Evaluation of State Implementation of Section 303(K), Social Security Act: Final Report

"Public Law 108-295, the “SUTA Dumping Prevention Act of 2004” was signed August 9, 2004 by President Bush. The law amended section 303(k) of the Social Security Act (SSA) by establishing a minimum nationwide standard for curbing an unemployment compensation tax rate manipulation scheme known as “SUTA dumping,” and required the Secretary of Labor to conduct a study of state implementation, and report the findings to Congress. SUTA dumping refers to practices that some employers and financial advisors engage in to manipulate state experience rating systems to pay lower state unemployment insurance taxes than their unemployment experience would otherwise allow.

The report provides information on state actions to meet the requirements of the law and operating guidance, and presents recommendations provided by select states regarding the need for further Congressional action to improve the effectiveness of section 303(k) of the SSA. The data collection for the study consists primarily of information regarding implementation activities between January and September 30, 2006. The information and data presented in this report represent a snapshot in time when most states were still in the implementation process. Accordingly, while every state enacted conforming legislation, the available data are too limited to conclusively assess the effectiveness of the Act. However, the data do offer useful information on preliminary trends identified during the implementation process" (Abstract). (Abstractor: Author).

- "While the states have all enacted conforming legislation to Section 303(k), SSA, there is significant variation in the amount of resources being devoted to the identification of SUTA dumpers. Thirty of the 53 states determined that violations of SUTA dumping legislation have occurred involving at least one employer" (p.ES-iii). - "State law determines whether or not the PEOs in the state are treated as the employer under its UC law. Thirty-six states permit the PEO to be the employer and report a client’s payroll under a PEO account. However, 17 states are now requiring the PEO to report the payroll under the client account. This is an increase from the KRA study of the mid-1990s, which reported nine states requiring the client remain as the employer of record when engaged in a PEO relationship" (p.ES-iv). - "States have assigned significant resources to SUTA dumping through the utilization of 208 full-time equivalent positions to detect, investigate, and prosecute SUTA dumping cases" (p.ES-iv). - "States have trained a total of 3,364 staff members and have investigated 1,640 SUTA dumping cases through September 30, 2006"(p.ES-iv). - "These investigations have found 787 SUTA dumping violations by employers and have yielded additional tax assessments of $102,298,336. Of this amount, the states have collected $52,456,899" (p.ES-iv). - "While only 48 SUTA dumping determinations have been appealed nationwide, 34 of those cases have been upheld at the first level of appeals; four cases were reversed; and ten cases were still undetermined at the time of this writing. The states’ interpretation of law was, therefore, upheld in 89 percent of cases determined at the lower level"(p.ES-iv). - "Fifty-one states responded that they were “satisfied” or “very satisfied” with the provisions of Section 303(k), SSA" (p.ES-iv).

• Last Updated:
• Created:
• Resource Publication Date: 2007
• Author(s): Coffey, Lester; Vroman, Wayne; Ye, Michael; Hensley, E.A. “Rett,” et al.
• Organizational Author(s): Coffey Communications, LLC; Urban Institute
• Funding Source: U.S. Department of Labor, Employment and Training Administration
• Resource Availability: Publicly available
• Posted by: Melissa Mack
• Posted in: Workforce System Strategies