Where is the 50% CARES Act Reimbursement for Self-Funded, Nonprofit Employers?
Section 2103 of the CARES Act provides that nonprofits that have chosen to be reimbursable employers, are entitled to be reimbursed for 50% of the amounts paid into their respective state’s unemployment trust fund between March 13, 2020, and the end of the year. The tricky part of this though is that the federal reimbursement payments are made to the state, not directly to the self-insured nonprofit. This, in turn, means that the self-insured nonprofits are paying 100% of the UI claims and must wait for the reimbursements to eventually roll in from the state.
When will this happen?
Self-funding of unemployment claims has almost universally been a significant benefit for nonprofits, with many reporting net savings of 30% to 40% over five to ten years. That equation though, has been turned upside down in light of recent events that have caused extraordinary layoffs in the nonprofit sector. These layoffs result in automatic approval for UI benefits which can easily wind up costing the employer $10,000 – $15,000 over the life of the claim. Simple math tells us that many reimbursable employers will now be paying more for their UI than taxable employers.
When individual employers will begin seeing reimbursements for their claims and how this will be done is still a mystery. Neither the federal government nor any individual state has yet been able to provide insight on this. We do know that numerous campaigns are under way by nonprofit associations and other advocacy groups to relieve nonprofits from the 50% liability. This is a long shot, but it is certainly being pushed.
As we await further guidance on this, while reviewing UI claims management, nonprofits should keep in mind:
- The CARES Act funding will cover 50% of all claims during the designated period of time – not just those related to COVID.
- There are suggestions that nonprofits may want to reconsider the choice to be a self-funding reimbursable UI employer as opposed to a taxable UI employer. This should be approached with caution, as there are numerous conditions in place in most states, including rules requiring nonprofit employers, to maintain financing under the reimbursable method for five complete calendar years and, in the event an employer switches to a taxable account they will remain liable for UI benefits paid to their former employees covered under the reimbursable program for three calendar years.
- The $600 PUA benefit being paid out through the end of July will not affect the employer. This is being paid 100% by the federal government and is not part of the equation in any way for the employer.
- The 50% reimbursement is on the table only for nonprofits that are registered as self-insured for UI. It does not affect for profits and does not affect nonprofits that have elected to remain taxable (i.e. pay into the state’s unemployment insurance fund).
As is so often the case these days – stand by for more updates…