The Indiana Department of Workforce Development (DWD) recently presented an unemployment insurance (UI) trust fund update to the Interim Study Committee on Labor and Employment.

DWD reminded the committee that structural changes were made to the system in 2011, that Schedule E ratings are mandated through 2020 and that the federal loan was paid off in June of 2016.  In addition, the UI trust fund closed out 2017 with a balance of $381.76 million and should close out 2018 with a balance somewhere north of $630 million. The fund will take in a total of $506 million in UI taxes for 2018 and pay out benefits of approximately $250 million. Both the UI taxes contribution and the payout of benefits will be the lowest since prior to 2007 (as far back as records were provided.)

The significance of that comparison is that while the economy is good, less benefits are paid out. Likewise, since employers are experience rated and their experience is better during a good economy, less UI taxes are collected. It then begs the question: What is the right balance for the UI trust fund in the event of the next downturn in the economy?  And how fast do we need to get there?

During the Great Recession, the one-year benefit payout in 2009 was approximately $1.85 billion. The U.S. Department of Labor standard for fund balance is based upon an average high cost, which calculates to be $1.68 billion. The 2018 end-of-year balance of $630 million is far from either one of those two numbers. There are differences of opinion as to what that balance ought to be. There are some that believe we need to build up the balance a little more quickly and tweak the system while times are good. Others believe that the economy looks good for the foreseeable future and that we should take our chances and wait.

The thing to consider is if we have a downturn in the economy and do not have a sufficient fund balance, then the state will need to borrow funds from the federal government (or bond) to pay for those additional benefits.  The more the state borrows, the longer it takes to pay back the loan. If the outstanding loan remains for two consecutive years, the federal government reduces the credit reduction by .3% for each year the loan is outstanding. This really amounts to a UI tax increase to businesses when times are a little tougher.

Look for continued discussions during the legislative session, and the Chamber will be offering its insights and suggestions.

Resource: Mike Ripley at (317) 264-6883 or email: [email protected]