Federal-State Unemployment Insurance (UI) Program; Data Exchange Standardization as Required by Section 2104 of the Middle Class Tax Relief and Job Creation Act of 2012, 9404-9412 [2014-03496]

Agencies

• Employment and Training Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 79, Number 33 (Wednesday, February 19, 2014)]
[Rules and Regulations]
[Pages 9404-9412]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-03496]


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DEPARTMENT OF LABOR

Employment and Training Administration

20 CFR Part 619

RIN 1205-AB64


Federal-State Unemployment Insurance (UI) Program; Data Exchange 
Standardization as Required by Section 2104 of the Middle Class Tax 
Relief and Job Creation Act of 2012

AGENCY: Employment and Training Administration, Labor.

ACTION: Final rule.

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SUMMARY: The Department of Labor's (Department's) Employment and 
Training Administration (ETA) issues this final rule to designate in 
regulation data exchange standards, developed in consultation with an 
interagency work group established by the Office of Management and 
Budget (OMB), for Unemployment Insurance (UI) administration, as 
required by amendments to Title IX of the Social Security Act (SSA) 
made by the Middle Class Tax Relief and Job Creation Act of 2012 (the 
Act). These regulations establish data exchange standards for three 
categories of information: real-time applications on the Interstate 
Connection Network (ICON); the State Information Data Exchange System 
(SIDES); and implementation of the standards identified for ICON and 
SIDES in major Information Technology (IT) modernization projects to 
upgrade UI Benefits and Tax systems by State Workforce Agencies (SWAs) 
using Federal funds.

DATES: Effective date: The rule will take effect on March 21, 2014. The 
Office of Management and Budget has pre-approved the information 
collection requirements contained in this rule under the Paperwork 
Reduction Act and has assigned them control number 1205-0510.

FOR FURTHER INFORMATION CONTACT: Gay M. Gilbert, Administrator, Office 
of Unemployment Insurance, U.S. Department of Labor, 200 Constitution 
Avenue NW., Room S-4524, Washington, DC 20210; telephone (202) 693-3029 
(this is not a toll-free number).
    Individuals with hearing or speech impairments may access the 
telephone number above via TTY by calling the toll-free Federal 
Information Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:
    The preamble to this final rule is organized as follows:

I. Background--provides a brief description of the development of 
the rule.
II. Summary of the Comments--provides an overview of the comments 
received.
III. Section-by-Section Review--summarizes and discusses the 
regulations.
IV. Administrative Information--sets forth the applicable regulatory 
requirements.

I. Background

    On February 22, 2012, the President signed the Middle Class Tax 
Relief and Job Creation Act. Section 2104 of the Act amends Title IX, 
SSA (42 U.S.C. 1101 et seq.) by adding a new section 911, which 
requires the Department to issue rules, developed in consultation with 
an interagency workgroup established by the OMB, that establish data 
exchange standards for certain functions related to administration of 
the UI \1\ program. Before enactment of this requirement for data 
exchange standardization, the Department had been a proponent of and 
strong advocate for the use of open source technologies and data 
exchange standards in the development of IT systems supporting critical 
UI functions (such as ICON and SIDES), and of SWAs' overall UI IT 
modernization efforts. Section 911, SSA, contains two major 
subsections, (a) and (b), each of which requires data exchange 
standards; these requirements are discussed in detail below.
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    \1\ The Department's Office of Unemployment Insurance uses the 
term Unemployment Compensation (UC) when referring to UC benefits 
paid or UC laws, and the term Unemployment Insurance (UI) to refer 
to the UI program, administration, and operations.
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    Section 911(a)(1), SSA, requires that the Secretary of Labor 
``shall, by rule, designate a data exchange standard for any category 
of information required under title III [42 U.S.C. 501 et seq.], title 
XII [42 U.S.C. 1401 et seq.], or this title [IX] [42 U.S.C. 1101 et 
seq.].'' 42 U.S.C. 1111(a)(1) (Emphasis added.) The Department 
explained in the Notice of Proposed Rulemaking (NPRM), published in 78 
FR 12655, Feb. 25, 2013, that this statutory language allows the 
Department to identify any category of information under the specified 
titles, by rule, for which to establish a data exchange standard. 
Section 911(b)(1), SSA, requires that the Secretary of Labor ``shall, 
by rule, designate data exchange standards to govern the reporting 
required under [the same specified titles].'' (Emphasis added.) 42 
U.S.C. 1111(b)(1). This rule establishes data exchange standards for 
information required under section 303(a)(1), SSA, that meet the 
requirements of both sections 911(a)(1) and 911(b)(1), SSA.
    Section 303(a)(1), SSA, commonly known as the ``methods of 
administration'' requirement, provides that State law, as a condition 
of the State receiving Unemployment Compensation (UC) administrative 
grants, must include ``such methods of administration . . . as are 
found by the Secretary of Labor to be reasonably calculated to insure 
full payment of unemployment compensation when due.'' The Department 
chose to establish data exchange standards for information required 
under section 303(a)(1), SSA, because this section is the foundational 
statutory authority for the Department's guidance to States on the 
administration of the UI program, including guidance on program 
operations and reporting requirements.
    In the NPRM, the Department indicated that it did not propose 
establishing data exchange standards for categories of information 
under Titles IX and XII, SSA, because they provided fewer opportunities 
for establishment of data exchange standards that would benefit the UI 
system broadly, given that their focus is primarily on Unemployment 
Trust Fund (UTF) management issues. Title IX establishes the account 
structure for the UTF, and Title XII establishes the processes for 
States to obtain advances if their States' accounts in the UTF are 
depleted. As discussed in more detail in the Comment Section below in 
response to the comment received on the NPRM, the Department will 
continue to review all UI reporting and determine the application of 
appropriate data exchange standards, where feasible. In this rule, the 
Department addresses the data exchange systems that are most 
immediately well-positioned to facilitate implementation of the data 
exchange standard.
    To meet the requirements of section 911, SSA, the Department is 
designating in this final rule that eXtensible Markup

[[Page 9405]]

Language (XML) \2\ be the data exchange standard for two systems that 
support the reporting of data and information for two core UI 
administrative functions: (1) employer reporting of information 
requested by SWAs to support eligibility determinations (SIDES); and 
(2) the reporting and exchange of wage information among the States 
that also supports determination of eligibility for benefits (ICON). 
XML is a markup language that defines a set of rules for encoding 
documents in a format designed to structure, store and transport data. 
XML data are stored in plain text format that is both human-readable 
and machine-readable. Use of XML also provides for a software- and 
hardware-independent method of exchanging data over incompatible 
applications or systems over the Internet.
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    \2\ XML is a nonproprietary, searchable, computer-readable 
format, and has the capacity to be upgraded continually, as 
necessary. Interoperability helps information technology systems 
more readily interface to carry out shared functions and manage 
communications.
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    Section 911(a)(2), SSA, requires that the data exchange standard 
implemented in this rulemaking ``to the extent practicable, be 
nonproprietary and interoperable.'' Section 911(b)(2), SSA, also 
requires that the data exchange standards implemented in this 
rulemaking ``to the extent practicable incorporate a widely accepted, 
nonproprietary, searchable, computer-readable format,'' and ``be 
capable of being continually upgraded as necessary.'' Section 
911(b)(3), SSA, specifically requires that this rule, ``to the extent 
practicable, incorporate existing nonproprietary standards, such as the 
eXtensible Markup Language.'' The data exchange standards established 
in these regulations mandate the use of XML to meet the requirements of 
sections 911(a) and (b), SSA.
    XML \3\ provides an interoperable standard framework using common 
computer languages and standard formats and protocols to manage certain 
functions or communications. Gaining interoperability among the 
Department and 53 States and territories with different IT 
infrastructure and different program parameters (State UI programs have 
differing eligibility requirements and processes for supporting those 
requirements) is challenging. Therefore, the Department focused these 
regulations on core functions and reporting requirements that are truly 
common among the States.
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    \3\ The use of the term ``XML'' means XML and any XML-based 
markup language(s) that defines a set of rules for encoding 
documents and/or data in a format that is both human-readable and 
machine-readable. The term ``XML'' encapsulates the provisions 
specified in newly added section 911, SSA.
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    Finally, section 911(a)(3)(A), SSA, requires that for data exchange 
reporting standards, the rule, to the extent practicable, incorporate 
interoperable standards developed and maintained by an international 
voluntary consensus standards body. The XML standard herein designated 
meets this requirement as it is recognized by the World Wide Web 
Consortium, an international voluntary consensus standards body. The 
rule also meets the requirement of incorporating standards developed 
and maintained by intergovernmental partnerships like the National 
Informational Exchange Model (NIEM) referenced in section 911(a)(3)(B), 
SSA. XML is a data exchange standard recognized by NIEM. The standard 
to be considered under Section 911(a)(3)(C), SSA, requires 
incorporation, to the extent practicable, of ``interoperable standards 
developed and maintained by Federal entities with authority over 
contracting and financial assistance, such as the Federal Acquisition 
Regulations Council.'' This requirement applies to contracting and 
procurement processes and is not applicable to UI processes.
    In accordance with these provisions, this final rule implements the 
following data exchange standards:
     Under section 911(a), SSA, the Department designates XML 
as the data exchange standard for the real-time applications \4\ of 
ICON;
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    \4\ ICON applications are available in real-time and batch mode. 
States vary in the use of real-time applications versus the batch 
mode. The batch mode allows for processing of multiple requests at a 
scheduled time instead of immediate ``real-time'' processing.
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     Under section 911(a), SSA, the Department designates XML 
as the standard for the SIDES data exchange modules;
     Under section 911(b), SSA, the Department designates XML 
as the data exchange standard to govern reporting of information shared 
through SIDES; and
     Under section 911(a), SSA, the Department designates XML 
as the data exchange standard for real-time applications of ICON and 
SIDES data exchange modules in association with major IT modernization 
projects using Federal funds.
    By publishing this final rule, the Department does not foreclose 
the possibility of later establishing additional data exchange 
standards by regulation, as technological and other advances make it 
feasible and appropriate. The Department will explore on an ongoing 
basis other functions where data exchange standards would be valuable 
to the UI program and as it relates to shared data exchange with other 
Federal agencies.

ICON

    ICON is used to implement sections 3304(a)(9)(A) and (B) of the 
Federal Unemployment Tax Act (FUTA), providing for interstate and 
combined-wage claims.\5\ ICON enables States to request, submit, and 
receive much of the information necessary to establish claims (as 
identified below) and determine eligibility. The requirement to pay UC 
``when due'' under section 303(a)(1), SSA, includes the timeliness of 
these payments. Interstate and combined wage claims are more complex to 
administer since they require communication and transmission of 
information between States or between a State and a Federal agency. To 
ensure that these claims are paid ``when due,'' the Department supports 
development and maintenance of ICON. ICON is a secure multi-purpose 
telecommunications network that supports the transfer of data among the 
SWAs needed for critical program functions, including:
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    \5\ Section 3304(a)(9)(A), (FUTA) requires, as a condition of 
the Secretary's certification of a State law under FUTA, that 
``compensation shall not be denied or reduced to an individual 
solely because he files a claim in another State . . . or because he 
resides in another State . . . at the time he files a claim for 
unemployment compensation.'' Section 3304(a)(9)(B), FUTA, also 
requires as a condition of the Secretary's certification that ``the 
State shall participate in any arrangements for the payment of 
compensation on the basis of combining an individual's wages and 
employment covered under the State law with his wages and employment 
covered under the State unemployment compensation law of other 
States. . . . ''
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     Interstate Benefits/Combined-Wage Claims;
     Unemployment Compensation for Federal Civilian Employees 
and Unemployment Compensation for Ex-Servicemembers programs;
     The Wage Record Interchange System, which allows SWAs to 
obtain wage data for program performance purposes of individuals who 
have participated in workforce investment programs in SWAs;
     The UI Inquiry data exchange with the Social Security 
Administration (Social Security) that enables SWAs to validate Social 
Security Numbers (SSNs) with Social Security; and
     The Health Coverage Tax Credit that enables a SWA to 
transmit information to the Internal Revenue Service about individuals 
eligible for help paying for their health insurance coverage.

[[Page 9406]]

    The Department establishes in this final rule that XML be used as 
the data exchange standard under section 911(a), SSA, for a subset of 
these functions due to both State and ICON capacity to adopt standards 
for some of these functions at this time. In relation to these chosen 
functions, ICON currently supports the following applications in real-
time allowing for States to use XML standards for these functions. 
These are applications currently used by some SWAs to support the 
processing of all UC claims:
     Interstate Wages and Benefits Inquiries/Responses, which 
supports online transmission of interstate wages and benefits inquiries 
and responses between SWAs;
     Withdrawn/Invalid Claims, which allows for the posting and 
viewing of withdrawn or invalid claim information for SWAs; and
     State Identification Inquiry, which allows SWAs to inquire 
about wages reported to other SWAs by SSN.
    Currently, seven SWAs are involved in modernizing some of their 
ICON applications and it is not practical to require all States to 
comply with this standard immediately. In this final rule, the 
Department requires that all SWAs using real-time ICON applications 
comply with the XML data exchange standard no later than September 30, 
2018. A SWA may request an extension of the September 2018 deadline if 
it demonstrates that resources are not available to meet this 
requirement. These requests must be submitted in writing to the 
Administrator of the Office of Unemployment Insurance no later than 6 
months before the deadline; requests will be reviewed and decided 
within 30 days.

SIDES

    SIDES is necessary to effectuate the Standard for Claim 
Determinations--Separation Information, codified in regulation at 20 
CFR Part 625 Appendix B. This standard is based significantly on the 
``methods of administration'' requirement in section 303(a)(1), SSA, 
and includes a requirement that a State promptly obtain information 
from the worker, employer, or other source that is sufficient to 
reasonably insure payment of UC when due. For this reason, the 
Department supports development and maintenance of SIDES, which enables 
States to exchange information with employers electronically, thereby 
markedly improving the timeliness and accuracy of the employer-provided 
information about the reasons individuals separated from employment.
    SIDES is an automated information exchange and reporting system to 
standardize SWAs' delivery of information to employers and collection 
of information by SWAs from employers and third-party administrators 
(TPAs). In FY 2010, the first format of SIDES for exchange of employee 
separation information was implemented. This exchange of information 
with employers or their TPAs on the circumstances underlying individual 
UC claimants' job separations will reduce UC payments to ineligible 
claimants, yield administrative cost savings to both employers and 
taxpayers, and promote more timely benefit determinations. Currently, 
36 SWAs and three TPAs are participating in the SIDES effort. In FY 
2011, the SIDES earnings verification module was implemented. The 
addition of the earnings verification exchange allows SWAs and 
employers to more quickly and accurately verify when UC claimants 
return to work, thus reducing the leading cause of UC overpayments: 
claimants' receipt of UC while employed. In FY 2013, the SIDES module 
providing information on monetary and potential charges to the 
employer's account was implemented. This module allows SWAs to inform 
employers more quickly of potential charges to their accounts so that 
employers can appeal these charges expeditiously. If an employer 
appeals the charges, additional fact-finding of the claim can be 
conducted before additional benefits are paid to claimant thus 
preventing improper payments.
    SIDES is managed by the National Association of State Workforce 
Agencies (NASWA \6\) which contracts with a vendor for its maintenance, 
support, and operations. The Department has provided specific funding 
to State consortia and SWAs for development, maintenance, and operation 
of SIDES. State consortia are groups of States collaborating to jointly 
establish a project team to oversee the design, development and 
implementation of an IT solution that will be shared across the States. 
The Department recently funded a consortium of States to oversee the 
development of new SIDES data exchange modules to allow SWAs to notify 
employers and TPAs of benefits charges to their accounts and of non-
monetary determinations. SWAs, participating in the SIDES consortia, 
identify and help prioritize new SIDES modules to be developed and 
direct these funds to NASWA for the development of these modules. All 
SWAs using SIDES modules provide administrative funding to NASWA for 
the continued operations of SIDES.
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    \6\ A definition for NASWA was included in the NPRM as part of 
the proposed rule. Since this term is not included in this 
regulation, the proposed definition has been deleted in this final 
rule. This deletion of the definition of NASWA is the only change 
made to the final rule when compared to the proposed rule in the 
NPRM.
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    The Department continues to facilitate the expansion and 
enhancement of the functionality and use of SIDES as a vital tool for 
SWAs for the prevention and detection of improper payments, and has 
provided supplemental funding to a State consortium for the development 
of additional data exchange modules. These modules include:
     UC Benefit Charge Notices. This enhancement will make it 
possible for SWAs to provide employers notice of actual (as opposed to 
potential as discussed above) benefit charges to their accounts 
electronically rather than by paper and mail. This permits a quicker 
delivery and review by the employer and the ability to reply 
electronically if the charges are questionable. This expedited 
information exchange can detect potential improper payments earlier, 
particularly those related to identity theft and employees that return 
to work and continue to collect benefits.
     Non-Monetary Determinations Exchange. This enhancement 
will notify employers electronically, rather than on paper, of SWA 
decisions on the eligibility of their former employees when issues 
arise about whether the employees quit or were terminated for cause. 
This will improve the timeliness of employer appeals and allow for 
quicker appeal decisions, halting improper payments faster if the 
employer prevails in the appeal.
    Additionally, several other data exchange modules are under 
consideration for the expansion of SIDES including one for the exchange 
of Appeals Decisions. The XML standard will apply to these additional 
data exchange modules as well.
    The final rule designates a data exchange standard under section 
911(a), SSA, to apply to the SIDES data exchange modules and designates 
a standard under section 911(b), SSA, to govern reporting of 
information through SIDES data exchange modules.

Major IT Modernization of UI Benefits and Tax Systems

    For the purpose of this regulation, a major IT Modernization of UI 
Benefits and Tax systems includes conversion, re-engineering, 
rewriting, or transferring of an existing system to a modernized 
framework such as transferring a process from mainframe operations to 
web-based operations, converting to modern computer programming 
languages, or upgrading software

[[Page 9407]]

libraries, protocols, or hardware platform and infrastructure. As the 
Department provides funding to States to modernize their IT systems, 
the opportunity exists to use new data exchange standards that improve 
operations of the UI system as a whole and may further enable improved 
data exchanges with other States and Federal agencies.
    The Department facilitates SWAs' efforts to modernize IT systems 
supporting their UI programs by providing funding for administration 
and operations, and appropriate technical assistance. While the 
Federal-State structure of the UI program places primary responsibility 
for its administration on the States, the Department provides periodic 
supplemental funding opportunities for IT modernization activities. In 
addition, Congress periodically provides special distributions of 
administrative UI funding to States.
    Federal funds for UI modernization efforts come primarily from 
three sources: (1) supplemental budget funds that are designated by the 
Department for State IT modernization efforts, (2) State UI 
administration funding, and (3) special distributions. State 
administration funding primarily consists of State UI operations funds 
(an administrative grant awarded by the Department at the beginning of 
each fiscal year). Recent special distributions to States, under 
section 903, SSA, include those provided under the Job Creation and 
Worker Assistance Act of 2002 funds (distributed under the Reed Act, a 
mechanism by which the Federal government transfers surplus UI funds to 
States) and American Recovery and Reinvestment Act funds (an economic 
stimulus package enacted in February 2009). Also, since 2009, the 
Department has provided supplemental funding to State consortia to 
develop jointly functional requirements and development of modernized 
UI IT Benefits and/or Tax systems. One of the requirements was that the 
technology tools developed use open source components to the extent 
feasible, be transferable, and be capable of being shared by multiple 
SWAs. The goal is for multiple SWAs to share common systems/tools that 
accommodate each SWA's specific needs. Each of the consortia has its 
State leadership engaged in the process and soliciting vendors to 
assist with the system design and development efforts.
    This final rule requires that SWAs, when using Federal funds to 
modernize their UI systems, use XML as a data exchange standard when 
developing the functionality to interface with ICON, to implement SIDES 
and the reporting of information through SIDES. This requirement will 
potentially further accelerate State adoption of this standard for both 
functions. The Department strongly encourages SWAs, to the extent 
feasible, to begin conforming to the XML standard for any major UI IT 
modernization projects already underway.

Effective Date

    Section 2104(b)(1) of the Act requires that a final rule to be 
issued ``after public comment, within 24 months after such date of 
enactment.'' Section 2104(b)(2) of the Act requires that a proposed 
rule under section 911(b), SSA, will ``become effective with respect to 
reports required in the first reporting period, after the effective 
date of the final rule referred to in paragraph (1) of this 
subsection.''
    Accordingly, this final rule requires that the data exchange 
standard for SIDES, under both sections 911(a) and (b), SSA, become 
effective 30 days after publication of this final rule. States 
implementing new data exchange modules after that date will use XML as 
the data exchange standard.
    Additionally, this final rule establishes September 30, 2018, as 
the date by which SWAs must comply with the data exchange standard for 
ICON, in accordance with section 911(a), SSA. This will allow States to 
begin implementing the standard as soon as practicable, while still 
providing enough advance time to account for the current technology 
capacity of States and the fact that many States will need to make 
substantial changes to their technology systems to implement XML for 
their ICON exchanges.
    Finally, the effective date of designation of XML as the data 
exchange standard for SIDES data exchange modules and for the real-time 
ICON applications, in accordance section 911(a), SSA, is 30 days after 
publication of this final rule.

II. Summary of the Comments

    The Department received only one comment in response to the NPRM, 
which was from the Chairman and six Members of the Subcommittee on 
Human Resources, U.S. House of Representatives, Committee on Ways and 
Means. This comment generally supported the rulemaking; however, it 
also detailed two particular concerns about the NPRM. First, the 
comment encouraged the Department to continue to review program data 
beyond the specific data exchanges identified in this rule for 
standardization including data exchanges under Titles IX and XII. 
Second, the comment specifically indicated that the Department should 
explore the standardization of weekly UI claims data. Finally, the 
comment recognized the Department's commitment to working with other 
Federal agencies to identify standards that could improve interagency 
data exchanges. The Department addresses these concerns in the 
following paragraphs.
    First, the commenters state that ``as authors of this provision 
[the Act], we intended `any' to cover all categories of information.'' 
In other words, the commenters asserted the Department should interpret 
data exchange standardization to cover all categories of information. 
The comment states ``we recognize that the effort to move a 
standardized system will require upfront investment of time and 
effort.'' The comment also noted that ``[t]his is an iterative process 
and we look forward to working together to achieve success.''
    The Department appreciates that the commenters recognize that 
extending data exchange standardization to all types of reporting and 
information data exchanges is an enormous effort that takes time; it is 
an iterative and evolutionary process. The Department recognizes that 
the statutory language regarding ``any'' category of information could 
be interpreted as the commenters assert. The language is ambiguous and 
therefore the Department interpreted it in a manner to make the 
implementation of the statute feasible. The Department will continue to 
review all UI reporting and determine the application of appropriate 
data exchange standards, where feasible. In the UI program, this 
process must be accompanied by considerable consultation and 
partnership from the States. As we noted in the NPRM, 78 FR 12656, Feb. 
25, 2013, States vary widely in their IT infrastructure, with many 
States continuing to operate antiquated and inflexible systems. In 
addition, the IT infrastructure in States has been significantly 
challenged over the past several years due to the complexity of new 
Federal UI programs such as the Emergency Unemployment Compensation 
program, and more recently as a result of sequestration. The fact of 
this varying State IT capacity requires consideration of priorities, 
funding availability, and timing constraints when it comes to data 
exchange standardization.
    The Department addresses, in this rule the data exchanges that are 
most immediately well-positioned to facilitate implementation of new 
data exchange standardization. For example, the ICON network has 
completed the

[[Page 9408]]

implementation of the XML data exchange for the ``real time'' 
applications that are used by SWAs. The Department wants to encourage 
SWAs to transition to the XML data exchange standards for these ``real 
time'' applications and these regulations provide such an opportunity. 
In addition, the SIDES data exchange tool is a recent development and 
SWAs are in the process of adopting this tool to facilitate the 
exchange of information between SWAs and employers and third party 
administrators. Although the designation of a XML standard has started 
with these specific data exchanges, the Department will continue to 
review other data exchanges, and reporting requirements for designation 
of data exchange standards, where feasible. In a May 10, 2013, meeting 
between the Department and staff members of the House Subcommittee on 
Human Resources, the committee staff indicated that they were not 
requesting any specific change to the rule based on this explanation. 
They asked, and the Department agreed, that it would continue to keep 
the Committee informed of new opportunities to develop data exchange 
standards between SWAs and the Department and also between the 
Department and other Federal agencies.
    The comment also noted that the exchanges that deal with the issue 
of Unemployment Trust Fund reporting under Titles IX and XII could also 
benefit from data exchange standardization. Most of the data systems on 
Unemployment Trust Fund reporting are operated by the U.S. Department 
of Treasury (Treasury). The Department will work with Treasury to 
explore opportunities for standardizing these data exchanges and 
reporting under Titles IX and XII.
    While developing this rule for data exchange standards, the 
Department determined that it is neither feasible nor practicable to 
immediately set standards for all reports under the three titles listed 
in Section 911(b), SSA. In the NPRM, the Department indicated that 
imposing data exchange standards for certain reporting for the UI 
program would be counter-productive and would interfere with the 
Department's ability to use and analyze the data. For example, State UI 
agencies currently send data, such as weekly UI claims data, to the 
Department in a format that enables the Department to store the data in 
a relational database for purposes of analysis and performance 
management. The Department noted that if the data were instead required 
to be received in XML format, pre-processing of the data would be 
required to store this information within a relational database, thus 
adding a layer of complexity for the analytical software. That approach 
would result in unnecessary inefficiency and there would be no benefit 
to any user of the data.
    The comment further stated that while the commenters agreed with 
the Department's effort to ``avoid unnecessary inefficiencies,'' they 
do not agree with the Department's ``assertion that there would be no 
long term benefit gained from including weekly UI claims data in the 
data exchange standardization effort.''
    The Department acknowledges that presenting the data with 
consistent identification codes and formatting is desirable. The 
Department plans to conduct a feasibility study on consolidating the 
State UI reporting infrastructure within the Department's National 
Office. This process will provide opportunities for updating the format 
and standards by which these reports are presented to users of the 
data. With this pending consolidation project, the Department will 
continue to explore how best to present the data to facilitate greater 
usability, transferability and transparency. As an interim measure, the 
Department, where feasible, intends to prioritize the translation and 
publication of data, including weekly claims data, in an XML format to 
enable users to better understand the data elements and definitions. 
These are actions that the Department can take without any further rule 
making because it does not need involvement by external entities.
    Finally, the comment supported the Department's commitment to 
interagency coordination ``to identify standards that could be applied 
to improve interagency data exchanges and issue additional 
regulations.''
    The comment also stated that ``[the Subcommittee] look[s] forward 
to working together to achieve success'' in this respect. The 
Department appreciates the interest shown by the Committee and intends 
to continue to work closely with all stakeholders, including the 
Committee and all Members of Congress, as well as the States, OMB, and 
other Federal agencies in pursuing opportunities for data exchange 
standardization. The Department agrees with the Committee on the 
potential benefits for data exchange standardization.
    The Department also notes that if the goal for the UI program and 
other Federal programs is to advance data exchange standardization as 
quickly as feasible, it is critical that agencies have flexibility to 
determine the data exchanges that will produce the best results and the 
timing for implementation based on issues such as capacity and cost. In 
addition, the Department also notes that requiring agencies to 
implement data exchange standards through regulations is extremely 
cumbersome and may actually inhibit agencies' agility to respond to 
advances in technology concerning standardization. The Department is 
willing to work with the Committee to identify alternatives to 
accelerate data exchange standardization in other areas.
    Based on the conversation with Committee staff on May 10, 2013, the 
Department is making no changes to the regulation as a result of this 
comment.

III. Section-by-Section Review

Definitions (Sec.  619.1)

    This section establishes definitions of terms used in this rule. 
Most are self-explanatory; however, of particular note is paragraph 
(c), which defines XML, the standard designated in this rule to use for 
data exchange. XML data are stored in plain text format that is both 
human-readable and machine-readable and provides for a software- and 
hardware-independent method of exchanging data over incompatible 
applications or systems over the internet. This definition includes any 
future upgrades, iterations, or releases of XML-based language. A 
definition for the NASWA was included in the NPRM as part of the 
proposed rule. Since this term is not included in this regulation, the 
proposed definition has been deleted in this final rule. This deletion 
of the definition of NASWA is the only change made to the final rule 
when compared to the proposed rule in the NPRM.

Data Exchange Standardization for ICON (Sec.  619.2)

    Paragraph (a) designates XML as the data exchange standard for the 
real-time ICON applications. These applications are: Interstate Wages 
and Benefits Inquiries/Responses; Withdrawn/Invalid Claims; and State 
Identification Inquiry. These applications, used by States, are 
currently supported by ICON in real-time using two data exchange 
formats--Extended Binary Coded Decimal Interchange Code (EBCDIC) and 
Web Services Description Language (WSDL), which is a XML-based 
language. As stated previously, the Department has selected this sub-
set of the applications supported on ICON for applying a data exchange 
standard because they represent the applications which both ICON and 
States currently

[[Page 9409]]

have capacity to implement. The Department will continue to consider 
ways to apply data exchange standards to the other ICON functions, but 
the technology solutions are currently not available. It may be over 
five years before these new technology solutions can be effectively 
applied in the ICON environment.
    Paragraph (b) requires that all SWAs using real-time ICON 
applications conform to the XML data exchange standard no later than 
September 30, 2018. The rule provides that a SWA may request an 
extension of this deadline if it demonstrates that resources are not 
available to meet the requirements. The request must be submitted to 
the Administrator of the Office of Unemployment Insurance no later than 
6 months before the deadline, and the request will be approved or 
denied within 30 days.
    ICON is funded by a cooperative agreement between the Department 
and the State of Maryland. The Maryland Department of Labor, Licensing 
and Regulation acts as the Department's agent to contract with a vendor 
for the maintenance, support, and operation of ICON. Beginning in FY 
2007, the Department facilitated and later provided funding for the 
conversion of data exchange formats from EBCDIC to WSDL. EBCDIC is a 
format specifically used for mainframes and is not an interoperable 
standard. However, the migration of SWAs from EBCDIC to WSDL is still 
in its infancy requiring ICON to support a dual environment (Web 
Services and Mainframe).
    A few SWAs currently are in the process of implementing some of the 
modernized, XML-based real-time applications in conjunction with their 
efforts to modernize their IT systems or replace outdated systems. The 
goal of this paragraph is to accelerate State adoption of XML-based 
real time applications in order to eventually eliminate the need for 
ICON to manage mainframe applications in addition to the XML-based 
applications.
    The Department will continue to support SWAs' transition to 
modernized XML-based real-time ICON applications and expects that the 
data exchange standard in this regulation will accelerate SWAs' 
adoption of the XML exchange standard. The development of a single 
environment will result in improved efficiencies and cost savings and 
allow the Department to more effectively manage the development of 
future data exchanges and maintenance of resources.

Data Exchange Standardization for SIDES (Sec.  619.3)

    Paragraph (a) designates XML as the data exchange standard for 
SIDES. Paragraph (b) requires that this standard apply to any 
Federally-funded SIDES consortium, and any future agents of the 
Department providing vendor services for the development, maintenance, 
support and operations of the SIDES. Paragraph (c) designates XML as 
the data exchange standard to govern the reporting of information 
through the SIDES data exchange modules. Paragraph (d) denotes when the 
standard set in paragraph (c) becomes effective.
    SIDES uses Web services and the XML data format for the information 
exchange between the SWAs and employers. The Department is requiring 
that all SIDES exchanges (current and future), which are developed in 
whole or part with Department funds, continue to conform to the XML 
data exchange standard. Additionally, as States, employers, and TPAs 
chose to implement SIDES or new data exchange modules of SIDES, they 
must conform to this data exchange standard by application design.
    SIDES offers two options for implementation for SWAs and employers: 
SIDES web services, and SIDES E-Response. Both systems are designed to 
meet the unique needs of businesses, large and small. For employers 
with a limited number of UC claims, the SIDES E-Response Web site 
provides an easy and efficient way to respond to information requests 
from SWAs. For employers and TPAs that handle a large volume of UC 
claims information requests, SIDES web services provides an automated, 
computer-to-computer interface between employers' and TPAs' IT systems 
and SWA networks.

Data Exchange Standardization for the UI Benefits and Tax Systems 
(Sec.  619.4)

    Paragraph (a) designates XML as the data exchange standard for the 
real-time ICON applications and SIDES data exchange modules associated 
with major IT modernization projects to upgrade UI Benefits and Tax 
Systems by SWAs using Federal funds. This standard will improve the 
interoperability of State, Federal, and employer systems that collect 
and exchange information for UI administrative purposes. Linking data 
between these systems at the State level will allow for better service 
delivery and faster eligibility determinations, and should facilitate 
program integrity efforts.
    Paragraph (b) requires that, beginning on the effective date of 
this regulation, major IT modernization efforts funded by the 
Department must conform to the XML data exchange standard for the 
implementation of the real-time ICON applications and the SIDES 
exchange modules.

IV. Administrative Information

Executive Orders 12866 and 13563: Regulatory Planning and Review

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This rule has been designated a ``significant regulatory 
action'' because, although not economically significant under section 
3(f) of Executive Order 12866, it raises novel issues of law and 
policy. The key policy being implemented in this rule is the 
designation of XML as the data exchange standard for three categories 
of information: real-time applications on ICON; SIDES; and 
implementation of the XML standard identified for ICON and SIDES in 
major IT modernization projects to upgrade UI Benefits and Tax systems 
by SWAs using Federal funds. Therefore, the Department has submitted 
this final rule to OMB for review.

Paperwork Reduction Act

    The purposes of the Paperwork Reduction Act of 1995 (PRA), 44 
U.S.C. 3501 et seq., include minimizing the paperwork burden on 
affected entities. The PRA requires certain actions before an agency 
can adopt or revise a collection of information, including publishing a 
summary of the collection of information and a brief description of the 
need for and proposed use of the information. A Federal agency may not 
conduct or sponsor a collection of information, unless it is approved 
by OMB under the PRA, and displays a currently valid OMB control 
number, and the public is not required to respond to a collection of 
information unless it displays a currently valid OMB control number. 
Also, notwithstanding any other provisions of law, no person shall be 
subject to penalty for failing to comply with a collection of 
information if the collection of information does not

[[Page 9410]]

display a currently valid OMB control number (44 U.S.C. 3512).
    While this final rule imposes no new information collections, 
Sec. Sec.  619.2-619.4 would impose formatting requirements for the 
data exchanges of various UI applications that may impose a burden 
under the PRA. The Department submitted an information collection 
request (ICR) to the OMB to obtain PRA approval for the information 
collection formatting requirements contained in the NPRM. On May 16, 
2013, consistent with regulations 5 CFR 1320.11(c), the OMB issued a 
Notice of Action assigning control number 1205-0510 to the ICR. The OMB 
did not pre-approve the formatting requirements at that time; instead, 
the Department was to resubmit the ICR for approval at the final rule 
stage, after reviewing and responding to any public comments. The 
substance of the public comment and the Departmental response appears 
earlier in this preamble. The public comment did not address the PRA 
burden estimates in the NPRM. Concurrent with publication of this final 
rule, the Department is resubmitting the request to the OMB for PRA 
approval. ETA will publish a Notice in the Federal Register to announce 
any final OMB decision on that request.
    The burden for the information collection provisions of this final 
rule can be summarized as follows:
    Agency: DOL-ETA.
    Title of Collection: Federal-State Unemployment Insurance Program 
Data Exchange Standardization.
    OMB ICR Reference Number Control Number: 1205-0510.
    Affected Public: State Governments.
    Total Estimated Number of Respondents: 53.
    Total Estimated Number of Responses: 53.
    Total Estimated Annual Burden Hours: 6,360.
    Total Estimated Annual Other Costs Burden: $1,057,329.

Executive Order 13132: Federalism

    Section 6 of Executive Order 13132 requires Federal agencies to 
consult with State entities when a regulation or policy may have a 
substantial direct effect on the States or the relationship between the 
National Government and the States, or the distribution of power and 
responsibilities among the various levels of government, within the 
meaning of the Executive Order.
    Section 3(b) of the Executive Order further provides that Federal 
agencies must implement regulations that have a substantial direct 
effect only if statutory authority permits the regulation and it is of 
national significance. This final rule is specifically required by the 
Middle Class Tax Relief and Job Creation Act of 2012.
    This rule does not have a substantial direct effect on the current 
nature of the relationship between the National Government and the 
States, or the distribution of power and responsibilities among the 
various levels of Government, within the meaning of the Executive 
Order. The Department is exercising its existing authority to interpret 
Federal statutes with regard to States' administration of UI programs. 
In the Federal-State UI system, States have a great deal of flexibility 
to design their UC laws and operations as long as they comply with the 
broad Federal requirements in FUTA and the SSA. This rule implements a 
new statutory requirement for a uniform data exchange and reporting 
standard and thus is no different from other UC regulations that 
interpret Federal law as it applies to State requirements. It simply 
sets a new standard for data exchanges of information used in the 
administration of the UI program under Title III of the SSA. The 
Department consulted with NASWA's Information Technology Support Center 
and NASWA's UI Committee to discuss the impacts of this rule and 
identify State application interfaces which will benefit by the 
implementation of the XML data exchange standard. NASWA agreed with the 
Department's approach to implement uniform data exchange standards in 
areas already identified as valuable to the UI system and for 
applications developed collaboratively with the States.

Unfunded Mandates Reform Act of 1995

    This regulatory action has been reviewed in accordance with the 
Unfunded Mandates Reform Act of 1995. Under the Act, a Federal agency 
must determine whether a regulation proposes a Federal mandate that 
would result in the increased expenditures by State, local, or tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more in any single year. The Department has determined this 
rule does not include any Federal mandate that may result in increased 
expenditure by State, local, and Tribal governments in the aggregate of 
more than $100 million, or increased expenditures by the private sector 
of more than $100 million. Most if not all of the costs of implementing 
this regulation will be covered by Federal funding.

Plain Language

    The Department drafted this final rule in plain language.

Effect on Family Life

    The Department certifies that this final rule has been assessed 
under section 654 of the Treasury and General Government Appropriations 
Act, enacted as part of the Omnibus Consolidated and Emergency 
Supplemental Appropriations Act of 1999 (Pub. L. 105-277, 12 Stat. 
2681) for its effect on family well-being. This provision will not 
adversely affect the well-being of the nation's families. Therefore, 
the Department certifies that this rule does not adversely impact 
family well-being as discussed under section 654 of the Treasury and 
General Government Appropriations Act of 1999.

Regulatory Flexibility Act/Small Business Regulatory Enforcement 
Fairness Act

    The Department has notified the Chief Counsel for Advocacy, Small 
Business Administration, and made the certification according to the 
Regulatory Flexibility Act (RFA) at 5 U.S.C. 605(b), that this final 
rule will not have a significant economic impact on a substantial 
number of small entities. Under the RFA, no regulatory flexibility 
analysis is required where the rule ``will not . . . have a significant 
economic impact on a substantial number of small entities.'' 5 U.S.C. 
605(b). A small entity is defined as a small business, small not-for-
profit organization, or small governmental jurisdiction. 5 U.S.C. 
601(3)-(5).
    This final rule requires implementation of a data exchange standard 
that would be used in SIDES and ICON. ICON is used only by States and 
Federal entities, neither of which qualifies as a small entity under 
the RFA. SIDES, however, is used by States and by employers, including 
TPAs, in the private sector. However, because SIDES already uses an 
XML-based interface, there is no incremental cost to current users. 
Furthermore, while additional employers and TPAs may adopt SIDES in the 
future, this rule does not require them to do so, nor does this rule 
affect their costs if they did. Consequently, this rule will not have a 
significant economic impact on a substantial number of small entities, 
and a Regulatory Flexibility Analysis is not required under the RFA.
    In addition, this rule does not require review by the Congress 
under the Small Business Regulatory Enforcement Fairness Act of 1996 
because it will not

[[Page 9411]]

result in (1) an annual effect on the economy of $100,000,000 or more; 
(2) a major increase in costs or prices for consumers, individual 
industries, Federal, State, or local government agencies, or geographic 
regions; or (3) significant adverse effects on competition, employment, 
investment, productivity, innovation, or on the ability of United 
States-based enterprises to compete with foreign-based enterprises in 
domestic and export markets.
    As discussed above, the most significant effect of this final rule 
will be to accelerate action (e.g., the adoption of the real-time XML-
based ICON applications) that the Department expects to occur even in 
the absence of this rule. The noteworthy cost of the final rule is the 
cost of this acceleration. That is, the rule would change the timing--
and therefore the present value--of nominal costs that would have been 
incurred even in the absence of the rule. These costs will be borne by 
the State and Federal governments, not by small entities.

List of Subjects in 20 CFR Part 619

    Labor, Unemployment Compensation.

    For the reasons stated in the preamble, the Department amends 20 
CFR chapter V to add part 619 as set forth below:

PART 619--UNEMPLOYMENT COMPENSATION DATA EXCHANGE STANDARDIZATION 
FOR IMPROVED INTEROPERABILITY

Sec.
619.1 Definitions.
619.2 Data exchange standardization for ICON.
619.3 Data exchange standardization for SIDES.
619.4 Data exchange standardization for the UI Benefits and Tax 
Systems.

    Authority:  42 U.S.C. 1111; Section 2104(b) of Pub. L. 112-96; 
42 U.S.C. 1302(a).


Sec.  619.1  Definitions.

    As used in this part--
    Administrator of the Office of Unemployment Insurance means the 
Department's Employment and Training Administration's chief 
administrative officer directly responsible for the operation of the 
Unemployment Insurance (UI) program and oversight of the Unemployment 
Compensation (UC) program and UC laws.
    Department means the United States Department of Labor.
    eXtensible Markup Language or XML means a markup language that 
defines a set of rules for encoding documents in a format designed to 
structure, store and transport data between applications or systems 
over the Internet. This term includes any future upgrades, iterations, 
or releases of XML-based language.
    Federal funds or Federally-funded means funds that include, but are 
not limited to:
    (1) Supplemental budget funds that are designated by the Department 
for State IT modernization efforts;
    (2) General State UI administration funding for State program 
operations (an administrative grant issued by the Department at the 
beginning of each fiscal year); and
    (3) Special UI funding distributions.
    Interstate Connection Network or ICON means a secure multi-purpose 
telecommunications network that supports the transfer of data among the 
SWAs.
    Interstate Wages and Benefits Inquiries/Responses means the ICON 
application which supports online transmission of interstate wages and 
benefits inquiries and responses between SWAs.
    Major IT Modernization Project means conversion, re-engineering, 
rewriting, or transferring of an existing system to a modernized 
framework such as transferring a process from mainframe operations to 
Web-based operations, converting to modern computer programming 
languages, or upgrading software libraries, protocols, or hardware 
platform and infrastructure. These are projects to upgrade UI Benefits 
and Tax Systems by SWAs using Federal funds.
    State or States refers to, individually or collectively, the 50 
States of the United States of America, the District of Columbia, the 
Commonwealth of Puerto Rico, and the United States Virgin Islands.
    State Identification Inquiry means the ICON application which 
allows SWAs to inquire about wages reported to other SWAs by Social 
Security Number.
    State Information Data Exchange System or SIDES means an automated 
response system used by SWAs to collect claim-related information from 
employers and third-party administrators.
    State unemployment compensation law or UC law means the law of a 
State approved under Section 3304(a) of the Internal Revenue Code of 
1986 (26 U.S.C. 3304(a)).
    State Workforce Agency or SWA means the agency of the State charged 
with the administration of the State's Unemployment Compensation (UC) 
law.
    Unemployment compensation or UC means cash benefits payable to 
individuals with respect to their unemployment, as defined in 26 U.S.C. 
3306(h).
    Unemployment Insurance or UI means the Federal-State system and 
operations administering and implementing UC law.
    Withdrawn/Invalid Claims means the ICON application which allows 
for the posting and viewing of withdrawn or invalid claim information 
for SWAs.


Sec.  619.2  Data exchange standardization for ICON.

    (a) XML is the data exchange standard for the real-time ICON 
applications. These applications are: Interstate Wages and Benefits 
Inquiries/Responses; Withdrawn/Invalid Claims; and State Identification 
Inquiry.
    (b) All SWAs using real-time ICON applications must comply with 
this XML data exchange standard no later than September 30, 2018. A SWA 
may request an extension of this deadline if it demonstrates that 
resources are not available to meet this requirement. These requests 
must be submitted in writing to the Administrator of the Office of 
Unemployment Insurance no later than 6 months before the deadline; 
requests will be approved or denied within 30 days.


Sec.  619.3  Data exchange standardization for SIDES.

    (a) XML is the data exchange standard for SIDES.
    (b) This standard applies to any Federally-funded SIDES consortium, 
and any future agents of the Department providing vendor services for 
the development, maintenance, support, and operations of the SIDES, and 
for any State that adopts SIDES. A SIDES consortium involves a group of 
two or more States jointly establishing a project team to oversee the 
design, development, and implementation of a new SIDES data exchange 
module. As States implement SIDES or new data exchange modules of 
SIDES, they must conform to this data exchange standard by application 
design.
    (c) XML is designated as the data exchange standard to govern the 
reporting of information through SIDES data exchange modules. The 
regulation applies to current SIDES data exchange modules and any 
future SIDES data exchange modules developed with Federal funds.
    (d) The standard designated in paragraphs (a), (b), and (c) of this 
section is effective March 21, 2014.


Sec.  619.4  Data exchange standardization for the UI Benefits and Tax 
Systems.

    (a) XML is the data exchange standard for the real time ICON 
applications set out in Sec.  619.2 and for the SIDES exchanges set out 
in Sec.  619.3 associated with major IT modernization projects, to

[[Page 9412]]

upgrade UI Benefits and Tax Systems by SWAs using Federal funds.
    (b) The standard designated in paragraph (a) of this section is 
effective March 21, 2014.

Eric M. Seleznow,
Acting Assistant Secretary, Employment and Training Administration.
[FR Doc. 2014-03496 Filed 2-18-14; 8:45 am]
BILLING CODE 4510-FN-P