Associated Industries of Massachusetts last week again urged elected officials to use federal stimulus money to reduce the deficit in the state Unemployment Insurance Trust Fund as part of a broader effort to stabilize the unemployment system in Massachusetts.

Using some of the money the commonwealth will receive as part of the $1.9 trillion American Rescue Plan would help to offset a steep rise in unemployment costs brought about by the COVID-19 pandemic. Governor Charlie Baker signed a bill this month that will freeze unemployment insurance rates for two years, but the Unemployment Insurance Trust Fund is still expected to be more than $5 billion in the red by the end of 2022.

Meanwhile, Massachusetts employers are also facing rate shock from another corner of the unemployment insurance (UI) system – a tenfold increase to the solvency assessment from 0.58 percent in 2020 to 9.23 percent in 2021. The solvency assessment is used to maintain the UI Solvency Fund, which is separate and distinct form the Unemployment Insurance Trust Fund, and normally pays certain socialized system costs like dependency allowances and claims from businesses that have closed.

The solvency assessment rate increase was caused by a law adopted last year under which the state charged COVID-19 related job losses to the solvency account instead of to individual company experience ratings. The policy prevented many employers from developing negative experience ratings that would likely make their 2021 UI assessments prohibitively expensive and costly for years to come.

The downside was that COVID-19 increased claims to the Solvency Fund from $350 million to $4 billion last year. Dependency allowances and extended benefit costs were uniquely high in 2020.  The assessment is not discretionary because the state is mandated to balance the Solvency Fund.  

At least one AIM member reports that its solvency assessment has increased by 123 percent in 2021.

“Securing the schedule-rate freeze was an important first step towards relieving the significant unemployment insurance burden on employers,” said Brooke Thomson, Executive Vice President of Government Affairs at AIM.

“However, that was just the beginning of AIM’s multi-pronged strategy to lower overall unemployment insurance costs. We are asking the state to use a portion of their financial windfall from the federal government to help pay down the Trust Fund deficit. We will also advocate for long-term solutions to build a fairer and more stable unemployment insurance system.” 

AIM made the case for using stimulus dollars in a letter to lawmakers. The American Rescue Plan funds would help still-struggling employers who currently bear the sole responsibility for the fund’s operating expenses, federal debt and interest on that debt.

Additionally, AIM was recently named as a member of commission to study the long-term health of the UI Trust Fund. AIM plans to use that leadership position to advocate for structural changes to the system on behalf of the business community. AIM will champion reform that will reduce the business community’s hardship and ensure the program’s long-term financial viability. 

“We hope this temporary pain will be part of a long-term solution with our partners in state government to fix unemployment insurance and begin the process of economic recovery,” Thomson said.

AIM members with questions about unemployment insurance should contact Sam Larson at slarson@aimnet.org.