Department of Employment, Training and Rehabilitation

Monday, February 25, 2013 Senate Bill 36

Wage Garnishment: Sections 12-19 and 21 amend NRS 612.365 to establish an appropriate, effective and viable method for the Employment Security Division to collect fraudulently obtained benefits by attaching a person’s paycheck if they are not making reasonable efforts to make restitution to the Nevada Unemployment Trust Fund in monthly payments or in a lump sum remittance.

• Fraudulent overpayments amount to 60% of total overpayments owed to the Unemployment Trust Fund. Repayment of these amounts by use of legally negotiable instruments other than credit card or debit card amounts to only 23% of the amount fraudulently claimed.

• The Federal government has set new performance measures requiring a 50% collection

rate of fraudulent overpayments.

• Nevada has limited resources from which to recover overpayments. Other states, for example, accomplish recovery from offset to State Income Tax refunds or lottery winnings. Garnishment provides a collection option that can be effective.

• In 2009 the Nevada Legislature authorized wage garnishments and during a 2010 pilot of the garnishment process, the Division was able to use garnishments to increase collection rates by 29.3%.

• However, the administrative and expense burden to file required paperwork using the existing garnishment process is excessive and amounted to 26.1% of amounts collected in the trial study.

• The provision of NRS Chapter 31, requiring that the garnishment be re-filed every 120

days, significantly increases the administrative burden required to recover the fraudulent overpayment and restore the Trust Fund to health.

• Restricts garnishment action to overpayments caused due to fraudulent activity on the

part of the claimant. The bill gives the Division the ability to place wage assessments in a manner similar to those afforded the Office of Child Support Enforcement, and in priority secondary only to that of the collection of child support.

Fraud Penalties: Section 23 revises existing law concerning unemployment insurance fraud by: (1) providing that, in general, the Administrator may issue an initial determination finding that a person has committed such fraud at any time within four years (previously two years) after the first day of the benefit year in which the person committed the fraud; (2) revise the period during which the person is disqualified from receiving further benefits; and (3) the amount of the penalties that may be imposed.

• Current statute, NRS 612.480, only allows the Division to review claims filed within the

past two years. The Division routinely identifies cases where a claimant had committed fraud prior to the previous two years.

• Changes to NRS 612.445 would correct a technical flaw in a law passed in 2009 that

drastically increased overpayments by disqualifying persons for time periods they were actually eligible for benefits and not acting in a fraudulent manner.

• Requested changes will enact an administrative penalty as intended by law, prohibiting a

receipt of benefits for future weeks as opposed to a retroactive disqualification.

• NRS 612.445 is amended to impose a 15% penalty for commission of unemployment fraud resulting in an overpayment of more than $1.00 and requires the Division to deposit the penalty into the Unemployment Trust Fund as required under Federal law, Trade Adjustment Assistance Extension Act of 2011, enacted on October 21, 2011, PL 112-40. Non-conformance with this Federal law jeopardizes the FUTA Tax credits for Nevada employers.

• Requests to adjust the existing penalties authorized by the 2009 legislature and to use the

remaining assessed penalty in excess of 15% mandated for the trust fund for the purposes of maintaining program integrity.

Waiting Week: Section 22 amends NRS 612.375 postponing payment of unemployment benefits for one week after a claim is filed. This law will help to restore the trust fund to solvency levels and pay accruing debt.

• A waiting week will not reduce the total amount of benefits payable to a person; it will only delay the first payable week by seven days, and an individual would receive a first payment approximately 18 days after filing an initial claim.

• Additional time allows staff to gather the facts and issue the proper decision to allow or

deny benefits. Since an employer has 11 days to respond in writing with information regarding an individual’s separation, the waiting week reduces the amount of money overpaid to UI recipients who misrepresent the reason for their separation upon filing a new claim.

• It is estimated that the Division would have saved $66 million in trust fund savings over

the past four calendar years, if the State had a waiting week provision.

• Since not all individuals exhaust a UI claim, there would have been an additional savings to the trust fund for $25.5 million from October 1, 2011 to October 1, 2012. Approximately 39% of UI claimants exhaust their benefits during a benefit year.

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• The Omnibus Reconciliation Act of 1980 provides that the Federal share (50%) of the cost of the first week of extended benefits be eliminated in any state that does not have a “waiting week” for regular benefits.

• With a waiting week, Nevada will escape a monetary penalty imposed as the federal

share (50%) of the cost of the first week of extended benefits is eliminated. This will further save money in the UI trust fund.

• In the absence of a waiting week and during a traditional extended benefits period, Nevada would be liable for the cost of the first week of extended benefits paid. From the period of February 2009 to May 2010, the Division would have been responsible for an additional amount of $21 million of benefits paid.

• The Unemployment compensation Extension Act of 2008 provided for a temporary federal matching for the first week of extended benefits for states with no waiting week. This temporary provision has a statutory end date of June 30, 2014.

Employer Account Relief – Timely Response: Section 25 amends NRS 612.551 to prohibit relieving an employer’s account of benefits improperly paid if they fail to provide all relevant facts or respond timely to a request for separation information. This bill is required to conform to federal law (Trade Adjustment Assistance Extension Act of 2011, Pub. L. No. 112-40, § 252, 125 Stat. 402, 421-22).

• The Division has made the prevention of improper payments a high priority, and the Department of Labor is requiring new statutory amendments to reduce improper UI payments.

• Under the new statutory requirements, if the Division determines that an employer failed

to provide adequate separation information, or respond untimely to the request for information, the employer’s UI account must not be relieved of charges.

• Although employers and third party administrators are instructed to respond timely and provide sufficient separation information, they fail to do so and the adjudicator issues a decision allowing benefits to the claimant that may be improper.

• Information is typically provided by the employer after receipt of a billing statement, resulting in a redetermination of benefits that creates an overpayment of benefits for the claimant.

• By amending this law, the employer would not receive a credit to their employer account once the overpayment is established or the claimant repays the funds.

• This new statutory requirement goes into effect for any improper overpayment established after October 21, 2013 that is caused by an employer’s failure to provide sufficient separation information or to respond timely.

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• Failure to pass this legislation will result in a conformity finding by the Department of Labor. Nevada’s unemployment insurance program could be de-certified, which means employers could lose the Federal Unemployment Tax Act (FUTA) offset credit. De-certification would also impact the state’s ability to borrow funds under Title XII to pay state unemployment compensation benefits.

Transfer of unpaid contributions liability with transfer of experience rate: Section 24 amends NRS 612.550 to provide that if the transferring employer is liable to the Division for unpaid contributions, interest or forfeits, a percentage of that liability must also be transferred to the successor employer.

• The percentage of liability transferred must be the same as the percentage of the experience record transferred.

• It is not uncommon for an employer to change the entity under which the business

operates, in order to leave the debt on the predecessor account.

• In many cases, the predecessor and successor employers share the same ownership or management.

• Whether or not the predecessor and successor employers share the same ownership or

management, the debt should transfer to the successor account commensurate with the percentage of experience rate transferred.

• Currently, there is no provision for the Division to transfer the predecessor account’s debt

with the experience rate though the business shares the same ownership or management of the predecessor.

• Allows the Division to pursue collection activities not presently provided for in statute and will prevent the ability to avoid payment of funds owed to the UI Trust Fund.

• This change will also ensure all unemployment taxes are collected in cases where an

entity transfers some or all of its assets to another entity. Transfer other than sale: Section 28 amends NRS 612.695 to extend the current provisions to apply in cases of the transfer of assets of a business by means other than a sale.

• Requires an employer to assume the unemployment insurance contributions debt when they purchase a company or its assets, and the company being purchased has an outstanding obligation to the Division.

• Currently, there is no process by which sales or purchases can be monitored by the Division. Only in the event of a purchase is the business placed into escrow. Unless an escrow officer or purchaser requests a letter of clearance, the Division has no way of knowing the acquisition occurred and that the business changed ownership.

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• If the seller’s debt is abandoned, civil action by the Division is necessary to collect the

debt from the purchaser which is costly, time consuming, and not necessarily effective in collections.

• Provides that when assets are transferred, in the case of a sale or any other transfer of assets, the debt is transferred to the successor entity.

• Allows the Division to transfer the debt from the seller to the purchaser account

regardless of the type of acquisition.

• Allows the Division to pursue collection activities not presently provided for in statute and would expedite and facilitate the Division’s collection efforts and avoid lengthy and expensive court action.

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