Committee briefed on mechanics behind Vermont unemployment-insurance trust fund and solvency levers

The Vermont Hills Committee on Commerce & Economic Development spent its May 6 meeting getting a detailed briefing on how the state’s unemployment-insurance (UI) trust fund is financed, how employer tax rates are set and what officials can do to shore up solvency if the economy weakens.

Michael Harrington, commissioner of the Vermont Department of Labor, told the committee that UI "is to provide partial wage replacement for those who become unemployed through no fault of their own" and emphasized the committee’s role in protecting the trust fund that pays benefits.

The briefing focused on three levers that most directly affect fund health: the taxable wage base (the portion of an employee’s wages subject to employer UI tax), the state tax-schedule mechanics that set employer rates, and benefit payouts. "You'll hear Matt share and use a term called taxable wage base," Harrington said, noting the current taxable wage base used for contributions is $14,800 per employee, per year.

Matthew Berwitz, director of the Economic and Labor Market Information Division at the Vermont Department of Labor, described how the fund earns interest and how that income helps offset benefit payments. "The fund...is more akin to, like, a money market account. It is an interest-bearing account, but it is not tied to the market," Berwitz said, adding that a roughly 3% return on a $300 million balance produced about $10 million in interest in the prior year, per his presentation to the committee.

How tax rates are assigned: Vermont places employers into one of five tax schedules; within each schedule there are 21 rate classes. Rates reflect an employer’s benefit charges and payroll compared with peers. As Harrington explained, seasonal employers such as many construction firms often face high rates because repeated layoffs generate benefit charges against their accounts, while small employers can see substantial rate increases from a single layoff because their payroll denominator is small.

Officials walked the committee through administrative details that affect claim processing and program integrity. The department said claims are still subject to federal eligibility rules, including requirements that claimants be "able and available" for work. The state’s adjudication or additional fact-finding process — used when eligibility or offsetting payments (like severance) must be confirmed — has improved from pandemic-era delays but remains slower than federal guidance: Harrington reported Vermont has reduced adjudication time from pandemic highs and currently averages under 45 days, while federal guidance sets an expectation “under 21 days.”

Pandemic-era changes and fraud: Department staff told the committee that moving initial claims online during the pandemic coincided with a dramatic rise in fraudulent filings; speakers said fraud rates on some days reached roughly 90 percent of online filings. Returning to phone-assisted initial claims reduced reported fraud rates substantially, they said.

Who pays and who is reimbursed: The briefing clarified two employer types. Taxable employers pay quarterly into the UI trust fund using their assigned rate; reimbursable employers (typically many nonprofits and governmental entities) do not pay those quarterly taxes but must reimburse the fund dollar-for-dollar for benefits paid on their employees’ claims unless they opt to convert to taxable status.

Historical context and policy choices: Department officials reviewed the trust fund’s long-term record, noting the fund once reached roughly $500 million before the pandemic and fell sharply during the 2007–2009 recession when Vermont borrowed federal advances and paid interest from the general fund. Officials described recent legislative changes (for example, excluding 2020 from the 10-year calculation for some determinations) that reduced employer burden when the pandemic hit. Harrington told the committee that the taxable wage base and tax schedules are the primary policy levers and that legislative action is required for changes beyond the department’s statutory calculations.

No formal committee action was taken at the briefing. Committee members asked the department to return with updated scenario calculations after first-quarter employer contribution data is finalized and to model how changes in the taxable wage base or schedule movement would affect cash flow into the fund and employer tax bills.

Ending: Department officials offered to return with scenarios and said the next key data points — April first-quarter contribution receipts and final annual calculations — will determine whether the state moves between tax schedules later this year.