by Sharon Cappella, CIC

New Jersey Governor Chris Christie’s signage of S-1813 on June 30, 2011 –– just one day before employers would have faced an automatic payroll tax increase of approximately $300 per employee –– seems to have averted the increase to a three-year phase-in. However, it also highlighted the mounting troubles of NJ’s Unemployment Insurance Trust Fund and unavoidable increases to come.

The American reality is that most states are dealing with unemployment insurance programs that were established in 1935 and now faltering. Outstanding debts to the U.S. Treasury total $37 billion, according to a new report from the National Academy of Social Insurance.

In an article written for Newsmax, author Greg McDonald quoted Urban Institute economist Wayne Vroman, who compiled the above-mentioned NASI report, as saying, "The current financing crisis in state (unemployment) programs can be described as a perfect storm resulting from the constellation of four factors. These factors are: a deep and prolonged recession, low reserves prior to the recession, the timing of the downturn, and low levels of employment through 2011."

The pressure on our nation’s unemployment programs, and in particular New Jersey’s troubled fund, is expected to worsen unless additional funding can be identified. It is ironic that this may mean the non-profit sector may begin to pay more than its fair share of tax, as its lower unemployment rate continues to contrast the for-profit world so starkly.

The good news is that larger non-profits have a viable option (as outlined in IRS tax code 3309). So I ask my clients, "Why pay a tax if you don’t have to?"

This article is an attempt to continue to inform decision-makers that an alternative unemployment insurance tax product is available. I have personally connected several non-profit organizations with programs that immediately improved their bottom line –– with expectation that additional dividend benefits based on positive annual outcomes will follow. Each of these non-profit organizations had 20 or more employees, which appears to be the profile that generates instant return.

The alternative program works like this: Instead of paying the state tax upfront, the alternative insurance program reimburses the state for the actual claims paid to an organization’s former employees. Since nonprofits tend to have fewer claims than most employers, reimbursing is generally less expensive than paying the tax. Plus, the insurance company would provide claims handling services, which would not only streamline the paperwork for your organization but would also assist in improving your claim experience. As you can imagine, better claims experience leads toward reduced rates on renewals.

Steve Cook, the Executive Director of Arc Mercer, recently took advantage of this offering and said, "(Borden Perlman’s) unemployment insurance tax product helped us more effectively address yet another problematic area in our risk and financial management profile." Non-profits like Arc Mercer have also realized tax savings can be redirected to programs which strengthen their missions.

I encourage you to work with your risk management specialist and explore how to capture savings for your nonprofit agency, and possibly even ownership benefits. Heed the warning: Remaining enrolled in the traditional state unemployment insurance fund (which pools all businesses together to pay for unemployment claims) is projected to get increasingly costly for all participants!

Sharon Cappella, CIC, has been an account executive at Borden Perlman since 2000, and was recently recognized by The Society of Certified Insurance Counselors for 10 Years of "commitment to advanced knowledge and customer service." A graduate of Temple University, she is a member of the Gamma Iota Sigma Risk Management & Insurance Fraternity. She can be reached at Borden Perlman by calling 609-896-3434 or e-mailing

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