Employers and labor representatives in Connecticut are working together to make the state’s Unemployment Compensation Trust Fund more fiscally sound. 

The recession packed a wallop on the trust fund, with the state having to borrow nearly $1 billion from the federal government just to keep up with demand. Since then, employers have been paying back the millions borrowed, plus interest, on top of their regular unemployment taxes.

As a result, the state’s Employment Security Advisory Board (ESAB), which is evenly divided between representatives of employers and organized labor, is taking a comprehensive look at how to strengthen the unemployment system. 

Myriad  factors led to the fund’s demise, including higher benefit payouts to claimants stemming from higher wages, more claimants because of workforce growth, and in later years, longer durations of benefit payouts from claimants’ difficulties in securing new jobs. 

When the recession hit in December 2007 and the demand for benefits spiked, the fund quickly drained, and today is $1.2 billion short of its solvency goal.

Now, in addition to higher state unemployment taxes, Connecticut employers are facing several years of higher federal unemployment (FUTA) taxes and additional special assessments to repay the debt and interest on it.

What can be done to strengthen the fund?

The Labor Department has advocated increasing the taxable wage base–taxes paid by employers on the first $15,000 of an employee’s income.  DOL officials are looking to increase the taxable wage base from $15,000 to $26,000 to increase the fund’s solvency--which would also increase the cost of unemployment compensation for the state’s employers.   

Instead of tax increases, businesses are seeking other improvements to the system. In fact, employer representatives on the ESAB have submitted 29 proposals to the DOL to determine the impact each could have on the trust fund. 

One idea would require claimants to wait a week before collecting benefits–something that’s a regular practice in 40 other states.

According to DOL, it’s also something that could save the trust fund an estimated $31 million per year–and even more when the job market picks up and people are able to more quickly find new jobs. 

Employers will continue to submit proposals to improve the integrity and fiscal soundness of the unemployment system while minimizing the impact on the state’s business community.

The ESAB will be evaluating the various options available to bring reform to the unemployment compensation system during the coming months. It is anticipated that the board will submit its recommendations to the labor commissioner in early September. 

For more information, contact CBIA’s Eric Gjede at 860.244.1931 | eric.gjede@cbia.com | @egjede