State Unemployment Insurance Trust Fund Update

The State of Indiana will borrow funds from the federal government for the state’s Unemployment Insurance Trust Fund as a temporary measure until the state legislature acts to replenish the fund. The Indiana Department of Workforce Development (DWD), which administers the fund, sent a letter late Monday from Governor Mitch Daniels to Secretary of Labor Elaine Chao to request the advance.

Unemployment benefits have exceeded the premiums paid into the fund by employers for the past seven years, and the current balance of the state’s unemployment fund is $21 million. The state will borrow up to $10 million for the current month, up to $140 million for December and up to $180 million for January.

“Indiana has a mismatch between benefits paid and the employer taxes that fund them. It’s a problem that has been growing for several years, and we would be working to fix it even if the national economy were strong,” said Teresa Voors, DWD commissioner.
Safeguards are built into the state’s trust fund operations to assure that every eligible Hoosier always receives benefits regardless of the balance in the trust fund.

Indiana last borrowed money from the federal government to support the trust fund in 1983. Several other states, including Michigan, New York, South Carolina and Ohio are either borrowing or have set up a line of credit from the federal government for their unemployment funds. A number of other states are experiencing similar solvency problems.

The state’s Unemployment Insurance Trust Fund is funded by employer tax contributions paid quarterly to the Department of Workforce Development and the interest on those deposits. Workforce Development then pays benefits to claimants. The Indiana General Assembly sets the employer tax rate and the amount of benefits paid to claimants.

The trust fund had a balance of $1.6 billion in 2000; in 2007, the balance had declined to $302 million. Weekly benefits were legislatively increased each year from 1997 to 2005. Increases during that time raised the benefit amount from $236 per week to the current amount of $390.

The amount of premiums paid by employers into the fund has not matched the increased benefits. In 2000, $259 million was paid to claimants, and $277 million in employer taxes and $103 million in interest entered the fund. Since 2001, it has operated in deficit. In 2007, the state paid $172 million more in claims than employer premiums received, and for the first 10 months of 2008, $242 million more in claims have been paid than received through employer premiums.

Source: Indiana Department of Workforce Development