State Auditor Brian Sonntag has written to the state Department of Labor & Industries in response to concerns that the auditor’s recent review of the workers’ compensation funds had been misinterpreted. We editorialized about the audit last month, expressing concern about the findings.
From Sonntag’s letter to Judy Schurke, L&I director (who also responded to our editorial with an op-ed):
I want to assure you that, in our opinion, the funds currently are financially strong. The Workers’ Compensation System is able to pay claims and should be able to do so for many years. However, our audit report serves as an early warning that given the current economic climate, incurred investment losses, reasonable assumptions regarding projected investment yield, and projected future claims, the rates adopted in 2010 for both the Accident Fund and Medical Aid Fund are significantly lower than they should be.
Our summary report indicates a high probability of actuarial insolvency in the Accident Fund in the years ahead, based in part, on the premium rate levels adopted by the Department for 2010. But let me clarify that this statement simply reflects that the Fund’s liabilities may exceed its assets, resulting in a draw down and elimination of the contingency reserve. But as stated in our summary report, the funds would continue to have sufficient assets to pay claims and to support the day-to-day services provided to workers and employers by your agency. Again, our report is a warning that if this condition continues, the future liabilities may exceed assets within a few years, creating a financial hole difficult to recover from.
It’s that hole – and what L&I will have to do to prevent it from forming – that has us concerned.