Minnesota’s unemployment compensation fund – the pool of money required by federal law to be used to pay unemployment claims – has reached federally recommend levels for the fist time, ever.
The U.S Labor Department recommends that states have enough reserves to make payouts for one year of a recession. A time marked by the reality that more dollars leave such funds then are deposited into them. In 2009, at the height of the great recession, Minnesota paid out $1.7 billion in unemployment benefits.
The federally recommended levels are supposed to help prevent the instances seen during our last recession where states had to borrow millions from the federal government to meet the unemployment needs of their workers. During the height of the recent historic recession Minnesota owed the federal government $776 million. The state also paid $18 million in interest payments on the borrowed millions.
Minnesota’s borrowing came as no surprise to the state auditor and other state officials. It has been a well known fact for decades that the state’s unemployment fund lacked money to survive even small slowdowns in the economy.
Now that the state fund is historically healthy politicians in Saint Paul want to cut unemployment insurance taxes for employers. A move that the Minnesota Department of Employment and Economic Development says is unwise.
The StarTribune has the details,
Minnesota’s unemployment fund is in better condition than two-thirds of those in other states. But the Minnesota Department of Employment and Economic Development, the state agency that oversees the fund, has stressed the importance of keeping its balance at the federally recommended level. DEED officials have warned that being unprepared in a recession increases the likelihood of federal borrowing and interest payments, as well as higher federal taxes and state assessments on employers.
The agency disputed the characterization by some politicians that the fund has a “surplus,” though House Speaker Kurt Daudt, R-Crown, repeated it as recently as Thursday at a news conference before the bill passed on the House floor.
Rick Caligiuri, DEED’s director of unemployment insurance, told a House panel two weeks ago that the nation experiences a recession on average every eight years.
Currently there are two pieces of legislation making their way through the statehouse. One bill would give employers that pay into the fund a one-time credit of $258 million and grant future unemployment tax reductions when the fund balance rises above the federally recommended level.
Nonprofits Have Other Options
The above applies to all Minnesota employers except 501(c)(3) organizations. 501(c)(3)s do not have to pay state unemployment insurance taxes – high or low. Many nonprofits could save as much as 30 percent more on their unemployment cost by opting out of the unemployment insurance tax system – an advantage provided to them by the IRS. Doing so affords nonprofits unique avenues that allow them to strategically handle unemployment claims administration and unemployment insurance taxes in ways that for-profits can only dream about.
Contact us today for more information concerning your nonprofit unemployment insurance tax advantages.