Legislature(2019 - 2020)BARNES 124
02/24/2020 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB84 | |
| HB215 | |
| HB235 | |
| HB113 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 84 | TELECONFERENCED | |
| *+ | HB 215 | TELECONFERENCED | |
| += | HB 235 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 113 | TELECONFERENCED | |
HB 215-EMPLOYER'S UNEMPLOYMENT INSUR RATE
3:51:23 PM
CHAIR SPOHNHOLZ announced that the next order of business would
be HOUSE BILL NO. 215, "An Act relating to unemployment
insurance contribution rates; and providing for an effective
date."
3:51:57 PM
PATSY WESCOTT, Director, Division of Employment and Training
Services, Department of Labor & Workforce Development, informed
the committee that employer rates are provided for in Title 23,
Chapter 20, the Alaska Employment Security Act. The act itself
is designed to promote employment and economic security and
provide a partial wage replacement to qualified, unemployed
workers through the collection of unemployment insurance tax
contributions. Currently, the applicable statute provides for a
minimum contribution rate of one percent for all employers in
all rate classes one through twenty. The only exception is rate
class twenty-one, which is the penalty rate. HB 215 seeks to
lower the minimum contribution rates for employers in rate
classes one through nine and set the minimum rates to correlate
with an employer's experience rating. The current minimum of
one percent notably affects the rate for employers with a year-
round consistent work force. These employers contribute at a
disproportionate rate when compared to employers who have
inconsistent employee payroll from quarter to quarter. An
employer's experience rate is based on how consistent their work
force is throughout the year. The more stable an employer's
work force, the less need there is for their employees to draw
unemployment insurance benefits. Since these employers have
fewer employees in need of benefits, it is appropriate that
their rates should not be expected to carry the same
contribution burden as their counterparts in higher rate
classes. At this time, approximately 4,700 employers are paying
more contributions than are necessary. The proposed legislation
would establish lower minimum rates, beginning January 1, 2021.
3:54:56 PM
LENNON WELLER, Economist/Unemployment Insurance Actuary,
Research & Analysis Section, Department of Labor & Workforce
Development, provided a PowerPoint presentation, entitled
"Unemployment Insurance Financing Metrics in Alaska 1980s to
Current." He noted that, in general, the unemployment insurance
(UI) financing system has essentially been in its current form
since the early 1980s and has served the state "fairly well."
He said it's a well-functioning system. Both through the 1980s
recession and the 2009 recession, Alaska never borrowed money to
pay benefits - unlike a majority of other states - which, he
said, is a testament to the system's well-functioning nature.
He explained that the system is self-adjusting, in that it looks
to recapture costs born by the system as its primary objective.
It's also countercyclical, meaning it attempts to do that post
the high cost period through a three-year averaging of cost in
relation to covered wages when implementing tax rates in the
following years. The UI financing system has two primary
objectives, cost recovery and recession readiness, which are the
two main drivers of rates at any given year. He directed
attention to a graph on slide 3, entitled "UI Trust Fund End-of-
Year Balance, Benefit Costs, and Payroll Contributions, 1981-
2019." He said it shows the relationship between benefit costs
at any given year, net contributions, and the resulting trust
fund balance. Over time, in nominal terms, the trust fund
balance should grow because it is kept within a relative ratio
to wages in the economy. Essentially, as wages grow the balance
of the fund should grow.
3:58:05 PM
REPRESENTATIVE HANNAN asked if benefit cost is what is paid out
in benefits.
MR. WELLER answered yes.
REPRESENTATIVE HANNAN pointed out that in 1986 more money was
spent on unemployment insurance than was taken in. She asked
where that money came from, more specifically, if it was a draw
on the general fund.
MR. WELLER said all revenues, or net UI contributions, come from
the payroll tax, which is assessed on all wage and salary
employment in the state.
REPRESENTATIVE HANNAN said the graph shows that the trust fund
balance wasn't high enough to pay the benefit cost in 1986. She
asked what happens when the benefit costs are higher than the
trust fund balance.
MR. WELLER explained that while in any given year more benefits
might have been paid out than the amount received in
contributions, the actual net value of the fund was never
negative. He said in 1986 it fell to a low of $60 million and
began to recover thereafter. He noted that several years prior,
the fund was built up to have the cushion necessary to absorb
those benefit costs higher than contributions.
3:59:43 PM
MR. WELLER directed attention to a graph on slide 4, entitled
Unemployment Insurance Trust Fund Reserve Rate the Measure of
Solvency 1981-2020." He discussed how the trust fund balance is
viewed in terms of the financing system. He said the more
important aspect, as opposed to the nominal value of the fund,
is its relation to the total wages covered in the economy. The
target for the reserve ratio is between 3-3.3 percent of covered
wages and the fund seeks to return to the relative portion of
covered wages. In periods it will be below that which is
accounted for by cost recapture and a solvency adjustment. He
said that the reserve ratio is the balance of the fund as a
percentage of wages in the economy. He pointed out that in the
last several years, it has gone above the target high point
reserve ratio of 3.3 and is currently at 3.8 reserve ratio. He
further noted that the target reserve ratio is a result of
looking at history, benefit costs under high-cost periods, and
deemed acceptable to meet a vast majority of potential large
cost periods.
MR. WELLER turned attention to a graph on slide 5, entitled
"U.S. DOL, Measures of Trust Fund Adequacy." He said,
generally, the state will meet the average high-cost multiple,
which is a more generous measure. It looks at a three-year
average of the highest cost periods as a percentage of wages.
That high-cost rate is 22.6 percent. He explained that the
high-cost multiple looks at the highest cost 12-month period in
the program's history, which was in 1958 at 4.34 percent of
covered wages. The point of this graph, he said, is to show how
far the reserve ratio has come in the last several years. It is
now running at 60 percent higher than the main federal DOL
measure of full solvency - 160 percent of what they would deem
necessary to meet the most likely recessionary cost period.
MR. WELLER continued to a graph on slide 6, entitled
"Unemployment Insurance Average Benefit Cost Rate, ABCR, 1985-
2020." He stated that the Average Benefit Cost Rate (ABCR) is
the main driver of tax rates in any given year - it is the cost
recover element. Three years of benefit cost is used as a
percentage of wages to replenish the fund in relation to those
wages covered. Since the mid-1980s, there has been a
significant decline in the relative ratio of benefits paid to
the general size of the potential pool of wages in the economy.
Furthermore, 2020 is the first year where ACR fell below the
threshold at which the one percent statutory minimum met the
average rate classes 10 and 11.
MR. WELLER directed attention to a graph on slide 7, entitled
"Alaska, UI Contribution Rates Employer and Employee, CY1981 -
CY2020." He said it shows the average employer tax rate and the
uniform employee rate. The past four years has steadily
remained at the statutory minimum one percent, which signifies
that tax rates have bottomed out. He continued to a graph on
slide 8, entitled "1985-2020 Count of Tax Classes at Statutory
Min. 1 [percent] in a given tax year Total of 20 Tax Classes
subject to 1 [percent] Min." He stated that there's at least
one or two tax classes that become subject to the minimum
because rate class one equates to 40 percent of the average
benefit cost rate of portion two employers.
4:06:23 PM
The committee took a brief at-ease.
4:06:27 PM
CHAIR SPOHNHOLZ noted that something is wrong with the visuals
on the projector.
4:07:24 PM
MR. WELLER said on average, there are several tax classes that
are subject to the minimum rate; however, in the past several
years it has steadily crept up to the point where currently, 18
of the 20 rate classes that subject to the minimum are at that
one percent minimum.
4:07:50 PM
REPRESENTATIVE FIELDS asked how many employers HB 215 would
affect.
MS. WESCOTT answered approximately 4,700.
CHAIR SPOHNHOLZ sought clarification on the variation in tax
classes.
MR. WELLER said the average benefit cost rate becomes the
primary component for all employers' rates. Classes 10 and 11
are currently the median of the class structure. That is
multiplied by something either lesser or greater than that to
essentially experience rate employers. He further noted that
tax classes 9 would be subject to 90 percent of that, 8 would be
80 percent and so forth, all the way down to rate class one,
which has an experience factor of .4. That means they should
ideally pay 40 percent of what those in the average tax classes
10 and 11 would pay.
CHAIR SPOHNHOLZ asked for an even more elemental description of
what a tax classification is and how individual jobs are
ascribed to tax classifications.
4:09:36 PM
MR. WELLER explained that federal law mandates that employers
are experience rated. The department does that through a peril
decline method, which means employers are assigned with a lesser
experience a lower rate and those with a higher experience a
higher rate. This is done by looking at average decline in the
employers' payroll. He noted that they must have at least four
quarters of payroll to be subject to an experience rating.
CHAIR SPOHNHOLZ asked what an experience rating is.
MR. WELLER said an experience rating is the relative share of
the average rate that they would pay based on their payroll
decline portion.
4:10:41 PM
MS. WESCOTT, in response to Chair Spohnholz, explained that
experience rating is a long-used term by the U.S. Department of
Labor. Essentially, employers whose payroll has large
fluctuations from quarter to quarter indicates that their
employees were laid off, filing for benefits, or using the
system. Therefore, that employer is experiencing the benefits
of the trust fund and the benefits of the system, as are their
employees. This is contrary to an employer whose payroll is
consistent from quarter to quarter, which indicates their
employees are not being laid off and not drawing benefits from
the system. This employer's experience would be much lower than
an employer whose payroll fluctuates greatly.
4:12:14 PM
REPRESENTATIVE HANNAN surmised that in the context of
unemployment insurance, a high experience rating is bad, and a
low experience rating is good.
MS. WESCOTT replied she wouldn't use the term "bad." She said
the unemployment insurance system exists to provide that partial
wage replacement during periods of time where an employee can be
laid off. Nonetheless, from an employer's perspective, the
lower the rate class they're in the better it is for that
employer because they are paying out a lower rate.
4:13:00 PM
REPRESENTATIVE FIELDS noted that some of this is sectoral - the
construction of industry waxes and wanes with season. He asked
if that is correct.
MS. WESTCOTT confirmed that.
4:13:13 PM
REPRESENTATIVE HANNAN said she assumed that there are other
states that have seasonality to their incomes. In Alaska, for
example, there are huge swaths of industry - from construction
to fisheries - that are always going to be high experience. She
asked if the ranking, rating, and payment rate account for any
industry differences or if seasonality is irrelevant.
MR. WELLER acknowledged that there is a strong correlation
between seasonality and the rate class - the more seasonal the
industry the higher the rate class. He added that less seasonal
more stable employers all find themselves in the lowest rate
class one.
REPRESENTATIVE HANNAN asked if seasonal employers are penalized
by the slower seasons.
MS. WESCOTT said there is nothing in statute that provides for
any waiver or relief to any particular industry.
4:16:57 PM
MR. WELLER resumed his presentation on slide 9, entitled
"Average Benefit cost rate, ABCR/Employer Rate Share/Min one
percent Rate." He explained that the graph depicted on this
slide displays the relationship between the total ABCR and the
employer share. He said at an ABCR of 1.37 or lower the average
rate classes 10 and 11 would be subject to this statutory
minimum. Currently, for 2020 there was an ABCR of 1.28 percent,
which would make the average rate class .82. Under HB 215, the
absolute minimum take would be .82 as opposed to the current 1
percent statutory minimum. He continued to slide 10, entitled
"2020 Rate Classes 1-9, Current Statute V. Proposed Change." He
said that this slide demonstrates how the new experience rated
minimums would affect rate classes 1-9 for the current calendar
year. If there was no minimum in place and included the
solvency adjustment, there would be a negative tax rate for rate
class 1 in 2020. However, if the solvency adjustment were to be
disregarded, the experience rated rate class 1 would be at .38
percent in 2020.
4:20:36 PM
REPRESENTATIVE FIELDS said an employer might pay in more in a
given year than their employees take out when they get laid off.
He asked if that changes from year to year, meaning one year an
employer's employees getting laid off may take less and then the
next year they might take more. He asked if that's generally
accurate.
MR. WELLER answered yes.
REPRESENTATIVE FIELDS asked if Alaska is 50th in the nation in
terms of UI payments.
MS. WESCOTT said Alaska is currently 37th.
REPRESENTATIVE FIELDS asked how much below average Alaska is in
terms of weekly or bi-weekly payments.
MS. WESCOTT said she would follow up with requested information.
REPRESENTATIVE FIELDS explained that he would like to understand
where Alaska is relative to the average in terms of amount of
dollars workers are not getting when they get laid off.
CHAIR SPOHNHOLZ said the entire committee would be interested in
knowing what Alaska's UI payments are and how they fit into the
national context, as well as what wages are in the state of
Alaska.
4:22:23 PM
REPRESENTATIVE HANNAN sought clarification on whether the state
ranking accounts for the number of people being paid as well as
the dollars they are receiving or just the dollars they are
receiving.
MS. WESCOTT explained that the state ranking compares Alaska's
maximum weekly benefit amount to that of the rest of the states.
REPRESENTATIVE HANNAN asked if it disaggregates for the time of
year and job type.
MS. WESCOTT said there are a number of measures that the
department reports on. She noted that Alaska's average weekly
benefit amount in a given year is much lower than 370.
4:24:33 PM
REPRESENTATIVE FIELDS said he would be interested in learning
Alaska's maximum and average compensation over time and adjusted
for inflation to understand if workers today are getting paid
more or less than 20 or 30 years ago.
CHAIR SPOHNHOLZ agreed.
[HB 215 was held over.]