Workers' Compensation
Self-Insurance Fund
2022-2027 Financial Plan
Introduction
The City of Minneapolis (the City) is self-insured for its Workers’ Compensation Self-Insurance Fund. The City has purchased excess coverages for its workers’ compensation program through the Workers’ Compensation Reinsurance Association (WCRA) since 1982, selecting the “High Retention” as its self-insured retentions (SIRs). The SIRs apply to the indemnity and medical amounts; the allocated loss adjustment expenses (ALAE) portion of the claim is unlimited. An activity-based cost allocation model determines the charge allocated to City departments to provide for self-insurance related to workers’ compensation. The annual charges are calculated using data provided by the City which is included in an actuarial study which determines charges based on each City department’s responsibility for workers' compensation expenses.
Historical financial performance
Over the last five years, the Workers‘ Compensation Self-Insurance Fund had a decrease in net position from $0.9 million at the end of 2016 to a negative $18.3 million at the end of 2020. The decrease was primarily due to a significant adjustment for unpaid claims. The 2020 unpaid claims are $53.5 million, representing an increase of $26.8 million from the 2016 unpaid claims of $26.7 million. This was the predicted payout as determined by the actuarial study.
For the year ending 2020, the cash balance was $32.3 million, an increase of $1.3 million from the 2016 cash balance of $31.0 million. The 2020 target cash reserve was $53.5 million, an increase of $25.9 million from $27.6 million in 2016. The fund was below the target by a negative $21.2 million in 2020. This is a decrease of $17.7 million from the 2016 target of $3.5 million.
Revenues
The 2021 revenues for the Workers’ Compensation Self-Insurance Fund are projected to be $13.4 million, or $325,000 less than the budgeted revenue of $13.7 million. The primary reason for the decrease is due to the payments received from the State as refunds for medical and indemnity payments and subrogation claims are lower than expected. The budgeted amount is $1.0 million compared to the $675,000 projected amount.
Expense
The projected expenses for 2021 are $22.4 million or $9.6 million more than the budgeted amount of $12.8 million. The primary reason is due to an increase in workers’ compensation medical and indemnity of $8.7 million. These increases are mainly due to the emerging post-traumatic stress disorder (PTSD) claims and Minneapolis Police Department claims. The increase is also related to an increase of $814,000 in workers’ compensation legal consulting services and an increase of $200,000 in workers’ compensation special assessment.
Net position and cash balance
The net position in 2021 is projected to be negative $27.3 million, a decrease of $10.0 million from a budgeted amount of negative $17.3 million at year end 2021. The decrease in net position is primarily due to the result of PTSD claims as described above.
For the year ending 2021, the cash balance is projected to be $23.3 million, a decrease of $10.0 million from the budgeted amount of $33.3 million. The 2021 target cash reserve is projected to be $14.6 million and the fund is projected to be above its target by $8.7 million.
2022 Budget
The 2022 Workers' Compensation Self-Insurance Fund budget includes a $12.0 million transfer from the General Fund. This transfer will allow the fund to cover the increase in workers’ compensation PTSD claims and Minneapolis Police Department claims. Workers’ compensation expenses increased $4.8 million per an actuarial study.
Revenues
The 2022 budgeted revenue is $31.3 million, an increase of $17.9 million from the 2021 projected amount of $13.4 million and an increase of $17.5 million from the 2021 budgeted revenue of $13.8 million. The increase in the 2022 budget amount is primarily due to an increase in workers’ compensation premiums received of $5.6 million and a $12.0 million transfer from the General Fund as described above.
Expenses
The expense budget for 2022 is $18.3 million, a decrease of 18.4% or $4.1 million from the projected 2021 expenses of $22.4 million. The primary reason for the decrease is due to a $3.9 million decrease in workers’ compensation claims and a $334,000 decrease in workers‘ compensation legal consulting services.
The 2022 expense budget reflects an increase of 43.6% or $5.6 million from the 2021 budgeted expense of $12.8 million due to a $4.8 million increase in workers’ compensation claims and a $480,000 increase in legal consulting services.
Transfers
The 2022 revenue budget includes a $12.0 million transfer in from the General Fund to cover the increase in workers’ compensation claims.
Debt Service
This fund does not have any long-term debt.
Net position and cash balance
The financial reserve policy relating to the internal service funds states that the net position for the Self-Insurance Funds should not fall below zero. The net position at year-end 2022 for the Workers’ Compensation Self-Insurance Fund is projected to be negative $14.3 million, representing an increase of $13.0 million from the 2021 projected negative net position of $27.3 million. The increase in net position is primarily due to a $12.0 million transfer from the General Fund as described above.
The financial reserve policy states that the Workers' Compensation Self-Insurance Fund cash reserve should be equal to the projected losses paid by year from Table III-3A actuarial report for workers' compensation medical and indemnity claims. For year ending 2022, the Workers' Compensation Self-Insurance Fund cash balance is projected to be $36.3 million, an increase of 55.8%, or $13.0 million from the 2021 projected amount of $23.3 million. The 2022 target cash reserve is projected to be $15.2 million, an increase of 3.8%, or $559,000 from the 2021 projected amount of $14.6 million. The fund is projected to above its target by $8.7 million in 2021 and $21.1 million in 2022.
Workers' Compensation Self-Insurance Fund financial plan
