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Monday, January 30, 2012

The Unemployment Trust Fund and Reed Act Distributions

Julie M. Whittaker
Specialist in Income Security

Under the Federal Unemployment Tax Act (FUTA, P.L. 76-379), the federal unemployment tax on employers finances the states’ administrative costs of Unemployment Compensation (UC) and loans to states with insolvent UC programs. The extended benefits program is funded 50% by the federal government and 50% by the states, but the 2009 stimulus package (P.L. 111-5 §2005) as amended temporarily provides for 100% federal funding of this program through March 7, 2012.

FUTA tax revenues are placed into the Unemployment Trust Fund (UTF) that—among its many accounts—contains three federal accounts and 53 individual state accounts from the states’ unemployment taxes. Under certain financial conditions, excess federal tax funds in the Unemployment Trust Fund (UTF) are transferred to the individual state accounts within the UTF. The transferred funds are referred to as Reed Act distributions.

The Reed Act, P.L. 83-567, set ceilings in the federal UTF accounts that trigger funds to be distributed to state accounts; Congress has changed these ceilings several times (P.L. 105-33, P.L. 102-318, and P.L. 100-203). There are other transfers in the UTF that are labeled by legislation as special Reed Act distributions. These are distributed in a manner similar to the Reed Act but do not follow all of the Reed Act provisions.

The most recent regular Reed Act distribution was $15.9 million and occurred in 1998. The Balanced Budget Act (BBA) of 1997, P.L. 105-33, limited Reed Act distributions for the 1999 to 2001 period to special Reed Act distributions of $100 million each year. In March 2002, the Job Creation and Worker Assistance Act of 2002, P.L. 107-147, provided for a one-time special Reed Act distribution of up to $8 billion to state accounts.

The American Recovery and Reinvestment Act (P.L. 111-5 §2003) provided for a special UTF distribution that has some properties similar to a Reed Act distribution. The law distributes up to a total of $7.5 billion to the states through a special transfer of funds from the federal accounts within the UTF to the state accounts, using the methodology required by the Reed Act to determine the maximum state allotments. Up to $7 billion will be distributed to states as incentive payments for changing certain state UC laws. Administrative funds totaling $500 million will be distributed among the state accounts, regardless of whether states change their UC laws.

According to the Department of Labor, there is no projected regular Reed Act distribution through FY2021 on account outstanding loans in the UTF owed to the general fund of the U.S. Treasury.

Date of Report: January 1
7, 2012
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