Unemployment Insurance:

Millions in Benefits Overpaid to Military Reservists

HEHS-96-101: Published: Aug 5, 1996. Publicly Released: Aug 5, 1996.

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Pursuant to a congressional request, GAO determined the amount of unemployment insurance (UI) paid to military reservists, focusing on: (1) why UI claimants do not report reserve income; (2) the administrative and legislative options available to prevent future trust fund losses; and (3) how these options will affect reservists' retention rates.

GAO found that: (1) active UI claimants did not report more than $7 million in reserve income for fiscal year 1994; (2) the average amount of nonreported income varied from $273 to $959 per claimant, and resulted in UI benefit overpayments of $3.6 million; (3) most UI benefit overpayments went to Army Reserve personnel; (4) federal trust fund losses from the Unemployment Compensation for Ex-Servicemen Program totalled $1.2 million; (5) the UI system paid over $25 billion in benefits and received over $26 billion in state and federal unemployment tax revenues; (6) the integrity of the UI system is adversely affected by improperly paid benefits; (7) these overpayments hinder the UI system's ability to provide unemployment benefits, contribute to high state employer payroll taxes and federal outlays, and lower claimants' benefit levels; (8) UI claimants do not report their reserve income because they do not understand the reporting requirements, receive improper information regarding their reporting responsibilities, and have incentives not to report reserve income; (9) claimants are rarely penalized for not reporting their reserve income; (10) states can withhold a portion of a reservists' future benefits until applicable overpayments are repaid; (11) it is difficult to verify reservists' benefit levels without online access to federal wage data; and (12) nonreporting of reserve wage income will not affect the military's retention rates.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: DOD originally agreed with this recommendation and initiated discussions on what was involved to implement it. In 1999, DOD reported that it needed to minimize the burden of any reporting requirement and to ensure any action taken was cost-effective and commensurate with potential savings. It reported that, since last year, it had determined that: (1) 13 states effectively exempt reserve wages from any unemployment insurance payment offset; and (2) there would be significant costs associated with providing automated data on the earnings of part-time reservists. As a result, it did not intend to take any further action to respond to this recommendation. Although there may be costs associated with implementing this recommendation, the millions of dollars in overpayments discussed in the report excluded those states that did not offset unemployment insurance payments. As a result, it is incorrect for DOD to assume that the costs of implementing the recommendation would outweigh its dollar savings.

    Recommendation: The Secretary of Defense should direct the Defense Manpower Data Center (DMDC) and the four Defense Finance and Accounting Service (DFAS) centers to develop a process for giving states reserve personnel and payroll data in a timely, economical, and efficient manner. In doing so, they should coordinate with Labor's UI Service to identify states' needs.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: Agency officials have provided assistance through correspondence.

    Recommendation: The Secretary of Labor should direct the Employment and Training Administration's UI Service to provide assistance and encourage state UI programs to review the administrative forms or procedures used to gather information about a prospective or continuing claimant's wages, making revisions as necessary to clearly identify to claimants the types of reserve income they must report for the offset of benefits.

    Agency Affected: Department of Labor

  3. Status: Closed - Implemented

    Comments: A message, as described above, first appeared on leave and earnings statements in April 1997 and will reappear in October 1997. USCG plans to continue this action twice a year.

    Recommendation: The Secretary of Transportation should direct the United States Coast Guard (USCG) Pay and Personnel Center to notify all reservists of their income-reporting responsibilities with respect to state UI benefits in a message on their leave and earnings statement.

    Agency Affected: Department of Transportation

  4. Status: Closed - Implemented

    Comments: Action was taken in March 1997 with a message added to reservists leave and earnings statements. This action will be repeated on an annual basis thereafter.

    Recommendation: To better inform claimants of their reporting responsibilities, the Secretary of Defense should direct the four Defense Finance and Accounting Service (DFAS) centers to notify all reservists of their income-reporting responsibilities with respect to state UI benefits in a message included on their leave and earnings statement.

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: Agency officials are prepared to assist any state upon request. However, to date, no states have asked for this assistance.

    Recommendation: The Secretary of Transportation should direct the USCG Pay and Personnel Center to develop a process for giving states Coast Guard reserve personnel and payroll data in a timely, economical, and efficient manner. In doing so, it should coordinate with DMDC and with Labor's UI Service to identify states' needs.

    Agency Affected: Department of Transportation

 

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