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S.F. No. 2891 - Unemployment Trust Fund Balance and Tax Credits
Author: Senator Lyle Koenen
Prepared By:
Date: March 18, 2016



Senate File No. 2891 addresses the issue of providing appropriate statutory limits on the amount of money in the unemployment trust fund.  There is currently no limit provided by law on the amount of money that should be on reserve in the trust fund. There is not a danger that unemployment benefits will not be paid because there are insufficient reserves in the trust fund.  In the event that the balance in the trust fund is spent, there is automatic borrowing from the federal government.

The federal government has developed a formula to determine if a state’s trust fund balance provides adequate reserves.  The formula is called the “average high cost multiple.”  An average high cost multiple of one is used by the federal government to determine if a trust fund reserve is adequate.  Applying the average high cost multiple of one to a variety of factors produces a trust fund balance amount that the federal government considers adequate.  The average high cost multiple is a worst case scenario formula as it measures trust fund adequacy based on the three worst payout years in approximately the last 20 years.

The trust fund balance as of December 31, 2015, was $1,659,047,200.  In 2013, Minnesota enacted a law that reduced the trust fund balance by several hundred million dollars in 2014 and 2015, by reducing taxes.  The tax reduction was conditioned on a trust fund balance of $800,000,000 in 2014, and $900,000,000 in 2015.

The trust fund balance is estimated to grow to $1,800,000,000 as of December 31, 2016.  It is estimated that an average high cost multiple of one on December 31, 2016, would require a trust fund balance of $1,617,000,000.



S.F. No 2891 establishes an annual review as of December 31, to determine if there are excess reserves in the unemployment trust fund.  If it is determined that the trust fund balance is in excess of what is required using an average cost multiple of one, (plus a cushion of four percent)  a tax credit will be provided to employers in the following calendar year.  The total amount of tax credits is equal to the total amount in the trust fund that is above the amount required by the average high cost multiple of one.

An individual employer’s tax credit is equal to a percentage of taxes due in the following year, calculated by using the employer’s share of all unemployment insurance taxes paid in the year previous to the credit.  Taxes paid by maximum experience rated employers are not included nor are these employers eligible for a tax credit.  The tax credit is not refundable.

A special calculation is used for tax credits for calendar year 2016.  This special calculation results in total tax credits of approximately $258,000,000.


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