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Frequently Asked Questions About 2010 Unemployment Insurance Contribution Rates

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1. How will the Unemployment Insurance contribution rate schedule change in 2010?

Thanks to achieving and maintaining a healthy reserve balance built-up in the trust fund during better economic times, Maine contribution rates in 2008 and 2009 were at the lowest possible schedule (Schedule A) provided for under state law. In fact over the last seven years, the rate schedule remained at the lowest or next to lowest schedule allowable (Schedule A or B) however in 2010, the contribution rate will go to Schedule E.

2. Why is the contribution rate rising now?

An economic downturn and rising unemployment have resulted in a significantly higher volume of unemployment benefits paid out from the Maine unemployment trust fund during the past year. The Maine unemployment trust fund is projected to pay nearly $254 million in benefits to workers affected by job loss in 2009. However, only $83 million in employer premiums is expected to be collected during the same period. Additionally, higher than normal benefit payouts are expected to continue through 2010 until the economy begins to recover in earnest and unemployment declines. The 2010 contribution rate increase is expected to bring in an additional $54 million over what was collected in 2009 to ensure the continued stability of the fund.

3. How is the contribution rate schedule determined?

All states finance the costs of unemployment benefits through the collection of contributions paid by employers. Under Maine law, rate schedules adjust automatically each year based on a formula that considers factors such as the amount of reserves in the trust fund, the recent history of benefit costs paid and the amount of benefits expected to be paid out in the near future.

4. What kind of increase can individual employers expect to see in 2010?

The contribution increase an employer will see in 2010 will vary based on the “experience rate” of the business. The amount of contributions paid by the employer and the amount of unemployment benefits ‘charged’ against the business are tracked over time and are used to determine the employer’s contribution rate. There are 20 possible rate categories within a contribution schedule. Contributions are paid on the first $12,000 paid in wages to an employee. In 2009, contribution rates ranged from a low of $52.80 to a high of $648.00 per employee per year. The average annual contribution rate per employee was $188.40. In 2010, contribution rates will range from a low of $93.60 to a high of $862.80 per employee per year. The average annual rate per employee in 2010 is expected to be $327.60.

5. What would happen if unemployment premium rates were not increased in 2010?

We would have to borrow to pay unemployment benefits. Maine is one of a very few states with a solvent unemployment trust fund. State trust fund insolvency is increasing and the U.S. Department of Labor projects that by the end of 2010, 40 states will have borrowed more than $100 billion to pay benefits to workers who have lost jobs. So far, states have had to borrow over $20 billion to stabilize trust funds hard hit over the last two years as benefit payments to laid-off workers have far exceeded employer-paid unemployment insurance premiums. When states have to incur interest-bearing loans to pay unemployment benefits, employers are hit harder as they not only incur the cost of restoring the health of the state’s trust fund plus the cost of paying back the loan principal, they also have to pay a surtax to cover the interest on the loan. If a state cannot repay the loan within 2 years, their federal unemployment taxes also begin increasing.

6. Why would we be borrowing if we have 12 months of reserves? How many months are in the Trust Fund now?

Maintaining twelve months of benefit reserves is the absolute minimum the U.S. Department of Labor recommends that a state have in its trust fund at any point in time. However, even at that level, there is a substantive risk of having to borrow at some point to pay benefits depending on the characteristics of an economic downturn. The benefit reserve target for the Maine Unemployment Trust Fund is to maintain 18 months of benefit reserves using an average of the three highest annual benefit pay outs experienced over the past 20 years. Even though this is the target, the timing of benefits paid out compared to when contributions are collected can cause the reserve levels to fluctuate during the year. The benefit reserve level for the Maine trust fund is currently 15 months. Had the benefit reserve target for the Maine trust fund only been at 12 months coming into this recession, Maine would already be borrowing funds to pay unemployment benefits at a much greater cost to employers.

7. Is Maine the only state raising premiums?

No. In fact, many states have already had to raise their contribution rates and or taxable wage bases. Additionally most, if not all, states are expected to increase employer contribution rates next year as a measure to pay for the increased cost of benefits paid out during this recession. Every New England state has announced at least one increase in unemployment premiums over the last two years.

8. How does Maine’s contribution rates compare to other states nationally?

Maine unemployment contribution rates are currently 27th in the nation (with 1 being the highest). Maine benefit rates – the amount of benefits the average claimant receives – are 36th lowest in the nation.

9. Have Maine unemployment rates been affected legislatively in recent years?

Legislative actions taken over the last 6 years have strengthened the Maine Unemployment Insurance program and helped keep contribution rates and employer costs low.

2009: Unemployment modernization legislation passed by the Legislature and signed by the Governor qualified Maine to receive $28.2 million in Federal funds that were added to the trust fund and reduced reliance on employer contributions to pay benefits. Without these funds, UI tax rates would have been higher than they will be in 2010 (by one schedule) increasing contribution collection by another $15 million. The legislative changes made to Maine's domestic violence and voluntary quit provisions at the same time were minor and did not impact the rate determination for 2010.
2007: Maine decreased the trust fund benefit reserve target to 18 months from 21 months, saving employers $67 million in contribution reductions by decreasing the contribution rate schedule to A for two years. This also reduces future rates as the system no longer seeks to attain and sustain the higher 21 month benefit reserve target. The same legislation (L.D. 1884) established the Competitive Skills Scholarship Program, for which the cost was offset by a comparable reduction in individual employer unemployment contribution rates. This bill also eliminated the previous benefit offset for social security & similar pension payments and removed the sunset provision on the part-time bill that was passed out of the 2003 legislature. Although both the social security offset and part time benefit bills increase benefit costs to a small degree - neither change has negatively impacted tax rates since their implementation. The final piece of this bill appropriated $5.2 Million in federal funds (Reed Act) to the department for technological service delivery and efficiency enhancements for the unemployment, employment service, & labor market information programs (primary purpose of these federal funds).
2007: A bill passed affecting the Maine dislocated worker benefit program but given the level of participation in that program, the projected benefit cost increase to the trust fund was $18,000 or less a year so it is highly unlikely to affect contribution rates.
2002: Maine applied for and received $32.5 million in federal funds that boosted reserves in the trust fund causing contribution rates to decrease in 2003 and remain low in subsequent years.

10. When will employers be notified of their individual 2010 contribution rates?

By statute, all rate notices must be mailed out by December 31st. When possible, the department tries to get these notices out earlier. Individual employer contribution rates are being calculated now based on the new schedule and notices are projected to start going out around December 16th. Due to the sheer volume of notices, they will be mailed out in batches over several days.

11. Are the benefits being issued under all of the temporary unemployment extension programs funded out of the Maine trust fund?

No. The only benefits paid for out of the Maine unemployment trust fund are for claims under the regular state unemployment program, the dislocated worker benefit program and the Maine Enterprise Option program (MEO is specifically for unemployment claimants who are likely to exhaust benefits and want to start a new business). All of the temporary emergency unemployment compensation programs passed by Congress to extend benefit collection are 100% federally funded. Additionally, the Extended Benefit program which is a state/federal partnership program for which the costs are normally split between the state and federal governments; is currently being funded entirely by the federal government.

12. Are seasonal employers treated differently from non-seasonal employers in terms of contribution rates?

Businesses that are operational less than 26 weeks a year and have petitioned for and received a ‘seasonal designation’ from the Unemployment Insurance Commission are treated the same as non-seasonal businesses in terms of contribution rates. However, contributions are only owed when wages are actually paid and only on the first $12,000 in wages paid to an employee. If there are calendar quarters in which no wages were paid, no contributions are owed. This is likely to occur more frequently with a business that does not operate year-round. The primary difference between a business that has been designated as ‘seasonal’ versus one that is not is that the experience rating of the seasonal business can only be charged for unemployment benefits paid to their seasonal employees if these workers were laid off before the end of their ‘designated season’ and then only for the benefits that were paid prior to the seasonal end date.

13. Are the contributions paid into the trust fund by employers used to pay for anything other than state unemployment benefits?

No. Employer contributions paid to the unemployment trust fund can only be used to pay benefits. All operating costs required to administer the Maine Unemployment Insurance program are paid 100% with Federal funds received from the U.S. Department of Labor.

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