{{Use dmy dates, date=August 2012 The ''Benefit Financing Model'' (BFM), also known as ''Unemployment Insurance Benefit Financing Model'' (UIBFM), is an actuarial forecasting model designed to help analysts project the condition of

Unemployment Trust Fund (UTF) The Unemployment Trust Fund (UTF) is composed of 59 accounts in the United States Treasury related to unemployment insurance program. Specifically, there are 53 state accounts, 4 federal accounts, and 2 accounts in connection with Railroad Retiremen ...

a number of years into the future, and quickly assess the financial impact of various economic scenarios and possible law changes. This model was constructed to be highly comprehensive yet flexible enough to adapt to individual state needs. It is considered a useful tool in

unemployment insurance Unemployment benefits, also called unemployment insurance, unemployment payment, unemployment compensation, or simply unemployment, are payments made by authorized bodies to unemployed people. In the United States, benefits are funded by a comp ...

(UI) benefit financing and trust fund forecasting. The Benefit Financing Model is composed of two programs. Program One, the ''Projection Program'', is based on the methodology of empirical

econometric modeling Econometric models are statistical models used in econometrics. An econometric model specifies the statistical relationship that is believed to hold between the various economic quantities pertaining to a particular economic phenomenon. An econometr ...

. It uses regressions to derive mathematical relationships between key UI variables, and projects UI benefits, taxable wages, as well as workload variables on quarterly basis twelve years into the future. Program Two, the ''Financial Forecast Program'', is based on the methodology of

simulation modeling A simulation is the imitation of the operation of a real-world process or system over time. Simulations require the use of models; the model represents the key characteristics or behaviors of the selected system or process, whereas the ...

. It estimates Unemployment Trust Fund (UTF) income by simulating the workings of the State's taxation system. Combined with the UTF outgo estimated by the Projection Program, the Financial Forecast Program is capable of projecting the dynamic flow of the Unemployment Trust Fund on quarterly basis under different economic and legislative scenarios. Furthermore, the Financial Forecast Program also assesses the adequacy level of the UTF under different scenarios and report solvency measures (such as Reserve Ratio,

Average high cost multiple In unemployment insurance (UI) in the United States, the average high-cost multiple (AHCM) is a commonly used actuarial measure of Unemployment Trust Fund The Unemployment Trust Fund (UTF) is composed of 59 accounts in the United States Treasury re ...

, etc.) on an annual basis. If the trust fund should become insolvent and borrowing from the Federal Government is projected, the Program is able to assess loan interests, any reduced FUTA credits (also known as

FUTA credit reduction The Federal Unemployment Tax Act (or FUTA, ) is a United States federal law that imposes a federal employer tax used to help fund state workforce agencies. Employers report this tax by filing an annual Form 940 with the Internal Revenue Service. ...

), and other key loan variables. Lastly, the Projection Program can also be run independently to perform benefit cost estimation as well as workload forecasting. The Benefit Financing Model does not forecast macroeconomic variables such as unemployment rate, labor force growth rate, or wage growth rate. Users are expected to enter these variables into the model as economic scenarios.

History

The benefit financing model was first developed in 1977 by William M. Mercer Inc. It was initially known as Mercer Model. Since early 1980s the model has been modified, updated and expanded by the Division of Actuarial and Fiscal Services in the Office of Unemployment Insurance of the

U.S. Department of Labor The United States Department of Labor (DOL) is one of the executive departments of the U.S. federal government. It is responsible for the administration of federal laws governing occupational safety and health, wage and hour standards, unemploym ...

. The model is currently maintained by the Division for the free use by any US state with the desire to use this forecasting model.

References

Unemployment Insurance Benefit Financing Model User's Manual

Missouri Trust Fund Projection with Benefit Financing Model, 2016-2025

Vermont Unemployment Trust Fund Report Using Benefit Financing Model 2015

California's Unemployment Insurance System and Financing Study
prepared by Bickmore Risk Services and Consulting, September 2009.
South Carolina Unemployment Insurance Benefits: Financing the System
prepared by The Lucas Group, February 2010.
Report on Unemployment Insurance Benefits and Actuarial Modeling in Washington
by Wayne Vroman, The Urban Institute, 2005] Unemployment in the United States Econometric models Simulation