Labor Dept. Estimates $7.1 Billion in Overpayments to Unemployed

July 9, 2010 — -- While many Americans are feeling the pain of expired unemployment benefits, some have gotten a good chunk more than they were legally eligible for.

Preliminary estimates released by the U.S. Department of Labor find that, in 2009, states made more than $7.1 billion in overpayments in unemployment insurance, up from $4.2 billion the year before. The total amount of unemployment benefits paid in 2009 was $76.8 billion, compared to $41.6 billion in 2008.

Fraud accounted for $1.55 billion in estimated overpayments last year, while errors by state agencies were blamed for $2.27 billion, according to the Labor Department. The department's final report will be released next month.

Some of the overpayments likely can be traced back to the overwhelming workloads facing state employment agencies during the recession, said George Wentworth, a policy analyst for the National Employment Law Project.

"You've got a system that's been under siege like the unemployment insurance system has been for the last two years," Wentworth said. "You've got a lot of new staff coming into the system, there's been a lot of federal extensions [to unemployment insurance benefits] that have had to be programmed in and so on. There's just been a lot of change that states have had to handle. ... I just think the volume and the new staff have made the systems more susceptible to error."

The newly-unemployed, meanwhile, have found themselves frustrated when trying to reach out to state officials for help in properly filling out their claims.

"In 2009, it was a fairly regularly event to see different states' call centers basically reaching maximum capacity where people would not be able to get through for hours or days at a time," Wentworth said.

The Unemployment Claims 'Tsunami'

Heidi Myhre, of Hudson County, N.J., questions whether she could have avoided an overpayment dispute with the state if she had gotten help filling out her unemployment claim early on. When filing for unemployment insurance in 2007, she called the state several times for guidance, she said, and got nowhere.

Among Myhre's questions: Where on her claim form she should disclose that she receives more than $100 a week in dividends from a family-owned elder care business?

Myhre ultimately decided not to list the payment as earnings because, at the time, she wasn't working for the business. She would go on to receive six months' worth of benefits totaling just under $14,000.

Earlier this year, the state demanded that Myhre to return all the money and also pay a $3,500 fine for fraud after state officials determined that the payments from her family business should have, in fact, been considered earnings. With the help of a lawyer, Myhre successfully appealed the state's decision and reduced what she owed to $6,300.

She remains bitter about the experience.

"It was the most poorly managed debacle I've ever seen in my whole life," she said.

Myhre's lawyer, Jef Henninger, said that in the last six months, he's seen a big uptick in calls from people who have made mistakes on their unemployment claims and now face payback demands from the state. Henninger expects the situation to grow worse before it gets better.

"With so many more people applying for unemployment, statistics tell you you're going to get more incidents like this," he said.

New Jersey labor officials said they could not comment on specific overpayment cases, but Labor Department Assistant Commissioner Ron Marino conceded that the recession did put a significant strain on his department. He had to pull employees from their regular roles -- including work preventing overpayments -- to handle new claims, he said.

"Our whole impetus for last couple of years has been 'Pay benefits. Pay benefits. Pay benefits,' because of the 90-foot tsunami that we got," he said. "No state recognized the recession was going to be this severe and longstanding."

In New Jersey, fraud alone stripped $25 million from the state unemployment insurance fund in 2009, according to a review by The Star Ledger newspaper. Non-fraud overpayments in the state totaled $59.9 million in 2009, up from $53.9 million in 2008, New Jersey state officials told ABCNews.com.

Thanks to the hiring of more part-time workers and the use of an online employment claim filing system, Marino said, he has been able to redirect staff back to their regular duties, including preventing and identifying overpayments.

Back at Work, Still Getting Unemployment?

Assistant Secretary for Employment and Training Jane Oates testified before Congress in May that the top cause for overpayments was people returning to work and continuing to claim benefits.

Employment benefits experts note that such overpayments aren't always the result of deception; sometimes it's a matter of confusion. Technically, workers are no longer eligible for benefits on the first day they start at a new full-time job, but many believe they should continue to claim benefits until they actually receive their first paycheck.

"An individual goes to work and they report their earnings as soon as they get paid -- so they're overpaid [by the state] for a week or two," said Marie Moss, the assistant administrator of the Tennessee Department of Labor and Workforce Development.

Moss said that such confusion proves to be the culprit in about half the cases in which Tennessee workers fail to report earnings.

Other overpayments are often the result of the unemployed errantly claiming that they were laid off instead of fired for cause -- the latter of which typically disqualifies a person for benefits.

Such claims also don't necessarily amount to fraud, Wentworth said.

"Most of these cases are about the employer and the claimant looking at the same set of facts from a different perspective," he said.

Such overpayments are identified after employers successfully challenge their former employees' claims.

Indiana Department of Labor spokesman Marc Lotter said the reversal of benefits decisions following employer challenges account for many of the overpayments in his state, where non-fraud overpayments totaled $34.3 million in 2009, up from $22.5 million the year before, according to state data.

"The federal law requires states to pay unemployment benefits from the moment you're determined initially eligible. In many cases, after your initial eligibility is determined, a company will file an appeal and say, 'No, that person wasn't laid off. I fired them,' " Lotter said.

Until a hearing is held to determine whether the employer is correct, he said, "we are required by law to keep paying."

Recovering Overpayments

After a state identifies an overpayment, officials like Tennessee's Moss know not to expect payback immediately.

"It is more difficult to recoup funds from individuals who have been unemployed because they're already digging out of a hole," she said.

The department, which saw overpayments of $17 million in 2009, recovered $10.6 million that same year. Some of the recovered money stemmed from overpayments in previous years.

Moss said the state relies on repayment plans that allow claimants to repay what they owe over time. When necessary, she said, the state also can garnish wages.

In Indiana, state officials have the power to intercept state tax refunds to recoup overpayments and also can hire collections agencies, Lotter said.

Help may be on the way for states grappling with overpayments. Under federal law, when states recover overpayments, they must deposit the money back into their unemployment funds.

Legislation backed by the Obama administration would allow states to spend up to five percent of the recovered money to prevent, identify or recover future overpayments. It also would require states to issue penalties of at least 15 percent of the amount owed for fraud-related overpayments.

Oates told Congress in May that the extra money could be used by state labor departments to beef up personnel and technology.

"Because the program is now more important than ever, we must ensure that it is run as efficiently as possible," she said.