The document discusses Kentucky's Worker's Compensation Special Fund, which was created in 1996 to pay claims from before 1997 and relieve the burden on non-coal employers. It has a $1.6 billion liability and pays 9,400 active claims, over half of which are for black lung disease. While employer assessments that fund it have decreased, the Labor Cabinet's withdrawals from the fund have increased from 29% in 2010 to a projected 45% in 2013. This extends the estimated payoff date for the fund's liabilities from 2019 to 2029. The presentation calls for limiting withdrawals to focus on closing the fund.

1. 1
“What is that Assessment on
My Worker’s Comp bill?”
Tom Underwood
NFIB/Kentucky State Director

2. 2
Government and You

3. Worker’s Comp Special Fund
• Created in 1996
• Part of Worker’s Comp Overhaul by
Governor Patton
• Designed to stop burden of “Black Lung”
claims on non-coal business
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4. Worker’s Comp Special Fund
• All pre-1997 claims to be paid from fund
• Assessment on all employers
• $19 Million from coal severance tax
• Additional Assessment on coal industry
• Fund to be paid off by 2019 and
assessment dropped
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5. Worker’s Comp Special Fund
• $1.6 Billion Dollar Liability
• Currently 9400 Active Claims
• 58% Black Lung Claims
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6. Worker’s Comp Special Fund
• Employers got 40% reduction in WC
premiums from 1996 reforms.
• Labor Cabinet to receive program
funding from Special Fund for overhead
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7. Labor Cabinet Funding
• KRS 342.122 (1)(a) clearly states that all
Labor Cabinet program expenses to be
paid by transfer from fund
• No maximum on “take”
• No mechanism for “take”
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8. Income vs. Outgo
• Employer Assessment Income decreased
by 12.1% between 2010 and 2011.
• Claims paid increased by 8.2%
• Cash Flow of -$5.4Million
• General Assembly takes away
$19Million in coal severance money
income.
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9. Over Time
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10. The Rational Response
• What would most businesses do when
facing a cash flow shortfall?
• Labor Cabinet increased “take” by
+12.8% between 2010 to 2011.
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11. The Budget Cut That Wasn’t
• Over the last few budget years, state
agencies have taken annual budget cuts.
• While the Labor Cabinet took a cut from
the General Fund, they simply increased
the “take” from the Special Fund.
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12. Labor Cabinet “Take”
2010 - $21,651,600
2011 - $24,429,500 +12.8%
2012 - $25,810,450 +5.6%
2013 - $29,193,700 +13.1%
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13. Percentage
• For 2010 – Labor Cabinet took 29% of
all employer assessments for their
operations
• For 2011 – Labor Cabinet took 37% of
all employer assessments for their
operations
• For 2012 – Taking an additional 8%
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14. Fiscal Year 2013
Question: What percentage of employer
assessments are projected to be sent to
the Labor Cabinet in FY 2013?
Answer: Approximately 45%
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15. Bury the Increases
• Most legislators unaware of the increases
• Showed up in Executive Branch Budget
as “Restricted Funds” transfer
• Most Businesses unaware of what the
assessment is or that they have an
outstanding benefit liability.
• Hidden Tax
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16. Effects on Business and Fund
Amortization
• After 15 years employers still owe
$1.487 Billion in liabilities
• Projected payoff moved from 2019 to
2029 – Total of 33 years
• Extends and preserves cash flow for
Labor Cabinet
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17. Lose a Few Dollars Per Unit, Make
It Up On Volume
• $380,000,000 in reserves
• Change of Investment Strategy
• State Auditor found could not use outside
investment agency
• Result – liquidated all equities and moved
reserves to T-notes and T-bills at approximately
1% yield
• Have now turned over reserves to Deutsche Bank
for short term investment lending
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18. 18
Audience
Participation
Time

19. Final Benefit Payout
• Question: When does the Fund project
that the last benefit check will be mailed?
•
Answer: 2087
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20. How Long?
That means that it will have taken employers
91 years
to pay off the special fund liabilities
Almost 5 generations!
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21. Assessment Rates
Pre 1989 23.30% 1996-2001 9.00%
1989-1991 16.90% 2002-04 11.50%
1992-1993 11.68% 2005 9.00%
1994 12.30% 2006-11 6.50%
1995 9.70% 2012-13 6.28%
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22. Decision Makers
Judy B. Long, Chairman – Wells Fargo (Self-Insured Representative)
Michelle C. Landers, Secretary-Treasurer - KEMI (Insurance Representative)
Jeffery R. McIntosh – Energy Insurance Agency, Inc.
(Commercially Insured Employers)
William G. (Bill) Finn, Vice Chairman- IBEW (Labor Representative)
Larry Roberts, Secretary - Labor Cabinet
Lori H. Flanery, Secretary - Finance & Administration Cabinet
Larry Hayes, Secretary - Economic Development Cabinet
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23. Solution: Focus on Fund Closure
• Limit “leakage” to Labor Cabinet
• Focus on lump sum settlements using a
portion of reserve funds
• Get this thing off employers backs
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24. Labor Cabinet
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25. Labor Cabinet
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26. Labor Cabinet
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27. Thank You!
Tom Underwood
State Director
NFIB/Kentucky
tom.underwood@nfib.org
502-223-5322
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