Kentucky’s Workers’ Compensation Special Fund and what it means to your bottom line…

In 1996, Kentucky’s workers’ compensation program underwent a major overhaul that included a variety of changes to the state’s workers’ compensation premiums and employee benefits.  Included in this change was an agreement between the coal industry and business to separate the coal industry-specific workers’ compensation claims after December 1996, thus releasing the remainder of Kentucky’s business community from barring the cost associated with “black lung” claims.  Per the agreement, claims made prior to December 1996 would be paid out of a “Special Fund” with $19 million being appropriated annually from coal severance dollars, and the rest of the money coming from a 9% assessment on ALL Kentucky employers’ workers’ compensation insurance premium.  The assessment would continue until the “Special Fund” received enough funding to pay all claims which was projected to take place in 2019 (23 years after the agreement was reached).  Also included in the reforms was a provision that the Kentucky Labor Cabinet would receive a portion of employers’ annual insurance premium assessments to fund their operations.

In recent years, the assessment on Kentucky’s employers has fluctuated from the original 9% in 1996, to 11.5% in 2004, to 6.5% since 2006. In the past several budget cycles, the General Assembly has removed the $19 million in coal severance dollars that was supposed to be placed in the Special Fund to make up for budget shortfalls elsewhere in state government, thus leaving Kentucky’s employers with the full cost of the claims.  As a consequence of lowering the rate on Kentucky’s employers and removing the $19 million in coal severance dollars annually, it was announced the fund’s sunset date would have to be extended 10 years from 2019 to 2029 (33 years after the initial agreement).

Compounding the problem for Kentucky’s employers the assessment income has dropped in recent years due to a slow economy and high unemployment rates.  More importantly, however, the siphoning of funds from the Workers’ Compensation Special Fund to the day-to-day operations of Kentucky’s Labor Cabinet has been increasing over recent years.  In 2010, the Kentucky Labor Cabinet was transferring 29% of ALL employer contributions to the Workers’ Compensation Special Fund to their General Fund budget.  That number rose to 37% in 2011 to a staggering 45% of all employer assessments paid in 2013.

What does this mean to Kentucky’s employers?  Simply stated, over $29 million in employer contributions are being transferred from the Special Fund annually to fund Kentucky’s Labor Cabinet.  This is $29 million in annual contributions that could be added to the Special Fund to help settle the claims of injured workers and sunset the annual assessment on Kentucky employers’ workers’ compensation premiums.

Thankfully, for Kentucky’s employers and the injured workers that rely on the benefits paid from this fund, there is movement in the General Assembly to help address the problem.  SB 63 (McDaniel)  was heard in the Senator Licensing and Occupations Committee this week and is a positive measure to make sure all the annual assessments paid by Kentucky’s employers go directly to honor the commitment made by businesses and lawmakers in the 1996 reforms.  The legislation also encourages the Labor Cabinet to settle as many claims as possible so the remaining injured workers and their families can receive the benefits they deserve while expediting the sunset date on the annual assessment for Kentucky’s employers.  Please call your elected officials TODAY at 1-800-372-7181 and urge them to support SB 63 or any measure that will help address the injustices related to Kentucky’s Workers’ Compensation Special Fund.