2006 - 2007 Policies for the Jurisdiction of the:
Labor and Workforce Development Committee
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Policies:
Addressing Avoidance of State Unemployment Tax Acts (SUTA Dumping)
State and federal policy makers have recently begun to focus on abuses promoted by accounting firms and certain employers to avoid paying their full share of unemployment taxes. Legislation has been enacted in at least four states (Arkansas, Maine, North Carolina and Washington) imposing new penalties on employers that seek to reduce their unemployment taxes by moving their payroll to newly-established or existing corporations with favorable or no unemployment tax rating experience who pay lower unemployment taxes. This practice called "SUTA dumping" (standing for "state unemployment tax avoidance") negatively impacts state Unemployment Insurance (UI) trust funds and shifts the tax burden to law-abiding employers who then pay more than their fair share when SUTA Dumping is not addressed under current law.
NCSL believes that the unemployment insurance program has succeeded for over sixty years in part because it holds employers accountable for costs associated with their labor practices in exchange for the protection of economic stabilization. SUTA dumping attempts to violate this compact and go beyond the acceptable limits of effective business management. In keeping with the shared nature of the national unemployment insurance program, NCSL believes the states and the federal government should act collaboratively to curb these abuses.
North Carolina and Washington enacted the broadest state provisions, applying prohibitions to all employers and tax advisors who aid or abet the practice of SUTA Dumping. Violations of the North Carolina statute rise to the level of a felony, carrying a presumptive sentence of six months incarceration and up to eight months for aggravated offenses in certain cases. In Washington, violations carry a penalty of assignment of the highest tax rate for five quarters. In Arkansas, the law applied specifically to employee leasing firms, making it unlawful to move "the wages of a client from one leasing company account to another company account with a lower rate." Similarly, the Maine statute imposes a penalty of $100 per day for each violation by an employee leasing firm "avoid[ing] the calculation of the proper contribution rate."
In the first session of the 108th Congress, a bipartisan group of members of Congress introduced HR 3463 a bill requiring states to alter their state unemployment tax acts to address SUTA dumping and to provide penalties on employers and tax advisors who attempt or encourage the practice. Upon enactment, states failing to enact state legislation within roughly the first six months of the first regularly scheduled session of the state legislature would not be eligible to receive their federal administrative funds used to support the state employment security system.
The bill is designed to stop abusive manipulation of state unemployment taxes and requires states to enact laws prohibiting the transfers of unemployment experience to businesses under substantially common ownership, management or control; transfers to persons not otherwise an employer at the time of acquisition; and in those cases where the state finds a business transferred solely or primarily for the purpose of obtaining a lower rate or contribution. The bill also allows the Secretary of Labor to promulgate rules establishing procedures to identify and prohibit additional types of SUTA dumping as these practices arise. Similarly, the bill requires states to enact civil and criminal penalties on persons who violate or attempt to violate these laws, including both employers and business/tax advisors who promote the practice.
The law would allow the states' access to the National New Hire database to assist in the administration of the unemployment compensation program for a fee. Further, the bill would require the Secretary of Labor to conduct a study of the implementation of the act by states and to assess the status and appropriateness of State actions no later than July 15, 2006.
The National Conference of State Legislatures applauds congressional and administrative efforts by the Department of Labor to address state unemployment tax avoidance and its impact on unemployed workers, state trust fund balances, compliant employers and state economies. We further appreciate congressional efforts to consult with state legislatures on this legislation prior to its enactment.
NCSL agrees that Congress has an important oversight role to play in ensuring the integrity of the state-federal partnership on unemployment insurance. State legislatures are concerned however that these efforts would significantly alter the state-federal partnership on employment security and unemployment insurance and could substantially reduce state legislative authority over state unemployment insurance programs and state law. NCSL strongly believes no new requirements should be imposed on states and any federal legislative remedy should be crafted in a way to minimize the impact on legitimate business mergers, acquisitions and reorganizations, and on current state law. States should not be required to completely overhaul their provision on transfers of experience in order to eliminate this abuse by a relative small number of employers.
The National Conference of State Legislatures will work with Congress to promote state efforts to eliminate tax loopholes unfairly penalizing compliant employers but urges Congress to modify the current proposal and future legislation addressing SUTA dumping. Specifically NCSL urges the Congress to:
- Provide a base standard for SUTA dumping in federal law explicitly stating that nothing in the federal statute shall prohibit the state from more aggressively addressing SUTA dumping and other efforts to avoid payment of state taxes and to ensure existing state laws are not weakened by changes in federal law.
- Provide states adequate time to states make necessary changes to state law and to implement these changes.
- Eliminate fees associated with use of the New Hire database or provide funds for this purpose in the federal legislation or allow states to use their federal administrative funding to pay these fees.
- Ensure data sharing provisions related to use of the New Hire database by states do not present significant barriers reducing the utility of the information. The bill should subject the use of this information to the same level of protection and confidentiality as all other information obtained in the course of the administration of state UI programs, which would allow greater circulation of information among staff in state agencies while protecting the information from unauthorized use or disclosure.
- States should be given ample opportunity to comply with the law and should receive assistance from the Department of Labor before penalties are assessed and federal funds for unemployment administrative costs are withheld.
- State clearly that all penalties for non-compliance arising from changes to state law remain in state trust funds to support unemployment benefits and program administration.
- Provide adequate time to the Department of Labor to study state compliance efforts. Requiring completion of a DOL study as early as July 2006 may put certain states at a disadvantage and may lead to the appearance that states are not acting diligently to comply with the law.
July 2007
Coordination of Social Security and Workers' Compensation Benefits
The Social Security Act currently limits the total sum that a permanently, totally disabled worker may receive in federal Social Security disability benefits and state workers’ compensation benefits combined to 80% of the worker’s pre-injury income.
That act as amended in 1981 (U.S.C. 424 a(a)) requires that if the sum of Social Security disability benefits and worker’s compensation exceeds that 80% cap, the Social Security benefits must be reduced by the excess amount. The stated purpose of these amendments was to prevent disabled workers from collecting the full amount of both Social Security disability benefits and workers’ compensations, which in some cases resulted in the workers receiving benefits of substantially greater value than the value of their previous wages.
Rather than just preventing the combined total of Social Security and workers’ compensation benefits for the disabled from exceeding the value of previous wages, the amendments, because they do not adjust the 80% cap for inflation, have instead had the effect, over time, of steadily reducing the real value of the combined Social Security and workers’ compensation benefits to those injured workers.
With sustained, substantial inflation causing the Consumer Price Index to increase more than 30% during the last 10 years and more than 100% in the last 20 years, the failure to adjust the 80% cap often has a devastating impact on the real value of the benefits on which many disabled workers depend.
The fact that the Social Security Act provides for the annual adjustment of Social Security benefits, including disability benefits, suggests that an historic goal of the act is to prevent inflation from eroding the value of benefits. This goal is undermined by the failure of the 1981 amendments to provide for an inflationary adjustment of the 80% cap for beneficiaries receiving both Social Security and workers’ compensation benefits.
The National Conference of State Legislatures therefore urges Congress to amend the Social Security Act to provide that the calculation of the 80% limit on total combined Social Security and workers’ compensation benefits for permanently and totally disabled workers defined under the act be based, not on the pre-injury earnings of the workers, but on those earnings adjusted for inflation occurring after the injury.
July 2008
The nation's legislators recognize the many challenges facing the nation as the labor force and workplace change. In the states, differing circumstances reflect a changing economic base, unique demographic trends, and limitations on available resources. State employment security, unemployment and labor market information systems must figure prominently in efforts to serve the workers and businesses of a 21st century economy.
Reforms to the current system of employment security financing are needed to provide an effective employment security system that will in turn address ongoing competitive challenges. Employment security agencies and personnel have additional responsibilities as a result of federal workforce legislation mandating the establishment of one-stop career centers. Now, state agencies handling ES functions must not only provide economic assistance to those who find themselves involuntarily displaced, but also must have the financial and human resources to connect unemployed Americans with new training and/or employment opportunities.
Under the framework of the system outlined in the Federal Unemployment Tax Act (FUTA), states collect a state payroll tax to finance unemployment benefits and the IRS collects a federal payroll tax to provide funds for administration of both the federal and the state systems. The federal treasury holds the collected taxes in 'trust' accounts. The amount being collected is more than adequate to fund administrative costs, but the amount returned to the states for administration has been shrinking because these funds are included in the federal unified budget and are subject to the appropriations process every year. In recent years, states have received an average of a 50-cent return on every dollar collected. State legislators in many states have been forced to add a surtax to employer taxes or to appropriate general fund revenues, or do both, to replace the funds confiscated by the Congress. The remaining accumulated 'trust' funds, currently more than $33 billion, serve as a "paper" offset to deficits or as an enhancement to federal budget surpluses.
Program flexibility has also been reduced by the FY 2000-2002 restrictions on Reed Act funds, which can only be used for administering the unemployment compensation law. These funds should be distributed to the states pursuant to the original intent of the Reed Act with maximum flexibility to also support the Employment Security System.
Legislators are concerned that the "temporary" surtax of 0.2 percent, enacted in 1976, is still being collected today despite the fact that federal trust funds have extraordinary balances. Legislators are also concerned that the percentage of unemployed workers receiving benefits has dropped dramatically, so that today only one-third of unemployed workers actually receives benefits. The nation's legislators support discussions aimed at reaching consensus among workers, employers, and state and federal entities to develop comprehensive recommendations for Congress to address these priorities and the inadequacies in the current system.
NCSL therefore urges the following reforms:
- Moving the dedicated FUTA trust fund from the discretionary side to the mandatory side of the federal budget.
- Adequate funds for state administrative functions
- Repeal of the 'temporary' surcharge coupled with benefit improvements for unemployed workers.
- Adherence to the provisions of the Reed Act that guarantee that surplus funds be returned to the states.
- A continuation of the state legislative role in the appropriation of administrative funds.
July 2007
Federal Reductions to Social Security Benefits of State and Local Government Employees
The Social Security Administration reduces benefits of state and local employees who earn government pensions through work not covered by Social Security. While the majority of state and local governments and their employees pay into the Social Security system, roughly 28% of state and local employees do not contribute to Social Security and instead contribute to and receive uncovered government retirement benefits. The majority of these uncovered employees are teachers (49%) and public safety officers (76%).
While these employees do not contribute to Social Security through their state or local government work, they often earn Social Security benefits through other employment covered by Social Security. Similarly, these employees may also earn a Social Security benefit as the spouse of a beneficiary who paid into the Social Security program. Since 1983, the Social Security Administration has reduced these earned and spousal benefits through two reductions called the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).
In addition to these offsets, uncovered government pension benefits in their entirety are taxed as income when they are received, unlike Social Security benefits, which are taxable only after the amount received exceeds an excludable maximum set in the Internal Revenue Code.
The reduction of Social Security benefits unfairly and imprecisely reduces the Social Security benefits of government employees. These reductions have unintentionally harmed a disproportionate number of women and moderate and lower-income state and local government retirees. These same retirees confront full taxation of their uncovered government pension benefits.
The National Conference of State Legislatures supports efforts by the Congress and the Administration to address the inequities and unintended consequences to state and local government retirees caused by federal reductions of Social Security benefits. NCSL urges the Congress to enact legislation that will reduce or eliminate the impact of the GPO and WEP on state and local government retirees, particularly those who have earned lower uncovered government pension benefits or partial benefits. Several proposals before Congress would exempt a portion of uncovered government pension benefits from application of the GPO and the WEP, while others would repeal the GPO and the WEP.
Further, the National Conference of State Legislatures supports efforts by the Congress and the Administration to exclude from gross income that portion of an uncovered government pension that is equal to the exclusion currently provided for benefits payable under Social Security.
Finally, NCSL opposes efforts by the Social Security Administration and the Congress to shift responsibility and costs for compliance associated with determining to whom these offsets should apply to state and local government employers and pension systems. The Social Security Administration has repeatedly sought authority to require state and local government employers and pension paying entities to collect and remit to SSA data on earnings and pension income from uncovered State and local employment in an effort to eliminate current self-reporting by retirees and thereby increase compliance with GPO and WEP offsets. Currently state and local employers annually remit earnings information to the SSA through the W-2. Similarly, state and local pension paying entities annual remit the 1099-R, detailing “Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs Insurance Contracts, etc.” to the IRS as a means to report retirement income.
The President’s FY 2007 Budget contained a proposal that purports to “improve the administration of the windfall elimination provision (WEP) and the government pension offset provision (GPO) by establishing a mandatory system for collecting data on pension income from non-covered State and local employment.” Under this scheme State and local governments would be required to provide data, in an electronic format, directly to SSA regarding the receipt of government pensions based on employment not covered by Social Security. SSA could then compare the reports with beneficiary payment records and examine cases that indicate the possibility that WEP or GPO applies. If a State or local government failed to comply with SSA’s request for this information, a penalty could be imposed on the State by denying the State access to IRS tax information the State may need to administer State tax provisions.
NCSL opposes this proposal and urges the Social Security Administration to seek authority from Congress to access existing 1099R data from the IRS in order to determine possible matches for non-compliance with GPO and WEP. State tax administrators rely extensively on tax data provided by the IRS to administer state tax systems and should not be penalized in SSA’s efforts to enforce compliance with federal law. Similarly, state retirement administrators may not have the information SSA seeks as this information is held at by the employer and may not be relevant to retirement pension benefits administered by state and local plans. States were these proposals to become law should be fully compensated for providing this data collection and for any associated costs of compliance. The SSA estimates that this proposal would provide $2.4 billion in estimated savings over ten years to the Social Security Trust fund and impact the benefits of 60,000 Social Security recipients. As an alternative to this proposal, NCSL urges the Social Security Administration to seek additional authority from the Congress to access existing 1099-R data to determine which individuals may be subject to the offsets rather than forcing state pension systems and state employers who have chosen not to participate in Social Security to collect data that is may not be readily available.
July 2009
Maintaining the Solvency of Social Security
(Joint policy with Human Services and Welfare Committee)
The National Conference of State Legislatures (NCSL) strongly believes that the federal government must preserve the financial integrity of the Social Security system and assure the long-term solvency of the program. It is critical that all workers paying into the system have confidence that Social Security will continue to be available to them at retirement. State legislatures believe that Social Security must ensure a safety net for low-income older retirees as well as provide survivor benefits and disability insurance. NCSL believes that efforts to assure solvency should strengthen the existing program upon which so many beneficiaries and their families rely. Social Security reform should continue to encourage private savings and employer-provided pension plans.
The Administration and Congress face difficult choices in maintaining the solvency of Social Security. State legislatures stand ready to assist our federal partners in this effort. NCSL believes that state and local retirement systems provide valuable models for consideration in the Social Security debate.
While Social Security currently has a surplus, the Social Security Actuaries 2002 report predicts that in 2017 trust fund expenditures will begin to exceed payroll tax revenues. After 2014, interest on accumulated assets will be drawn down to pay benefits. By 2020, trust fund principal will be drawn down to pay benefits. By 2041, current payroll tax rates will be sufficient to pay only 73 percent of benefit obligations. To avoid this shortfall, members of Congress and the Administration have put forth a variety of reform proposals.
There are serious implications for the states in these reform proposals. As Congress considers alternatives to maintain Social Security solvency, it must analyze and understand the impact of these proposals on states, taxpayers, state budgets, and state laws. These proposals for Social Security reform have major impacts on state employees, teachers, local government, private employers and taxpayers. As employers and policymakers, state legislators oppose reform proposals that finance this shortfall by shifting federal costs to state budgets. If Social Security does not continue to provide a stable form of assistance to the elderly, state low-income programs and state budgets would be severely impacted. NCSL strongly opposes any efforts to reform Social Security that create unfunded mandates for the states or preempt state laws and authority.
NCSL encourages federal policymakers to consider the following concerns when deliberating Social Security reform proposals.
Mandatory Social Security Coverage of State and Local Government Employees
NCSL has long opposed further involvement of the federal government in the administration of public retirement plans including the expansion of mandated Social Security coverage to state and local employees not currently covered under the system. NCSL maintains that state and local governments should be allowed to affiliate their retirement plans voluntarily with Social Security, as was the case before passage of the Omnibus Budget Reconciliation Act of 1990. The imposition of mandatory coverage on state and local employees who are not currently required to contribute to the system constitutes a direct cost shift to those states and will have a detrimental effect on their state budgets, state retirement plans and the retirement savings of state and local employees. The extension of mandatory coverage to new categories of state and local employees does not significantly contribute to solution of the solvency problem. NCSL's policy, "Mandatory Social Security Coverage of State and Local Government Employees," continues to oppose this mandate.
Increasing the Return on Social Security Investments
States and local retirement system choices provide models for federal reform of Social Security. We encourage Congress and the Administration to review state laws, funding choices and programs, whether they choose to create individual private accounts, authorize public investment in private markets, or pursue other options for reform. The return on Social Security has historically been far below the return on public and private pension plan investments in the market. NCSL believes that Congress and the Administration must act to increase the return on Social Security investments. NCSL believes that the best means to increase the return on Social Security investments is through some level of investment in the private markets. NCSL maintains that this investment must:
- Be administered through an independent board well insulated from political interference;
- Include Social Security beneficiaries on the board;
- Be invested for the exclusive benefit of Social Security beneficiaries as in state pension law;
- Guarantee the current level of Social Security benefits;
- Be protected from steep administrative costs;
- Be used solely for retirement, survivor benefits and disability; and
- Not preempt state laws governing securities fraud.
A strong public education program must accompany reform that would create individual accounts so that beneficiaries will have the knowledge necessary to make good investment decisions.
Guarding Against Fraud and Abuse
NCSL strongly opposes any proposal that would preempt state authority to regulate securities or give sole authority to regulate investment fraud to the Securities and Exchange Commission (SEC). States traditionally have been the protectors of individual and small investors and should maintain this role without federal intervention or preemption.
Many states have created special laws and consumer protection programs to prevent white-collar crimes, particularly against the elderly. These laws are critical to the protection of senior citizens. NCSL strongly opposes any effort to preempt state authority to regulate crimes against the elderly. Individuals must be protected from fraud through the strong enforcement of laws governing securities fraud.
Raising the Retirement Age
Prior Social Security reform efforts, to adjust for longer life expectancies, included a gradual increase in the "full retirement age". Beginning in 2002, the full retirement age, the age at which beneficiaries are eligible to receive unreduced Social Security benefits, gradually rises from 65 to 67. Contemporary solvency proposals that would increase the full retirement age even higher raise serious concerns for beneficiaries. While Americans are living longer, many workers are choosing to retire earlier than before. Conversely, other workers may be unable to continue working due to physical limitations, age discrimination or other limitations. Still other workers with shorter than average life expectancies, particularly African Americans, may experience little return from Social Security for themselves and their survivors.
Currently, public safety employees of state and local government are exempt from actuarial reductions to their public pension benefits. Efforts to raise the full retirement age disproportionately harm both private sector employees and non-public safety state and local employees who do not contribute to Social Security. Under current law, the age at which a more highly paid beneficiary may receive an unreduced private pension benefit is tied to the Social Security full retirement age. Due to this coupling, relatively highly compensated long-term private pension beneficiaries who choose to retire before age 65 receive an actuarially reduced benefit for life even if their employer deems them eligible to receive a full private pension benefit prior to age 65. The age at which public employees, excluding public safety employees, may receive an unreduced public pension benefit is not tied to the Social Security full retirement age but is instead defined in federal Internal Revenue Code policy, which sets the age at 62. In recognition of public safety concerns, public safety workers, like police and fire, are exempt from these actuarial reductions. More highly-compensated long-term non-public safety state and local employees who do not contribute to Social Security rely on their public pensions for the bulk of their retirement security. Actuarial reductions to public pension benefits disproportionately burden these employees. NCSL believes that public employers should be allowed to provide full pension benefits to all of their employees without the imposition of these Internal Revenue Code limits. Further, for purposes of consistency, NCSL supports the uncoupling of private sector benefit limits from the Social Security full retirement age.
NCSL encourages Congress and the Administration to consider the impact that raising the retirement age may have on various groups of workers. NCSL opposes further increases of the full retirement age.
Raising the Payroll Tax Rate
Raising the payroll tax rate constitutes a direct cost shift to employers and employees for the cost of Social Security solvency. States, as employers, would bear increased costs if the payroll tax rate were increased. As well, the payroll tax is regressive and an increase would disproportionately affect workers making less than the wage base. An increase in the payroll tax rate may also provide disincentives to employer-provided pension benefits. NCSL opposes an increase in the payroll tax rate.
Modification of the Earnings Limit
NCSL has long supported increasing the earnings test for older workers, especially those who provide essential child care services. NCSL acknowledges the federal government for responding to state concerns by repealing the earnings limitation for workers aged 65 to 69. Under current law, beneficiaries under the full retirement age may earn up to $11,280 annually without reducing the amount of benefits they receive from Social Security. Beneficiaries who retire at their full retirement age may earn up to $30,000 in the year that they retire without receiving a reduced benefit. However, the earnings penalty under age 65 severely hampers the ability of seniors to continue working once they begin to receive Social Security. NCSL supports the elimination of or an increase in the earnings limit on wages earned by Social Security beneficiaries. As the worker-to-beneficiary ratio continues to fall, older workers may become increasingly important to productivity. This penalty severely inhibits seniors who would prefer to and continue to be able to work. This would not have a negative impact on Social Security solvency.
Means-Testing of Beneficiaries
Social Security benefits are calculated based on earnings and time in the workforce. Although workers contribute the same percentage of payroll taxes to the system, a combined employer-employee contribution of 12.4% of payroll up to $85,900, lower-income workers receive a higher proportion of their contributions in benefits than to higher-income workers. NCSL opposes proposals to means-test eligibility to receive Social Security. Such proposals may reduce overall public support for Social Security and are not necessary to achieve Social Security solvency.
July 2008
The National Conference of State Legislatures urges Congress to reject all proposals that would mandate Medicare coverage to all employees of state and local governments. Such proposals violate the agreement to gradually phase-in coverage for all newly hired employees on or after April l, l986 reached in the Consolidated Omnibus Budget Resolution Act of l985 (COBRA) by the Administration, the Congress and the states.
Mandatory Medicare proposals would cause the federal government to renege on its promise of a tax reduction to low- and moderate-middle income Americans by effectively increasing the Medicare payroll tax on at least four to five million Americans employed by state and local governments. The Medicare tax on employers would also seriously jeopardize the fiscal integrity of at least ten states that currently have the highest percentage of non-covered employees: Alaska, California, Colorado, Illinois, Louisiana, Maine, Massachusetts, Nevada, Ohio and Texas. The Joint Committee on Taxation estimated in January 2005 that the extension of Medicare payroll tax to all State and local government employees would yield the federal government $5.4 billion in revenues over a ten year period. The federal government should not increase the employment costs of State and local governments and increase taxes on state and local workers in order to infuse additional revenue into the Hospital Insurance Trust Fund.
July 2009
Mandatory Social Security Coverage of State and Local Government Employees
On June 28, 1991, the U.S. Department of the Treasury and the Internal Revenue Service releases final regulations and a revenue procedure under a new requirement passed as part o the Omnibus Budget Reconciliation Act of 1990 (OBRA 1990). The law mandates full Social Security coverage, including Medicare, for public sector employees who are not members of a retirement system. The final regulations contain rules for determining whether an employee of a state or local government is a member of a retirement system for purposes of determining whether the employee’s wages are subject to Social Security taxes.
The final regulations set a new precedent. For the first time, the federal government required public employee retirement systems to meet minimum contribution and benefit level standards. Public plans must meet these tests if the Social Security tax is to be avoided.
This precedent setting action, which became effective on January 1, 1992, affected approximately 3.8 million workers not covered by a public employee retirement plan. Most of these workers were part-time, seasonal and temporary (PST) employees, and in many cases, were the least able to pay an additional tax. The change in law also required PST employees to be immediately and fully vested (100 percent) in any employer-sponsored retirement arrangement in order to satisfy the rules.
The National Conference of State Legislatures maintains that the U.S. Department of Treasury and the IRS went beyond the intent of OBRA 1990 in their interpretation of the law. NCSL further contends that this action could make it easier for he federal government to expand mandatory Social Security coverage to all state and local public employees.
Sine then State and localities have faced repeated attempts by Congress and the Administration to extend mandatory Social Security coverage to all newly hired state and local government employees. A 2005 study by the Segal Company found that the estimated cost to public employees and their employees for the first five years of mandatory coverage is $44 billion. The Social Security Administration however estimates that extending mandatory coverage to all newly hired state and local government employees would only extend the solvency of the Social Security trust fund by about tow years. NCSL maintains that mandatory coverage would result in a massive unfunded mandate on the states that would adversely impact the fiscal health and financing of state and local pension plans. In particular mandatory coverage would raise the cost of maintaining current benefit levels of state retirement systems and would likely force states to reduce plan benefits or raise taxes to maintain benefit levels.
NCSL continues to call upon the Administration and Congress to grandfather preexisting state and local retirement plans. In other words, public plans in existence prior to the adoption of OBRA 1990 (November 5, 1990) would be deemed in compliance with the law and benefits received from a state or local retirement system would qualify as being equivalent to a benefit received under Social Security. Furthermore, NCSL opposes expansion of mandatory Social Security Coverage to public employees of state and local governments who are not already covered. NCSL believes that state and local governments should be allowed to affiliate their plans with Social Security on a voluntary basis.
July 2009
The Fair Labor Standards Act of 1938 (FLSA) sets the minimum wage for over eighty million nonexempt workers in the United States. The act requires employers to pay covered workers at least the minimum wage and to pay employees working more than 40 hours in a week at an overtime rate of one and one half times the regular rate. The original minimum wage rate was $.25 an hour and has increased through amendments over the years.
The act as amended in 1996 (U.S.C. 206 a(1)), increased the federal minimum wage rate to $4.75 and to $5.15 an hour in 1997. The amendments to the law also revised the tip credit provisions, which allow employers to pay qualifying tipped employees at least $2.13 per hour if they received the remainder of the federal minimum wage rate in tips. We must bring the federal minimum wage back to its historic level because the real value of the minimum wage has fallen 33 percent since its high in 1968. Today, the minimum wage is at its lowest level since 1955 (in inflation-adjusted dollars).
Bills have been introduced in Congress that would increase the federal minimum wage to $7.25 an hour in three steps over a two year period. Another bill that has been introduced would mandate a tip credit for employers of tipped employees in states where the minimum wage rate is higher than the federal rate.
The National Conference of State Legislatures supports increasing the federal minimum wage. NCSL does however oppose strongly any effort on the part of the federal government to mandate a tip credit for states that have a minimum wage higher than the federal minimum wage.
2009
(Joint policy with Human Services and Welfare Committee)
The National Conference of State Legislatures (NCSL) is very concerned about identity theft and fraudulent uses of identity documents. While NCSL strongly supports efforts to protect the integrity of Social Security numbers (SSNs), such efforts cannot be achieved through unfunded federal mandates on state and local government. Many states have implemented or are considering statutes to protect the integrity and restrict certain usages of SSNs.
The SSN was originally created to administer the Social Security program. However, it is extensively used by state, local and tribal governments for both record keeping and identification. The federal government often requires states to use SSNs in program management and data matching, especially in the delivery of health and human services programs. SSNs are used in vital records, paternity and divorce case documents, Motor Vehicle/Drivers License documentation, child support enforcement and administration, state retirement systems and to prevent fraudulent access to benefits and services.
Numerous pieces of Congressional legislation have been introduced in recent years that would require states to restrict the display, purchase or sale of Social Security numbers. The Congressional Budget Office found on two occasions (S. 848, the Social Security Number Misuse Prevention Act of 2002, and H.R. 2971, the Social Security Privacy and Identity Theft Prevention Act of 2004) that the cost of such provisions to state, local and tribal governments is likely to exceed the threshold amount for an intergovernmental mandate in at least one of the first five years following the date the mandates go into effect. These provisions would apply to a wide range of state and local agencies and would entail time-consuming efforts for state agencies to comply. States would have to make systemic changes to alter their document maintenance and retrieval systems. Some potential areas of cost include changes in information technology to ensure that systems only display SSNs in instances where access is permissible and labor costs to screen government documents for SSNs and then redact them before allowing citizens to access them. In many cases, especially death certificates, such redaction would have to be done by hand.
NCSL calls upon the federal government to abide by the provisions of the Unfunded Mandate Reform Act of 1995 and abandon efforts to put burdensome, unrealistic and costly mandates on state and local governments. NCSL supports a federal role in providing technical support, highlighting successful models, facilitating discussion on this issue and providing necessary funding for changes made at the discretion of the states. NCSL calls upon the federal government to begin by addressing flaws in the issuance of SSNs and to examine other ways to safeguard individual privacy, including consideration of password protection of SSNs. NCSL encourages the federal government to work with the states to develop joint recommendations on Social Security number usage.
July 2008
Many State and local governments provide retired employees with group health care coverage, through their retirement systems or by some other mechanism. Some of these government employers cover all or part of the health care expenses for these retired plan members. Yet, health care costs continue to rise at rates that threaten the ability of government employers to continue to provide these benefits. Further, out-of-pocket health care costs consume a growing percentage of retirement income for retired government employees. State efforts to provide health care for retirees have further been challenged by new governmental accounting standards that require states to account for the full cost of these benefits. These new requirement have caused many state and local governmental entities to consider greater funding of these benefits, plan design changes and increased participation by current employees and retirees in the financing of these benefits.
States have demonstrated creativity and innovation in their efforts to make health care for retirees accessible and affordable, yet their ability to affect the accessibility and affordability of health care is increasingly limited and challenged.
The National Conference of State Legislatures support federal legislation that would allow retirees to deduct premium and medical expenses from their taxable retirement income and applauds recently passed legislation that provides for pre-tax distributions of retirement income used to purchase retiree health or long term care insurance up to $3,000 annually for public safety retirees. The law requires that premiums, in order to be excluded from income, would need to be paid directly to the insurer. NCSL encourages the Treasury to minimize costs, administrative burden and complexity in promulgating rules to implement this provision and further encourages Treasury to consider alternative means of allowing distributions to be made pre-tax where pension paying entities are unable to provide for payments directly to the insurer. NCSL further encourages Congress to extend this tax treatment to all public sector retirees covered under similar plans.
Similarly, the National Conference of State Legislatures supports federal legislation that would allow current employees to rollover unused balances in flexible spending arrangements to future plan years or to contribute unused balances in flexible spending arrangements to qualified retirement plans, including 403 (b) and IRAs, or 457 governmental deferred compensation plans, or into retirement health care savings vehicles.
July 2009
There is continued emphasis on increasing retirement savings nationwide, and state and local governments have been responsible partners in achieving this goal by providing retirement savings vehicles to virtually all full-time state and local employees as compared to approximately 58 percent of employees provided pension benefits in the private sector. State and local governments have a strong commitment to the retirement security of their employees and retirees. State and local governments provide sound, secure benefits in retirement. There are approximately 2,600 public employee pension plans in the United States covering over 20 million state and local government workers. These plans hold nearly $3 trillion in assets for the benefit of plan participants and their beneficiaries.
State and local governments however face continued efforts by the federal government to expand federal regulation of state and local public pension plans and benefits and to impose taxes on public plan assets held in trust for plan participants. Examples of federal intrusion into the regulation of these plans range from proposals to regulate public plans under ERISA, to tax short-term public pension fund investments, to regulate investment options, impose excise taxes on plans and preempt state plans from state regulatory authority. States and localities have comprehensive laws that provide for rigorous regulation of retirement plans and strong protections for plan participants and assets. The National Conference of State Legislatures is concerned that continued efforts by the federal government to intrude into the administration and regulation of these plans will result in preemptive, redundant, costly and administratively burdensome requirements on governmental pension plans that will ultimately erode state sovereignty over these plans. NCSL further, firmly oppose federal legislative and regulatory proposals which would burden public sector pension plans with new federal requirements intended to address private sector pension concerns. The National Conference of State Legislatures believes that public retirement plans and assets are thoroughly protected under state law. NCSL maintains that any additional federal regulation of state and local pension plans, systems and assets is a violation of the sovereign power of state governments. Further, NCSL urges that current regulations that impose excessive and unnecessary administrative costs on states and localities be simplified or eliminated.
Additional federal regulation is duplicative of state regulation and could preempt the array of strong state and local laws that protect public pension funds and their active and retired members. It could also undermine the decision making process applicable to public plans. Retirement plans are creatures of state and local laws. Any proposed change is subject to the political process, which involves a vigorous public debate. Issues affecting the plans and their members are debated in a legislative setting, which allows for complete and open examination of the issues. Finally, state and local plans are backed by their respective state or local governments, which are permanent institutions that have a strong moral, contractual, and, in some cases, constitutional commitment to back their pension liabilities. This strong commitment assures state and local employees and retirees that they will receive the pension benefits to which they are entitled.
Generally, public plans adhere to the following:
- They are administered through boards of trustees, which, unlike private plans, generally include representatives of retiree and active members.
- Boards act for the exclusive benefit of members of the pension system, as required under state trust law.
- Plan fiduciaries include both individuals responsible for overall plan administration and those involved in daily investment activities.
- The fiduciaries are responsible to the plan participants for the operation of the plans in accordance with applicable laws.
- Fiduciaries are subject to strict fiduciary and trust law that governs their conduct on behalf of the plan, including the investment of the plan's assets.
- Breaches of fiduciary trust laws result in civil or criminal penalties.
- In addition to fiduciary law, public pension plan boards and administrators are subject to codes of ethics, conflicts of interest laws, and criminal laws.
- Boards and administrators, who violate any of these laws, may be punished by imprisonment, fines, or both.
- Routinely provide comprehensive disclosure, investment education and benefit statements to plan participants.
In addition to the foregoing safeguards, public pension plans are subject to oversight through the legislative process. The plans are also audited routinely and are subject to comprehensive reporting and disclosure requirements. The plans are funded on an actuarial basis by annual employee and employer contributions.
With nearly $3 trillion in assets and limited unfunded liabilities, public pension plans have been repeatedly targeted as a revenue source by the federal government. Both Congress and the Administration have considered taxing public plans through a direct tax on investments or through penalties or excise taxes under the US Internal Revenue Code. NCSL believes that taxation of public pension plans violates a long-standing and sound component of federal tax policy, which exempts state plans from taxation. Such taxation would also reduce the amount of funds available to pay benefits promised to plan members, likely forcing states to divert resources away from other priorities in order to address shortfalls or to pass on the cost of compliance to public pension systems and/or to plan participants in the case of self-directed plans. Therefore, NCSL calls upon Congress and the administration to oppose taxation and excessive regulation of state pension and benefits plans as the sovereignty of these plans should be maintained by the states.
July 2009
Many state and local governmental entities sponsor a supplemental defined contribution plan in addition to the general retirement plan to allow participants to defer an additional portion of their salary in anticipation of retirement needs, and some states provide limited matching contributions to encourage supplemental plan participation. Tax favored savings arrangements available to employees of state and local government are valuable in both increasing the attractiveness of public service as a career and in encouraging public employees to play a proactive role in providing for their own retirement security.
Federal legislation enacted over the last decade has simplified participation in, and the administration of, these supplemental arrangements. Much of this legislation recognized that arrangements sponsored by governmental entities are unique from those sponsored by other entities. Efforts to simplify federal regulation and taxation of these plans while maintaining the unique characteristics of these arrangements have been continually supported by NCSL—including efforts to provide similar tax treatment of employer contributions to governmental 401(k), 401(a), 403(b), and 457 plans and efforts to incorporate after tax contribution features in all such salary reduction arrangements.
NCSL supports further efforts to improve existing arrangements and to provide simplification and flexibility to these plans when directed by state and local government but oppose efforts to increase federal regulation of these plans or efforts to diminish the unique features and characteristics of these plans. NCSL opposes efforts to move to a one-size-fits-all approach that mandates the replacement of existing plans with vehicles designed for other sectors. Further we oppose efforts to supplant rather than supplement current savings and efforts that could result in additional cost and complexity for State and local governments as well as for plan participants.
NCSL maintains that primary regulation for these plans should remain with the states and that these plans should be allowed to continue to evolve in design to meet the unique needs of the state and local public sector workforce. NCSL encourages federal policy makers and regulators to continue to recognize the distinctive characteristics of state and local governments and their supplemental retirement arrangements and keep these in mind when promulgating regulations or further legislative changes to these plans.
July 2009
The National Conference of State Legislatures (NCSL) recognizes that U.S. prosperity and long-term economic security depend in great part on training and maintaining a highly skilled workforce. State legislatures play a critical role in addressing the economic challenges facing the nation as we strive to maintain primacy in the global economy.
NCSL recognizes that a comprehensive, seamless and flexible national workforce development system must encompass education, human service, and economic development programs and ensure the attention and investment of all levels of government, the private sector, and community- and faith-based service providers. State legislatures further maintain that this system must produce a highly skilled workforce that strengthens America’s businesses and the economy while providing training and supports that enable unemployed workers, job seekers and incumbent workers to attain economic self-sufficiency and educational advancement.
NCSL supports the reauthorization and full funding of the process of streamlining the nation's workforce development system begun with the enactment of the Workforce Investment Act of 1998 (WIA).
Enactment of WIA marked the first significant attempt to retool the nation's workforce development programs since the early 1980s. WIA was not a revolutionary departure from existing law and maintains many of the structures inherent to predecessor programs. NCSL believes that WIA is another step in an evolutionary process that has moved federal intervention toward federally funded but state administered and locally delivered workforce development programs.
Reauthorization of WIA presents an important opportunity to support state and local innovation, to enhance the federal-state-local workforce system and to enhance those aspects of WIA that have been successfully implemented and to redefine those aspects of the Act that are administratively burdensome, ineffective or cost prohibitive. To address these challenges, state legislatures support additional efforts to strengthen the system and provide the following recommendations to guide actions by the Administration and Congress in reauthorizing the Workforce Investment Act and in appropriating funds for WIA activities on an annual basis.
Maintain State Legislative Authority to Appropriate Workforce Investment Funds
Reauthorization must maintain the authority of state legislatures to appropriate workforce development funds under the WIA Section 191. The Act currently reinforces the legislatures’ fundamental role in appropriating training dollars coming into the states from the federal treasury cementing the role of the legislature to establish statewide workforce and economic development priorities and in influencing the implementation of programs and services by the local delivery system.
Maintain State Flexibility
NCSL believes that states should be given maximum flexibility to meet the broad goals set out in the Workforce Investment Act and that state discretion to establish and administer workforce development services should not be displaced during reauthorization with inflexible federal mandates and restrictions on how funds can be used by states and the localities who delivery these services.
An integral component of state flexibility is the permissibility of state waivers to address state specific problems with program requirements. NCSL believes that states need flexibility for further innovation and strongly maintains that states must be able to continue current federal workforce investment act waivers. The elimination of current state waivers would substantially undermine existing state authority and local service delivery.
Full Funding of WIA at FY 2005 Levels
In order for the Workforce Investment Act to flourish its activities must be fully funded. NCSL urges Congress to fully fund the Act at FY 2005 levels adjusted for inflation.
The administration's FY 2007 budget proposes to significantly reduce funding for youth, adult and dislocated worker grants, based in part on continued U.S. Department of Labor suggestions that states are not spending their workforce investment funds fast enough. NCSL believes that the proposed reductions are unwarranted. Current law provides states three years to spend down workforce funds and should be maintained. States have been judicious in spending funds for training and have also prudently reserved contingency funds in order to respond to mass-layoffs and other unpredictable events.
NCSL believes that the existing components of the integrated WIA system should be adequately supported through full annual appropriation and funded in reauthorization.
Youth Services
Youth services should also be fully funded and services for both in- and out-of-school youth should be maintained in reauthorization, allowing states and localities the flexibility to determine how best to allocate funds to address, local, regional and state goals for youth employment, skills development and educational opportunities. Furthermore, linkages between WIA Youth Services and Career and Technical Education programs provided for under the Carl D. Perkins Career and Technical Education Improvement Act of 2006 should be maximized to improve student performance and career opportunities while supporting innovative, high quality and effective programs. Full funding for these programs should be maintained.
Consolidation of WIA and Other Activities
Congress and the Administration have repeatedly proposed to consolidate funding for adult, dislocated worker and state Employment Services (ES) authorized through the Wagner-Peyser Act in efforts to reauthorize WIA. NCSL believes that any consolidation of these programs, if considered, should be made consistent with NCSL’s Policy on Federal Grants and Programs, which outlines principles for maintaining existing financial commitments to state-federal partnership programs and current and proposed block grants. Program consolidation proposals to date, including the Administration’s proposal for Career Advancement Accounts (CAA) have not been consistent with these principles and are therefore not supported by NCSL. In particular, proposals to place authority over a consolidated block grant with Governors, negates the legislatures' authority and role in setting program goals, appropriating funds and oversight. Similarly, reauthorization proposals that would consolidate funding streams of WIA adult, dislocated worker and ES activities currently authorized and funded through the Wagner-Peyser Act would reduce overall federal financial support for these activities and would reduce the amount of federal dollars flowing from the Federal Unemployment Trust Fund (FUTF) to states. NCSL supports retaining existing state-local funding formulas under current federal law for the WIA adult/dislocated worker and Wagner-Peyser Act programs and continues to support funding of the Wagner-Peyser Act from Federal Unemployment Tax Act (FUTA) revenue and the link between Unemployment Insurance (UI) and reemployment services for UI claimants.
Fully Fund and Support the Infrastructure Costs of the One-Stop Centers
Infrastructure funding for the One-Stops should be central to WIA reauthorization. A primary criticism of WIA is that funding for infrastructure under the current framework has limited funds for training. NCSL supports efforts to provide a separate line of funding in reauthorization to fully fund the One-Stop Centers infrastructure and to avoid the need to siphon limited resources from partner programs.
Encourage Voluntary Coordination of TANF and Child Support
NCSL opposes changes to federal law that would require TANF and Child Support to participate as mandatory partners with WIA. NCSL also opposes changes to federal law that would require limited TANF administrative and Child Support funds to be used in support of infrastructure funding for One Stops. NCSL does support efforts to lift federal barriers to collaboration between TANF, Child Support and WIA and to allow states the flexibility to maximize these partnerships on a voluntary basis.
Make Significant Improvements to the Workforce Investment Act
The federal government must continue to maintain and provide states and localities with accurate and consistent data about current and future employment, economic development and related trends under reauthorization. Such information assists individuals, businesses, planners and local and state decision-makers in determining the appropriate areas in which to seek or develop employment and training assistance.
Streamline Reporting and Performance Standards
Federal workforce development program reporting should be further streamlined to eliminate barriers to effective service delivery caused by inconsistent and administratively burdensome definitions, planning and reporting requirements, and accountability measures.
Streamlined performance measures should be developed at the state level in cooperation with localities and the federal government. These streamlined measures should determine common and broad performance and accountability standards for the workforce investment and training system rather than many sets of standards for various funding streams that are overly burdensome, inconsistent and increasingly difficult and costly to comply with. Measures should be simple and direct, readily illustrating the value that the workforce development system adds to enhancing the ability of workers to attain economic self-sufficiency and meeting particular economic development and educational advancement goals. Further, results quantified by performance measures should be circulated widely as a tool for the timely continuous improvement of the system.
Fully Engage America’s Businesses in the Workforce System
Two primary customer groups utilize the services provided by the workforce system—workers, both current and future, and businesses. While WIA has been successful in engaging workers work remains to ensure that businesses are fully engaged in the workforce system. State efforts to fully engage business in state workforce investment activities should be enhanced by WIA reauthorization and federal policy should support strong public/private partnerships and provide states with continued authority to build and enhance these partnerships.
July 2009
Staff contacts:
Gerri Madrid, Committee Director
Diana Hinton
Last updated September 5, 2006
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Federal Reductions to Social Security Benefits of State and Local Government