Unemployment Insurance – Public Trust
Why the Burden of Unemployment Overpayment is on State Agencies
Federal Unemployment Trust Fund
The federal Unemployment Trust Fund (UTF) was created as a public trust on June 25th, 1938 (42 U.S. Code § 1104). It is a financial account established and maintained by the U.S. government to provide funds for the payment of unemployment benefits to eligible individuals who have lost their jobs. The UTF is funded through payroll taxes on employers, and the money collected is set aside to cover unemployment insurance payments to eligible claimants during times of job loss.
The operation of the Unemployment Trust Fund is governed by federal and state laws, and the funds within the UTF are managed to ensure that they are available to provide financial assistance to unemployed individuals when needed. The trust fund serves as a financial safety net to support those who have lost their jobs and are seeking unemployment benefits.
Employees are Beneficiaries
According to the Congressional Research Services: States levy their own payroll taxes (SUTA) on employers to fund regular UC benefits and the state share (50%) of the Extended Benefit (EB) program. Each state deposits its SUTA tax receipts into its own state trust account within the UTF. In addition, employers pay federal unemployment taxes in accordance with the Federal Unemployment Tax Act (FUTA).
Though the employers fund the UTF through payroll tax mechanisms via state tax (SUTA) and via the IRS (FUTA), the actual employees bear the burden of this tax. The federal Department of Labor, each state unemployment agency and individual employers present the unemployment insurance program as an “employee benefit”. According to the U.S. Bureau of Labor Statistics: “Total employer compensation costs for private industry workers averaged $41.03 per hour worked in June 2023. Wages and salaries averaged $28.97 per hour worked and accounted for 70.6 percent of employer costs, while benefit costs averaged $12.06 per hour worked and accounted for the remaining 29.4 percent.”
Put another way, an employee who makes $28.97 per hour would receive an additional $12.06 per hour for a total of $41.03 per hour if their employer eliminated the mandatory government and voluntary benefits and their associated costs. So for all intents and purposes, that $12.06 of benefits is funded by the employee and not the employer. This means that the employee is both a Grantor and Beneficiary of the Universal Trust Fund.
Trust Overview
Now there is a reason why I have detailed how the federal / state unemployment program works. I wanted to show clearly that the entire program was conceived and is run as a trust. We interact with Trusts almost every day. Some examples of these are the Social Security Trust, Medicare Trust, Life Insurance, Public Pension Funds and Real Estate Investment Trusts or REITs.
If you are not familiar with how a Trust works, click the link to read my blog on Trust Basics .
A simple Trust has a Grantor, at least 1 Trustee and at least 1 Beneficiary. The Grantor is the individual or organization that provides the first funding of the Trust (known as the Trust Corpus). The Trustees are the officers of the Trust who manage the legal and financial transactions of the Trust. The Beneficiaries are the ones who benefit from the Trust and who the Trust is set up for.
The Beneficiaries are said to have the equitable title to the Trust property and the Trustees have the nominal or legal title to the Trust property.
Now there is one more element of the Trust that we need to discuss and this is the Trust Indenture. The Trust Indenture is the governing document of the Trust which is essentially the intentions of the Grantor who set the Trust up. The Trust Indenture specifically lays out who the Beneficiaries are and what Benefits they are entitled to and under what conditions that they are entitled to those Benefits. This Trust Indenture is essentially the governing law that the named Trustees must strictly adhere to in order to receive their compensation. If the Trustees, don’t carry out the conditions set forth in the Trust Indenture they risk being removed and replaced as Trustees.
State Unemployment Agency & Employers are Trustees
Now the head of each state unemployment agency is a Trustee of the Unemployment Trust Fund. All of the employees of each state unemployment agency are agents of their respective agency head / Trustee. In fact, when an employer participates in one or more state’s unemployment program, the employer becomes a Trustee of the Unemployment Trust Fund as well.
As we saw above, the Grantor is the person or persons who fund the Trust and the Beneficiary is the one who receives the Benefits of the Trust. Based on the employment contract, the employees are the ones who ultimately fund the UTF through their labor and they also receive the Benefits of their labor. Therefore the employees are both the Grantors and Beneficiaries of the UTF.
So the agents of each state unemployment agency (e.g. Louisiana Workforce Commission, California’s EDD, Nevada DETR, NY DOL, etc.) are Trustees who have a fiduciary obligation to the Beneficiaries (employees who have paid into the UTF). A Fiduciary “…means…a person holding the character of a trustee, or a character analogous to that of a trustee, in respect to the trust and confidence involved in it and the scrupulous good faith and candor which it requires.” Black’s Law Dictionary – Sixth Edition. In fact, according to the State UI Trust Fund Solvency Report: “Each state maintains its own Unemployment Insurance (UI) trust fund reserve built from state taxes, primarily on employers, and used only to pay for state UI benefits.”
Trust Indenture
So where can we find the Trust Indenture for the Unemployment Trust Fund?
Well this Trust Indenture is not just one document. This unemployment Trust Indenture is the collection of federal statutes that govern the state unemployment programs and the Universal Trust Fund. These are the legal guidelines that all of the state unemployment insurance agencies must adhere to when they operate their state unemployment insurance programs as well as write state laws that effect these state unemployment insurance programs.
Notice of Unemployment Overpayment
Now that we have elucidated the trust framework that surrounds the state and federal unemployment programs, the next step is to show how the employee as Beneficiary can take control of their Benefits and make sure that these state and federal unemployment programs are held accountable to them. This is especially important to know in regards to when state unemployment agencies designate a Beneficiary unemployment account as overpaid, give them an Overpayment of Unemployment Insurance designation or send the Beneficiary a Notice of Unemployment Overpayment. REKTIFIRE’S
Trust Law Remedy™ – Unemployment Overpayment Relief package was designed to hold these state unemployment insurance agencies accountable as Trustees of the UTF so that you can nullify their Unemployment Overpayment designation, stop collection actions, correct the facts within their online portal / records and remain an eligible Beneficiary of the UTF