N.Y. Engineers Rescue of Workers’ Comp Trusts

But Those Involved with 14 Failed Trusts Remain on the Financial Hook

New York State lawmakers have authorized $52 million from an emergency state fund to assure uninterrupted payment of benefits of injured workers whose employers’ self-insured workers’ compensation trusts have been closed.

The state has shut down 14 of these trusts within the past several years and questioned the financial condition of 22 others.

The $52 million from the Uninsured Employers Fund is just the beginning of the effort to cover unpaid liabilities of as much as $360 million from the failed plans that could stretch over decades.

The short-term funds will not only help pay claims but also offset assessments against employers in the self-insurance trust market, levies that some feared would have placed even more trusts in financial jeopardy. The legislation also tightens regulation of group self-insurers.

“This legislation is critical to ensure that businesses are able to continue to provide benefits to injured workers without facing unexpected costs due to the failure of a handful of group self-insurers,” said Gov. David A. Paterson.

Senator Joe Robach, R-C-I, Rochester, who is chairman of the Senate Labor Committee and a key sponsor, said it “was imperative that the state step in to avert a crisis that could have caused many of these trusts to go under.”

“This legislation will help reinforce the self-insurance industry in New York by granting the board enhanced regulatory powers, while addressing our funding needs,” said Zachary S. Weiss, chairman of the New York Workers’ Compensation Board, which monitors the group trusts and makes sure benefits are paid to workers when trusts go bust.

Group trusts are an option for small- and medium-sized businesses. Companies operating in the same industry with good workplace safety records can form trusts. Each member must agree to be liable — both jointly and severally — for the debts of the others.

According to a March report by the NYWCB, it has shut or is in the throes of closing 14 trusts and has categorized another 22 others as underfunded.

Of the recently shuttered insurance plans, eight were run by the same third party administrator, Poughkeepsie-based Compensation Risk Management.

To provide interim cash flow to cover liabilities of the closed trusts, the NYWCB in February assessed the remaining 50 trusts about $30 million, with the promise that they would be reimbursed as monies were collected from the parties involved in the closed trusts.

But this assessment was challenged in court by 13 healthy trusts that claimed potential economic harm to them and cited ambiguities in the law on assessments. They succeeded in winning a temporary injunction just before the state stepped in with its funding legislation.

According to Brian M. Keegan, public information officer for the NYWCB, the present value of the unpaid liabilities for all of the defaulted trusts is about $363 million. The assets of 12 of the 14 failed trusts are estimated be about $59 million. Of these assets, $52 million relate to trusts run by CRM, which in turn carry about $248 million in liabilities.

NYWCB believes it can collect what is needed from responsible parties and not have to assess those that had nothing to do with the failed entities. It can go after the employers in the closed trusts who have direct injured worker claims against them. It can also go after other employers in self-insured trusts with defaulting employers before it has to consider assessing other self-insured trusts.

“We don’t expect that there will be a need to have the others pay on behalf of the defaults since we are actively billing under joint and several,” said Keegan.

The financial collapse of so many trusts has raised questions about the oversight of the plans by the NYWCB. Unlike commercial insurance carriers, group trusts are not regulated by state insurance officials nor are they backed by a guarantee fund.

“Over the last decade these group trusts operated with virtually no oversight or accountability. Combined with insufficient employer contributions to the funds and the downturn in market investments, this lack of accountability and borderline criminal behavior led to the insolvency of several of these trusts. The ensuing shortfall in funds endangered the benefits of injured workers to the point that many would have stopped receiving benefits in July of this year,” said Denis Hughes, president of the New York AFL-CIO in a message to his union members.

NYWCB officials maintain their oversight is not the problem and have accused CRM of providing false financial information and being uncooperative with audits that could have revealed the inadequacy of reserves sooner.

CRM has agreed to surrender its New York license.

The New York Times reported that Attorney General Andrew M. Cuomo has subpoenaed documents from one of the CRM’s trusts.

Now that a short-term funding fix is in place, parties are beginning to discuss longer-term solutions including better oversight and perhaps some type of guarantee fund. The legislation includes a task force that is to make recommendations.

Topics Legislation Workers' Compensation New York