During its 2020 Session, the Maryland General Assembly and Department of Legislative Services (“DLS”), put forth and passed Senate Bill No. 8 (“SB8”). This departmental bill altered the assessment on certain workers’ compensation awards and settlements that fund the Subsequent Injury Fund (SIF) and the Uninsured Employers’ Fund (UEF) by decreasing SIF’s share by 1% and increasing UEF’s share by 1%. The bill took effect July 1, 2020, and was intended to increase special funds revenues for the UEF by approximately $4 million in FY 2021. The bill is set to terminate on June 30, 2021.
By way of background, the UEF and SIF are both specially funded, and their revenues are primarily derived from an assessment on awards against employers or insurers for permanent disability or death and amounts payable by employers or insurers under settlement agreements. Prior to the enactment of SB8, the SIF received a 6.5% assessment on these awards and settlements. These assessments are the sole mechanism for funding the SIF and pays for both workers’ compensation claims and any SIF administrative costs incurred by SIF for the relevant fiscal year.
The UEF, on the other hand, receives a base 1% assessment on these awards and settlements. The UEF also collects penalties from sanctions on uninsured employers and revenues from the recovery of benefits paid out for uninsured claims. Additionally, if UEF’s board of directors determines that its fund balance is inadequate to meet its anticipated losses, the board may direct the Workers’ Compensation Commission to impose an additional 1% assessment (2% total) on awards against employers or insurers for permanent disability or death. This additional assessment is currently in effect (meaning that UEF receives 2% for its assessment) and has been since 2009.
Pursuant to a 2019 report on the solvency of the UEF, the UEF advised the Maryland General Assembly that about 80% of its total funding is derived from the current 2% assessment in effect and that, absent same, the fund would become insolvent within a few years. Further, the 2019 report, revealed that the UEF has been operating at an average annual deficit of – $1.06 million for the period of FY 2015 through FY end 2019. The SIF, by contrast, reported an FY 2019 ending balance of more than $100 million and has been operating at an average annual surplus of $3.84 million for the same period.
Following receipt of the 2019 solvency report prepared by the UEF, the DLS projected that, without some kind of financial intervention, the UEF would likely become insolvent in FY 2021. As a result, SB8 was enacted for FY 2021 only. The bill decreases SIF’s assessment from 6.5% to 5.5% and increases UEF’s base assessment by 1%, meaning that the maximum amount that may be assessed to fund its operations increases from 2% to 3%.
In fiscal 2019, UEF’s existing 2% assessment generated approximately $8 million in special fund revenues, and UEF anticipates similar revenues in future years. Therefore, altering the assessment in this manner decreases special fund revenues for SIF by approximately $4 million in fiscal 2021 only and increases special fund revenues for UEF by the same amount in fiscal 2021 only. Since the 1% increase in the FY 2021 UEF assessment is offset by the 1% reduction in assessment that funds SIF, there is no net effect on State revenues as a result of this bill.
As noted above, the provisions of SB8 were intended to be in effect for the fiscal year 2021, only. SB8 is set to terminate on June 30, 2021. As such, effective July 1, 2021, the assessment on certain workers’ compensation awards and settlements that fund the Subsequent Injury Fund (SIF) and the Uninsured Employers’ Fund (UEF) will return to the pre-bill assessment rates of 5.5% and 1% (base assessment), respectively.
2021 Fiscal year-end revenue and expenditure reporting for both the UEF and SIF are pending as of the date of this article and additional alternations to the assessments scheme which especially funds the UEF and SIF are anticipated following the receipt and review of same by the Maryland General Assembly. Additional information and a more detailed description of the UEF’s financial status can be found on page 8 of the fiscal 2021 budget analysis for UEF on the Maryland General Assembly website: http://mgaleg.maryland.gov/Pubs/BudgetFiscal/2021fy-budget-docs-operating-C96J00-Uninsured-Employers-Fund.pdf#page=8.
Written by associate Kara Parker.