Modernizing Unemployment Insurance

PRS Briefs
Monday, June 6, 2022

This report analyzes the opportunity for Vermont to implement new improvements to their Unemployment Insurance (UI) System. This report draws on and synthesizes the key findings of the December 2021 Report of the Unemployment Insurance Study Committee, the Memorandum on the Feasibility of Changing the Unemployment Insurance Mainframe Program, the Unemployment Insurance System Modernization plan, the Report on the Status of Misclassified Employees in the Vermont Workforce, and the Unemployment Fraud and Overpayment Review. This is combined with a review of the UI IT system and benefits in Massachusetts and the institution of automatic experience rate adjustments to support trust fund solvency in Connecticut. The report also briefly explores models and case studies from other states and countries that could serve as creative ideas as Vermont continues to look into UI modernization and improvement.

The focus here is on five core aspects of improving the Vermont UI system: fixing the outdated computer system that processes UI claims, optimizing UI benefits, improving the effectiveness and efficiency of employee misclassification enforcement, updating Vermont's trust fund financing, and assessing potential legislative changes to improve the existing fraud repayment and disqualification system. The report first outlines the main potential issues of the Vermont UI system by highlighting the challenge posed by the outdated UI mainframe system, analyzing current benefits payments, and looking at the solvency of the UI Trust Fund. Next, the report analyzes the planned Vermont UI Systems Modernization and outlines how Massachusetts updated their UI computer system. This is followed by a review of UI benefits in Vermont and the potential changes to the benefits formula outlined in the Report of the Unemployment Insurance Study Committee. The report then looks at employee misclassification, drawing on the analysis and recommendations of the Report on the Status of Misclassified Employees in the Vermont workforce. Next, we review the solvency of the Vermont UI Trust Fund, which is generally strong, and recommend the consideration of automatic experience rate adjustments like those implemented in Connecticut. Finally, the report analyzes potential changes to fraud repayment and disqualification.

The report cites the Unemployment and Fraud Overpayment Review and the Report of the Unemployment Insurance Study Committee in its recommendation to eliminate penalty weeks, the implementation of administrative wage garnishment and a framework of tiered administrative penalties, and the introduction of a waiver of overpayment liability consistent with the reconsideration rights found in other  sections of Vermont UI law. Successfully implementing changes to fraud penalty legislation would require creating clear definitions of varying degrees of fraud, which is outlined further in Section 2.5. This report concludes with a review of feasible steps that the government of Vermont could take immediately to improve the UI system. Vermont has already taken several important steps including initiating the UI systems modernization to replace the outdated mainframe system, the introduction of claimant ID proofing, and the creation of enhanced employer as well as initial and weekly claims portals. Vermont can build on these important steps with by establishing external Independent  verification and Validation (IV and V) as well as a project outcomes management office (POMO) for the UI systems modernization. Additionally, establishing a separate data environment for VDOL to use until the system modernization is complete may be helpful. Finally, the long systems modernization process allows the General Assembly to  consider legislative changes to the existing fraud definition and penalty options. Throughout the UI modernization, it will be useful to promote better intergovernmental collaboration between ADS, CPO, and VDOL, a low cost and effective way to support modernization success and generate new ideas.