New definition for recovery from addiction has been releasedJune of 2016, marks the sixth year of recovery from the Great Recession.   In June of 2010, the initial claims began to drop; the number of employed workers began to increase as revenues began to rise, thus marking the recovery of the unemployment nightmare.   The recession began in October of 2008 with the fall of the stock market and massive layoffs.    In 2010, most employers began to see an increase in their unemployment tax rates.  Typically employers are relieved after two years of high tax rates.    However, reaching a balance from the Great Recession has taken longer than usual.  Employers are still paying higher contributions.

As the 2016 rate season comes to an end, only five agencies have not issued their unemployment tax rate notices.   District of Columbia, Hawaii, Mississippi, New York and the Virgin Islands will issue between now and the end of March.    Of the forty-eight agencies who have issued, twenty-three have decreased their tax rates; seventeen agencies remained the same, and eight agencies increased their rate schedule or multipliers.    Although the majority of the rate schedules did decrease, many employers are still seeing high benefit charges within their computations, keeping their tax rates slightly elevated.  Depending on the type of computation, whether it is a benefit ratio or reserve ratio, the recovery for each agency differs.

Employers typically recover quicker in the states that use the benefit ratio method of comparing the benefit charges to the taxable payroll reported.   2010, 2011 and 2012 benefit charges, depending on the period used in the calculation are still part of the computation.  During those years, most employers had high benefit charges due to the recession.   Not only did claimants collect the full 26 weeks of unemployment, the first Tier of extended benefits was funded 50% by the employer.  This placed an additional burden on the employer’s tax rate notices.

The reserve ratio states review all past contributions less all past benefit charges.    Recovery becomes more difficult for the employer since they are repaying benefit charges from the recession.   The taxable wage base increased in twenty-four states for 2016 negating some of the decreases in the rate schedules.  In a reserve ratio state, an increased taxable payroll results in a higher assigned unemployment tax rate.  A final reason for the increased contributions for both the benefit ratio and reserve ratio is the result of the increasing number of employees provided by higher demand in a recovering economy.

In theory, unemployment tax rates should have decreased lower than before the downturn of the economy for 2016.   Several factors have slowed the recovery of the trust fund balances.   During the Great Recession, a record number of states borrowed under the Title XII provision.   At one point, the Title XII loans peaked at 48 billion dollars representing insolvent trust funds in more than half the nation.   Only four agencies owe under the Title XII provision as of January 1, 2016 (California, Connecticut, Ohio, and the Virgin Islands) with Connecticut and Ohio promising to repay the debt before the November 10th deadline.    Another factor involving the trust fund balances is the passage of legislation in 2010.   All states are required to obtain an Average High-Cost Multiple (AHCM) of 1.0 by 2019.   The AHCM is a complicated formula that was created through an extensive study of recessions that occurred over the past twenty years.  Through the study, it was found that eleven states that had an AHCM of 1.0 or higher in 2007, did not need to borrow money or borrowed low amounts of money and repaid the debts quickly during the Great Recession.   Thus, recovery of the trust fund balance is also at a higher dollar amount than the pre-recession requirement keeping rate schedules and (indexed) taxable wage bases at a slower decline.

In summary, employers are paying higher contributions in 2016 due to increased taxable wage bases and an increase in active employees.  The benefit charges of the recession remain in many of the calculations holding the employers to a higher tax rate even with lower or stable rate schedules.   To prepare for the next recession, legislation was passed for state to maintain an AHCM of 1.0 for 2019 slowing the change in tax rate schedules and the indexed taxable wage base.   The computation for the majority of states ends by June 30, 2016, for the 2017 rate year.   As contributions flow into the trust funds, multipliers and rate schedules will continue to decrease.   The taxable wage base across the nation is expected to incrementally increase for future years.   As long as we escape another downturn of the economy, a complete recovery of the unemployment agencies is expected by the issuance of the 2019 unemployment tax rates.


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