One area in which the recession has had a significant impact is the state trust funds for unemployment insurance. As of January 14, 2011, 30 states have depleted their UI trust funds and collectively have borrowed more than $40 billion from the federal UI trust fund. Eleven states have borrowed more than $1 billion; California leads the list with more than $9.7 billion in loans. Unfortunately the problem of depleted state UI trust funds is expected to get worse as additional states may be added this year to the list of borrowers.
There is a cost to employers for these loans. First, the temporary surtax of 0.2% per employee, originally imposed in the 70’s, was again “temporarily” extended. Second, states that have borrowed money will have to start paying interest on those loans. Under federal law, interest payments cannot be made through a state’s regular UI experience rating activities. States must pay the interest from general revenues-highly unlikely under current economic conditions; borrow the money from other sources; or impose an additional UI tax on employers. Employers in most states should expect an additional tax.
Third, employers will begin to see their federal per employee UI tax liability go up. In 2010, employers in Indiana and South Carolina saw their federal tax liability go up $21 per employee, while employers in Michigan saw their per employee federal UI tax liability go up to $98. For 2011, employers in an additional 23 states will see their federal per employee tax liability increase by $21 if their states do not repay their trust loans. Fourth, the federal taxable wage base has not been increased in decades. It is prudent to expect that in the coming year(s) the $7,000 federal taxable base will be raised—perhaps as high as $10,000.
At the state level, states are taking actions to replenish state UI trusts and repay loans. First, states are increasing their taxable wage bases. Second, states are increasing tax rates. Note, even if the state does not increase its range of rates or tax rate tables, many employers will see higher state UI tax rates because of their separation experience over the last two years. Finally, states are imposing surtaxes to increase all employers’ taxes.
As employers prepare to pay their 2011 UI taxes, now is the time to start planning for 2012. Since many states use a computation period ended June 30, employers have fewer than six months to implement or strengthen UI cost controls.
Ronald Adler is president-CEO, Laurdan Associates, Inc., in Potomac, Md. You can reach him at 301-299-4117 or [email protected].