One step in fixing the unemployment problem in this country is fixing the unemployment insurance problem. This is especially the case with the approximately 100,000 self-insured nonprofit organizations that are struggling to stay afloat in the face of the COVID-19 crisis.
The initial CARES Act, signed by President Donald Trump, set up a two-tiered system for the nonprofit organization industry. Nonprofit organizations that pay into the state unemployment system on a regular basis got 100% of their claims paid for by the federal government. Nonprofit organizations that self-insure only got half of their benefit charges paid for by the federal government.
It is unclear why Congress decided to pay only 50% to organizations that self-fund, but the result has been confusion for the entire nonprofit sector. In the latest round of COVID-19 funding, signed into law shortly after Christmas, Congress extended the current policy until March of this year.
For many self-insured nonprofit organizations, the continuance of this policy will only postpone the inevitable. If 100,000 self-insured nonprofit organizations are forced to make huge unemployment payments into their state unemployment systems, the result will be catastrophic for many of these organizations and for the employees that they want to hire back.
It was estimated that at the worst of pandemic 1.6 million nonprofit organization employees lost their jobs. Today, experts believe that close to 1 million of these workers have still not been rehired.
It has long been a top priority of organizations that advocate for the nonprofit sector to fix this anomaly created by Congress. When one nonprofit organization goes out of business, it puts a bigger burden on others that work in the same town or community. When Congress puts more financial burden on self-funded nonprofit organizations, it is not creating a better situation for organizations that don’t self-insure. It is actually making their jobs more difficult.
Many states recognize that what Congress has done with this two-tiered system is counterproductive. Indeed, the governors of Kentucky, New Jersey, and New York recently used CARES Act money allocated by Congress to help the self-funded nonprofit organizations in their states by ending the two-tiered system.
Other states have taken similar steps to solve this problem created by Congress. But most states have been unable to end the two-tiered system, and in the meantime, many nonprofit entities and their employees hang in the balance.
There is an urgent need to correct this problem. Charitable nonprofit organizations across the country continue to face crippling bills requiring payments to their state unemployment systems, with some receiving penalties and interest because the state systems are not set up to process the 50% deduction.
On top of all that, fraudulent unemployment claims are rampant. There are well-documented examples of fraudulent claims being paid, with estimates that fraud accounts for as much as one-third of all COVID-19 unemployment claims. The reimbursing nonprofit organizations are being charged for 50% of those claims while no other employers are being charged at all.
In a recent survey of nonprofit organizations that self-insure under their state unemployment systems, a sample of nearly 6,000 organizations report having paid out over $164.6 million for the first three billing quarters in 2020, which is a 350% increase over the same period in 2019. This is after the 50% relief from the CARES Act. The actual results vary by subsector, with some having charges as high as 600% greater than the prior year.
Extended to the tens of thousands of reimbursing nonprofit organizations throughout the United States, the current flawed policies are on the verge of diverting billions of dollars away from nonprofit missions and putting too many organizations out of business at a time when Americans are relying on their local nonprofit organizations more than ever.
For the sake of simplicity, we call on Congress to put an end to the two-tiered system. Treat all nonprofit organizations the same way. Provide 100% relief and let these nonprofit organizations focus on their mission to make our neighborhoods better places to live.
Donna H. Groh is the executive director of UST, a trust that provides human resource support and unemployment management services to more than 2,200 nonprofit member organizations.
