Assessment: Demands leave UI trust fund with deficit

Boston Statehouse

BOSTON (SHNS) – After months of hedging about the health of the state fund that pays jobless benefits, Baker administration officials have released a report showing three outstanding obligations on the $2.94 billion unemployment insurance trust fund leave it with a structural deficit.

The independent assessment of the fund, conducted for the state by KPMG, also found that a combination of early pandemic changes, including new programs, rapidly evolving guidance, and a new claims processing system and ad-hoc internal reporting, “ultimately fractured the connection between operational and financial functions” of the trust fund.

The fund is overseen by the state Executive Office of Labor and Workforce Development, and the KPMG report, released on New Year’s Eve, examines some of the fallout from a system overloaded with claims from March 2020 through May 2021. To highlight demands on the fund that stemmed from forced business closures, KPMG analysts estimated that total benefits paid in 2020 were nearly seven times more than all benefits paid in 2018 and 2019 combined.

The assessment, described by state officials as a “reconciliation project,” will inform ongoing deliberations about how much state government will need to borrow to keep the system solvent and benefits flowing. Gov. Charlie Baker in April 2021 signed a bill authorizing up to $7 billion in borrowing.

Labor and Workforce Development Secretary Rosalin Acosta last month said additional borrowing will be needed, with officials working to determine the extent of that bonding.

The report estimates the fund’s balance as of Nov. 30 at $2.94 billion, but highlights three issues – federal loan obligations, outstanding employer credits, and a reimbursement due to the federal government – that collectively push the fund into a $115 million structural deficit.

Outstanding federal loans loom as the largest outstanding obligation on the fund. KPMG estimates that Massachusetts owes $2.3 billion, due in November 2022, to the federal government to repay necessary borrowing during the pandemic.

The balance also includes $415 million in credits due to employers because of mid-2021 rate adjustments. The legislation providing employers with some relief from COVID-related charges was enacted in May 2021, after most employers had already paid their first quarter contributions. The credits will be applied to future employer assessments, reducing those contributions.

And independent analysts also identified the need for a one-time transfer of $300 million from funds currently held in the UI system to the federal government “to reconcile state and federal accounts now that emergency programs implemented under federal authority in 2020 and 2021 have come to a close.” State labor officials are awaiting guidance from the federal labor department “regarding administrative procedures to process this reconciliation.”

The assessment does not factor in $500 million in American Rescue Plan Act funding approved by the Legislature and Baker in December as a means of delivering some relief to employers who ultimately pay the assessments required to pay benefits and cover borrowing costs.

KPMG said testing will continue beyond the report’s issuance “to inform the corrective actions related to process and reporting.”

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