Unemployment Insurance Trust Fund

The Kansas Unemployment Insurance (UI) Trust Fund was created in 1937 as the state counterpart to the Federal Unemployment Insurance Trust Fund. The UI Trust Fund provides income stability for Kansas citizens during times of economic difficulty while stimulating economic activity. UI is a federal program managed by the State and requires all changes to the Employment Security Law (ESL) to be approved by the U.S. Department of Labor (USDOL) before taking effect. The ESL has been modified by the Legislature several times over the last 20 years.

State Fund Contributions

Contributions to the UI Trust Fund are made by Kansas employers and are governed by KSA 2019 Supp. 44-710a. The UI Trust Fund is designed to be self-correcting during economic cycles. Moneys in the UI Trust Fund accumulate during periods of economic expansion; benefits are primarily distributed during times of economic retraction.

The State charges employers a fee on the first $14,000 of wages paid to each employee, referred to as the taxable wage base. The amount collected from employers varies depending upon the presence or absence of several factors or conditions, the primary of which is employer classifications. Employers in Kansas can be classified as a new employer, an entering and expanding employer, a positive balance employer, or a negative balance employer.

New employers with fewer than 24 months of payroll experience have a contribution rate of 2.7 percent, unless they are in the construction industry. New employers within the construction industry are instead charged a contribution rate of 6.0 percent of their taxable wage base.

If the new employer is expanding or moving from another state, they are eligible to request an alternate rate. If they meet the qualifications, then the employer’s contribution rate would be equal to their previous rate in the other state provided the rate was 1.0 percent or greater of their taxable wage base. In order to retain the reduced contribution rate, the employer must maintain a positive account balance throughout the four-year period the reduced rate is in effect.

Employers with an employment history of at least three years qualify for experience-based ratings. Employers are classified as positive balance when their total contributions to the UI Trust Fund exceed the amount of unemployment benefits charged to their accounts. Positive balance employers are grouped into 27 rate groups depending upon their unemployment experience, and a specific contribution rate is determined for each employer. The standard rates for the positive groups range from 0.2 percent for rate group 1 and increase by 20 basis points, or 0.2 percent, in each subsequent rate group until 5.4 percent is established for rate group 27.

An exception to this is if a positive balance employer’s reserve ratio has increased significantly due to an increase in their taxable payroll. If an increase occurred by a minimum of 100.0 percent due to employment growth rather than a change in their taxable wage base from the previous year, then the employer shall be given a reduced rate. The rate would be for a period of three years and require the employer to maintain a positive and increasing account balance for the three years.

Employers are classified as negative balance when their total contributions to the UI Trust Fund do not exceed the amount of unemployment benefits charged to their accounts. These employers are grouped into 11 rate groups. The standard rates for the negative groups range from 5.6 percent for rate group N1 and increase by 20 basis points in each subsequent rate group until 7.6 percent is established for rate group N11.

Employers not classified as negative balance employers are eligible to receive a fee discount of 25.0 percent if all reports are filed and contributions are made by January 31. This discount does not apply if other discounts provided by law are in effect or if the UI Trust Fund balance is insufficient.

Once standard rates are set, they are modified based upon the solvency adjustment. The solvency adjustment, which is based upon the UI Trust Fund’s Average High Cost Multiple (AHCM), is applied to all experience rated employers and ranges from an increase of 1.6 percent to a decrease of 0.5 percent. The AHCM is derived by dividing the UI Trust Fund’s reserve ratio by the average high benefit cost rate. This adjustment allows the rates to respond to the state of the UI Trust Fund.

Employers also have the choice to make additional contributions to the UI Trust Fund in order to become positive balance employers and qualify for an experience based rating with lower contribution rates.

In 2020 Special Session HB 2016, the Legislature exempted all employers from paying a solvency adjustment for calendar year 2021.

Federal Unemployment Trust Fund

In addition to the contributions to the UI Trust Fund, employers are taxed by the Federal Unemployment Tax Act (FUTA).

Employers pay a rate of 6.0 percent on the first $7,000 of income; however, the federal government provides a tax credit of 5.4 percent against this rate for states with an unemployment insurance program in compliance with federal requirements.

This would yield an effective contribution rate of 0.6 percent for Kansas employers. FUTA funds are used for administrative purposes and to fund loans for state unemployment insurance programs when they become insolvent.

Under federal and state unemployment law, governmental entities and nonprofit organizations pay into the UI Trust Fund during the year after a laid-off employee has collected unemployment insurance benefits.

CARES Act—Relief

The Coronavirus Aid, Relief, and Economic Security (CARES) Act authorizes the USDOL to issue guidance to allow states to interpret their state unemployment insurance laws in a manner that would provide maximum flexibility to governmental and nonprofit employers for their payments into the unemployment system. Additionally, the CARES Act authorizes the federal government to provide partial reimbursements (approximately 50.0 percent of the amount of governmental and nonprofit payments into unemployment systems) to state and local governmental entities, certain nonprofit organizations, and federally recognized Indian tribes for weeks of unemployment between March 13, 2020, and December 31, 2020. These partial reimbursements apply to all payments made during this time period, even if the unemployed individual is not unemployed as a result of the COVID–19 pandemic. As of October 20, 2020, the CARES Act had provided $47.6 million of emergency relief for government entities and nonprofits.

Solvency of UI Trust Fund

Solvency of UI Trust Fund Kansas uses the AHCM, as recommended by the USDOL, to ensure the UI Trust Fund is adequately funded.

The primary determinants of the UI Trust Fund depletion rate are the benefits paid out, the number of persons to whom unemployment is paid, and the amount of time for which benefits are paid.

Current Status of the UI Trust Fund

If the UI Trust Fund is depleted, as occurred during the Great Recession, the Kansas Department of Labor (KDOL) is authorized to borrow from the USDOL, the Pooled Money Investment Board, or both to make weekly benefit payments.

The State General Fund is not obligated to ensure the solvency of the UI Trust Fund. Likewise, the UI Trust Fund may not be used for non-employment security purposes. Prior to the COVID-19 pandemic, the state’s UI Trust Fund was considered sufficiently solvent that any loans taken from USDOL will be at 0.0 percent interest. Failure to repay the loan results in the FUTA tax credit for employers being reduced by an additional 0.3 percent annually until the debt is repaid. The terms of the loan are such that full payment is due on November 10 following the second January 1 the loan is outstanding. Thus, if the state’s UI Trust Fund requires a loan by January 1, 2021, then full payment would be due on November 10, 2022. If a loan is made on January 2, 2021, or later, then full payment would be due on November 10, 2023.

The UI Trust Fund contains a balance of $534.6 million as of November 7, 2020.

Employee Benefits

An individual is eligible for unemployment compensation when that person has lost employment through no fault of their own.

Termination for cause or resignation generally disqualifies a person from receiving UI benefits; however, the Kansas Employment Security Law allows for several exceptions to this prohibition.

The amount of money an employee can receive in benefits will vary depending on the level of compensation the employee received during employment and the length of time the employee can receive benefits. However, there are strict upper and lower limits on benefit payments to prevent over- and under-compensation. If KDOL determines a person made a false statement or representation when applying for benefits, that person is disqualified from receiving benefits for five years.

CARES Act—Unemployment Programs

The CARES Act established three federal unemployment programs to subsidize state programs and provide benefits for workers normally not covered by unemployment insurance. The Pandemic Unemployment Assistance (PUA) program provides benefits to individuals who are self-employed, seeking part-time employment, or would otherwise not qualify for UI benefits. The Pandemic Emergency Unemployment Compensation (PEUC) program extends benefits for those who have exhausted their state benefits, do not qualify for state benefits, or are unable to search for work due to COVID-19. The Federal Pandemic Unemployment Compensation (FPUC) program provided an additional $600 per week benefit alongside whatever state benefits an individual received. Both PUA and PEUC are authorized to continue through December 31, 2020, while FPUC ended on July 31, 2020. As of October 20, 2020, PUA had paid $151.7 million, FPUC had paid $1.2 billion, and PEUC had paid $41.6 million in benefits to Kansans.

Following the termination of FPUC, President Trump signed an executive order establishing the Lost Wages Assistance Program (LWA), which utilized Federal Emergency Management Agency (FEMA) moneys to provide a $300 federal benefit with a $100 match from the states. The match could either be in addition to current state benefits, or current benefits could be used as the match. Kansas applied for the program utilizing existing state benefits as the match and was approved for the program. Kansas received money for LWA to include with all benefit payments between August 1, 2020, and September 5, 2020.

Calculating the Weekly Benefit

The weekly benefit amount is what the claimant will receive each week in unemployment compensation. The weekly benefit amount is determined by multiplying 4.25 percent times the highest earning quarter in the first four of the last five completed calendar quarters. The maximum weekly benefit amount is limited to either $474 or 55.0 percent of the average weekly wages paid to employees in insured work in the previous calendar year, whichever is greater. The current maximum weekly benefit is $503 per week. Claimants are guaranteed to receive at least 25.0 percent of the average weekly wages paid to employees in insured work in the previous calendar year. The current minimum weekly benefit is $125 per week.

Prior to the enactment of 2020 House Sub. for SB 27, workers were required to wait a week prior to making a claim and receiving unemployment insurance benefits. The new law grants workers an additional week’s benefit upon the completion of the third week of unemployment after the waiting week. This amount does not increase the total amount of benefits that a worker may claim. This provision sunsets April 1, 2021.
This was further amended in 2020 Special Session HB 2016, in which the Legislature exempted all new claims filed between April 5, 2020, and December 26, 2020, from the waiting week in accordance with the Families First Coronavirus Response Act and the federal CARES Act.

Calculating the Length of Compensation

During a standard or non-recessionary period, an employee’s duration of benefit is calculated in one of two ways; the calculation yielding a shorter duration is used. First, an employee can receive weekly compensation for a specified number of weeks, or second, the duration of benefits is determined by multiplying one-third times the total earnings received in the first four of the last five completed calendar quarters. The weekly benefits amount is divided into the total benefits received in order to determine the number of weeks an employee can receive compensation. If the unemployment rate for Kansas is equal to or greater than 6.0 percent, a person is eligible for a maximum of 26 weeks of benefits. If the unemployment rate is less than 6.0 percent but greater than 4.5 percent, a person is eligible for 20 weeks of benefits. A person is eligible for 16 weeks of benefits if the unemployment rate is equal to or less than 4.5 percent. For purposes of this provision, the law calculates the unemployment rate using a three-month, seasonally-adjusted rolling average.

The federal Emergency Unemployment Compensation Act of 2008 (Act) extends an employee’s duration of benefits by 20 weeks and has an additional Tier 2 trigger to provide 13 weeks of compensation when unemployment exceeds 6.0 percent, for a total of 33 weeks above the 26 weeks of unemployment compensation in non-recessionary periods. All benefits paid under the Act are paid from federal funds and do not impact the UI Trust Fund balance. By law, Kansas will provide an additional 13 weeks of unemployment compensation when the Kansas economy hits one of several indicators, including an unemployment rate of at least 6.5 percent for the previous three months. An applicant can receive less than 13 weeks of extended state benefits in the event his or her original eligible benefit period was less than 26 weeks based on the one-third calculation. Under state law, extended Kansas benefits are paid 50.0 percent from the UI Trust Fund and 50.0 percent from the Federal Unemployment Account.

2020 House Sub. for SB 27 provides that any worker who files a claim for unemployment compensation on or after January 1, 2020, is eligible for a maximum of 26 weeks of benefits. This provision temporarily supersedes prior law related to the maximum length of benefits and sunsets on April 1, 2021.

Furthermore, on June 9, 2020, KDOL was notified that Kansas had triggered the Extended Benefits program and that effective June 7, 2020, unemployed Kansans would be eligible for an additional 13 weeks of benefits beyond the 26 weeks authorized by 2020 House Sub. for SB 27.

Enforcement of the UI System

In 2013, the Legislature authorized the Secretary of Labor to hire special investigators with law enforcement capabilities to investigate UI fraud, tax evasion, and identity theft. To cope with the increase in fraudulent claims, KDOL announced the creation of a dedicated website for individuals to file fraud reports and find all the information they need related to UI fraud. KDOL further announced on October 6, 2020, that it will be doubling the size of its fraud and special investigations unit, deploy technology to target scammers, and implement a variety of steps to mitigate UI fraud.

For further information on consumer fraud mitigation, see article F-1 Consumer Credit Reports and Security Freezes, available at http://www.kslegresearch.org/KLRD-web/Briefing-Book-2021.html.

  1. The reserve ratio is calculated by dividing the UI Trust Fund’s balance as of July 31 by the total payroll for contributing employers.
  2. The average high benefit cost rate is determined by averaging the three highest ratios of benefits paid to total wages in the most recent 20 years.

Matthew Willis, Research Analyst

Victoria Potts, Fiscal Analyst

Edward Penner, Senior Economist