Untangling Virginia’s Unemployment Insurance Overpayments
Monday, January 15th, 2024
Note: see General Assembly legislative updates on the issue below this post
by Flannery O’Rourke, Esq.
Unemployment insurance can sometimes feel more like a tangled web than a safety net. Some claimants even remain entangled in Virginia’s unemployment insurance system long after their claim ends. Retroactive denials of entitlement – months or even years after an unemployment insurance claim—can result in burdensome debts called overpayments.
An overpayment occurs when the Virginia Employment Commission (VEC) pays a claimant compensation and then later – whether due to new information or a second look—VEC changes its mind. This can be devastating to an innocent claimant who applied for and accepted the compensation based on the belief that they were entitled to benefits. Claimants find themselves trapped in their one-time safety net, as there is no mandatory time limit on collections.
VEC can collect overpayments through numerous methods. These include repayment, wage garnishment, seizing of tax refunds, levy and sale of personal property, and referral to collection agencies and the Credit Bureau. However, in recent years, VEC has most heavily relied on recovering past overpayments through taking all or half of a claimant’s future unemployment benefits. That is, the agency collects on the debt when the agency knows the claimant has little or no income. This undermines the whole purpose of unemployment insurance, which is to safeguard Virginians and the Commonwealth’s economy in times of unemployment.
Virginia’s lack of limits on overpayment recovery are relatively unique amongst states: (see map below)
- Forty states allow waivers of overpayments when a claimant meets specified criteria, such as financial hardship. While Virginia waived certain overpayments arising during the pandemic, the state has failed to pass
permanent overpayment waiver legislation in the past two years
- Twenty-six states limit the number of years for which overpayments can be collected from future unemployment benefits. Virginia has no such limit.
- Thirty-eight states allow or require nonfraudulent overpayments to be written off after a set period of time. Most states’ write-off periods are five years or fewer for nonfraudulent overpayments. Virginia does
allow write offs after a set period of time, but only after seven years and “for good cause”. Write-offs are not required in Virginia.
- A total of forty-one states limit overpayment recovery via two or more of the above methods. This makes good sense as even the U.S. Department of Labor recognizes states’ need to remove uncollectible overpayments.
Afterall, futile collection efforts and maintenance of records of uncollectible overpayments can be costly. That is, at a certain point, attempting to collect an innocently incurred debt is a waste of money.
For a state like Virginia with one the worst overpayment rates in the country, this amounts to a lot of money that the state cannot afford to waste. Thus, it is critical that Virginia adopt some of the methods of limiting overpayment recovery used by other states. I recommend that Virginia:
- Permanently allow overpayment waivers where claimants are without fault and where recovery is against equity and good conscience. The U.S. Department of Labor “strongly encourages” all states to adopt this policy. Moreover, waivers directly improve Virginia’s recovery rate by taking the waived overpayments off the state’s books. This in turn allows the state to focus recovery efforts on claimants who can afford to pay.
- Limit recovery of nonfraudulent overpayments to three years. Ten other states have write-off periods that are three years or fewer. This is consistent with the National Consumer Law Center’s recommendation that the statute of limitations for consumer debts be limited to three years. Moreover, the U.S. Department of Labor limited states’ recovery of federal unemployment overpayments via offset of future unemployment benefits to three years. As Virginia’s main form of recovery is via offset, it makes sense to adopt the three-year limit for all collection activities.
No innocent Virginian should be trapped for perpetuity in the web of their would-be safety net. Virginia’s unemployment insurance overpayment collections must be both time-limited and limited to claimants where recovery is possible. Disentangling Virginians from the web of their one-time safety net will not impede the state’s recovery of overpayments, but instead will empower it. Untangle unemployment insurance by simplifying the collection of and limiting the harm caused by overpayments.
Legislative Update 1.31.2024
Legislation to prevent and limit unemployment overpayments continues clearing through bipartisan House committees. House Bill 14 (Ware), helps ensure that VEC receives critical information from employers and claimants, so that the agency can accurately determine when claimants are entitled to benefits. The companion bill, Senate Bill 381 (Ebbin), goes before the Senate Commerce and Labor next week.
Two bills to limit unemployment overpayments also advanced. Senate Bill 382 (Ebbin) places a five-year statute of limitations on collection of nonfraudulent overpayments. The bill was reported from Senate Finance and Appropriations unanimously and now moves to the Senate floor. Senate Bill 536 (Bagby), which would make permanent the temporary overpayment waiver legislation passed during the pandemic, will be considered by the Senate Finance and Appropriations Committee next week. The companion bill, House Bill 1261 (Tran) goes before a House subcommittee this week.
Legislative Update 1.23.2024
Applicable bills, SB 382 (Ebbin) and SB 536 (Bagby) have passed unanimously in the Senate Commerce and Labor Committee, and now move on for consideration by the Senate Finance Committee.