Unemployment Trust Fund Solvency 

Most states have reached solvency in preparation for the next economic downturn.  The states that continue to have issues:

  • The Virgin Islands continue to borrow from the Federal Government and have an outstanding loan balance.
  • Colorado, Michigan, Pennsylvania, and Texas are not considered solvent as they currently are using state-funded methods to pay back Title XII loans.
  California, Connecticut, Massachusetts, and Ohio are also not considered solvent as they have less than one year of benefit reserves in their unemployment state fund.
  Minnesota is not considered solvent due to the past 12 months of Unemployment Benefits exceeding Unemployment Tax Payments received during the same period.

U.S. House Passes Violence Against Women Act Reauthorization With Added Federal Unemployment Compensation Mandates

On April 4, 2019, The U.S. House of Representatives passed the reauthorization of the Violence Against Women Act (HR1585) by a vote of 263 to 158 with 1 present. The bill includes UI provisions that mandate states to pay unemployment compensation to UI claimants who voluntarily separate themselves from employment and claim that the separation is attributable to harassment. The entitlement does not require that the harassment was in connection with work. Some states adopted somewhat similar provisions in response to funding provided through the American Recovery and Reinvestment Act of 2009. Other states chose not to adopt similar provisions. Unemployment compensation payments are charged to individual employer accounts and the state unemployment trust fund as provided under state law.

President Trump’s 2020 Budget would effectively mandate $9.2 billion UI Tax/Solvency Increases and Create a National Paid Parental Leave Program

US Tax Increase and Federal Solvency Requirement

President’s 2020 Budget proposes to effectively mandate that employers with employment in states with low balances in their state UI trust fund accounts pay higher FUTA taxes. The total of tax increase/solvency measures over the ten-year period ending 2029 is projected to generate an additional $9.2 Billion. The general policy rational for the tax increase is that some state unemployment trust funds have balances below the levels recommended to be solvent by US DOL.

This imposes higher taxes on employers doing business in states with lower trust fund balances even though the individual employers in these states may have Unemployment Insurance account balances that are significantly higher than necessary to assure that they have funds available to cover charges associated with unemployment insurance benefits. The impact of the proposal will be largely on employers with operations in states with lower trust fund balances. It also could result in higher state UI taxes to reach mandated solvency levels and/or cuts in unemployment compensation benefits to reach solvency targets. Specifically, the proposal would establish a minimum solvency standard, which would apply the Federal Unemployment Tax Act (FUTA) credit reduction rules to States that have an Average High-Cost Multiple (AHCM) of less than on two or more consecutive January firsts (rather than zero trust fund balance currently). Based on the most recent quarterly data reports from USDOL, this means that employers in the following states would be at risk in two years of increases in the FUTA tax:

Another group of states currently with balances below 1.0 AHCM would be at risk to more quickly trigger FUTA offset credit reductions early in an economic downturn.

Paid Parental Leave

The 2020 budget proposes to provide at least six weeks of paid family leave to new mothers and fathers, including adoptive parents, so all families can afford to take time to recover from childbirth and bond with a new child. The budget description has been modified to some extent from the 2019 proposal. The UI system is no longer specified as the system to use as a base. The proposal now allows States to establish paid parental leave programs in a way that is “most appropriate for their workplace and economy”.

Although not specifying UI as the base for the program the budget continues to show that revenue to offset the cost of the program would come from increased UI solvency taxes to be paid by employers and the UI system (see above). The budget assumes that such a parental leave program would cost approximately $18.75 billion over 10 years and the cost would be partially offset by increases in unemployment taxes/solvency provisions ($9.2 billion), improved integrity ($1.7 Billion) and RES/REA services ($3.3 Billion).

Information obtained from UWC, SUCAP report and Department of Labor. For a the full SUCAP report please see https://www.uwcstrategy.org/wp-content/uploads/bsk-pdf-manager/2019/08/July-2019-SUCAP-Report.pdf

 


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