Employers will see a reduction of $105 per employee in 2015 UI taxes
FRANKFORT, Ky. (Nov. 10, 2015) — A positive balance in the Unemployment Insurance (UI) Trust Fund will ensure Kentucky employers see a reduction of $105 per employee in federal UI taxes, Gov. Steve Beshear announced today.
Employers now will not be subject to an additional credit reduction rate of 1.5 percent when they file their federal unemployment taxes in January 2016, saving a total of $165 million.
In August, Beshear announced the commonwealth had paid off the $972 million federal loan needed to meet unemployment insurance benefit obligations during the recession at least two years ahead of schedule. It is the first time since January 2009 that Kentucky’s UI Trust Fund has a positive balance.
At the height of the recession in June 2009, Kentucky’s unemployment rate hit a high of 10.9 percent. Kentucky’s latest unemployment rate in September dipped to 5 percent, the lowest since June 2001.
Nonfarm employment—which includes workers covered by state UI laws—declined by 122,100 during the recession. Kentucky not only regained all 122,100 jobs, but gained an additional 38,100 jobs.
Even before the recession began, Kentucky’s UI Trust Fund experienced high demand for benefit payouts. Beginning in 1999, Kentucky paid out more in unemployment benefits each year than it had taken in through employer contributions.
The difference had been made up by drawing down accumulated reserves. As a result of the recession, Kentucky exhausted its UI Trust Fund at an accelerated rate. By Jan. 28, 2009, the trust fund had been depleted, and Kentucky, like more than 30 states, began borrowing from the federal government.
Beshear established the Governor’s Task Force on Unemployment Insurance and in 2010 House Bill 5 modernized the state’s unemployment system with a balanced plan to adjust revenues and benefits to secure the financial stability of the plan for the future.
Beginning in 2012, the law increased the taxable wage base from $8,000 to $12,000 over a 10-year period; implemented a waiting week after eligible workers file a claim before they can begin to receive benefits; and reduced the statutory replacement rate used to calculate a claimant’s weekly benefit amount from 68 percent to 62 percent.
Estimated changes would save Kentucky employers more than $450 million in federal tax and interest charges over time and ensure that the balance in the trust fund would eventually be significantly higher to protect against future downturns in the economy.
The bill also implemented changes in tax schedule trigger amounts and instituted other process changes to enhance re-employment strategies and services to meet the needs of employers and job seekers in the new economy. Both benefits and revenues are subject to automatic adjustments based on the balance in the Trust Fund in the future.
Numerous legislative attempts had previously been made to address the insolvency of the UI Trust Fund. The 2010 law changes represent the most comprehensive changes to the system in recent history.