The Face of Unemployment Insurance Is Changing Says UST

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The number of states that have made significant changes to their unemployment insurance programs—on both the employer and job seeker side—is rising as more states repay their federal loans and work to improve the future health of their state-run unemployment fund, but the outcome may cripple nonprofit employers looking to lower the cost of unemployment.

For employers, reducing the risk of penalty is simply about being educated on the new laws and ensuring their organization is doing all it can to stay on top of unemployment benefits being paid out to former employees.

Even before the Recession began in earnest, several states were forced to begin borrowing from the federal government to keep their unemployment funds from spiraling into insolvency and enable them to meet benefit obligations for unemployed workers.

By 2011, 37 states had borrowed more than $40 billion.

That number has since dwindled to just under $21 billion according to the U.S. Treasury, but states have ratcheted up an additional $503,420,760.96 owed in interest for fiscal year 2013.

But it is only now as the Recession seems to slip further into the past that changes are finally being made at the state level to help protect against UI trust fund insolvency re-emerging the next time the economy takes a dip. While good for the states themselves, and potentially for their future economic health, many of these changes will re-invent the way employers think of unemployment claims.

And some will make it harder for nonprofits to opt out of their state unemployment tax in order to reduce the cost of unemployment at their agency.

For example, in February of this year, North Carolina Governor (R) Pat McCrory signed into law a comprehensive UI reform and solvency bill designed to take dramatic steps to eliminate the state’s remaining $2.5 billion Title XII Loan balance. The bill included significant changes that reduced the maximum benefit amount from over $500 to $350 per week, reduced the maximum weeks of benefits to a range of 12-20 weeks, and changed the calculation of the weekly benefit amount.

Other highlights from the bill included:

  •     Employers who fail to respond to the state’s request for separation information more than twice will no longer be relieved from benefit charges that are erroneously paid out
  •     After 10 weeks of benefits, any job offer paying 120% of the individual’s weekly benefit amount is considered “suitable work” (for those at the new maximum, that would be $420 per week)
  •     Workers can qualify for benefits only if they leave work because their hours were reduced by 50%, instead of only 20% as the law previously stipulated

While certainly the most aggressive in taking steps to rebuild the state fund and prevent future UI fund insolvency, North Carolina isn’t alone.

In November of last year, Illinois enacted legislation that addressed their UI fund solvency by increasing bond authority in the state by $1 billion and planning ahead to use it as necessary to avoid more FUTA credit losses (the federal tax offset that states receive for repaying their loans on time) and interest charges for their UI loan from the federal government. Their federal loan is currently at zero.

Following suit, Wisconsin introduced a bill in late May that would: 1) change the state benefit collection standard so that discharged workers would be less likely to receive unemployment insurance payments if the former employer can establish that a worker was at ‘substantial fault’ for the termination, 2) require those collecting unemployment benefits to prove they are actively seeking work each benefit week, and 3) lessen the current number of acceptable quit reasons that allow claimants to collect unemployment benefits.

Michigan also joined the states reducing total weeks an applicant can collect unemployment and designing new bills to make it harder for claimants to collect benefits.

Even these seemingly small legislative changes can have a significant impact on how employers plan for unemployment charges against their organization though. Because in addition to lowering benefits paid out, many states are also looking to raise unemployment taxes on employers. And all states are passing legislation by October of this year to penalize employers for non-responsiveness or tardy replies to a state’s request for information on a claim.

“Some of these legislative changes might seem drastic, but essentially many states are just now catching up with the reality of our nation’s unemployment climate. For years states avoided those small incremental tax increases that could keep their unemployment funds afloat. So when a tidal wave of unemployment claims hit starting in 2008, many states were nowhere near properly funded,” says Donna Groh, Executive Director of UST.

Groh adds, “It’s our job here at UST to ensure that our nonprofit members know about these types of legislative changes, can properly prepare for them, and budget in advance. We’ve been actively educating our members through state-specific seminars and webinars on how states are implementing penalties for employers who fail to respond to claim requests on time. It’s just a matter of being well-informed.”

For employers, reducing the risk of penalty is, as Groh states, simply about being educated on the new laws and ensuring their organization is doing all it can to stay on top of unemployment benefits being paid out to former employees. Understanding the difference between employee separations that warrant benefits versus those that don’t is a clear advantage when it comes to reducing the cost of unemployment for an organization.

About UST: The Unemployment Services Trust helps 501(c)(3) organizations exercise their right to opt out of paying state unemployment taxes. Instead, member nonprofits only reimburse the state for their own claims. UST also provides members with claim administration, audits of benefit charges, claim hearing representation, educational seminars and HR support. They reach out to more than 20,000 nonprofits each year to educate them on unemployment law. Visit to learn more.

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Megan Maulhardt
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