State unemployment claim systems overwhelmed

ALBANY, N.Y. – Electronic unemployment filing systems have crashed in at least three states in recent days amid an unprecedented crush of thousands of newly jobless Americans seeking benefits, and other states were adjusting their systems to avoid being next.

About 4.5 million Americans are collecting jobless benefits, a 26-year high, so the Web sites and phone systems now commonly used to file for benefits are being tested like never before.

Even those that are holding up under the strain are in many cases leaving filers on the line for hours, or kissing them off with an "all circuits are busy" message. Agencies have been scrambling to hire hundreds more workers to handle the calls.

Systems in New York, North Carolina and Ohio were shut down completely by technical glitches and heavy volume, and labor officials in several other states are reporting higher-than-normal use.

"Regardless of when you call, be prepared to wait and just hang on. Try not to get frustrated," said Howard Cosgrove, a spokesman for the Wisconsin Department of Workforce Development, which boosted its staff of telephone operators by 25 percent last month to cope with a phone system that has been overloaded for weeks. "We sympathize, we're on their side, we're doing our best to help them out."

The nation's unemployment rate in November zoomed to 6.7 percent, a 15-year high. Economists predict it will rise to 7 percent in December, with another 500,000 jobs probably cut last month. The government releases its monthly employment report on Friday.

Some states attribute the increase in call volume in part to an extension of federal emergency unemployment compensation from 13 weeks to 20 weeks in late November. More than 54,000 Pennsylvanians had exhausted their federal benefits after 13 weeks by the time that occurred, said David Smith, a spokesman for the Pennsylvania Department of Labor and Industry.

"It really was a perfect storm," he said.

New York's phone and Internet claims system started to buckle on Monday afternoon and was out of service completely for the first half of Tuesday while as many as 10,000 people per hour tried to get in, said Leo Rosales, a state Labor Department spokesman.

Although that was an unusually high number of calls, Rosales said it was a software glitch in an authentication system used to verify filers' identities that caused the system to crash

"It's designed to handle this volume of calls, but the authentication process didn't work as it should have," he said. Rosales said the glitch that caused the shutdown has been fixed, and the agency doesn't expect any more problems.

About 256,000 people are collecting unemployment in New York, up from about 184,000 at this time last year.

North Carolina's Web site crashed twice this week under a rush of claims as that state set one-day records for both the amount of benefits paid and the number of transactions.

On Sunday and Monday, the number of North Carolinians trying to sign up online for new or continuing benefits was about triple what it was before the economic slowdown started, according to the state Employment Security Commission. That volume, together with a phone line problem, overwhelmed the agency's computers and prevented some people from filing claims.

The system was working again by Monday afternoon after the agency added another server and demand decreased, officials said.

"Right now, everything is back to normal," agency spokesman Larry Parker said.

Ohio's unemployment hot line also is being crushed by callers, leaving thousands unable to get through Tuesday and no alternative because the Web site for filing claims also is down, according to Brian Harter, a spokesman for the state Department of Job and Family Services. Harter said the hot line generally receives about 7,500 calls a day, but has been getting about 80,000 a day this week.

Callers to Michigan's main phone line handling applications for jobless benefits got an "all circuits are busy now" message Tuesday afternoon. Officials in Michigan, which had the nation's highest jobless rate at 9.6 percent in November, recently began urging applicants to seek benefits through a state Internet site instead. Michigan counted about 473,000 people as unemployed in November, up from about 370,000 a year ago.

Unemployment agencies from Kentucky to Alaska also are reporting long hold times for callers and slowdowns for those filing online because of higher volume.

Several states have added staff to their call centers to handle the surge, including Oklahoma and Washington.

Pennsylvania has hired temporary workers and expanded the hours of its unemployment benefits hot line to accommodate a surge in the number of calls, going from 600 employees to more than 800. Officials hope to eventually have 1,100 workers answering calls.

New Mexico has extended call-center hours, upgraded the phone system and added 15 workers. Even so, "We still are receiving reports of people's inability to get through," said Carrie Moritomo, a spokeswoman for the state Department of Workforce Solutions.

Massachusetts officials say they have avoided any technical glitches — but they're straining their system. Right now there are about 200,000 people collecting checks from week to week, up from 107,000 during the same period last year.

"We have reached capacity in our system but we have not crashed," said Michael Taylor, director of workforce development.

In Kentucky, where claims rose to 40,400 in November from 23,400 a year earlier, a flood of new filers overwhelmed the state's unemployment Web site and phone lines on Monday, when more than 8,000 people filed initial claims, said Kim Brannock, a spokeswoman for the Kentucky Education Cabinet, which oversees the state unemployment office.

Kentucky's unemployment systems weren't designed to handle that kind of volume. Technicians worked through the night to add capacity to the Web site and are still trying to increase its phone capacity beyond the current 400 lines, Brannock said.

"People seem to feel like they have to file first thing Monday morning," she said. "They don't have to, but they feel that way. It's just overwhelming to the system."

Associated Press Writers Martha Waggoner in Raleigh, N.C., Tim Martin in Lansing, Mich., Brett Barrouquere in Louisville, Ky., Glen Johnson in Boston, Dinesh Ramde in Milwaukee, Martha Raffaele in Harrisburg, Pa., and Sue Major Holmes in Albuquerque, N.M., contributed to this report.

Fed Expects Weak Economy, Fears 'Prolonged Retraction'

By Neil Irwin

Washington Post Staff Writer
Wednesday, January 7, 2009; Page D03

The economy is set to remain weak well into this year, and could even be at risk of entering a "prolonged contraction," leaders of the Federal Reserve concluded last month, as they agreed to take aggressive new steps to contain the recession.

This Story

• U.S. Service Sector, Factory Orders Decline
• Fed Expects Weak Economy, Fears 'Prolonged Retraction'
• Unemployment In D.C. Region Highest Since '03
• Alcoa to Slash 15,200 Jobs, Output

The central bank's policymaking committee was grappling at its Dec. 16 meeting with an abrupt deterioration of the economy, and even the risk of a dangerous cycle of falling prices, according to minutes released yesterday. Those minutes shed light on the committee's decision to take unprecedented steps, including cutting the interest rate the Fed controls effectively to zero; technically, the committee set a target range for the federal funds rate between zero and 0.25 percent.

According to the minutes, the officials expect that the sharp contraction in the U.S. economy in the fourth quarter will be followed by continued contraction in the first half of 2009, after which a slow recovery would begin. Some also believe that the severe financial crisis, the drop in Americans' wealth, and the global nature of the slowdown create the "distinct possibility" of ongoing economic difficulties.

Officials saw a significant risk of inflation declining and persisting at "uncomfortably low levels" -- meaning levels that risk a deflationary spiral in which prices drop and people curtail spending all the more.

For those reasons, the Fed said it was inclined to keep rates "exceptionally low" for some time and said it may expand special lending programs designed to lower the rates that Americans pay for various loans.

Members of the policymaking panel, the Federal Open Market Committee, agreed that the statement announcing its decision "should indicate that all available tools would be employed to promote the resumption of sustainable economic growth and to preserve price stability."

Specifically, the Fed leaders indicated they may expand a $600 billion program to try to push down mortgage rates. Purchases of mortgage-related securities under that program began this week. They also said they could try to push down other long-term rates by buying long-term Treasury securities.

Brian Bethune, chief U.S. economist at IHS Global Insight, highlighted the scope of the Fed's steps. "Monetary conditions are close to the point of near maximum stimulus," he said in a report. "Now it is a matter of lighting the right sparks to get the economy moving again."

Disagreements during the meeting appeared to be unrelated to the overall strategy the Fed will undertake, but how to carry it out. For example, according to the minutes, some of the policymakers preferred to continue setting an explicit numerical target for the federal funds rate, a bank lending rate. They feared that simply setting a range would signal that the Fed had lost control over that rate.

The majority of the committee, on the other hand, felt that setting a range would actually help give banks flexibility.

Even as they agreed that they are likely to hold interest rates low for some time and maintain novel programs to stimulate lending, Fed officials "recognized that, as economic activity recovered and financial conditions normalized, the use of certain policy tools would need to be scaled back, the size of the balance sheet and level of excess reserves would need to be reduced, and the committee's policy framework would return to focus on the level of the federal funds rate." In other words, the unconventional policy tools could last only as long as the economic and financial crises do.

Stock Losses Leave Pensions Underfunded by $400 Billion

By David S. Hilzenrath

Washington Post Staff Writer
Wednesday, January 7, 2009; 10:30 AM

The collapse of the stock market last year left corporate pension plans at the largest companies underfunded by $409 billion, reversing a $60 billion pension surplus at the end of 2007, according to a study released today.

Shoring up the plans could cause further pain for workers, businesses and the struggling economy at a time when they can least afford it, pension specialists said.

"The chaos that has been observed in the world's financial markets over the last 12 months has had a major adverse impact on pension plan funding and will negatively impact corporate earnings," the Mercer consulting firm reported today. "Moreover, the trend in recent months has been one of alarming deterioration," Mercer said.

As Mercer and other pension specialists described it, the pension problem illustrates how the recession and the meltdown in the financial markets can become self-reinforcing.

Ballooning pension deficits will leave some companies with diminished profits, weaker credit ratings and higher borrowing costs, which can translate into lower stock prices, Mercer principal Adrian Hartshorn said. The need to cover pension shortfalls could prompt businesses to reduce spending on items as varied as equipment that boosts productivity and dividends that deliver income for shareholders.

Though shoring up pension funds is supposed to increase employees' financial security, it could involve such tradeoffs as reductions in wages, benefits and jobs, said Mark J. Warshawsky, director of retirement research at Watson Wyatt Worldwide, another consulting firm.

In a further irony, it could also prompt companies to freeze the amount of pension benefits employees can accrue, Warshawsky said.

But the overall economic effects may be more complicated, pension specialists said. Funding shortfalls will force companies to boost their pension investments, contributing to demand for stocks and bonds.

Mercer's monthly snapshot of corporate pension plans focuses on those offered by employers in the Standard and Poor's index of 1,500 big corporations. As of Dec. 31, 2008, 772 of those companies offered traditional pensions. Using the accounting methods companies must follow when they prepare their financial statements, Mercer estimated that the S&P 1,500 pension plans held enough assets overall to cover only 75 percent of their obligations, down from 104 percent at the end of 2007. Precise figures won't be available until companies issue their annual reports for 2008 in the coming months.

Pension deficits are far from unprecedented. As recently as March 2003, the funding level for plans in Mercer's study was 73.2 percent.

When pension plans are underfunded, companies are required to plow enough additional money into the funds each year to correct the imbalance over several years. This year, Mercer estimates that the companies in its study will end up reporting about $70 billion of pension expenses, up from about $10 billion in 2008. That would equate to an 8 percent reduction in annual profits compared to 2007, the most recent year for which companies have reported full annual results, Mercer said.

Watson Wyatt looked at the issue from a different angle but found a similar trend. It tried to assess in aggregate the condition of all pension plans sponsored by individual corporations in the United States, and it used a different set of measures -- the rules that govern the actual amount of cash companies must plow into their pension funds.

Watson Wyatt estimates that corporate pension plans began 2009 with $1.63 trillion in assets and $2.12 trillion in liabilities, Warshawsky said. The firm estimates that companies will have to more than double their contributions to pension plans this year, to $111.2 billion from $50.5 billion in 2008, he said.

Both Mercer and Watson Wyatt advise companies on employee benefits.

Some business groups have been calling for relief from the federal law that would force them to boost pension fund contributions in the short run, and the government has already eased some requirements. Relaxing the requirements could entail a different compromise -- the health of the pension plans.

Even before the current recession, traditional pension plans that promise fixed retirement benefits were an endangered species for workers in the private sector. They have largely been supplanted by 401(k) plans, which offer no guaranteed payouts.

Like pension funds, Americans' 401(k) accounts have generally plummeted over the past year, and some companies have added to the strain by cutting matching contributions.

Whether the responsibility rests with corporate pension fund managers or individual employees managing their own accounts, the nation's ability to convert relatively low savings rates into comfortable retirements depends on investments not merely outstripping inflation but delivering strong and stable returns over the long run. That proposition has been sorely tested of late.

Keith Ambachtsheer, an advisor to pension funds, says the nation may be in store for "a radical rethinking of how we deliver pensions to private-sector workers."

Increasingly, the burden may fall to taxpayers, as it has with other aspects of the nation's financial trouble, said Kent Smetters, an associate professor at the University of Pennsylvania's Wharton School.

When companies go bankrupt and are unable to shoulder their pension obligations, the federally chartered Pension Benefit Guaranty Corporation steps in and covers the shortfall, subject to legal limits that would leave many higher paid workers with smaller pensions than they had been promised.

The PBGC is funded through insurance premiums paid by employer-sponsored pension funds, but Smetters predicted that the PBGC eventually will need a federal bailout.

As of Sept. 30, when its last fiscal year ended, the PBGC reported a deficit of $11.15 billion.