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What You Need to Know about the Unemployment Insurance Agreement

Posted on January 22, 2025

By Sam Larson
Vice President, Government Affairs 

The Healey Administration and the US Department of Labor (USDOL) jointly announced a settlement Monday under which the Massachusetts unemployment insurance (UI) system will be required to pay back the federal government $2.1 billion over the next 10 years.  

State officials discovered in 2023 that the Baker administration improperly used $2.5 billion in federal pandemic relief funds during the COVID-19 pandemic to cover jobless benefits that should have been paid by the state.  

Total liability with fees and interest to the federal government surpassed $3 billion. The deal saves the state UI system, which is paid for exclusively by employers, roughly $900 million. The Healey Administration announced that principal payments of the debt will come from the UI trust fund annually but the interest payments to the federal government will come from the state’s general fund. 

Monday’s settlement closes the issue of the state’s federal debt but is likely to accelerate the existing structural problems of the UI system, which is projected to be insolvent by 2028. At the same time, the settlement creates an opportunity for sustainable and meaningful reforms to a system long plagued by instability and mismanagement.  

What Went Wrong? 

Unemployment in Massachusetts reached unprecedented levels in 2020 due in part to state-mandated business closures during the pandemic. The federal government during the Trump and Biden administrations passed a series of stimulus bills to cover the cost of many new unemployment insurance claims while the state covered the cost of layoffs from traditional industries.  

During this time the Massachusetts Department of Unemployment Assistance (DUA) mistakenly used federal pandemic unemployment money to pay for claims that should have come from the state system. A 2023 audit discovered the error dating back to 2020 and the Healey administration has been in negotiations with USDOL ever since. It appears that Massachusetts was the only state to make this error.  

What Does This Mean for My Business? 

The agreement will have no immediate impact on your business and 2025 UI taxes will not be impacted. First quarter UI notices have already been sent to companies and the taxes due for this year will not change. Most companies pay the majority of their annual UI taxes in the first quarter because UI is only assessed on the first $15,0000 earned.  

This settlement will also not impact or increase the COVID assessment employers are currently paying to address other debt incurred during the COVID pandemic.  

The settlement will, however, strain the system as a whole and will accelerate trust-fund insolvency. The first payment to the federal government is due December 1, 2025, and will not impact 2026’s UI rate which is set in September of 2025. Annual withdrawals of $200 million from the system will eventually result in higher rates and a less stable system.  

What Else Is Wrong with the Current System? 

The state UI trust fund is unbalanced and already in a dire financial situation. The state system is projected to be insolvent by the first quarter of 2028 based on estimates that did not account for the federal debt. This error and the settlement will accelerate insolvency.  

Massachusetts unemployment benefits are the most generous in the country and the system pays out more than it takes in. In 2024 employer payments to the system were $1.13 billion but the benefits paid out were $2.10 billion. This is an unsustainable imbalance during relatively low unemployment. The system ended the year with a balance of $2.16 billion on a cash basis. That balance will quickly erode even with tax increases imposed on all businesses as the system moves from schedule C to schedule D. 

Employers are currently paying down roughly $2.7 billion in COVID related debt to the system through the COVID assessment. This assessment covers bonds issued to pay off debt the system incurred when the trust fund went bankrupt due to the volume of claims during the COVID-19 pandemic. Employers are in the fourth year of a six-year timeline to pay off the COVID assessment. The new settlement does not impact the COVID assessment. 

How Is AIM Going to Help? 

Fixing the UI system is a priority for AIM’s Government Affairs team for this legislative session. Governor Healey has already indicated that the time for reform is now and AIM plans to partner with her office and the Legislature to build a functional system.  

AIM supports common-sense reforms that will eliminate outliers on the benefit side in order to stabilize the system and reduce employer costs. Proposed reforms include use of the rainy-day fund to support the system and pay off federal debt; reduce the maximum week amount from 30 to 26; freeze maximum benefits; lower maximum benefits; and reign in minimum eligibility requirements.  

Members with questions or concerns may email me at slarson@aimnet.org.