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Multiple states’ UI trusts remain insolvent in 2022

By April 27, 2022February 21st, 2023No Comments

Special Note: To find out more information about the condition of unemployment in your state, click here.

Multiple states’ unemployment insurance (UI) systems remain insolvent or are at risk of becoming insolvent in the case of an economic downtown, according to an April 2022 report released by the Department of Labor.

State UI trust funds, which fund unemployment benefit payments to eligible claimants, are subsidized by UI taxes paid by employers on wages paid to employees.

While there are no federal requirements for the amount of funds that should be kept in a state’s UI trust, Federal guidelines recommend that states hold at least one year of projected benefit payments in reserves.

However, state unemployment trust funds were decimated during the pandemic as unemployment claims skyrocketed. Between February 2020 and January 2022, states paid out an estimated $187 billion in unemployment benefits, compared to the pre-pandemic average of about $30 billion per year, according to the Tax Foundation.

Now, many state UI systems are either insolvent or at serious risk of becoming so—and employers are at risk of facing increases in tax costs in order to replenish wiped-out trusts and pay back the federal government for money borrowed.

Here’s what you need to know:

Federal Title XII advances

In order to keep UI benefits flowing during the pandemic-induced unemployment crisis, the Federal Government provided massive loans called Title XII advances to states which exhausted their own UI funds during the pandemic.

California, for example, borrowed nearly $20 billion, while New York took $9 billion and Texas $7 billion, according to U.S. Treasury data.

Interest on these borrowed funds is charged on a daily basis. In order to repay outstanding loan amounts, the Treasury Department applies all tax revenue greater than the number of benefit payments towards the outstanding federal loan.

States are also able to repay loans and replenish their UI trusts through increasing state unemployment tax rates (SUTA) and making cuts to offered unemployment benefits.

While some states have been able to replenish their UI funds through the CARES and American Rescue Plan (ARP) act, many have not taken full advantage. As a result, many state UI trust funds are currently insolvent or at risk of becoming so.

In January 2021, 18 states owed a total of $45.5 billion in Title XII advances.

As of April 2022, 9 states (California, Colorado, Connecticut, Illinois, Massachusetts, Minnesota, New Jersey, New York, Pennsylvania, and the Virgin Islands) have outstanding Title XII balances totaling $37.8 billion.

A temporary waiver of interest on Title XII loans ended on September 6, 2021. Following the expiration, states with outstanding advances began to accrue interest daily, which is payable on September 30 of each year.

Assessing solvency

Solvency is assessed by determining a state’s Reserve Ratio, derived by taking a trust fund’s balance and dividing it by the state’s total wages paid per year.

This measurement is then compared against the level of benefits paid in the year, divided by the same yearly wages. This is called the Benefit Cost Rate.

Adequate state solvency is measured by taking the highest Benefit Cost Rate in the state’s history and comparing it to the Reserve Ratio, or by taking the average of the three highest Benefit-Cost Rates in the last 20 years and comparing it to the Reserve Ratio. This is called the Average High-Cost Multiple (ACHM).

Values greater than one (Reserve Ratio/Average Benefit Cost Rate) are considered the minimum level for adequate state solvency going into a recession.

According to AHCM estimates, 12 states (Florida, Georgia, Hawaii, Indiana, Kentucky, Louisiana, Michigan, Missouri, Nevada, Ohio, Oklahoma, Rhode Island, Texas, Washington, and the District of Columbia) are at risk of becoming insolvent in the event of an economic recession.

Effects on FUTA

If a state has an outstanding loan balance on January 1 of two consecutive years and has not repaid the balance by November 10 of the second year, employers in the state are at risk of losing a portion of their Federal Unemployment Tax Act (FUTA) tax credit for that year.

Thus, employers in states that accepted Title XII loans during 2020 and that have outstanding balances on November 10, 2022, will be subject to a 0.30% increase in the FUTA tax rate, from 0.60% to 0.90%. Notably, FUTA rates can increase even further (in 0.30% increments per year) if the loan balance remains outstanding for additional years.

Effects on SUTA taxes

SUTA, also known as the state unemployment tax on employers, is paid by employers to the state to provide unemployment benefits to eligible laid-off workers.

Employers pay SUTA taxes on wages earned and paid to employees within a calendar year, up to a specified amount. This amount is known as the annual taxable wage base. Unlike FUTA, SUTA rates vary based on individual employers and are determined in part by the employer’s history of layoffs, a system called “experience rating”. The more employees an employer lays off, the higher that employer’s rate.

SUTA rates typically increase when state trust funds become depleted during times of increased unemployment. From 2021 to 2022, taxable wage bases increased by an average of 3.9%, according to a February 2022 Equifax report.

In 2022, 12 states (Alaska, Colorado, Delaware, Hawaii, Idaho, Iowa, Montana, Nevada, New Jersey, New Mexico, New York, and Oklahoma) raised their taxable wage base.

Other states, like Illinois, did not raise their taxable wage base but instead increased their SUTA rate percentage—the percentage of taxes that are paid on the wage base limit.

In 2022, Illinois minimum on businesses increased 0.75%, from 0.05% to 0.725%.

The new employer rate—or the rate which new businesses must pay for a year until adequate employment data is collected—also rose an additional 0.35%.

Looking forward

Most states use June 30 as the date to determine SUI rates for the upcoming calendar year.

In order to mitigate tax increases, the Society For Human Resource Management urges employers to prepare to take actions including:

  • Discussing expected rate increases with their UI claims manager
  • Conducting unemployment fraud exams to filter fraudulent claims
  • Reviewing their experience rating for layoffs and correcting any errors

“​​Employers are already seeing increases in state UI contribution rates to be paid in 2022 due to claims experience in 2020 and 2021 and reduced state UI trust fund solvency,” says Doug Holmes, president of UWC – Strategic Services on Unemployment & Workers’ Compensation. “We expect additional increases on average for 2023 on top of FUTA tax increases for employers with business in states with continued outstanding loans for 2022 and 2023.”


Lia Tabackman is a freelance journalist, copywriter, and social media strategist based in Richmond, Virginia. Her writing has appeared in the Washington Post, CBS 6 News, the Los Angeles Times, and Arlington Magazine, among others. She writes weekly nonprofit-specific content for

(Image by Marion from Pixabay)

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