DEED outlines why Minnesota's UI trust fund has dropped as benefit payments rise

Deputy Commissioner Devin Roe of the Minnesota Department of Employment and Economic Development briefed the Jobs and Economic Development Committee on the state's unemployment insurance program and why the UI trust fund balance has fallen despite low unemployment.

Roe summarized how UI is structured and why the trust fund can shrink before tax collections rise. "The purpose of unemployment insurance, as written in statute, is that the public good is promoted by providing workers who are unemployed, through no fault of their own, a temporary partial wage replacement to assist the unemployed worker to become reemployed," Roe said, explaining eligibility and the 26-week benefit standard.

He emphasized that UI is a federal-state partnership and described the fund's revenue mechanics: employer taxes consist of an experience rate (based on an employer's recent UI charges) and a base tax rate applied to a taxable wage base that is adjusted annually. Roe noted the 2025 base rate was 0.4% with a 5% additional assessment and that the taxable wage base for 2025 was $43,000.

Why the fund fell. Roe told legislators the central driver was higher benefit payments while collections remained roughly flat. "Collections have roughly stayed flat; at the same time, benefit payments have grown," he said. He pointed to wage growth, more claims activity and the lasting effects of pandemic-era program changes as contributors. Roe also described how tax and reimbursement timing lags the pattern of payouts: reimbursements from reimbursing employers lag about six months, while tax-rate effects from experience ratings can lag by 18 months to two years.

Program mechanics and clarifications. Roe reviewed key program thresholds and figures the committee had asked about: eligibility requires wage credits equal to 5.3% of the state's average annual wage (the department used an average annual wage of $71,292, producing a threshold of $3,778), weekly maximum benefits were $914 this year, and experience rates are capped by statute at 8.9%. He reiterated that pandemic-related charges were excluded from employers' experience-rate calculations under trust-fund replenishment law.

On improper payments and fraud. Roe cited U.S. Department of Labor metrics the department tracks. He said Minnesota's UI improper-payment estimate was about 7.424% per DOL's methodology and that the state's fraud rate was under 1.4%. He cautioned the committee that the DOL's "improper payments" term is not synonymous with fraud: "Improper payments are not fraud," he said, and described many improper-payment cases as administrative mismatches corrected later through casework and recoupment.

School districts and reimbursing employers. In response to questions from Senator Nelson and others, Roe explained that most school districts and many government units are reimbursing employers (paying benefits dollar for dollar) rather than subject to experience-rated taxes. He said the department had issued a one-time appropriation after 2023 law changes to help districts and that the Minnesota Department of Education had compiled district-level impact reports.

Next steps and follow-up. Lawmakers pressed for additional detail on the trust fund decline: how frequently DEED updates legislative leaders, whether the Unemployment Insurance Advisory Council should be reconvened, and how much of the DOL's improper-payment estimate is ultimately recouped. Roe said the department would follow up with additional data and that the statutory tax-setting formula is intended as a multi-year self-correcting mechanism rather than an immediate fix.

The committee paused the briefing to proceed to bills, and DEED agreed to provide follow-up data requested by senators.