American Association of State Compensation insurance Fund
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CopperPoint Mutual Insurance Company
Phone: (602) 631-2000
Address: 3030 North Third Street
Phoenix, AZ   85012
Website: www.copperpoint.com

State Compensation Insurance Fund
Phone: 888-STATEFUNDCA
Address: 333 Bush Street
Suite 800
San Francisco, CA   94104
Website: www.statefundca.com

Pinnacol Assurance
Phone: (303) 361-4000
Address: 7501 East Lowry Boulevard
Suite 800
Denver, CO   80230-7006
Website: www.pinnacol.com

Hawaii Employers' Mutual Insurance Co. Inc.
Phone: (808) 524-3642
Address: 1100 Alakea Street
Suite 1400
Honolulu, HI   96813
Website: www.hemic.com

Idaho State Insurance Fund
Phone: (208) 332-2100
Address: 1215 West State Street
P.O. Box 83720
Boise, ID   83720-0044
Website: www.idahosif.org

Kentucky Employers Mutual Insurance
Phone: (859) 425-7800
Address: 250 West Main Street Suite 900
P.O. Box 83720
Lexington, KY   40507-1724
Website: www.kemi.com

Louisiana Workers' Compensation Corporation
Phone: (225) 924-7788
Address: 2237 South Acadian Thruway
P.O. Box 83720
Baton Rouge, LA   70808
Website: www.lwcc.com

Maine Employers Mutual Insurance Company (MEMIC)
Phone: (207) 791-3300
Address: 261 Commercial Street
P.O. Box 11409
Portland, ME   04104
Website: www.memic.com

Chesapeake Employers Insurance Company
Phone: (410) 494-2000
Address: 8722 Loch Raven Boulevard
P.O. Box 11409
Towson, MD   21286-2235
Website: www.ceiwc.com

SFM Mutual Insurance Company
Phone: (952) 838-4200
Address: 3500 American Boulevard West Suite 700
P.O. Box 11409
Bloomington, MN   55431-4434
Website: www.sfmic.com

Missouri Employers Mutual Insurance
Phone: (800) 442-0590
Address: 101 N Keene St
P.O. Box 11409
Columbia, MO   65201
Website: www.mem-ins.com

Montana State Fund
Phone: (406) 495-5015
Address: 855 Front Street
P.O. Box 4759
Helena, MT   59604-4759
Website: www.montanastatefund.com

New Mexico Mutual Group
Phone: (505) 345-7260
Address: 3900 Singer Boulevard NE
P.O. Box 4759
Albuquerque, NM   87109
Website: www.newmexicomutual.com

New York State Insurance Fund
Phone: (212) 312-7001
Address: 199 Church Street
P.O. Box 4759
New York, NY   10007
Website: www.nysif.com

Workforce Safety and Insurance
Phone: (701) 328-3800
Address: 1600 East Century Avenue Suite 1
P.O. Box 4759
Bismarck, ND   58506-5585
Website: www.WorkforceSafety.com

Ohio Bureau of Workers Compensation
Phone: (800) 644-6292
Address: 30 West Spring Street
P.O. Box 4759
Columbus, OH   43215-2256
Website: www.ohiobwc.com

CompSource Mutual Insurance Company
Phone: (405) 232-7663
Address: 1901 North Walnut Ave.
P.O. Box 53505
Oklahoma City, OK   73152-3505
Website: www.compsourcemutual.com

State Accident Insurance Fund (SAIF)
Phone: (503) 373-8000
Address: 400 High Street SE
P.O. Box 53505
Salem, OR   97312-1000
Website: www.saif.com

Pennsylvania State Workers Insurance Fund
Phone: (570) 963-4635
Address: 100 Lackawanna Avenue
P.O. Box 5100
Scranton, PA   18505-5100
Website: www.dli.state.pa.us/swif

Beacon Mutual Insurance Company
Phone: (401) 825-2667
Address: One Beacon Centre
P.O. Box 5100
Warwick, RI   02886-1378
Website: www.beaconmutual.com

South Carolina State Accident Fund
Phone: (803) 896-5800
Address: P.O. Box 102100
P.O. Box 5100
Columbia, SC   29221-5000
Website: www.saf.sc.gov

Texas Mutual Insurance Company
Phone: (800) 859-5995
Address: 6210 East Highway 290
P.O. Box 5100
Austin, TX   78723-1098
Website: www.texasmutual.com

Workers Compensation Fund
Phone: (800) 446-2667
Address: 100 West Towne Ridge Parkway
P.O. Box 2227
Sandy, UT   84070
Website: www.wcfgroup.com

Washington Department of Labor and Industries
Phone: (360) 902-5800
Address: P.O. Box 44001
P.O. Box 2227
Olympia, WA   98504-4001
Website: www.lni.wa.gov

Wyoming Division of Workers Safety & Compensation
Phone: (307) 777-7159
Address: Cheyenne Business Center
1510 East Pershing Boulevard
Cheyenne, WY   82002
Website: wydoe.state.wy.us

Workers Compensation Board - Alberta
Phone: (780) 498-3999
Address: 9925-107 Street
P.O. Box 2415
Edmonton, AB   T5J 2S5
Website: www.wcb.ab.ca

Workers Compensation Board of British Columbia (WORKSAFEBC)
Phone: (604) 273-2266
Address: P.O. Box 5350 Station Terminal
P.O. Box 2415
Vancouver, BC   V6B 5L5
Website: www.worksafebc.com

Manitoba Workers Compensation Board
Phone: (204) 954-4321
Address: 333 Broadway
P.O. Box 2415
Winnipeg, MB   R3C 4W3
Website: www.wcb.mb.ca

WorkSafeNB
Phone: (506) 632-2200
Address: 1 Portland Street
P.O. Box 160
Saint John, NB   E2L 3X9
Website: www.worksafenb.ca

Workers Compensation Board of Nova Scotia
Phone: (902) 491-8999
Address: 5668 South Street
P.O. Box 1150
Halifax, NS   B3J 2Y2
Website: www.wcb.ns.ca

Prince Edward Island Workers Compensation Board
Phone: (902) 368-5680
Address: 14 Weymouth Street
P.O. Box 1150
Charlottetown, PE   C1A 7L7
Website: www.wcb.pe.ca

Saskatchewan Workers Compensation Board
Phone: (306) 787-4370
Address: 200 - 1881 Scarth Street
P.O. Box 1150
Regina, SK   S4P 4L1
Website: www.wcbsask.com

Puerto Rico State Insurance Fund Corporation
Phone: (787) 793-5959
Address: G.P.O. Box 365028
P.O. Box 1150
San Juan, PR   00936-5028
Website: www.cfse.gov.pr
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AASCIF Newsletter

Whose Money Is It Anyway?

By Rene Martello, CPA, CFE, Controller, Montana State Fund

When Willie Sutton, infamous bank robber and member of the 1950 FBI’s Most Wanted Fugitives list, was asked why he robs banks, he was quoted as simply saying, “Because that’s where the money is.” When determining why state funds keep finding themselves in the position of defending their surplus from legislative takings, you could answer similarly, but it goes beyond where the money is and on to the next question of who has the authority to use that money.

State funds were created in statute to fulfill a public need for workers’ compensation insurance, and some also serve as the guaranteed market for that state. The various levels of state government attachment to state funds has resulted in legislative bodies taking interest and seeking to take state fund, or policyholder, assets for general state government purposes, even though state funds are not supported by taxpayer dollars.

Numerous current and former state funds, such as Oklahoma, Utah, Arizona, Oregon, and New York, have dealt with levels of legislative action and legal involvement with different outcomes. However, all seem to have a common set of circumstances:

  • A financial need to resolve a state’s fiscal issue(s).
  • A perception that a state fund’s legislative beginnings and administrative attachments put the entity within the government’s appropriation umbrella, and therefore calls in to question who has ownership and authority to use the assets.
  • A lack of understanding with regard to the importance and purpose of “surplus” in the workers’ compensation insurance industry.

Montana State Fund (MSF) recently fell victim to this type of legislative action. As a result of an extreme forest fire season—where more than 1 million acres burned in Montana during the summer of 2017—and lower than planned tax revenues, the Montana legislature was called in to a special session in November 2017 to address a budget shortfall of $220 million. Among numerous other actions taken, Senate Bill 4 (SB4) was enacted and requires transfers of about $30 million of MSF policyholders’ equity to fund the state’s forest fire suppression program. MSF and its business partners have successfully fended off legislative attempts to take MSF funds over the years, but this first-time legislation was successfully passed by the legislature and signed by the governor.

Montana law requires MSF’s assets to be invested and managed by the state’s Board of Investments. Based on law and policy, MSF pays for the associated investment fees and services based on their actual costs. SB4 requires the Board of Investments to assess another 3% management fee on investment balances exceeding $1 billion over the next two years and transfer that to the state’s fire suppression account. This equates to about $15 million that would be transferred in early 2018 and again in 2019. SB4 also states that “[t]he state fund may not raise rates or reduce dividends to offset real or estimated losses associated with the 3% management rate transfer.”

In November 2017, the MSF board of directors held a special meeting and approved moving forward with legal action to attempt to stop the transfer. Then the board met again and voted to withdraw the lawsuit. In response, a group of policyholders bound together and filed a lawsuit of their own, naming the State of Montana, the Montana Board of Investments, and MSF as defendants in an effort to stop the transfer of funds. The complaint states “[t]he purported ‘management fee’ is not calculated based on actual administrative costs of administering MSF funds. The “management fee” was instead designed and the dollars likely calculated to provide the State of Montana funding to cure budgetary issues.” The complaint goes on to say, “[i]t is not the duty of MSF policyholders to solve the State’s budgetary or fiscal woes.” The policyholder group asserts that by state law, by contract, and by the state constitution, the funds of MSF are held in trust only for the purpose of administering the insurance programs of MSF and rightfully belong to the policyholders having paid the premiums. The policyholder lawsuit was filed on January 22, 2018, and it is too early for the court to issue a decision.

Evaluation of other state fund case histories shows that the courts consider where the assets come from; what they were collected for; and if the assets are restricted by law, trust agreement, and/or contract. Following is a summary of some of the other court cases involving state funds where court involvement was necessary to resolve who owned and controlled the assets:

  • In 2013, Oklahoma’s state fund was challenged as to whether its assets could be placed in the new Compsource Mutual Insurance Company. The court concluded that the assets did not belong to the state but were held in trust for the benefit of the employers and employees protected by the insurance policy issued by Compsource. The court allowed the transfer of assets to the new mutual company.
  • Utah courts relied on earlier decisions, one dating back to 1936, “concluding that State Insurance Fund, while a public fund in the sense of being administered by a public body, is not public money of the state to be used for and on behalf of the state for a state expenditure.” The court also cited later cases noting that the fund operates as a private insurance company, does not receive public money, and pays expenses from the premium collected. Another case concluded that an appropriation of WCF’s funds would constitute a taking for which due compensation must be paid.
  • The state attempted to take $50 million from the State Compensation Fund of Arizona in 2003. The court concluded that the policyholders who have purchased policies had vested contractual rights and that the SCF assets were private funds held in trust for the benefit of employers and to pay claims.
  • The Oregon Supreme Court determined that an attempt to transfer $81 million breached the contractual promise of the state to employers that insured with the Oregon fund in cases from 1988 and 1993.
  • In New York, a decision issued in 1985 stated that the legislature could transfer surplus from the New York fund to the state’s general fund. The court declared that the fund was a state agency and that the state of New York was ultimately liable for the state fund’s obligations, and therefore, the policyholders had no vested contract right to the surplus. The court noted that law did not state that the surplus was held in “trust,” thus allowing the transfer of money.

The other common issue faced by state funds is the misunderstanding of what surplus is for. MSF has devoted extensive time and energy in attempting to educate government staff, legislators, and other stakeholders on why surplus is essential. The risk is inherently higher for state funds when you consider factors such as:

  • Having a single line of insurance in a single state.
  • Serving as the guaranteed market.
  • Legislative benefit changes.
  • Limited access to raising capital.
  • Liability changes as a result of court decisions.
  • The long-term nature of workers’ compensation claims.

This isn’t something new, but MSF’s current situation shows how quickly the need for funds and attachment to government can result in a willingness to downplay those risks. AASCIF membership promotes the sharing of ideas, challenges, and successes, and this will be an interesting time to watch how this case proceeds and learn from it.

 

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