Iowa Workforce Development announced this week that the unemployment contribution rate for employers will be adjusted on Jan. 1, 2011 to keep the Unemployment Insurance Trust Fund at sufficient levels to adequately provide for unemployment benefits.
Record unemployment claims over the last two and a half years coupled with a have triggered the adjustment.
"It's one of those things that we knew would be coming and we took some steps this past session to minimize the impact to employers," said Sen. Steve Sodders, D-State Center.
Each year, Iowa law requires the department to use a required formula to establish which contribution table will be used to determine the rate paid by employers.
"It's something I'll be looking at to see if we need to make any changes," said Rep. Mark Smith, D-Marshalltown. "It's a very important system and it needs to operate effectively and efficiently."
Unemployment contribution rates are based on wages. Iowa has traditionally had some of the lowest employer rates in the country.
Sodders said money from the state's rainy-day fund was used to offset further potential increases and saved employers tens of millions of dollars statewide.
"We were in the same position as 25 to 40 other states, some of whom have seen their unemployment insurance systems go bankrupt," he said.
If that were to happen, Sodders said the only option would have been to borrow money from the federal government to honor unemployment claims. That is something the state did not want to do.
"Iowa Workforce Development is committed to maintaining the solvency of the Trust Fund while minimizing the effects felt by Iowa employers," said Iowa Workforce Development Director Elisabeth Buck.
"The department is continually working with Iowans receiving unemployment benefits to increase their skill sets and reduce barriers individuals may have for returning to work."
During the current recession, the trust funds in 35 states have gone bankrupt causing massive borrowing from the federal government to cover benefits. To repay the federal government, all of the businesses in these states will pay significantly higher federal unemployment taxes for years to come.
Unemployment insurance contributions are based on two primary factors, whether the business is new and the number of layoffs a company had during the last five years.
As a result, companies with seasonal workers and regular shutdowns pay a higher rate than companies that have relatively few shutdowns or layoffs.