U.S. Department of Labor and Special Fund Assessment
Jan 31, 2013
- Jack Martone, The American Equity Underwriters, Inc.
Unfortunately, Brandon Miller, the Chief, Branch of Insurance and Financial Management at the Division of Longshore and Harbor Workers’ Compensation, Office of Workers’ Compensation Programs, U.S. Department of Labor, has announced that he is leaving his job in a few weeks. He has accepted a position in Minnesota. Brandon always handled his challenging position at DOL in a reasonable, level headed, and overall very competent manner. The Longshore maritime community is losing an important asset.
SPECIAL FUND ASSESSMENT
The U.S. Department of Labor recently sent out the advance billing for the 2013 Special Fund Assessment, so it’s a good time to review what the Assessment is and how it is calculated.
The Special Fund was established by Section 44 (33 U.S.C. 944) when the Longshore Act was enacted in 1927. It was originally funded by Congressional appropriation and through $5,000 payments into the Fund by insurance carriers and self-insurers in death cases with no eligible survivors.
The Special Fund is administered by the Secretary of Labor. The Fund is not property of the U.S. Government, but the U.S. Treasury is the custodian. Disbursements can only be made as specified in Section 944(i). The purpose of the Fund is to spread certain costs across the industry, such as vocational rehabilitation training and maintenance, payments in insolvency cases, and indemnity benefits in second injury cases. Payment in second injury cases under Section 908(f) account for about 90% of Fund expenditures.
The 1972 amendments to the Longshore Act made significant changes to the Assessment process, providing for the funding of the Special Fund by creating the annual assessment of authorized insurance carriers and self-insurers. Each assessment was determined by the ratio of each insurance carrier and self-insurer’s indemnity and medical payments in the preceding calendar year to the total of all payments during that year.
The 1984 amendments again made significant changes. The assessment formula was changed to incorporate a second injury usage factor due to concerns about the growth of the Fund and the apparent inequitable distribution of the usage under Section 8(f). Prior to the 1984 amendments, a carrier or self-insurer could place a case in the Special Fund for payment under Section 8(f) and there would be no direct, material consequence to its assessment in subsequent years. The 1984 amendments changed the assessment formula to the one used today, which takes into account both direct indemnity payments as well as usage of the Special Fund under Section 8(f) by each authorized insurance carrier and authorized self-insured employer.
First, calculate ratio number one by dividing each insurance carrier or self-insurer’s direct indemnity payments during the preceding calendar year by the total of all indemnity payments during that year;
Second, calculate ratio number two by dividing each insurance carrier or self-insurer’s attributable Special Fund payments under Section 8(f) (second injury cases that each carrier or self-insurer have placed into the Fund) during the preceding calendar year by the total Special Fund payments under Section 8(f) during that year;
Third, add the two ratios;
Fourth, divide the sum of the two ratios by 2;
Fifth, multiply this result times the estimated needs of the Special Fund for the current calendar year.
The result is the insurance carrier or self-insurer’s Special Fund assessment.
Any carrier or self-insurer who either paid indemnity benefits directly to an injured worker or who had a case in the Special Fund under Section 8(f) in 2012 will get an assessment bill in 2013.
The assessment is billed in two parts; there is an advance billing in January for an estimated one-half of the total, and a final billing in July for the balance.
Here is a sample calculation for a hypothetical insurance carrier with 2012 direct indemnity payments of $500,000 and attributable Special Fund payments under Section 8(f) of $250,000. Total indemnity paid by all authorized insurance carriers and self-insurers during 2012 in our hypothetical was $775,000,000. Total 2012 Special Fund payments under Section 8(f) was $114,000,000. The estimated needs of the Special Fund for calendar year 2013 in our example is $134,000,000
First, calculate ratio number one by dividing the individual insurance carrier’s direct indemnity payments of $500,000 by the total for all insurance carriers and self-insurers of $775,000,000. The result for ratio number one is .00064516.
Second, calculate ratio number two by dividing the individual insurance carrier’s attributable Section 8(f) costs of $250,000 by the total Section 8(f) payments for all Fund cases of $114,000,000. The result for ratio number two is .00219298.
Third, add the two ratios: .00283814
Fourth, divide the sum by 2: .00141907
Fifth, multiply this result times the estimated needs of the Special Fund for 2013 of $134,000,000.
The result is the insurance carrier’s 2013 assessment in the amount of $190,155.
For questions regarding the assessment you can contact the Longshore Division at 202.693.0038.
ABOUT THE AUTHOR
John A. (Jack) Martone served for 27 years in the U.S. Department of Labor, Office of Workers’ Compensation Programs, as the Chief, Branch of Insurance, Financial Management, and Assessments and Acting Director, Division of Longshore and Harbor Workers’ Compensation. Jack joined The American Equity Underwriters, Inc. (AEU) in 2006, where he serves as Senior Vice President, AEU Advisory Services and is the moderator of AEU's Longshore Insider.