The Employment Security Department (ESD) announced that the need to trigger a solvency tax or receive a federal loan to keep the UI Trust Fund solvent will not be necessary for the remainder of the year.
In June, ESD had projected the need to trigger the 0.2% solvency tax and seek a federal loan during the fourth quarter of 2020 to continue to pay UI benefits to unemployed workers. Fortunately, the unemployment rate has declined from the unprecedented high of 16.4% in April to over 8% today.
The UI trust fund, which pays state unemployment benefits, is funded entirely by employers. Due to unprecedented levels of unemployment benefit payments during the pandemic, the UI trust fund balance declined by more than $2 billion. However, due to the recent improvement in employment, the rate of decline has tapered off and the immediate risk of insolvency has waned.
While WR agrees with ESD Commissioner Suzi LeVine’s comment that, “This is great news for employers and businesses in Washington,” we caution that all employers in Washington are at elevated risk of UI tax hikes in 2021 to both ensure trust fund solvency and to restore benefit outlays. We are pleased that the immediate need has been avoided and the Legislature will have an opportunity to address the looming shortfalls.
Additionally, ESD’s announcement reinforces the importance of businesses re-opening and hiring back employees. The more people who are employed, the less need for UI benefits and the healthier is Washington’s UI trust fund. Let’s hope the favorable trajectory continues into 2021.