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| Experience Rating 2006 -- UI Pub. 8 |
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The tax rates and benefit ratios printed on the notice are correct, but the UI Pub. 8 may contain incorrect benefit ratio ranges. To view the correct UI Pub. 8 contact us at 503 947-1488. Please note that the tax rate and benefit ratio printed on the personalized tax rate notice you received are correct. Only the supplemental UI Pub. 8 included in the mailing may contain incorrect information. If you have any questions, please contact the Tax Section at the number above. We apologize for this error.
UI Pub. 8 provides more detailed information about the experience rating (calculation of tax rates) for employers in 2006.
11/16/2005
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| Tax Schedules and Solvency - 2006 |
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Unemployment Insurance Tax Schedules and Solvency in Oregon
The tax schedule that is in effect for a given calendar year is determined by provisions of Oregon Unemployment Insurance law (ORS 657.459) and is directly dependent on the solvency of the Unemployment Insurance (UI) Trust Fund.
Trust Fund solvency is based on the general principle of insurance and is established in such a way that the Employment Department can finance Unemployment Insurance
Benefits over a period of business cycles without going into debt. Experience from past recessions has shown that benefits paid out during an entire recession period are one and one-half to two times a one year benefit cost rate. Therefore, a 1.5 reserve multiple, or enough reserves to pay benefits for 18 months, is used to determine UI Trust Fund solvency.
In order to keep the trust fund solvent we have 8 tax schedules and each September we determine which tax schedule will go into effect for the following calendar year. Schedule IV (the long term goal) should be activated when the trust fund balance is sufficient in size to cover whichever amount is larger: 150 percent of the costs of the “high cost period” during the last 10 years or 150 percent of the costs of a 7% Insured Unemployment Rate (IUR). Tax schedules I, II, and III reduce tax rates to bring the trust fund level down. Tax schedules V, VI, VII, and VIII increase tax rates to rebuild the trust fund level to cover the costs during the next economic downturn period.
Oregon law provides two formulas to determine which tax schedule to use in the coming year.
The first formula is the “Ten Year High Cost Formula.” In this formula the Adjusted UI Benefits are generated by identifying the highest total unemployment insurance benefits paid during any twelve consecutive-month period during the last ten years. This number is adjusted for the growth in average wages and covered employment.
The second formula is called the “Seven-Percent Insured Unemployment Formula”. This formula is designed to approximate the amount of benefits that would be paid out if the insured unemployment rate rose to seven percent. The Adjusted UI Benefits is calculated as the average monthly employment during the previous calendar year times the adjusted weekly check amount times 3.3 weeks.
Based on the Oregon employment law we first choose the greatest of the Adjusted UI Benefits paid from Formula I or Formula II, then divide this number by the End of August Trust Fund Balance to generate a ratio which is called the Fund Adequacy Percentage (FAP) Ratio. Using this ratio we determine which Tax Schedule is in effect for the coming year.
The 7% formula has been used since calendar year 1994. This year, according to Oregon law, we have used this formula again and have calculated a FAP Ratio of 151.53%. Therefore, as I projected Tax Schedule IV will be in effect for calendar year 2006. Using Tax Schedule IV instead of V will cause an overall $78 million reduction in UI taxes for CY 2006.
Table 1 shows the Fund Adequacy Percentage (FAP) Ratio for Table I through VIII.
Table1
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Fund Adequacy Percentage
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Ratio
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I
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200% and Over
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II
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190% but less than 200%
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III
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170% but less than 190%
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IV
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145% but less than 170%
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V
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125% but less than 145%
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VI
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110% but less than 125%
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VII
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100% but less than 110%
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VIII
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Under 100%
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In setting individual employer tax rates Oregon uses a system of array allocation. That is, each tax schedule has a number of tax brackets and employers are ranked according to their benefit ratios and placed into one of these tax brackets. The weighted average of the statutory tax rate for Tax Schedule IV is about 2.28% with taxes ranging from 1.2% to 5.4%.
Ahmad Rostamizadeh, Actuary
Oregon Employment Department
11/15/2005
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| 2006 Tax Rates |
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For the year 2006 the tax rates from Tax Schedule IV are as follows:
Taxable minimum rate 1.2%
Taxable maximum rate 5.4%
Taxable base rate 3.1%
The taxable wage base for 2006 will be 28,000.
11/15/2005
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