I 
107TH CONGRESS 
2D SESSION 
H. R. 5418
To reform the administrative funding of the unemployment compensation 
and employment service programs; to improve State administration and 
flexibility with respect to such program, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
SEPTEMBER 19, 2002
Mr. MCCRERY introduced the following bill; which was referred to the Com-
mittee on Ways and Means, and in addition to the Committees on Edu-
cation and the Workforce and Government Reform, for a period to be 
subsequently determined by the Speaker, in each case for consideration 
of such provisions as fall within the jurisdiction of the committee con-
cerned 
A BILL 
To reform the administrative funding of the unemployment 
compensation and employment service programs; to im-
prove State administration and flexibility with respect 
to such program, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Employment Security 
Reform Act of 2002’’.
SEC. 2. TABLE OF CONTENTS. 
The table of contents for this Act is as follows:
Sec. 1. Short title. 
Sec. 2. Table of contents. 
TITLE I—TAX PROVISIONS 
Sec. 101. Reduction of FUTA tax rate. 
Sec. 102. Reduced rate. 
Sec. 103. Quarterly payment of unemployment taxes. 
TITLE II—FEDERAL-STATE EXTENDED BENEFITS REFORM 
Sec. 201. Repeal of certain State law extended benefit requirements. 
Sec. 202. Change in State trigger for extended compensation. 
TITLE III—ADMINISTRATIVE FUNDING PROVISIONS 
Sec. 301. Amendments to title III of the Social Security Act. 
Sec. 302. Amendments to title IX of the Social Security Act. 
Sec. 303. Amendments to title XII of the Social Security Act. 
Sec. 304. Amendments to Wagner-Peyser Act. 
Sec. 305. Amendments to the Federal Unemployment Tax Act. 
Sec. 306. Amendment to title 39 of the United States Code. 
TITLE IV—REED ACT PROVISIONS 
Sec. 401. Special Reed Act transfers in fiscal years 2004 and 2005. 
Sec. 402. Repeal of special rules for State Reed Act appropriation laws. 
Sec. 403. Repeal of special conditions on recent Reed Act distributions. 
Sec. 404. Restoration authority repealed. 
TITLE V—MISCELLANEOUS PROVISIONS 
Sec. 501. Transfer of Federal equity in State employment security agency real 
property to the States. 
Sec. 502. State use of compensating balances and interest earned on clearing 
account to pay associated banking costs. 
Sec. 503. Treatment of short-time compensation programs. 
Sec. 504. Method of verifying citizenship status for unemployment benefits. 
Sec. 505. Use of new hire information to assist in administration of unemploy-
ment compensation programs. 
Sec. 506. Repeal of provision limiting eligibility of certain Federal employees. 
Sec. 507. Treatment of pension rollovers. 
Sec. 508. Regulations.
TITLE I—TAX PROVISIONS 
SEC. 101. REDUCTION OF FUTA TAX RATE. 
(a) REDUCTION OF TAX RATE.—Section 3301 of the 
Internal Revenue Code of 1986 (26 U.S.C. 3301) is 
amended to read as follows:
‘‘SEC. 3301. RATE OF TAX. 
‘‘There is hereby imposed on every employer (as de-
fined in section 3306(a)) for each calender year an excise 
tax, with respect to having individuals in his employ, equal 
to—
‘‘(1) 6.2 percent in the case of calendar year 
2002, 
‘‘(2) 6.0 percent in the case of calendar years 
2003 and 2004, 
‘‘(3) 5.8 percent in the case of calendar years 
2005 and 2006, or 
‘‘(4) 5.6 percent in the case of calendar year 
2007 and each calendar year thereafter, 
of the total wages (as defined in section 3306(b)) paid 
by the employer during the calendar year with respect to 
employment (as defined in section 3306(c)).’’. 
(b) CREDITS AGAINST TAX.—Section 3302 of such 
Code (26 U.S.C. 3302) is amended—
(1) in subsection (c)(1), by striking ‘‘90 percent 
of the tax against which such credits are allowable’’ 
and inserting ‘‘an amount equal to 5.4 percent of 
the total wages (as defined in section 3306(b)) paid 
by the taxpayer during the calendar year with re-
spect 
to 
employment 
(as 
defined 
in 
section 
3306(c))’’, and
(2) in subsection (d), by striking paragraph (1) 
and redesignating paragraphs (2) through (7) as 
paragraphs (1) through (6), respectively. 
(c) CONFORMING AMENDMENT.—Subsection (b) of 
section 6157 of such Code is amended to read as follows: 
‘‘(b) COMPUTATION OF TAX.—The tax for any cal-
endar quarter or other period referred to in paragraph (1) 
or (2) of subsection (a) shall be computed by multiplying 
the amount of wages (as defined in section 3306(b)) paid 
in such calendar quarter or other period by—
‘‘(1) 0.8 percent in the case of wages paid dur-
ing 2002, 
‘‘(2) 0.6 percent in the case of wages paid dur-
ing 2003 or 2004, 
‘‘(3) 0.4 percent in the case of wages paid dur-
ing 2005 or 2006, and 
‘‘(4) 0.2 percent in the case of wages after 
2006.’’
(d) EFFECTIVE DATE.—The amendments made by 
this section shall take effect on January 1, 2003. 
SEC. 102. REDUCED RATE. 
(a) DEFINITION.—Section 3303(c)(8) of the Internal 
Revenue Code of 1986 (26 U.S.C. 3303(c)(8)) is amended 
to read as follows:
‘‘(8) REDUCED RATE.—The term reduced rate 
means a rate of contributions of less than 5.4 per-
cent.’’. 
(b) CONFORMING AMENDMENT.—Section 3302(b) of 
such Code (26 U.S.C. 3302(b)) is amended by striking 
all that follows ‘‘State law’’ and inserting ‘‘to a rate of 
5.4 percent.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall take effect on January 1, 2003. 
SEC. 103. QUARTERLY PAYMENT OF UNEMPLOYMENT 
TAXES. 
(a) GENERAL RULE.—Section 6157(a) of the Inter-
nal Revenue Code of 1986 (26 U.S.C. 6157(a)) is amend-
ed by adding at the end the following new sentence: ‘‘Such 
regulations may not require such tax for any calendar 
quarter or other period to be paid before the last day of 
the first calendar month beginning after such quarter or 
other period.’’
(b) STATE LAW REQUIREMENT.— 
(1) IN GENERAL.—Section 303(a) of the Social 
Security Act (42 U.S.C. 503(a)) is amended—
(A) in paragraph (10), by striking the pe-
riod and inserting ‘‘; and’’; and 
(B) by adding at the end the following new 
paragraph:
‘‘(11) A requirement that contributions to un-
employment funds be due and payable on the last 
day of the first calendar month following the close 
of the preceding calendar quarter, except for pay-
ments in lieu of contributions described in section 
3304(a)(6)(B) of the Federal Unemployment Tax 
Act or as otherwise provided in sections 3510 and 
6157(c) of the Internal Revenue Code of 1986.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall take effect 1 year after the 
date of the enactment of this Act, except that, in the 
case of a State the legislature of which does not 
meet in a regularly scheduled session during cal-
endar year 2003, the amendment made by para-
graph (1) shall take effect 2 years after the date of 
the enactment of this Act. 
TITLE II—FEDERAL-STATE 
EXTENDED BENEFITS REFORM 
SEC. 201. REPEAL OF CERTAIN STATE LAW EXTENDED BEN-
EFIT REQUIREMENTS. 
(a) IN GENERAL.—Section 202 of the Federal-State 
Extended Unemployment Compensation Act of 1970 (26 
U.S.C. 3304 note) is amended—
(1) in subsection (a), by striking paragraphs 
(3) through (7); and
(2) by striking subsection (c). 
(b) CONFORMING AMENDMENT.—Paragraph (4) of 
section 231(a) of the Trade Act of 1974 (19 U.S.C. 
2291(a)(4)) is repealed. 
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by 
this section shall apply to weeks of unemployment 
beginning after the end of the 1-year period begin-
ning on the date of the enactment of this Act, except 
that a State may amend its State law to provide for 
the payment of extended compensation in accordance 
with the amendments made by this section for weeks 
of unemployment beginning before the end of such 
period (but not for any week beginning before it so 
amends its State law). 
(2) EXCEPTION.—In the case of a State the 
legislature of which does not meet in a regular ses-
sion which closes during calendar year 2003, para-
graph (1) shall be applied by substituting ‘‘2-year’’ 
for ‘‘1-year’’. 
SEC. 202. CHANGE IN STATE TRIGGER FOR EXTENDED COM-
PENSATION. 
(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 paragraph (1)(B), by striking ‘‘5’’ and 
inserting ‘‘4’’; and 
(2) in the first sentence following paragraph 
(2)—
(A) by striking ‘‘Effective with respect to 
compensation for weeks of unemployment be-
ginning after March 30,1977 (or, if later, the 
date established pursuant to State law), the’’ 
and inserting ‘‘The’’; and 
(2) by striking ‘‘the figure ‘5’ contained in sub-
paragraph (B) thereof were ‘6’ ’’ and inserting ‘‘the 
figure ‘4’ contained in subparagraph (B) thereof 
were ‘5’ ’’. 
(b) EFFECTIVE DATE.—The amendments made by 
subsection (a) shall apply to weeks beginning after the 
date of the enactment of this Act. 
TITLE III—ADMINISTRATIVE 
FUNDING PROVISIONS 
SEC. 301. AMENDMENTS TO TITLE III OF THE SOCIAL SECU-
RITY ACT. 
(a) CERTIFICATION
OF AMOUNTS TO BE MADE 
AVAILABLE TO STATES FOR ADMINISTRATION OF UNEM-
PLOYMENT COMPENSATION LAWS.—
(1) IN
GENERAL.—Subsection (a) of section 
302 of the Social Security Act (42 U.S.C. 502(a)) 
is amended to read as follows: 
‘‘(a)(1) The Secretary of Labor shall from time to 
time certify to the Secretary of the Treasury for payment 
to each State which has an unemployment compensation 
law approved by the Secretary of Labor under the Federal 
Unemployment Tax Act such amounts as the Secretary 
of Labor determines to be necessary for the proper and 
efficient administration, during the fiscal year for which 
such payment is to be made, of—
‘‘(A) the State’s unemployment compensation 
law, subject to paragraph (5)(C) and subsections (d) 
and (e); 
‘‘(B) agreements under any Federal unemploy-
ment compensation law; and 
‘‘(C) any provision of this title under which 
such State is required to make any periodic reports. 
‘‘(2) The Secretary of Labor’s determination of the 
amounts described in paragraph (1) shall be based on such 
factors as the Secretary of Labor finds relevant, except 
as otherwise specified in this title. 
‘‘(3) For fiscal years beginning on or after October 
1, 2006, such amounts shall be available to States for ex-
penditure during the fiscal year for which the funds are 
obligated and the two succeeding fiscal years. 
‘‘(4) Any amounts received by a State pursuant to 
this section and expended for a purpose described in sub-
paragraph (B) or (C) of paragraph (1) shall for purposes 
of this title be treated as amounts expended for the proper 
and efficient administration of the State’s unemployment 
compensation law. 
‘‘(5) The Secretary of Labor—
‘‘(A) may not certify for payment under this 
section in any fiscal year a total amount in excess 
of the amount appropriated therefor for such fiscal 
year; 
‘‘(B) may not certify for payment under this 
section in any fiscal year any amount for the admin-
istration of an unemployment benefit program ad-
ministered under the Robert T. Stafford Disaster 
Relief and Emergency Assistance Act; and 
‘‘(C) may not, for purposes of carrying out any 
of the activities described in paragraph (1)(A), cer-
tify any amount under this section for payment in 
any fiscal year beginning on or after October 1, 
2012.’’.
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall be effective as of October 1, 
2002. 
(b) TRANSITION PROVISIONS RELATING TO FISCAL 
YEARS 2005 THROUGH 2012.—
(1) IN GENERAL.—Section 302 of the Social 
Security Act (42 U.S.C. 502) is amended by adding 
at the end the following: 
‘‘(d)(1) Notwithstanding any other provision of this 
title, the amount certified by the Secretary of Labor under 
subsection (a)(1)(A) with respect to a State shall—
‘‘(A) in the case of fiscal year 2005, be 
equal to 2⁄3 of the amount necessary for such 
State to carry out the activities described in 
subsection (a)(1)(A) in such fiscal year; and 
‘‘(B) in the case of fiscal year 2006, be 
equal to 1⁄3 of the amount necessary for such 
State to carry out the activities described in 
subsection (a)(1)(A) in such fiscal year. 
‘‘(2) For purposes of this subsection, the amount nec-
essary for a State to carry out the activities described in 
subsection (a)(1)(A) in a fiscal year shall be determined 
by the Secretary based on the amount allotted to the 
States to carry out such activities in fiscal year 2002, ad-
justed by—
‘‘(A) the projected changes between fiscal year 
2002 and fiscal year 2005 or 2006 (as applicable), 
using the most recent economic assumptions re-
leased by the President relating to—
‘‘(i) factors relating to the number of 
claims for compensation, and to the number of 
employers, in the United States; and 
‘‘(ii) the gross domestic product price 
index for the United States; and 
‘‘(B) such other factors as the Secretary deter-
mines are appropriate. 
‘‘(e)(1)(A) A State shall qualify for amounts under 
subsection (a)(1)(A) with respect to fiscal year 2007, 
2008, 2009, 2010, 2011, or 2012 only if the amount de-
termined for such State under subparagraph (B) exceeds 
the amount determined for such State under subpara-
graph (C) for such fiscal year. 
‘‘(B) For purposes of subparagraph (A), the amount 
determined under this subparagraph is the sum of—
‘‘(i) the amount allotted to the State for fiscal 
year 2004 for the administration of the State’s un-
employment compensation law under subsection 
(a)(1)(A) (adjusted for the fiscal year involved in ac-
cordance with subparagraph (D)); and
‘‘(ii) the amount allotted to the State for pro-
gram year 2004 for the administration of the State’s 
system of public employment offices under section 
5(b)(1) of the Wagner-Peyser Act (adjusted for the 
fiscal year involved in accordance with section 
5(e)(1)(D) of such Act). 
‘‘(C) For purposes of subparagraph (A), the amount 
determined under this subparagraph for a State is the 
amount projected by the Secretary to equal 0.4 percent 
of the estimated wages, attributable to such State for the 
fiscal year involved, which would be subject to tax under 
section 3301 of the Internal Revenue Code of 1986 (as 
in effect on January 1, 2002). 
‘‘(D) For purposes of carrying out subparagraph 
(B)(i), the amount allotted to the State for fiscal year 
2004 for the administration of the State’s unemployment 
compensation law under subsection (a)(1)(A) shall be ad-
justed (for whichever of fiscal years 2007 through 2012 
is the fiscal year involved) by—
‘‘(i) the projected changes between fiscal year 
2004 and the fiscal year involved, using the most re-
cent economic assumptions released by the Presi-
dent, regarding factors relating to the number of 
claims for compensation, and to the number of em-
ployers, in such State,
‘‘(ii) the changes in the gross domestic product 
price index for the United States between fiscal year 
2004 and 2007, except that for purposes of making 
such determination for fiscal year 2007, the Sec-
retary of Labor shall make a projection of such 
change using the most recent economic assumptions 
released by the President, and 
‘‘(iii) such other factors as the Secretary of 
Labor determines are appropriate. 
‘‘(2)(A) If a State qualifies under paragraph (1)(A) 
with respect to a fiscal year, then the State shall, in addi-
tion to the amounts certified to carry out subparagraphs 
(B) and (C) of subsection (a)(1), be certified for an 
amount for such fiscal year to carry out subsection 
(a)(1)(A) that is equal to the product of the fraction deter-
mined under subparagraph (B) multiplied by the amount 
determined under subparagraph (C). 
‘‘(B) For purposes of subparagraph (A), the fraction 
determined under this subparagraph is, for any State, the 
fraction—
‘‘(i) the numerator of which is the amount de-
termined for such State under clause (i) of para-
graph (1)(B) for the fiscal year involved, and
‘‘(ii) the denominator of which is the total 
amount determined for such State under paragraph 
(1)(B) for the fiscal year involved. 
‘‘(C) For purposes of subparagraph (A), the amount 
determined under this subparagraph is, for any State, the 
amount equal to—
‘‘(i) the amount determined for such State 
under paragraph(1)(B) for the fiscal year involved, 
minus 
‘‘(ii) the amount determined for such State 
under paragraph (1)(C) for the fiscal year in-
volved.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall be effective as of October 1, 
2002. 
(c) CONFORMING AMENDMENTS FOR FISCAL YEAR 
2007.—
(1) ELIMINATION OF TRANSITION FUNDING.—
Effective October 1, 2006, subsections (c) and (d) of 
section 302 of the Social Security Act (42 U.S.C. 
502(c), (d)) are repealed. 
(2) ELIMINATION
OF
DUPLICATIVE
PROVI-
SIONS.—Effective October 1, 2006, section 303 of 
such Act (42 U.S.C. 503) is amended—
(A) in subsection (a)—
(i) by striking paragraphs (2), (4), 
and (5); 
(ii) by redesignating paragraph (3) as 
paragraph (2); 
(iii) by redesignating paragraphs (6) 
through (10) as paragraphs (3) through 
(7), respectively; and 
(iv) by redesignating paragraph (11) 
(as added by section 103(b)) as paragraph 
(8); and 
(B) in subsection (c)—
(i) by inserting ‘‘or’’ at the end of 
paragraph (1); 
(ii) by striking ‘‘; or’’ at the end of 
paragraph (2) and inserting a period; and 
(iii) by striking paragraph (3). 
SEC. 302. AMENDMENTS TO TITLE IX OF THE SOCIAL SECU-
RITY ACT. 
(a) TRANSITION AMENDMENT.—
(1) ESTIMATES OF TAX RECEIPTS.—Subpara-
graph (C) of section 901(c)(3) of the Social Security 
Act (42 U.S.C. 1101(c)(3)(C) is repealed. 
(2) EFFECTIVE DATE.—The amendment made 
by this subsection shall be effective as of October 1, 
2002.
(b) AMENDMENTS FOR FISCAL YEAR 2007.—
(1) ADMINISTRATIVE EXPENDITURES.—Section 
901(c) of the Social Security Act (42 U.S.C. 
1101(c)) is amended—
(A) in paragraph (1), by striking ‘‘June 
30, 1971’’ and inserting ‘‘September 30, 
2007’’; 
(B) in paragraphs (1)(A) and (1)(B), by 
striking the parenthetical matter immediately 
following ‘‘such amounts’’; and 
(C) by striking paragraphs (3), (4), and 
(5). 
(2) 
DETERMINATION
OF
EXCESS.—Section 
901(f)(3)(A) of the Social Security Act (42 U.S.C. 
1101(f)(3)(A)) is amended by striking the last sen-
tence. 
(3) TRANSFERS
WHERE
STATE
IS
INELI-
GIBLE.—Section 903(b)(1) of the Social Security 
Act (42 U.S.C. 1103(b)(1)) is amended—
(A) in the first sentence, by striking the 
em-dash after ‘‘year’’ and all that follows 
through ‘‘(B)’’ (and by running in the remain-
ing text); 
(B) in the second sentence—
(i) by striking ‘‘that such State is eli-
gible for certification under section 303,’’; 
and 
(ii) by striking ‘‘or both,’’. 
(4) EFFECTIVE DATE.—The amendments made 
by this subsection shall take effect on October 1, 
2006. 
(c) TRANSFERS TO EUCA.—
(1) IN GENERAL.—Section 905(b)(1) of the So-
cial Security Act (42 U.S.C. 1105(b)(1)) is amended 
by striking ‘‘20 percent’’ and inserting ‘‘50 per-
cent’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall take effect on January 1, 
2007. 
SEC. 303. AMENDMENTS TO TITLE XII OF THE SOCIAL SECU-
RITY ACT. 
(a) 
ADVANCES
TO
STATE
UNEMPLOYMENT 
FUNDS.—Section 1201(a) of the Social Security Act (42 
U.S.C. 1321(a)) is amended—
(1) in paragraph (1) (in the matter before sub-
paragraph (A)), by inserting ‘‘or administrative ex-
penses’’ after ‘‘compensation’’;
(2) in paragraphs (1)(B) and (2)(A), by insert-
ing ‘‘or administrative expenses, whichever is appli-
cable,’’ after ‘‘compensation’’; 
(3) in paragraph (3)—
(A) in subparagraph (B)—
(i) by inserting ‘‘or administrative ex-
penses, whichever is applicable,’’ after 
‘‘compensation’’ in each place it appears; 
and 
(ii) by striking ‘‘and’’ at the end; and 
(B) by redesignating subparagraph (C) as 
subparagraph (E) and by inserting after sub-
paragraph (B) the following: 
‘‘(C) an application for an advance—
‘‘(i) for the payment of compensation shall 
not be reduced or denied due to any amounts 
in the State’s unemployment fund which are 
limited by State law to the payment of adminis-
trative expenses (including amounts obligated 
under an appropriation made pursuant to sec-
tion 903(c)(2)), or 
‘‘(ii) for the payment of administrative ex-
penses shall not be reduced or denied due to 
any amounts in the State’s unemployment fund
which are limited by State law to the payment 
of compensation, 
‘‘(D) the term ‘administrative expenses’ means 
expenses incurred in the proper and efficient admin-
istration of the State’s unemployment compensation 
law or in the administration of an employment serv-
ice program pursuant to the Wagner-Peyser Act (29 
U.S.C. 49 and following), and’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall be effective as of October 1, 2002. 
SEC. 304. AMENDMENTS TO WAGNER-PEYSER ACT. 
(a) ACCEPTANCE BY THE STATES.—Section 4 of the 
Wagner-Peyser Act (29 U.S.C. 49c) is amended by insert-
ing ‘‘and for purposes of the credit as described in section 
3304(a)(1)(C) of the Internal Revenue Code of 1986’’ 
after ‘‘section 5’’. 
(b) PAYMENTS TO THE STATES.—Section 5(b) of the 
Wagner-Peyser Act (29 U.S.C. 49d(b)) is amended to read 
as follows: 
‘‘(b) The Secretary of Labor shall from time to time 
certify to the Secretary of the Treasury for payment to 
each State which, except for Guam, has an unemployment 
compensation law approved by the Secretary of Labor 
under the Federal Unemployment Tax Act such amounts 
as the Secretary of Labor determines to be necessary, dur-
ing the fiscal year for which such payment is to be made, 
to carry out—
‘‘(1) for fiscal years 2003 through 2012, the 
administration of the State’s public employment 
service program, except that—
‘‘(A) for fiscal years 2005 and 2006 such 
amounts shall be certified only to the extent au-
thorized under subsection (d); and 
‘‘(B) for fiscal years 2007 through 2012, 
such amounts shall be certified only to the ex-
tent authorized under subsection (e); 
‘‘(2) the administration of the Work Oppor-
tunity Credit authorized under section 51 of the In-
ternal Revenue Code of 1986 (26 U.S.C. 51) and 
the Welfare-to-Work Credit authorized under section 
51A of such Code (26 U.S.C. 51A); 
‘‘(3) the administration of such alien labor cer-
tification and attestation activities (including surveys 
of prevailing wages) as may be delegated to the 
State by the Secretary under the Immigration and 
Nationality Act and related laws; and 
‘‘(4) the provision of any periodic reports re-
quired under this Act. 
The Secretary of Labor’s determination of the amounts 
necessary to carry out the activities described in this sub-
section shall be based on such factors as the Secretary 
of Labor finds relevant, except as otherwise specified in 
this section. The Secretary of Labor shall not certify for 
payment under this section in any fiscal year a total 
amount in excess of the amount appropriated therefore for 
such fiscal year.’’. 
(c) PAYMENTS TO GUAM.—Section 5(c) of the Wag-
ner-Peyser Act (29 U.S.C. 49d(c)) is amended to read as 
follows: 
‘‘(c) The Secretary of Labor shall from time to time 
certify to the Secretary of the Treasury for payment to 
Guam such amounts as the Secretary of Labor determines 
to be necessary during the fiscal year for which such pay-
ment is to be made for the administration of the State’s 
public employment service program.’’. 
(d) SPECIAL PROVISIONS FOR TRANSITION YEARS 
AND PERIOD OF AVAILABILITY OF FUNDS.—Section 5 of 
the Wagner-Peyser Act (29 U.S.C. 49d) is further amend-
ed by adding after subsection (c) the following: 
‘‘(d)(1) The total amount certified for each State 
under subsection (b)(1) for fiscal years 2005 and 2006 
shall be determined as follows: 
‘‘(A) for the fiscal year beginning October 1, 
2004, the amount shall equal the amount necessary 
to provide the State with two-thirds of the amount
necessary to carry out the activities described in 
subsection (b)(1); and 
‘‘(B) for the fiscal year beginning October 1, 
2005, the amount shall equal the amount necessary 
to provide the State with one-third of the amount 
necessary to carry out the activities described in 
subsection (b)(1). 
‘‘(2) For purposes of this subsection, the amount nec-
essary to carry out the activities described in subsection 
(b)(1) for a fiscal year shall be determined by the Sec-
retary based on the amount allotted to the States to carry 
out such activities for fiscal year 2002, adjusted by the 
projected changes between fiscal year 2002 and such fiscal 
year, using the most recent economic assumptions released 
by the President, relating to—
‘‘(A) factors relating to the number of individ-
uals in the civilian labor force in the United States; 
and 
‘‘(B) the gross domestic product price index for 
the United States. 
‘‘(e)(1)(A) A State shall qualify for amounts under 
subsection (b)(1) with respect to each of fiscal years 2007 
through 2012 only if the amount determined under sub-
paragraph (B) of this paragraph exceeds the amount de-
termined under subparagraph (C) of this paragraph for 
such fiscal year. 
‘‘(B) For purposes of subparagraph (A), the amount 
determined under this subparagraph shall be the sum of—
‘‘(i) the amount allotted to the State for fiscal 
year 2004 for the administration of the State’s un-
employment 
compensation 
law 
under 
section 
302(a)(1)(A) of the Social Security Act (adjusted for 
each 
fiscal 
year 
in 
accordance 
with 
section 
302(e)(1)(D) of such Act); and 
‘‘(ii) the amount allotted to the State for pro-
gram year 2004 for the administration of the State’s 
system of public employment offices under sub-
section (b)(1) (adjusted for each fiscal year in ac-
cordance with subparagraph (D)). 
‘‘(C) For purposes of subparagraph (A), the amount 
determined under this subparagraph shall be the amount 
projected by the Secretary to equal 0.4 percent of the esti-
mated wages for such fiscal year which are subject to tax 
under section 3301 of the Internal Revenue Code of 1986 
(as such section was in effect on January 1, 2002) in the 
State. 
‘‘(D) For purposes of determining the amount under 
subparagraph (B)(ii) for each of fiscal years 2007-2012, 
the amount allotted to the State under this title for fiscal
year 2004 shall be adjusted by the change between fiscal 
year 2004 and fiscal year 2007 relating to the gross do-
mestic product price index for the United States, except 
that for making such determination for fiscal year 2007 
the Secretary shall make a projection of such change using 
the most recent economic assumptions released by the 
President. 
‘‘(2)(A) If a State qualifies under paragraph (1)(A) 
with respect to a fiscal year, then the State shall, in addi-
tion to the amounts certified to carry out paragraphs (2) 
through (4) of subsection (b), be certified for an amount 
for such fiscal year to carry out subsection (b)(1) that is 
equal to the product of the amount determined under sub-
paragraph (B) of this paragraph multiplied by the amount 
determined under subparagraph (C) of this paragraph. 
‘‘(B) For purposes of subparagraph (A), the amount 
determined under this subparagraph shall be the quotient 
of—
‘‘(i) the amount determined for the State under 
clause (ii) of paragraph (1)(B), divided by 
‘‘(ii) the total amount determined for the State 
under paragraph (1)(B). 
‘‘(C) For purposes of subparagraph (A), the amount 
determined under this subparagraph shall be the amount 
that is the difference between—
‘‘(i) the amount determined under para-
graph(1)(B); and 
‘‘(ii) the amount determined under paragraph 
(1)(C). 
‘‘(f)(1) For fiscal years 1985 through 2006, appro-
priations for any fiscal year for programs and activities 
assisted or conducted under this Act shall be available for 
obligation only on the basis of a program year. The pro-
gram year shall begin on July 1, in the fiscal year for 
which the appropriation is made. Such funds shall be 
available for expenditure by the States during the program 
year in which the funds are obligated and the two suc-
ceeding program years. The program year with respect to 
fiscal year 2006, shall begin on July 1, 2006 and end Sep-
tember 30, 2006. 
‘‘(2) For fiscal years beginning on and after October 
1, 2006, appropriation for any fiscal year shall be avail-
able for obligation only on the basis of a fiscal year. 
‘‘(3) For fiscal years beginning on or after October 
1, 2006, funds obligated for any fiscal year may be ex-
pended by the State during that fiscal year and the two 
succeeding fiscal years and no amount shall be deobligated 
on account of a rate of expenditure which is consistent 
with the program plan.’’.
(e) REPEAL OF ALLOTMENT FORMULAS.—Section 6 
of the Wagner-Peyser Act (29 U.S.C 49e) is repealed, ef-
fective October 1, 2004. 
(f) EMPLOYMENT-RELATED ACTIVITIES.—Section 7 
of the Wagner-Peyser Act (29 U.S.C. 49f) is amended to 
read as follows: 
‘‘SEC. 7. (a) The public employment service program 
carried out by a State under this Act shall include the 
provision of activities, through the one-stop delivery sys-
tem, that—
‘‘(1) facilitate the labor exchange between em-
ployers and job seekers; including activities that—
‘‘(A) assist job seekers in finding employ-
ment; and 
‘‘(B) assist employers in filling jobs; 
‘‘(2) provide reemployment services to unem-
ployment compensation claimants and carry out the 
work test requirement of the State unemployment 
compensation system; and 
‘‘(3) facilitate the interstate clearance of labor, 
as defined by the Secretary. 
‘‘(b) In addition to, or in carrying out, the activities 
described in subsection (a), the public employment service 
program carried out by a State under this Act may include 
the following activities—
‘‘(1) counseling, assessment, testing, job search 
assistance, occupational and labor market informa-
tion, and referral to jobs, and providing referrals or 
access to the full range of services available to job 
seekers through the State’s one-stop delivery system 
and other such activities that assist job seekers in 
obtaining and retaining employment; 
‘‘(2) assistance to employers in writing job or-
ders, recruitment, identification and screening of po-
tential job applicants, labor market information, in-
formation on other services related to employment 
such as hiring tax credits, and providing referrals or 
access to the full range of services available to em-
ployers within the State’s one-stop service delivery 
system; 
‘‘(3) employment services for individuals in spe-
cial populations such as unemployed or dislocated 
workers, veterans, migrant and seasonal farm work-
ers, and individuals with disabilities; 
‘‘(4) developing and providing labor market and 
occupational information; 
‘‘(5) developing automated systems to facilitate 
service delivery to job seekers and employers and to 
enable data collection, case tracking, case manage-
ment, reporting, and performance accountability for 
activities carried out under this Act; 
‘‘(6) providing service delivery staff with train-
ing, technical assistance, and tools designed to en-
hance their skills to provide the services described in 
this section through the State’s one-stop service de-
livery system.; 
‘‘(7) developing linkages between services fund-
ed under this Act and related Federal or State legis-
lation, to support integrated service delivery in the 
one-stop service delivery system and improved serv-
ice delivery to job seekers and employers; 
‘‘(8) performance accountability and continuous 
improvement activities designed to improve service 
delivery and outcomes for employers and job seekers, 
including providing performance incentives for meet-
ing performance standards as established by the 
Secretary; and 
‘‘(9) activities designed to improve accessibility 
of the services to individuals who may lack accessi-
bility as a result of factors such as a disability, lim-
ited English proficiency, lack of literacy skills, trans-
portation, or lack of computer literacy.’’. 
(g) EFFECTIVE DATE.—
(1) The amendments made by this subsections 
(a) through (d) shall be effective as of October 1, 
2002. 
(2) The amendments made by subsections (e) 
and (f) shall take effect on October 1, 2004. 
SEC. 305. AMENDMENTS TO THE FEDERAL UNEMPLOYMENT 
TAX ACT. 
(a) APPROVAL OF STATE LAWS.—
(1) REQUIREMENTS RELATING TO ADMINISTRA-
TION OF UNEMPLOYMENT COMPENSATION AND PUB-
LIC EMPLOYMENT SERVICE.—Section 3304(a)(1) of 
the Internal Revenue Code of 1986 (26 U.S.C. 
3304(a)(1)) is amended to read as follows: 
‘‘(1)(A) the provisions specified by section 303 
of the Social Security Act are applicable to the 
State; 
‘‘(B) individuals are able to work and available 
for work as a condition of receiving compensation; 
and 
‘‘(C) the State accepts the provisions of the 
Wagner-Peyser Act in accordance with section 4 of 
such Act;’’. 
(2) REQUIREMENTS
RELATING
TO
USE
OF 
STATE
UNEMPLOYMENT
FUNDS.—Section 
3304(a)(4) of such Code is amended—
(A) by striking ‘‘, exclusive of expenses of 
administration,’’ in the material preceding sub-
paragraph (A), and 
(B) by striking subparagraph (B) and in-
serting the following new subparagraph: 
‘‘(B) amounts appropriated by the legisla-
tive body of the State for expenses incurred by 
the State for administration of its unemploy-
ment compensation law and public employment 
service program may be withdrawn to pay such 
expenses;’’. 
(b) DEFINITION OF UNEMPLOYMENT FUND.—Sec-
tion 3306(f) of such Code is amended—
(1) by striking ‘‘(exclusive of expenses of ad-
ministration)’’ in the material preceding paragraph 
(1), and 
(2) by striking paragraph (2) and inserting the 
following new paragraph: 
‘‘(2) amounts appropriated by the legislative 
body of the State for expenses incurred by the State 
for administration of its unemployment compensa-
tion law and public employment service program 
may be withdrawn to pay such expenses;’’.
(c) EFFECTIVE DATE.—The amendments made by 
this section shall take effect on the date of the enactment 
of this Act. 
SEC. 306. AMENDMENT TO TITLE 39 OF THE UNITED 
STATES CODE. 
(a) USE OF PENALTY MAIL.—Section 3202(a)(1) of 
title 39, United States Code, is amended—
(1) by inserting ‘‘and’’ at the end of subpara-
graph (D); 
(2) by striking subparagraph (E); and 
(3) by redesignating subparagraph (F) as sub-
paragraph (E). 
(b) 
CONFORMING
AMENDMENTS.—(1) 
Section 
3203(b) of such title is amended by striking ‘‘(1)(E), (2), 
and (3)’’ and inserting ‘‘(2) and (3)’’. 
(2) Section 3206(b) of such title is amended by strik-
ing ‘‘(1)(F) and (4)’’ and inserting ‘‘(1)(E) and (4)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall take effect on October 1, 2006.
TITLE IV—REED ACT 
PROVISIONS 
SEC. 401. SPECIAL REED ACT TRANSFERS IN FISCAL YEARS 
2004 AND 2005. 
(a) IN GENERAL.—Section 903 of the Social Security 
Act (42 U.S.C. 1103) is amended by adding at the end 
the following: 
‘‘Special Transfers for Fiscal Years 2004 and 2005
‘‘(e)(1) The Secretary of the Treasury shall, as of the 
beginning of October 1 of each of fiscal years 2004 and 
2005, transfer $3,500,000,000 from the Federal unem-
ployment account to the accounts of the States in the Un-
employment Trust Fund. 
‘‘(2)(A) Each State’s share of the amounts to be 
transferred under this subsection as of any October 1 shall 
be determined by the Secretary of Labor in accordance 
with subsection (a)(2), except that no State shall receive 
an amount less than $25,000,000 for a fiscal year. 
‘‘(B) Any amounts necessary to increase allotments 
to States in order to comply with the minimum dollar 
amount required by subparagraph (A) shall be obtained 
by ratably reducing the allotments to be made to other 
States under this subsection. 
‘‘(3) Subsection (b) shall apply to transfers under 
this subsection.
‘‘(4)(A) If, in fiscal year 2004 or 2005, all the condi-
tions set forth in paragraph (1) of subsection (a) (for a 
transfer of amounts to State accounts under such sub-
section) have been met—
‘‘(i) the transfer under this subsection shall be 
made before the making of any transfers under sub-
section (a) or (b); and 
‘‘(ii) any transfer under subsection (a) or (b) 
shall then be made, but only if or to the extent re-
quired under subparagraph (B). 
‘‘(B) If a transfer under this subsection is made in 
the circumstance described in subparagraph (A), the ex-
cess amount in the employment security administration 
account (as described in subsection (a)) shall be treated 
as follows: 
‘‘(i) First, use those amounts to restore the 
Federal unemployment account, up to the limit pro-
vided in section 902(a). 
‘‘(ii) Second, to the extent that any excess 
amounts remain after the application of clause (i), 
transfer those remaining amounts in accordance 
with subsection (a) or (b), whichever applies.’’. 
(b) USE
OF
TRANSFERRED
AMOUNTS.—Section 
903(c)(1) of the Social Security Act (42 U.S.C.
1103(c)(1)) is amended by striking ‘‘(a) and (b)’’ and in-
serting ‘‘(a), (b), (d) and (e)’’. 
SEC. 402. REPEAL OF SPECIAL RULES FOR STATE REED 
ACT APPROPRIATION LAWS. 
Section 903(c)(2) of the Social Security Act (42 
U.S.C. 1103(c)(2)) is amended by striking ‘‘offices if and 
only if—’’ and all that follows and inserting ‘‘offices.’’. 
SEC. 403. REPEAL OF SPECIAL CONDITIONS ON RECENT 
REED ACT DISTRIBUTIONS. 
(a) REED ACT DISTRIBUTIONS MADE WITH RE-
SPECT TO 1999, 2000, AND 2001.—
(1) IN
GENERAL.—The requirements of sub-
section (c) of section 903 of the Social Security Act 
(as amended by this Act) shall apply to all amounts 
transferred under such section 903 with respect to 
fiscal years 1999, 2000, and 2001, except that such 
amounts shall be available for expenditure for the 
administration of the State’s unemployment com-
pensation law without an appropriation by the 
State’s legislature until one year after the date of 
enactment. 
(2) AMENDMENTS TO TEMPORARY EXTENDED 
UNEMPLOYMENT COMPENSATION ACT OF 2002.—Sec-
tion 209(a) of the Temporary Extended Unemploy-
ment Compensation Act of 2002 (26 U.S.C. 3304 
note) is amended—
(A) by striking paragraph (2); and 
(B) by striking ‘‘1997.—’’ through ‘‘The 
following’’ and inserting ‘‘1997.—The fol-
lowing’’, by moving subparagraphs (A) and (B) 
2 ems to the left, and by redesignating those 
subparagraphs as paragraphs (1) and (2), re-
spectively. 
(b) REED ACT DISTRIBUTION MADE ON MARCH 13, 
2002.—
(1) IN GENERAL.—Section 903(d)(3) of the So-
cial Security Act (42 U.S.C. 1103(d)(3)) is amended 
to read as follows: 
‘‘(3) Amounts transferred to a State account pursu-
ant to this subsection may be used in accordance with sub-
section (c).’’. 
(2) CONFORMING AMENDMENT.—Paragraph (4) 
of section 903(d) of such Act is repealed. 
SEC. 404. RESTORATION AUTHORITY REPEALED. 
Section 903(c)(3) of the Social Security Act (42 
U.S.C. 1103(c)(3)) is repealed.
TITLE V—MISCELLANEOUS 
PROVISIONS 
SEC. 501. TRANSFER OF FEDERAL EQUITY IN STATE EM-
PLOYMENT SECURITY AGENCY REAL PROP-
ERTY TO THE STATES. 
(a) TRANSFER
OF FEDERAL EQUITY.—Notwith-
standing any other provision of law, any Federal equity 
acquired in real property through grants to States award-
ed under title III of the Social Security Act or under the 
Wagner-Peyser Act is hereby transferred to the States 
which used the grants for the acquisition of such equity. 
The portion of any real property that is attributable to 
the Federal equity transferred under this section shall be 
used to carry out activities authorized under title III of 
the Social Security Act, the Wagner-Peyser Act, or section 
193 of the Workforce Investment Act of 1998. Any dis-
position of such real property shall be carried out in ac-
cordance with the procedures described in section 97.31(c) 
of title 29 of the Code of Federal Regulations (as in effect 
on the day before the date of the enactment of the Em-
ployment Security Reform Act of 2002) and the portion 
of the proceeds from the disposition of such real property 
that is attributable to the Federal equity transferred 
under this section shall be used to carry out activities au-
thorized under title III of the Social Security Act or the 
Wagner-Peyser Act. 
(b) LIMITATION ON USE.—States shall not use funds 
awarded under title III of the Social Security Act or under 
the Wagner-Peyser Act to amortize the costs of real prop-
erty that is purchased by any State on or after the effec-
tive date of this provision. 
SEC. 502. STATE USE OF COMPENSATING BALANCES AND 
INTEREST EARNED ON CLEARING ACCOUNT 
TO PAY ASSOCIATED BANKING COSTS. 
(a) IMMEDIATE DEPOSIT REQUIREMENT.—Section 
3304(a)(3) of the Internal Revenue Code of 1986 (26 
U.S.C. 3304(a)(3)) is amended to read as follows: 
‘‘(3) all money received in the unemployment 
fund shall immediately upon such receipt be paid 
over to the Secretary of the Treasury to the credit 
of the Unemployment Trust Fund established by 
section 904 of the Social Security Act (42 U.S.C. 
1104), except for—
‘‘(A) refunds of sums erroneously paid into 
such fund; 
‘‘(B) refunds paid in accordance with the 
provisions of section 3305(b); and 
‘‘(C) such portion of the money as may be 
necessary to generate earnings credit or actual
interest earnings sufficient to pay reasonable 
charges for banking services related to such 
money and for services provided by a bank in 
connection with the receipt and processing of 
direct remittances from employers.’’. 
(b) WITHDRAWAL STANDARD.—Section 3304(a)(4) 
of such Code (26 U.S.C. 3304(a)(4)) is amended by strik-
ing ‘‘and’’ at the end of subparagraph (E), by adding 
‘‘and’’ at the end of subparagraph (F), and by inserting 
after subparagraph (F) the following new subparagraph: 
‘‘(G) earnings credit or actual interest 
earnings on money not immediately paid over to 
the Secretary of the Treasury pursuant to para-
graph (3) may be used to pay reasonable 
charges for banking services related to money 
received in the unemployment fund and for 
services provided by a bank in connection with 
the receipt and processing of direct remittances 
from employers;’’. 
(c) UNEMPLOYMENT
FUND.—Section 3306(f) of 
such Code (26 U.S.C. 3306(f)) is amended—
(1) by striking ‘‘and’’ at the end of the para-
graph (5) not added by Public Law 103–182, 
(2) by redesignating the paragraph (5) added 
by Public Law 103–182 as paragraph (6),
(3) by striking the period at the end of such 
paragraph (6) and inserting ‘‘; and’’, and 
(4) by adding at the end the following new 
paragraph: 
‘‘(7) earnings credit or actual interest earnings 
may be used to pay reasonable charges for banking 
services relating to moneys received in the unemploy-
ment fund and for services provided by a bank in 
connection with the receipt and processing of direct 
remittances from employers.’’. 
(d) 
CONFORMING
AMENDMENT.—Section 
1201(a)(3)(C) of the Social Security Act (42 U.S.C. 
1321(a)(3)(C)), as inserted by section 303(a)(3)(B), is 
further amended—
(1) in clause (i), by striking ‘‘or’’ after the 
comma; 
(2) in clause (ii), by inserting ‘‘or’’ after the 
comma; and 
(3) by adding after clause (ii) the following: 
‘‘(iii) for the payment of compensation or 
administrative earnings expenses shall not be 
reduced or denied due to the use of any 
amounts to generate earnings credit or actual 
interest that are used to pay reasonable charges 
for banking services and for services provided
by a bank in connection with the receipt and 
processing of direct remittances from employers 
pursuant to the exceptions provided in para-
graphs (3) and (4) of section 3304(a) of the 
Federal Unemployment Tax Act,’’. 
SEC. 503. TREATMENT OF SHORT-TIME COMPENSATION 
PROGRAMS. 
(a) WITHDRAWAL OF AMOUNTS FROM STATE UNEM-
PLOYMENT FUND.—
(1) IN GENERAL.—Section 3304(a)(4)(E) of the 
Internal Revenue Code of 1986 (26 U.S.C. 
3304(a)(4)(E)) is amended to read as follows: 
‘‘(E) amounts may be withdrawn for the 
payment of short-time compensation under a 
short-time compensation program (as defined 
under section 3306(v));’’. 
(2) UNEMPLOYMENT FUND DEFINED.—Section 
3306(f)(5) of such Code (26 U.S.C. 3306(f)(5)) is 
amended to read as follows: 
‘‘(5) amounts may be withdrawn for the pay-
ment of short-time compensation under a short-time 
compensation program (as defined under subsection 
(v)); and’’. 
(3) SHORT-TIME
COMPENSATION
PROGRAM.—
Section 3306 of such Code (26 U.S.C. 3306) is
amended by adding at the end the following new 
subsection: 
‘‘(v) SHORT-TIME COMPENSATION PROGRAM.—For 
purposes of this chapter, the term ‘short-time compensa-
tion program’ means a program under which—
‘‘(1) the participation of an employer is vol-
untary; 
‘‘(2) an employer reduces the number of hours 
worked by employees in lieu of temporary layoffs; 
‘‘(3) such employees whose workweeks have 
been reduced by at least 10 percent are eligible for 
unemployment compensation; 
‘‘(4) the amount of unemployment compensa-
tion payable to any such employee is a pro rata por-
tion of the unemployment compensation which would 
be payable to the employee if such employee were to-
tally unemployed; 
‘‘(5) such employees are not required to meet 
the availability for work or work search test require-
ments while collecting short-time compensation bene-
fits, but are required to be available for their normal 
workweek; 
‘‘(6) eligible employees may participate in an 
employer-sponsored training program to enhance job
SEC. 508. REGULATIONS. 
The Secretary of Labor may prescribe any operating 
instructions or regulations necessary to carry out the pro-
visions of this Act and the amendments made by this Act, 
to the extent that responsibility for their administration 
is vested in the Secretary of Labor.
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