SUI tax pools continue to face challenges

November 13, 2013

SUI tax pools continue to face challenges

The situation continues to erode for state unemployment insurance programs as they struggle to meet the demands placed on them since the Great Recession. A report by the National Employment Law Project explains why things are unlikely to improve anytime soon.

State unemployment insurance offices were dealt numerous blows during the past few years:

1. Claims skyrocketed as workers lost their jobs in record numbers in industries across the board.
2. Federal funding of state unemployment programs was reduced as the federal government battled its own budget problems during the recession.
3. What money states did borrow from the federal government they have been unable to repay prior to a two-year deadline. This has led to mandated automatic federal unemployment tax increases for employers in those states.

According to the report, claims in 2010 were 294 percent higher than they were in 2007, but UI administrative funding only rose by 65 percent. In 2012, claims dropped to 155 percent of their 2007 levels, however, funding has also fallen 20 percent since 2010.

SUI offices rely on archaic systems to process claims.
The rise in claims also put added pressure on the outdated systems that many unemployment offices used to process claims. According to the report, the majority of UI operations are performed using software from the 1970s and '80s. As of 2009, Missouri was using a 46-year-old benefit system.

Some states recently attempted to update that software and ran into a new set of problems. Systems installed in Massachusetts and California both encountered glitches that delayed payments, and in some cases unemployed workers were erroneously sent bills instead of checks.

Nonprofit organizations can exit these unstable systems
The pressure on the SUI departments and their computer systems all contribute to a high level of overpaid claims by the state offices. For companies that must pay into SUI tax pools, there is no reimbursement for costs that exceed the employer's claims. Employers in SUI systems may also be covering the claims burden of other companies that did not pay enough UI tax or have gone out of business.

While most companies must put up with expensive SUI tax programs, nonprofits can exit and become reimbursing employers. As a reimbursing employer, nonprofits are only responsible for funding UI costs in the amount of their own claims. However, after opting out of state unemployment programs, options for reimbursement are not all the same. Self-insuring can expose a nonprofit's budget to large, unexpected liabilities if unemployment claims for the organization suddenly increase.

For many nonprofits, the safest option for UI reimbursement is through enrollment in an unemployment savings program or a bonded service program. First Nonprofit Group offers nonprofits membership in both of these programs, and also provides assistance with claims management. UI obligations for nonprofits can be complex and professional consultation can ensure that organizations are making the correct decision when they opt out of state UI tax pools.