Nonreporting of Reserve Income Results in Large UI Benefit Overpayments

Our analysis of Reserve payroll and UI benefit data for seven states that account for 27 percent of all Reserve personnel shows that UI claimants who have been active participants in the Reserve did not report over $7 million in fiscal year 1994 program-covered Reserve income. This nonreporting resulted in estimated UI benefit overpayments of $3.6 million to over 11,500 Reserve personnel during fiscal year 1994. Thirty-two percent or $1.2 million were federal trust fund losses primarily from the UCX program. According to state and federal program officials we interviewed, the integrity of the UI system is adversely affected whenever claimants are improperly paid benefits, either through oversight or fraud. These unnecessary payments erode the UI system’s ability to provide benefits to those workers who are unemployed through no fault of their own. They contribute, if only marginally, to higher state employer payroll taxes and federal outlays and possibly lower claimant benefit levels than would otherwise prevail. Why Claimants Do Not Always Report Reserve Income

State officials cited various reasons why claimants may not be reporting their Reserve income while receiving UI benefits. UI Claimants Not Specifically Asked to Report Reserve Income

Most UI programs throughout the nation require prospective claimants to report all expected earnings—including Reserve income—received during the benefit period as well as all earnings received during the base period.However, state program claims processors in the states included in our review told us that they do not specifically ask claimants whether they are receiving Reserve income and most do not inform claimants of the Reserve income-reporting requirement in writing. These options focus on more effective ways to inform claimants about their reporting responsibilities and proposals to improve the detection of nonreported income. Thus, state access to federal wage and personnel information could significantly reduce the amount of nonreported income and the associated benefit overpayments by claimants separated from any federal employer. As a result, the average overpayment per reservist is about $13 per year.
Why GAO Did This Study

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.

What GAO Found

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.