Unemployment Insurance: Issues Relating to the Reserve Adequacy and Trust Fund Solvency

GAO discussed the major problems facing the Department of Labor's (DOL) Unemployment Insurance (UI) System. GAO found that: (1) most of the individual state trust funds did not have adequate reserves to pay recession-level benefits without borrowing from the federal government; (2) reserves were equivalent to 5 months of recession-level benefit payments; (3) seven state trust funds were insolvent; (4) because federal policy changes increased the costs of insolvency, many states increased UI taxes, reduced benefit costs, and tightened eligibility standards; (5) these actions reduced the proportion of unemployed receiving benefits; and (6) the system fails to encourage states to build adequate reserves during periods of economic expansion to withstand future recessions. GAO believes that Congress may wish to take action to: (1) improve state reserves to minimize trust fund insolvency and avoid borrowing from the federal government; and (2) maintain appropriate levels of worker benefits.