Presentation on UI Changes during Spring 2013 NCGFOA Conference - H4 UI Fund Solvency & Program Changes & Its Impacts on Local Governments

1. NC-GFOA 2013 Spring Meeting
H4 UI Fund Solvency & Program
Changes & Its Impacts on Local
Governments
Rebecca Troutman, NCACC IGR Director
Karl Knapp, NCLM Policy & Research Director
Ted Brinn, DES Chief of Tax
Antwon Keith, DES Director of Unemployment
Administration

2. What Is Unemployment Insurance (UI)?
Federal-State partnership
– Broad federal guidelines
– State-designed program
– State pays 100% regular benefits, 50/50 extended
benefits, feds pay 100% emergency benefits
Funded through
– Private employers’ payroll taxes based on
experienced rating; also pay federal payroll taxes
– Govts, non-profits given option of direct
reimbursement of claims or experienced rated; pay
no federal payroll taxes
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3. What is the Problem?
Why Does the System Need to Change?
• Economic recession & high unemployment
costs necessitates $2.5 billion federal loan
• Outstanding loan balance triggers escalating
private employer federal taxes—from
$21/employee 2011 to $189/employee 2019
• Benefits package “richer” than in neighboring
states
– NC = $535 max weekly; SC = $326; VA = $378
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4. How Will UI Benefits Change?
• Maximum weekly reduced from $535 to $350
– Avg. of last 2 qtrs as base, not highest qtr
• Maximum duration reduced from 26 weeks to 20
weeks & tied to unemployment rate
• Requires waiting week for new claims
• Good cause provisions eliminated except
domestic violence & military spousal relocation
• Suitable work requirements strengthened
– Any work after 10 weeks of benefits
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5. How Will Private Employer
Requirements Change?
• Eliminates 0% rate & sets minimum at .06%;
maximum increased by similar
– Formula not tax rate schedule
• Sets 20% surcharge on all PRIVATE employers
& triggers on and off when UI Fund = $1Billion
• Only employers with positive balance eligible
for attached claims; limit 1 per employee
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6. How Will Local Government
Requirements Change?
• Each local establishes a UI Account to contribute 1% of
its quarterly taxable wages paid employees (salaries
capped at $20,900 per employee in 2013)
– Cap is indexed and adjusts each year
– Counties, cities and state agencies treated the same way as
non-profits are currently
• For each employee earning $20,900 or more per year
for 2013, the total local contribution will be $209 per
employee per year, until the 1% balance is obtained
– $20,900 * 1% * # of employees
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7. How Will Local Government
Requirements Change?
• First quarterly payment made in October
2013, for the July-September 2013 (3rd
quarter) of taxable wages
• 3rd & 4th quarterly payments should be
smallest of the four quarterly payments
• 1st and 2nd calendar year quarterly payments
should be highest payments
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8. How Will Local Government
Requirements Change?
• 100% of claims benefits will be deducted
against UI Account, rather than direct billed,
beginning with Aug-July 2014 claims year
• There will no longer be an option to pay
120% of claims with appeal rights
• For FY 2014, 1% reserve payment + 2013
claims paid directly = double hit in FY14
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9. Reserve Implementation Schedule
Oct-13 First reserve prepayment
Nov-13 Annual claims bill (August-July) sent by DES
Jan-13 Second reserve prepayment
Apr-13 Third reserve prepayment
Jul-13 Fourth (and final) reserve prepayment
Nov-13 DES calculates the 1% reserve requirement as of August 1, 2014, and
the difference between this amount and the prepayments into the
reserve. DES also deducts the annual unemployment claims (August-
July) from the 1% reserve. DES bills municipalities for the amount
needed to replenish their reserves.
Jan-15 Replenishment payment due
After Jan-15 Annual billing in November to replenish reserve, with
payment due in January.
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10. FT $20,000, Reserve = $200
2013 2014
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Wages Paid to
$5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000
Employee
Taxable Wages $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000
Prepayment to 1%
$0 $0 $50 $50 $50 $50 $0 $0
Reserve
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11. FT $40,000, Reserve = $209
2013 2014
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Wages Paid to
$10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
Employee
Taxable Wages $10,000 $10,000 $900 $0 $10,000 $10,000 $1,400 $0
Prepayment to 1%
$0 $0 $9 $0 $100 $100 $0 $0
Reserve
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12. FT $52,000, Reserve = $214
2013 2014
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Wages Paid to
$13,000 $13,000 $13,000 $13,000 $13,000 $13,000 $13,000 $13,000
Employee
Taxable Wages $13,000 $7,900 $0 $0 $13,000 $8400 $0 $0
Prepayment to 1%
$0 $0 $0 $0 $130 $84 $0 $0
Reserve
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13. FT $40,000, Vacant Jul-Sep
Reserve = $300
2013 2014
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Wages Paid to
$10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
Employee
Taxable Wages $10,000 $10,000 $0 $10,000 $10,000 $10,000 $1,400 $0
Prepayment to 1%
$0 $0 $0 $100 $100 $100 $0 $0
Reserve
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14. Seasonal $6,000, Reserve = $60
2013 2014
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Wages Paid to
$0 $2,000 $4,000 $0 $0 $2,000 $4,000 $0
Employee
Taxable Wages $0 $2,000 $4,000 $0 $0 $2,000 $4,000 $0
Prepayment to 1%
$0 $0 $40 $0 $0 $20 $0 $0
Reserve
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