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Unemployment Insurance Information

House Bill 11-1288

During the 2011 legislative session, the Colorado General Assembly passed House Bill 11-1288 to address needed changes to the Unemployment Insurance (UI) Fund.

Some basic information summarizing the bill and its impact on employers is included here.

Issue: The Colorado Unemployment Trust Fund is insolvent, owing approximately $500 million to the federal UI program. The insolvency was caused by two main factors – 1) an inadequate fund balance statutory funding formula written in statute that did not reflect the current size of the Colorado economy/jobs, and 2) a deep recession.

Background note: The Unemployment Insurance system is a federally mandated and governed program with premiums paid entirely by employers to provide benefits to employees who have lost jobs through no fault of their own. Employers pay a state premium as well as a federal tax calculated on a base wage per employee and, at the state level, the experience rating of the employer. Note: The Colorado UI Trust Fund pays only the regular, first 26 weeks of benefits. The current extended benefits of up to an additional 73 weeks are completely paid by the federal government.

Life after HB11-1288 – Unemployment Insurance premiums will stay on the current base rate chart and system until the UI fund is solvent (having paid back the federal loan) – likely in 2014, and therefore:
• Employers will receive annual rate notices, as usual, in late November/early December of 2011 for the 2012 calendar year. Base rates will not change as we stay on the current rate chart.
• Rate notices sent in fall of 2013 for the 2014 calendar year will reflect the new rate chart contained in HB 1288.
• The new rate chart has condensed experience rating levels and fewer fund balance categories – to make rates more predictable and stable for employers – and is more gradual as the fund balance gets lower so as not to have the high rate jumps when the economy worsens.
• The new rate chart spreads the burden more fairly to those companies in volatile industries who utilize the fund more, but does so more gradually without hitting those employers at the worst economic times.
• The fund balance will be defined by a dynamic economic indicator – a percentage of total reportable wages in the state – rather than hard dollar amounts so that the fund keeps up with Colorado’s economy.
• The wage base on which rates are applied will increase from $10,000 to $11,000 per employee.
• The wage base will begin indexing annually from the $11,000 to keep pace with the economy and the claims made on the fund.
• The current solvency surcharge will be capped at 2011 levels (this surcharge currently is a compounding rate and would have resulted in much higher charges for many employers without this change).
• There will be only a non-compounding, emergency solvency surcharge (which may need to be implemented until the fund reaches a sustainable healthy level).
• NOTE: If your company has had lay-offs and UI claims, your experience rating may change and you would see a change in base rates as is currently implemented.

Paying off the federal loan vs. private bonding

Colorado currently owes approximately $500 million to the federal government for the claims our state UI fund could not pay. This loan and the state UI fund is responsible for covering only the first 26 weeks of UI benefits – the loan and the state fund did not pay for the extended benefits granted by Congress over the past two years.

That federal loan was interest-free until January 1, 2011 and our first interest payment on the debt will be due September 30, 2011 (the last day of the federal fiscal year). Per Colorado statute and federal requirement, only employers with higher UI claims – those with experience ratings of +7 down to -25 – pay interest on federal UI loans. Invoices for this interest payment were sent to employers in July 2011.

Private bonding of the federal debt is an option used by many states in the past. Our state statute currently allows Colorado to bond for the UI fund. An analysis of the cost-effectiveness of that option is being done and RFPs for bond offerings may be issued. Any decision would be based solely on cost savings to employers and to the fund in the long-term. Repayment of bonds is already proscribed in statute and would still require the interest to be paid by the higher claims experience employers.

Letter from business community on Unemployment Insurance