To reform the Federal unemployment benefits system.

Summary: Amends the Federal-State Extended Unemployment Compensation Act of 1970 to revise the formula for the extended benefits trigger. 
Amends the Social Security Act (SSA) to require increases and decreases in the earnings allocated to State accounts when States meet or fail to meet funding goals. 
Amends SSA to restrict interest-free advances to State accounts in the Unemployment Trust Fund to States which meet funding goals. 
Amends Internal Revenue Code (IRC) provisions relating to the Federal Unemployment Tax Act to allow certified States to elect to collect Federal unemployment taxes. 
Amends IRC provisions relating to approval of State laws to require States to distribute to unemployed individuals State-specific information packets explaining unemployment insurance eligibility conditions.

SECTION 1. EXTENDED BENEFITS TRIGGER.

    (a) In General.--Section 203(d) of the Federal-State Extended 
Unemployment Compensation Act of 1970 (26 U.S.C. 3304 note) is 
amended--
            (1) in subparagraph (B) of paragraph (1), by striking ``5 
        per centum'' and inserting ``4 per centum'', and
            (2) in the first flush sentence following paragraph (2), by 
        striking ``5'' and inserting ``4''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to weeks of unemployment beginning 6 months or more after the 
date of the enactment of this Act.

SEC. 2. INCREASE AND DECREASE IN EARNINGS CREDITED TO STATE ACCOUNTS 
              WHEN STATES MEET OR FAIL TO MEET FUNDING GOALS.

    (a) In General.--Section 904 of the Social Security Act (42 U.S.C. 
1104) is amended by adding at the end the following new subsection:

   ``increase and decrease in amount of earnings allocated to state 
        accounts when states meet or fail to meet funding goals

    ``(h)(1) If the average daily balance in a State account in the 
Unemployment Trust Fund for any calendar quarter exceeds the funding 
goal of such State, the amount otherwise creditable to such account 
under subsection (e) for such quarter shall be increased by the 
interest premium on such excess. If the average daily balance in such a 
State account for any calendar quarter is less than the funding goal of 
such State, the amount otherwise creditable to such account under 
subsection (e) for such quarter shall be decreased by the interest 
penalty.
    ``(2) Paragraph (1) shall not apply with respect to any interest 
premium or interest penalty to the extent that such application would 
result in an increase or decrease of more than $2,500,000 in the amount 
creditable to any State account for any calendar quarter.
    ``(3) For purposes of this subsection, the term `interest premium' 
means, for any calendar quarter--
            ``(A) with respect to the State with the largest percentage 
        value of excess of the average daily balance in the State 
        account in the Unemployment Trust Fund over the funding goal of 
        such State, one-half of one percent of the amount of such 
        excess, and
            ``(B) with respect to each other State, the product of--
                    ``(i) the amount of the excess of the average daily 
                balance in the State account in the Unemployment Trust 
                Fund over the funding goal of such State, and
                    ``(ii) the percentage which bears the same ratio to 
                one-half of one percent as--
                            ``(I) the percentage value of such excess, 
                        bears to
                            ``(II) the percentage value of the excess 
                        of the State referred to in subparagraph (A).
The Secretary shall make appropriate adjustments in the interest 
premium for any calendar quarter if the aggregate interest premiums 
payable for such quarter exceed the aggregate interest penalties for 
such quarter.
    ``(4) For purposes of this subsection, the term `interest penalty' 
means, for any calendar quarter--
            ``(A) with respect to the State with the largest percentage 
        value of excess of the funding goal of such State over the 
        average daily balance in the State account in the Unemployment 
        Trust Fund, one-half of one percent of the amount otherwise 
        creditable to such account under subsection (e), and
            ``(B) with respect to each other State, the product of--
                    ``(i) the amount otherwise creditable to such 
                account under subsection (e), and
                    ``(ii) the percentage which bears the same ratio to 
                one-half of one percent as--
                            ``(I) the percentage value of the excess of 
                        the funding goal of the State over such average 
                        daily balance of such State, bears to
                            ``(II) the percentage value of such excess 
                        of the State referred to in subparagraph (A).
    ``(5) For purposes of this subsection, the term `funding goal' 
means, for any State for any calendar quarter, the average of the 
unemployment insurance benefits paid by such State during each of the 3 
years, in the 20-year period ending with the calendar year containing 
such calendar quarter, during which the State paid the greatest amount 
of unemployment benefits.
    ``(6) For purposes of this subsection, the term `percentage value' 
means--
            ``(A) with respect to any excess of the average daily 
        balance in a State account in the Unemployment Trust Fund over 
        the funding goal of such State, the percentage which such 
        excess bears to such funding goal, and
            ``(B) with respect to any excess of such funding goal over 
        such average daily balance, the percentage which such excess 
        bears to such funding goal.''
    (b) Conforming Amendments.--
            (1) Amounts credited to state accounts.--Subsection (e) of 
        section 904 of the Social Security Act (42 U.S.C. 1104(e)) is 
        amended in the first sentence by inserting ``(as modified by 
subsection (h))'' after ``a proportionate part''.
            (2) Interest rate on repayment of advances determined 
        without regard to interest premiums or penalties on amounts 
        credited to state accounts.--Subparagraph (A) of section 
        1202(b)(4) of such Act (42 U.S.C. 1322(b)(4)) is amended by 
        inserting ``(determined without regard to section 904(h))'' 
        after ``preceding calendar year''.
    (c) Report.--Not later than 6 months after the date of the 
enactment of this Act, the Secretary of Labor shall submit to the 
Congress a report recommending sources of funding for the crediting of 
interest premiums under subsection (h) of section 904 of the Social 
Security Act (42 U.S.C. 1104), as added by this section, in the event 
that the imposition of interest penalties under such subsection is 
insufficient to fund such premiums.
    (d) Effective Date.--The amendments made by this section shall 
apply to calendar years beginning after December 31, 1996.

SEC. 3. INTEREST-FREE ADVANCES TO STATE ACCOUNTS IN UNEMPLOYMENT TRUST 
              FUND RESTRICTED TO STATES WHICH MEET FUNDING GOALS.

    (a) In General.--Paragraph (2) of section 1202(b) of the Social 
Security Act (42 U.S.C. 1322(b)) is amended by striking ``and'' at the 
end of subparagraph (A), by striking the period at the end of 
subparagraph (B) and inserting ``, and'', and by adding at the end the 
following new subparagraph:
                    ``(C) the average daily balance in the account of 
                such State in the Unemployment Trust Fund for each of 4 
                of the 5 calendar quarters preceding the calendar 
                quarter in which such advances were made exceeds the 
                funding goal of such State (as defined in section 
                904(h)).''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to calendar years beginning after December 31, 1996.

SEC. 4. STATE COLLECTION OF FEDERAL UNEMPLOYMENT TAX.

    (a) In General.--Chapter 23 of the Internal Revenue Code of 1986 
(relating to Federal Unemployment Tax Act) is amended by redesignating 
section 3311 as section 3312 and by inserting after section 3310 the 
following new section:

``SEC. 3311. STATE COLLECTION OF TAX.

    ``(a) In General.--At the election of any State which is certified 
as provided in section 3304, each employer who pays contributions, with 
respect to any wages, into an unemployment fund maintained under the 
unemployment compensation law of such State shall submit the tax 
imposed by this chapter with respect to such wages to such State rather 
than to the Secretary.
    ``(b) Coordination with Depositary Requirements.--Payment under 
subsection (a) of the tax imposed by this chapter with respect to any 
wages shall be treated as timely paid for purposes of this title if 
paid by the employer to the State at the same time as a timely paid 
payment, with respect to such wages, of contributions into an 
unemployment fund maintained under the unemployment compensation law of 
such State.
    ``(c) Exception for Payments Not Timely Paid.--Subsection (a) shall 
not apply to any payment of the tax imposed by this chapter which is 
not paid by an employer on or before the last date on which such 
payment would be treated as timely paid under subsection (b).
    ``(d) Federal Tax Transferred to Secretary.--Each State making an 
election under subsection (a) shall transmit to the Secretary, at the 
time and in the manner prescribed by the Secretary, the amount of the 
tax imposed by this chapter which is submitted to such State under 
subsection (a) and a copy of the State tax return of each employer 
making such a submission. The Secretary may, after consultation with 
the Interstate Conference of Employment Security Administrators, 
prescribe regulations requiring that additional information be 
submitted by such State with respect to the amount of such tax payable 
by such employer.''
    (b) Clerical Amendment.--The table of sections for chapter 23 of 
such Code is amended by striking the item relating to section 3311 and 
inserting the following new items:

                              ``Sec. 3311. State collection of tax.
                              ``Sec. 3312. Short title.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

SEC. 5. REQUIRED DISTRIBUTION OF STATE-SPECIFIC INFORMATION PACKETS.

    (a) In General.--Subsection (a) of section 3304 of the Internal 
Revenue Code of 1986 (relating to approval of State laws) is amended by 
striking ``and'' at the end of paragraph (18), by striking the period 
at the end of paragraph (19) and inserting ``; and'', and by adding at 
the end the following new paragraph:
            ``(20) the State will distribute to unemployed individuals 
        State-specific information packets explaining unemployment 
        insurance eligibility conditions.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to certifications of States for 1997, except that section 
3304(a)(20) of such Code, as added by subsection (a), shall not be a 
requirement for the State law of any State prior to July 1, 1998, if 
the legislature of such State does not meet in a regular session which 
closes during the calendar year 1997.