Unemployment Insurance System Update, Part II: States Opting Out of Federal Unemployment Benefits

Since the beginning of May 2021, multiple states have announced their intent to opt out of enhanced federal unemployment benefits. To cease participation in enhanced federal unemployment benefit programs, a state must provide at least 30 days’ written notice to the U.S. Department of Labor (DOL). A state may cease participation in one or all of the six programs that allow for enhanced federally funded benefits.

The federally funded enhanced unemployment benefits that may no longer be available if a state so chooses include the following:

• Pandemic Unemployment Assistance (PUA): provides unemployment benefits to self-employed independent contractors and those persons otherwise ineligible for traditional unemployment benefits
• Pandemic Emergency Unemployment Compensation (PEUC): extends available state unemployment benefits from the state maximum number of weeks to 51 weeks
• Federal Pandemic Unemployment Compensation (FPUC): pays a $300 weekly benefit in addition to the state unemployment benefit
• Mixed Earner Unemployment Compensation (MEUC): pays a $100 weekly add-on benefit for those who are eligible for regular UI benefits, but also earned self-employment income”
• Emergency Unemployment Relief for Governmental Entities and Nonprofit Organizations: provides increased funding from 50 percent to 75 percent of unemployment insurance benefits to employees of governmental entities and nonprofits
• Temporary full federal funding of the first week of compensable regular unemployment for states with no waiting week: “provides that compensation is paid to individuals for their first week of regular unemployment without a waiting week”

These changes will have no impact on regular state unemployment benefits.

Revocation of Enhanced Federal Unemployment Benefits

In some of the states that have chosen to opt out of enhanced federal unemployment benefits, unemployment rates have dropped to near pre-pandemic levels: Alabama (3.8 percent); Arizona (6.7 percent); Arkansas (4.4 percent); Georgia (4.5 percent); Idaho (3.2 percent); Iowa (3.7 percent); Mississippi (6.3 percent); Missouri (4.2 percent); Montana (3.8 percent); North Dakota (4.4 percent); Ohio (4.7 percent); South Carolina (5.1 percent); South Dakota (2.9 percent); Tennessee (5.0 percent); Utah (2.9 percent); and Wyoming (5.3 percent).

The following states will no longer participate in enhanced federal unemployment benefit programs:

Alabama: Governor Kay Ivey announced that Alabama will end participation in all enhanced federal unemployment benefits on June 19, 2021.

Arizona: Governor Doug Ducey announced that Arizona will cease participation in enhanced federal unemployment benefits on July 10, 2021. Governor Ducey also announced a plan to offer eligible full-time workers a $2,000 “back to work” bonus to get “as many Arizonans as possible to rejoin the workforce by September 6, 2021.” The order also provides a smaller bonus for part-time work and provides child care support, educational opportunities and rental assistance to entice Arizonians to return to the workforce.

Arkansas: Governor Asa Hutchinson has announced that the state will cease all enhanced federal jobless benefits effective June 26, 2021. Governor Hutchinson made the announcement in a letter to the Arkansas Division of Workforce Services.

Georgia: Governor Brian Kemp announced that Georgia will cease participation in federal pandemic unemployment programs on June 26, 2020.

Idaho: Governor Brad Little has announced that effective June 19, 2021, Idaho will end its participation in enhanced federal unemployment benefit programs.

Iowa: Governor Kim Reynolds announced that Iowa will end participation in federal pandemic related unemployment on June 12, 2021.

Mississippi: Governor Tate Reeves announced via social media that he has directed the Mississippi Department of Employment Security to cease participation in the enhanced federal unemployment benefit programs on June 12, 2021.

Missouri: Governor Mike Parson announced that Missouri will cease participation in all federal pandemic-related unemployment benefits on June 12, 2021.

Montana: Governor Greg Gianforte will cease all enhanced federal unemployment benefits on June 27, 2021. Governor Gianforte also announced a plan to offer unemployed workers a one-time $1,200 “return-to-work bonus” to the first 12,500 Montanans with active unemployment claims as of May 4, 2021, who

• discontinue receiving unemployment benefits;
• accept an offer of employment in the state of Montana; and
• complete at least four full weeks of paid employment.

North Dakota: Governor Doug Burgum announced that effective June 19, 2021, the state will opt out of the federally funded enhanced unemployment programs.

Ohio Governor Mike DeWine announced that effective June 26, 2021, the state will opt out of the federally funded enhanced unemployment programs.

South Carolina: Governor Henry McMaster will cease participation in all six enhanced federal unemployment benefit programs on June 30, 2021.

South Dakota: Governor Kristi Noem announced that effective June 26, 2021, South Dakota will end its participation in federal pandemic-related unemployment assistance programs.

Tennessee: Governor Bill Lee gave notice to the DOL that the state intends to end participation in all federally funded pandemic unemployment compensation programs, effective July 3, 2021.

Utah: Governor Spencer Cox announced that Utah will opt out of all enhanced federal unemployment benefit programs, effective June 26, 2021.

Wyoming: Governor Mark Gordon will withdraw Wyoming from participation in federal pandemic-related unemployment programs on June 19, 2021.

Other State Changes to Unemployment Benefits

Other states have indicated that now is the time to begin to scale back flexibility exceptions to unemployment benefits provided for during the pandemic. For example, many states are reinstating and enforcing work-search requirements that were waived during the COVID-19 pandemic.

• Alabama: work search requirements were reinstated January 1, 2021.
• Arizona: work search requirements will begin the week of May 23, 2021.
• Arkansas: work search requirements were reinstated June 28, 2020.
• Colorado: work search requirements were reinstated February 1, 2021.
• Florida: work search requirements will begin May 29, 2021, and the waiver of the waiting week will expire on June 26, 2021.
• Georgia: work search requirements will resume in “the next few months.”
• Idaho: work search requirements were reinstated April 25, 2021.
• Indiana: work search requirements will be reinstated on June 1, 2021.
• Iowa: work search requirements were reinstated September 8, 2020.
• Kentucky: work search requirements were reinstated May 9, 2021.
• Louisiana: the work search requirement was reinstated May 9, 2021.
• Maine: work search requirements will be reinstated effective May 23, 2021.
• Mississippi: work search requirements were reinstated August 9, 2020.
• Montana: work search requirements will be reinstated effective June 27, 2021.
• Nevada: the work search requirement was reinstated May 2, 2021.
• North Carolina: work search requirements were reinstated March 14, 2021.
• North Dakota: work search requirements were reinstated July 26, 2020.
• New Mexico work search requirements were reinstated May 9, 2021.
• Ohio: work search requirements for new claims were reinstated on December 5, 2020, and such requirements will be reinstated for existing claims on May 23, 2021.
• Oklahoma: work search requirements were reinstated October 25, 2020.
• Pennsylvania: a bill is pending in the legislature to reinstate work search requirements.
• South Carolina: work search requirements were reinstated April 18, 2021.
• South Dakota: work search requirements reinstated August 2, 2020.
• Tennessee: the work search requirement was reinstated September 27, 2020.
• Texas: work search requirements were reinstated November 1, 2020.
• Utah: work search requirements were reinstated August 15, 2020.
• Vermont: the work search requirement was reinstated May 9, 2021.
• Virginia: work search requirements will be reinstated effective June 6, 2021.
• Wyoming: work search requirements were reinstated August 9, 2020.

States are also beginning to struggle with how to shore up unemployment trust funds that were devastated during the COVID-19 pandemic as well as implement other changes to the unemployment insurance system. Each year the Office of Unemployment Insurance of the DOL’s Employment and Training Administration issues a trust fund solvency report on state unemployment insurance systems. The report states that prior to the COVID-19 pandemic, “20 states and territories whose trust funds met the recommended minimum solvency standard at the start of [c]alendar [y]ear 2020 have dropped below that level as of January 1, 2021, while 13 states remained at or above the standard. The other 20 states and territories also remain below the recommended level.”

As a result of solvency levels, many states will be forced to address unemployment trust fund shortfalls. Some states chose to use funds from the Coronavirus Aid, Relief, and Economic Security (CARES) Act to shore up their unemployment systems in 2020. Other states are considering significant changes to their unemployment programs as the economic crunch of the pandemic begins to ease.

For example, the Florida Senate approved a bill (SB 1906) last month that would have increased maximum weekly payments from $275 to $375, added more weeks in which benefits would be available, and changed the work-search requirement. Governor Ron DeSantis voiced opposition to the increase in weekly payments, and the Florida House of Representatives did not take up the bill. The Florida Legislature did pass CS/CS/HB 1463, which modernizes the state’s unemployment system. The legislation also establishes the Office of Economic Accountability and Transparency and implements other policy changes to make claims processing more efficient.

On the other end of the spectrum, the Tennessee General Assembly has passed a bill (TN HB 1039) that would pay more to the unemployed for a shorter period of time. If Governor Lee signs the legislation, future maximum unemployment benefits in Tennessee would increase from $275 per week to $325 per week; however, the bill would reduce the number of eligible weeks of unemployment from 26 weeks to 12 weeks.

Key Takeaways

Employers can expect to see more states begin to struggle with the issue of underfunded unemployment systems and the potential revamp of how unemployment implemented. This includes potential comprehensive reform to federal unemployment as part of the American Families Plan of 2021. Regardless of the state, employers may want to stay abreast of proposed state and federal changes to unemployment. Employers may also want to begin to prepare for changes in employer tax rates, as well as the overall scheme for the funding of unemployment, as the unemployment crisis caused by the COVID-19 pandemic subsides.

Ogletree Deakins will continue to monitor and report on developments with respect to the COVID-19 pandemic and will post updates in the firm’s Coronavirus (COVID-19) Resource Center as additional information becomes available. Important information for employers is also available via the firm’s webinar and podcast programs.

Please note that the information in this article is current as of May 14, 2021.