAA-UC, the definition
of ``approved leave'' is amended to read ``a specific period of time,
agreed to by both the employee and employer or as required by law or
employment contract (including collective bargaining agreements),
during which an employee is temporarily separated from employment and
after which the employee will return to work for that employer.''
The other concerns about the definition of ``approved leave''
stemmed from the notion that only employers covered by the FMLA would
approve leave and that, as a result, employees of smaller businesses
would not be eligible for BAA-UC. As a result, some respondents thought
there was conflicting information within the NPRM regarding eligibility
because employees of smaller businesses would not be eligible for BAA-
UC if eligibility is conditioned on approved leave. Some respondents
suggested as a remedy that the State option to limit BAA-UC to
individuals on approved leave be eliminated. We expect States to
evaluate whether employees of small businesses would be unable to
obtain approved leave and to determine whether to cover these
individuals under 20 CFR 604.10, which applies to employees who
otherwise leave their employment.
Definition of ``Newly-Adopted Child''
In an effort to afford States maximum flexibility and in
acknowledgment that adopted children may be more than one year old, the
definition of ``newly-adopted child'' in the NPRM included no
limitation on the age of an adopted child. We received comments stating
that, without an age limitation on adopted children for purposes of
BAA-UC, there was potential for adults who adopted adults to be
eligible for BAA-UC.
The BAA-UC experiment is clearly designed for the parents of young
children and will test whether providing those parents with BAA-UC
during the first year of a child's life or placement for adoption will
help maintain or even promote their connection to the workforce by
allowing them time to bond with their children and develop stable child
care systems while adjusting to the accompanying changes in lifestyle
before returning to work. To help assure that BAA-UC is used for this
purpose, we are establishing an age limitation of 18 years old or less
within the definition of ``newly-adopted children.'' This age
limitation is within the commonly accepted age range of a ``child'' and
also acknowledges that adopted children may be more than one year old.
The definition of ``newly-adopted children'' is amended to read ``means
children, age 18 years old or less, who have been placed within the
previous 12 calendar months with an adoptive parent(s).''
Definition of ``Placement''
Respondents also raised concerns about the definition of
``placement.'' Placement was defined in the NPRM as ``the time a parent
becomes legally responsible for a child pending adoption.'' Comments
indicated a concern that individuals in the process of adopting a child
and who have actually received the child would be precluded from
receipt of BAA-UC because adoption agencies may retain legal
responsibility for a child until the adoption is complete. Therefore,
to assure that these parents are not excluded on a technicality, the
word ``legally'' has been deleted from the definition. Generally,
foster parents are excluded from BAA-UC; however, this change may, in
some situations, permit some foster parents in the adoption process to
be eligible for BAA-UC. ``Placement'' is defined in this rule as: ``the
time a parent becomes responsible for a child pending adoption.'' A
minor change was made to the definition of ``parents'' to make it more
compatible with the definition of ``placement.''
Subpart B--Federal UC Requirements
No changes were made to this section; therefore, Subpart B of the
Final Rule is the same as Subpart B in the NPRM.
Subpart C--BAA-UC Eligibility
A review of Subpart C resulted in two changes. First, the subpart
title was changed to ``Subpart C--Coverage and Eligibility'' to better
reflect the subpart's content. Second, the review revealed that
Sec. 604.22 was unnecessary because it did not regulate State actions.
Consequently, Sec. 604.22 is not included in the Final Rule.
Executive Order 12866
This rule is a ``significant regulatory action'' within the meaning
of Executive Order 12866 because it meets the criteria of Section
3(f)(4) of that Order in that it raises novel or legal policy issues
arising out of legal mandates, the
[[Page 37223]]
President's priorities, or the principles set forth in the Executive
Order. It is also ``economically significant'' within the meaning of
Section 3(f)(1) of that Executive Order because it may have an annual
effect on the economy of $100 million or more. Specifically, the
estimated costs range from zero to $196 million. Accordingly, this rule
was submitted to, and reviewed by, the Office of Management and Budget.
As directed by Section 6(a)(3)(C) of Executive Order 12866, we have
prepared a Regulatory Impact Analysis that assesses the costs,
benefits, and alternatives associated with this regulation. The
Regulatory Impact Analysis is available to the public as part of the
rulemaking record.
We have evaluated the rule and find it consistent with the
regulatory philosophy and principles set forth in Executive Order
12866, which governs agency rulemaking. Although the rule will impact
States and State agencies, it will not adversely affect them in a
material way. The rule would permit States to voluntarily participate
in an experiment to determine the effectiveness of using the UC program
to support parents taking leave from their employment to be with their
newborns or newly-adopted children; it would not impose any new
requirements on States.
Paperwork Reduction Act
We have determined that this rule contains no information
collection requirements. If the evaluation of this experiment requires
information collections covered under the Paperwork Reduction Act, we
will seek OMB approval at that time.
Executive Order 13132
This regulation has been reviewed in accordance with Executive
Order 13132 regarding federalism. The order requires that agencies, to
the extent possible, refrain from limiting State policy options,
consult with States prior to taking any actions which would restrict
States' policy options, and take such action only when there is clear
constitutional authority and the presence of a problem of national
scope. We do not believe that Executive Order 13132 applies. In the
interest of consultation, however, we invited major intergovernmental
associations to a meeting at which we briefed the associations on the
proposed rule.
Executive Order 12988
This rule has been drafted and reviewed in accordance with
Executive Order 12988, Civil Justice Reform, and will not unduly burden
the Federal court system. The rule has been written to minimize
litigation and provide a clear legal standard for affected conduct, and
has been reviewed carefully to eliminate drafting errors and
ambiguities.
Unfunded Mandates Reform Act of 1995
This rule has been reviewed in accordance with the Unfunded
Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1501 et seq.). We have
determined that this rule does not include any Federal mandate. States
have full discretion to decide whether or not to enact BAA-UC.
Regulatory Flexibility Act
This rule will not have a significant economic impact on a
substantial number of small entities. The rule affects States and State
agencies, which are not within the definition of ``small entity'' under
5 U.S.C. 601(6). Moreover, States have complete discretion in deciding
whether or not they will enact BAA-UC under this regulation. Under 5
U.S.C. 605(b), the Secretary has certified to the Chief Counsel for
Advocacy of the Small Business Administration to this effect.
Accordingly, no regulatory flexibility analysis is required.
Effect on Family Life
We certify that this rule has been assessed in accordance with
section 654 of Public Law 105-277, 112 Stat. 2681, for its effect on
family well-being. We conclude that the rule will not adversely affect
the well-being of the nation's families. Rather, it should have a
positive effect on family well-being by permitting States to enable
more parents to take leave from their employment to be with their
newborns or newly-adopted children.
Congressional Review Act
Consistent with the Congressional Review Act, 5 U.S.C. 801, et
seq., we will submit to Congress and the Comptroller General of the
United States, a report regarding the issuance of this Final Rule prior
to the effective date set forth at the outset of this document.
OMB has determined that this rule is a ``major rule'' as defined in
the Congressional Review Act. The rule is likely to result in an annual
effect on the economy of $100 million or more. The cost estimate is
discussed in Section III.C.(2)(a) of the ``Supplementary Information,''
above. The effective date of this rule has been adjusted in accordance
with the requirements of the Congressional Review Act.
Catalogue of Federal Domestic Assistance Number
This experiment is listed in the Catalogue of Federal Domestic
Assistance at No. 17.225, Unemployment Insurance.
List of Subjects in 20 CFR Part 604
Unemployment compensation.
Signed at Washington, DC on June 7, 2000.
Alexis M. Herman,
Secretary of Labor.
Words of Issuance
For the reasons set forth in this preamble and in the NPRM, Chapter
V of Title 20, Code of Federal Regulations, is amended by adding new
part 604 to read as follows:
PART 604--REGULATIONS FOR BIRTH AND ADOPTION UNEMPLOYMENT
COMPENSATION
Subpart A--General Provisions
Sec.
604.1 What is the purpose of this regulation?
604.2 What is the scope of this regulation?
604.3 What definitions apply to this regulation?
Subpart B--Federal Unemployment Compensation Program Requirements
604.10 Beyond the interpretation of the able and available
requirements for Birth and Adoption unemployment compensation, does
this regulation change the Federal requirements for the unemployment
compensation program?
Subpart C--Coverage and Eligibility
604.20 Who is covered by Birth and Adoption unemployment
compensation?
604.21 When does eligibility for Birth and Adoption unemployment
compensation commence?
Authority: 42 U.S.C. 503 (a)(2) and (5) and 1302(a); 26 U.S.C.
3304(a)(1) and (4) and 3306(h); Secretary's Order No. 4-75 (40 FR
18515); and Secretary's Order No. 14-75 (November 12, 1975).
Subpart A--General Provisions
Sec. 604.1 What is the purpose of this regulation?
The regulation in this part allows the States to develop and
experiment with innovative methods for paying unemployment compensation
to parents on approved leave or who otherwise leave employment to be
with their newborns or newly-adopted children. States' experiences with
Birth and Adoption unemployment compensation will enable the Department
of Labor to test whether its interpretation of the Federal ``able and
available'' requirements promotes a continued
[[Page 37224]]
connection to the workforce in parents who receive such payments.
Sec. 604.2 What is the scope of this regulation?
The regulation in this part applies to and permits all State
unemployment compensation programs to provide benefits to parents on
approved leave or who otherwise leave employment to be with their
newborns or newly-adopted children. A State's participation is
voluntary.
Sec. 604.3 What definitions apply to this regulation?
The following definitions apply to the regulation in this part:
(a) Approved leave means a specific period of time, agreed to by
both the employee and employer or as required by law or employment
contract (including collective bargaining agreements), during which an
employee is temporarily separated from employment and after which the
employee will return to work for that employer.
(b) Birth and Adoption unemployment compensation means unemployment
compensation paid only to parents on approved leave or who otherwise
leave employment to be with their newborns or newly-adopted children.
(c) Department means the United States Department of Labor.
(d) Newborns means children up to one year old.
(e) Newly-adopted children means children, age 18 years old or
less, who have been placed within the previous 12 calendar months with
an adoptive parent(s).
(f) Parents means mothers and fathers (biological, legal, or who
have custody of a child pending their adoption of that child).
(g) Placement means the time a parent becomes responsible for a
child pending adoption.
(h) State(s) means one of the States of the United States of
America, the District of Columbia, the Commonwealth of Puerto Rico, and
the United States Virgin Islands.
Subpart B--Federal Unemployment Compensation Program Requirements
Sec. 604.10 Beyond the interpretation of the able and available
requirement for Birth and Adoption unemployment compensation, does this
regulation change the Federal requirements for the unemployment
compensation program?
No, the regulation in this part does not change the Federal
unemployment compensation requirements. Under its authority to
interpret Federal unemployment compensation law, the Department
interprets the Federal able and available requirements to include
experimental Birth and Adoption unemployment compensation. The
regulation in this part applies only to parents who take approved leave
or otherwise leave employment to be with their newborns or newly-
adopted children.
Subpart C--Coverage and Eligibility
Sec. 604.20 Who is covered by Birth and Adoption unemployment
compensation?
If a State chooses to provide Birth and Adoption unemployment
compensation, all individuals covered by the State's unemployment
compensation law must also be covered for Birth and Adoption
unemployment compensation. Just as with current unemployment
compensation programs, individuals may not be denied experimental Birth
and Adoption unemployment compensation based on facts or causes
unrelated to the individual's unemployment, such as industry, employer
size or the unemployment status of a family member. The introduction of
such facts or causes would be inconsistent with Federal unemployment
compensation law.
Sec. 604.21 When does eligibility for Birth and Adoption unemployment
compensation commence?
Parents may be eligible for Birth and Adoption unemployment
compensation during the one-year period commencing with the week in
which their child is born or placed with them for adoption. Weeks
preceding the week of the birth or placement and weeks following the
end of the one-year period are not compensable.
Note: The following appendix will not appear in the Code of
Federal Regulations.
Appendix to the Preamble--Unemployment Insurance Program Letter No. 26-
00
U.S. Department of Labor
Employment and Training Administration, Washington, D.C. 20210
CLASSIFICATION: UI
CORRESPONDENCE SYMBOL: TEUL
DATE: May 31, 2000
DIRECTIVE: Unemployment Insurance Program Letter No. 26-00.
TO: All State Employment Security Agencies.
FROM: Grace A. Kilbane, Administrator, Office of Workforce Security.
SUBJECT: Model State Legislation and Commentary to aid States
implementing Birth and Adoption Unemployment Compensation
Unemployment Compensation (BAA-UC).
Rescissions: None.
Expiration Date: Continuing.
1. Purpose. To provide Model State Legislation and Commentary
for States implementing BAA-UC. The Model State Legislation is
offered as a guide for States that need to amend their current UC
laws, it is not required. The Commentary provides information on the
Model State Legislation and will aid States in making policy
decisions.
2. References. 20 Code of Federal Regulations (CFR) parts 604,
615, and 625; sections 303(a)(1) and (8), Social Security Act (SSA);
Unemployment Insurance Program Letters (UIPLs) No. 21-80 and No. 44-
93; Family and Medical Leave Act, Pub. Law 103-3; the Manual of
Employment Security Legislation (rev. 1950); UIPL No.787
transmitting the Secretary of Labor's Decision of September 25,1964,
In the Matter of the Hearing to the South Dakota Department of
Employment Security Pursuant to Section 3304(a) of the Internal
Revenue Code of 1954; and Jenkins v. Bowling, 691 F.2d 1225 (7th
Cir. 1982).
3. Background. The Department of Labor (Department) created, by
regulation, an opportunity for State agencies that administer the UC
program to pay, as part of a voluntary, experimental effort, UC to
parents who take time off from employment after the birth or
placement for adoption of a child. (20 CFR Part 604.) This
regulation allows States the opportunity to develop innovative ways
of using UC to support parents taking approved leave or who
otherwise leave their employment to be with their newborns or newly-
adopted children and will permit us to evaluate the effectiveness of
using the UC program for these or related purposes.
4. Model State Legislation. The attached Model State Legislation
is offered as an optional aid for States that choose to enact BAA-
UC. The Model State Legislation assumes that States will provide
BAA-UC based on the same earnings and employment criteria that apply
to other individuals. It also assumes that States will provide BAA-
UC for no more than 12 weeks, that BAA-UC payments will count toward
the maximum number of weeks of UC, and that employers will not be
charged for BAA-UC. Further, the Model State Legislation provides
for the deduction of other income from BAA-UC. The Model State
Legislation conforms to the regulations at 20 CFR Part 604; however,
States have wide latitude in creating their BAA-UC provisions within
the parameters of those regulations.
[[Page 37225]]
5. Commentary. A Commentary in question-and-answer format is
also attached (Attachment II) as an aid for States. The Commentary
discusses policy approaches taken in the Model State Legislation and
also discusses other matters.
6. Action. We suggest that States consider developing a BAA-UC
experiment to provide partial wage replacement to parents on
approved leave or who otherwise leave employment to be with their
newborns and newly-adopted children. We expect that States will take
into consideration the impact of such an effort on their
unemployment funds prior to enactment. Appropriate staff should be
provided with this UIPL.
7. Inquiries. Please direct inquiries to the appropriate
Regional Office.
Attachments
Attachment I--Model State Legislation
Attachment II--Commentary
Attachment I--Model State Legislation
Section____. Birth and Adoption Unemployment Compensation
(a) A parent on a leave of absence from his/her employer or who
left employment to be with his/her child during the first year of
life, or during the first year following placement of a child age 18
or less with the individual for adoption, shall not be denied
compensation under Section ____for voluntarily leaving employment,
Section____relating to availability for work, Section____relating to
inability to work, or Section____for failure to actively seek work.
(b) For purposes of this section, the following definitions
apply:
(1) Parent means a mother or father (biological, legal, or who
has custody of a child pending her or his adoption of that child);
and
(2) Placement means the time a parent becomes responsible for a
child pending adoption in accordance with [cite State adoption law].
(c) Section____, concerning the reduction of the amount of
compensation due to receipt of disqualifying income, shall apply to
payments under this section. In addition, the following payments
shall cause a reduction in the compensation amount:
(1) Any payment from the employer resulting from a birth or
adoption described in subsection (a); and
(2) Any payment resulting from a birth or adoption described in
subsection (a) from a disability insurance plan contributed to by an
employer, in proportion to the employer's contribution to such plan.
(d) Compensation is payable to an individual under this section
for a maximum of 12 weeks with respect to any birth or placement for
adoption.
(e) Each employer shall post at each site operated by the
employer, in a conspicuous place, accessible to all employees,
information relating to the availability of Birth and Adoption
unemployment compensation.
(f) Any compensation paid under this section shall not be
charged to the account of the individual employer.
(g) Two years following the effective date of this legislation,
the commissioner shall issue a report to the governor and the
legislature evaluating the effectiveness of Birth and Adoption
unemployment compensation.
(h) This section shall be applied consistent with regulations
issued by the U.S. Department of Labor.
Attachment II--Commentary
General
1. Must States implement Birth and Adoption unemployment
compensation (BAA-UC)?
No. This effort is voluntary for the States. However,
implementation of BAA-UC will require some legislation on the part
of every State seeking to adopt it. The Model State Legislation is
provided for the convenience of States that wish to implement BAA-
UC.
2. Does the BAA-UC regulation enable a State to pay UC for other
types of family or medical leave?
No. This regulation enables States to pay UC, on an experimental
basis, to parents on approved leave or who otherwise leave
employment to be with their newborns or newly-adopted children. The
experiment will test whether providing UC to individuals within this
group will strengthen their workforce attachment and will provide
data on the impact of BAA-UC on employees, employers, and States'
unemployment funds. Permitting payment of UC for other types of
family leave or care would be inconsistent with this experimental
effort.
3. Must all employer-paid leave be exhausted before BAA-UC is
available?
No. BAA-UC is designed to provide partial wage replacement to
parents on approved leave or who otherwise leave employment to be
with their newborns or newly-adopted children. The Model State
Legislation assumes that any wages paid for the period of employer-
provided leave will be deducted. However, States need not deduct
these wages from BAA-UC.
4. Does the BAA-UC regulation impose any solvency requirements
upon the States before they enact BAA-UC?
No. The Department expects that a State will not enact changes
without assessing the effect on the solvency of its unemployment
fund. A State in a weak solvency position should not conduct a BAA-
UC experiment without creating a means of financing it. Each State
has the responsibility to assess the cost to the State's
unemployment fund whenever coverage, benefit expansions, or tax
changes are considered within the State's UC program. We will
provide technical assistance to States needing assistance in
determining their solvency positions.
Monetary Qualifications and Benefits
5. What are the earnings and employment requirements for BAA-UC?
States may establish their own requirements. The Model State
Legislation assumes that States will use the same earnings and
employment criteria that apply to all other individuals.
6. What is the weekly benefit amount for individuals eligible
for BAA-UC?
States may establish their own weekly benefit amounts. The Model
State Legislation assumes that individuals eligible for BAA-UC will
receive the same weekly benefit amount as other individuals eligible
for UC.
7. How does the receipt of other income effect payment of BAA-
UC?
States will determine whether BAA-UC will be reduced by other
income. Under the Model State Legislation, the amount of BAA-UC will
be reduced in the same manner as any other payment of UC as provided
under State law. The Model State Legislation also provides for the
deduction of any payment from the employer as a result of the birth
or placement for adoption, and for the deduction of any disability
insurance payment received as a result of the birth or placement for
adoption in proportion to the employer's contribution to the
disability insurance plan. This provision, which is limited to
payments triggered by the same event which triggers BAA-UC, reflects
the view that the unemployment fund should not be held responsible
when wage replacement is available from other sources, particularly
when both payments are financed by the employer. States should
examine their laws to determine if all types of appropriate income
are, or should be, deductible. For example, some leave payments
which are not normally deductible under State law may cover costs of
birth and adoption leave.
8. How does the BAA-UC entitlement relate to UC payments where
conventional able and available requirements apply?
States are free to determine this. The Model Legislation assumes
that BAA-UC counts toward the maximum number of weeks of
conventional UC.
Period of Eligibility
9. When may BAA-UC benefits begin?
Under 20 CFR 604.21, parents may receive BAA-UC only during the
one-year period commencing with the week in which the child is born
or placed for adoption. For example, an individual taking leave in
the 51st week following birth or placement for adoption, would be
eligible for BAA-UC only for weeks 51 and 52. Periods preceding the
week of birth or placement for adoption are not compensable. States
are free to reduce the one-year period.
10. How many weeks of BAA-UC may individuals receive?
States are free to determine this. The Model State Legislation
provides a maximum duration of 12 weeks per individual with respect
to any one birth or adoption. States may also relate the duration of
leave to the individual's weekly amount of UC. For example, for each
birth or adoption, an individual may receive an amount equal to 12
times the individual's weekly UC amount.
To prevent confusion between the FMLA and BAA-UC, States should
inform potential BAA-UC beneficiaries of the dissimilarities between
BAA-UC and leave under the FMLA (for example, BAA-UC does not
guarantee job retention).
11. If a child is born in the middle of the week or the
placement occurs in the middle of the week, is BAA-UC payable for
this week?
[[Page 37226]]
Under the Model State Legislation, BAA-UC would be payable for
this week, assuming all applicable eligibility conditions, such as
the deductible income provisions, are met. States may provide the
full weekly compensation amount for this week or prorate the weekly
amount to reflect only periods following birth or adoption. If the
amount is prorated, the State may pay the remaining balance for the
last partial week if the individual is still on leave.
12. Must the individual serve a waiting period?
No. Nothing in Federal law requires States to have a waiting
week for conventional UC or BAA-UC. However, not having a waiting
week would eliminate the 50 percent Federal share for the first week
of all Extended Benefits claims. Under 20 CFR 615.14(c)(3), a State
is not entitled to a Federal share for the first week of Extended
Benefits if the State's law provides ``at any time or under any
circumstances'' for the payment of UC for the first week of
unemployment.
13. When is a child considered ``placed'' for adoption?
Under 20 CFR 604.3(g), placement occurs at the time a parent
becomes responsible for a child pending adoption. State UC agencies
should consult the adoption laws of their States to determine
precisely when placement occurs.
Other Eligibility Issues
14. May both parents receive BAA-UC? If so, may they both
receive such compensation at the same time?
The answer to both questions is ``yes.'' States implementing
BAA-UC must allow both parents, if otherwise eligible, to receive
BAA-UC concurrently or consecutively. A State may not prohibit
payment of BAA-UC simply because the other parent is taking leave
for the same purpose. A State law which does so is inconsistent with
Federal law because the eligibility of one parent will be determined
based on whether the other parent is receiving UC. Specifically, in
a 1964 conformity decision involving the State of South Dakota, the
Secretary of Labor held that Federal law prohibits the introduction
of any eligibility test unrelated to the fact or cause of the
individual's unemployment. (See Secretary of Labor's Decision of
September 25, 1964, In the Matter of the Hearing to the South Dakota
Department of Employment Security Pursuant to Section 3304(a) of the
Internal Revenue Code of 1954, transmitted by Unemployment Insurance
Program Letter No. 787, October 2, 1964.) The recipient status of
the other parent is unrelated to the fact or cause of an
individual's unemployment. Thus, both parents may receive BAA-UC,
whether concurrently or consecutively. Similarly, States may not
limit use of BAA-UC to the ``primary'' parent.
15. Must BAA-UC apply to individuals employed by all employers
subject to State UI law?
Yes. As explained in the previous answer, States may not impose
eligibility conditions not related to the fact or cause of the
individual's unemployment. Assuming the services are taxable for UC,
States may not, for example, limit BAA-UC based on employer size.
16. May States provide BAA-UC to individuals who otherwise leave
employment (not on approved leave) to be with their newborns or
newly-adopted children?
Yes. While States are free to determine their own requirements,
there are compelling reasons for providing BAA-UC to individuals who
otherwise leave employment. Although many employers may grant leave,
others may not. The Department believes that all parents should be
treated identically for UC purposes when they take time away from
employment to be with their newborn or newly-adopted child. As such,
their eligibility for BAA-UC should not be based on whether an
employer grants the leave, but on the parent's reason for wanting to
take the leave.
17. May eligibility be conditioned on whether the individual
gave notice to the employer?
Yes. Although the Model State Legislation does not provide for
such a condition because it may result in denials due to the
technicality of when the individual requested leave, States may
impose it. The basis of such a requirement is that employers should
be given sufficient time to accommodate the leaving/absence of the
individual. If such a provision is included, the Department
recommends that the notice be required to be given no more than 30
days prior to birth or placement, but only where practicable.
18. Must States declare an overpayment of benefits if the
individual does not return to work?
No, although a State may choose to declare an overpayment of
benefits if the individual fails to return to work. However, States
may not delay payment until after the individual returns to work.
Section 303(a)(1), SSA, requires the full payment of benefits when
due, precluding States from delaying payment while awaiting the
individual's return to work. See Jenkins v. Bowling, 691 F.2d 1225
(7th Cir. 1982).
19. May an individual be paid BAA-UC under the Federal-State
extended benefit program or any of the federally funded unemployment
programs?
It depends on the program. Benefits under the UC for Federal
Employees (UCFE) and UC for Ex-Servicemembers (UCX) programs are, by
Federal law, required to be paid on the same terms and subject to
the same conditions as State benefits (with exceptions not relevant
here). Therefore, BAA-UC will be paid to individuals under these
programs to the same extent as under State law.
Individuals may only receive Disaster Unemployment Assistance
(DUA) when their unemployment is caused by a disaster as provided in
20 CFR Part 625. However, if they meet their State's Birth and
Adoption UC provisions, then they will satisfy the availability
requirement at Sec. 625.4(g), and so may continue to qualify for
DUA. For example, an individual who is unemployed due to a major
disaster may later give birth. If this individual satisfies the BAA-
UC requirements in the State's law, she may receive DUA.
Extended Benefit claimants may not receive Birth and Adoption UC
since they cannot meet the systematic and sustained work search
requirements in 20 CFR 615.8(g).
Individuals claiming trade readjustment allowances (cash
benefits) under the Trade Adjustment Assistance and the North
American Free Trade Act Transitional Adjustment Assistance programs
will be ineligible since such individuals are required to either be
in full-time training or conduct the systematic and sustained work
search required for the Extended Benefit program.
Financing Costs of BAA-UC
20. May BAA-UC costs be spread among employers?
Yes. States are free to spread the costs--commonly called
``noncharging''--of BAA-UC. We think that spreading BAA-UC costs
among all employers is the most equitable means of financing this
experiment; therefore, the Model State Legislation provides for
this. This position applies to both contributory and reimbursing
employers.
Noncharging contributory employers is common in most States;
however, some States do not noncharge reimbursing employers. States
interested in noncharging reimbursing employers for BAA-UC are
referred to UIPLs No. 21-80 and No. 44-93 (58 FR 52790, 52792 (April
12, 1993)) for general information about noncharging reimbursing
employers.
21. May BAA-UC costs be paid from a State fund other than the
State's unemployment fund, for example, a State's temporary
disability insurance (TDI) fund?
Yes. Nothing in Federal UC law governs the treatment of moneys
in these funds because they are financed by a separate tax and held
separately from the State's unemployment fund. For example, a State
with a TDI program may enact a special disability insurance tax on
employers and deposit the proceeds in a disability fund. If the
State chooses to use one of these funds (or create such a fund) to
pay birth and adoption leave benefits, the requirements of the
Department's BAA-UC regulation will not apply.
Administrative Costs
22. May States use UC administrative grants received from the
Federal government to pay for the administration of BAA-UC?
Provided that all the requirements of the BAA-UC regulation are
met, the use of UC administrative grants is permissible, including
for purposes of studying and evaluating BAA-UC. However, if the
regulation's requirements are not met, the expenditures of grant
funds are not for the proper and efficient administration of the
State's law as required by section 303(a)(8), SSA.
[[Page 37227]]
Reporting
23. Will States need to amend their laws to address any Federal
reporting requirements concerning BAA-UC?
Although this is a matter for States to determine, the
Department anticipates that few, if any, States will need to amend
their laws since most State laws already contain language concerning
reporting. Many of these laws are based on the language on page 95
of The Manual of Employment Security Legislation, as revised
September 1950, which requires that the agency ``make such reports,
in such form and containing such information as the Secretary of
Labor may from time to time require, and shall comply with such
provisions as the Secretary of Labor may from time to time find
necessary to assure the correctness and verification of such
reports.''
24. What are the reporting requirements?
The Department has not yet finalized a methodology for
evaluating BAA-UC. When that methodology is completed, State
reporting requirements will be issued in a separate information
collection request and, if subject to the Paperwork Reduction Act,
published for public comment in the Federal Register.
[FR Doc. 00-14801 Filed 6-12-00; 8:45 am]
BILLING CODE 4510-30-P
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