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Aug 19

Workers’ comp shortfall surges toward $1 billion

An analysis of the state’s insolvent workers’ compensation trusts shows that a deficit thought last summer to be $600 million is now nearly $1 billion.

 

A 10-page report by the state Workers’ Compensation Board, required by Gov. Andrew Cuomo’s budget legislation, puts the workers’ compensation deficit at $924.6 million. The totals are based on the funds’ latest audited financial statements.

 

The June 30 report attributes the increase to previously uncounted workers’ compensation obligations, as well as the addition of two newly insolvent trusts, bringing the total to 17.

 

Hundreds of small employers paid into the trusts to provide for workers injured on the job. But the funds were mismanaged or, as the state alleges, defrauded by Poughkeepsie-based Compensation Risk Managers, which controlled most of them.

 

The state sued CRM for $405 million, but a proposed settlement would yield only $41 million. State appellate courts, meanwhile, have upheld the board’s authority to force employers who paid into solvent trusts to cover the deficit of the insolvent funds. The employers are appealing.

 

That has left the insolvent trusts’ members, like Mark Teich, president of M&T Plumbing & Heating Co. near Union Square, on the hook.

 

“I paid a premium to cover my company and now they’re coming back and saying [employers] owe $925 million,” he said. “It’s insane.”

 

The final debt to the state is likely to be less than that because of a law crafted by the Cuomo administration to deal with the problem, which it inherited.

 

Foreseeing a political maelstrom, the governor assigned Deputy Secretary Alphonso David, who oversees labor issues, to work with the employers’ attorneys to clean up the mess. The law requires the board to give semiannual updates on the size of the deficit. The first update was June 30.

 

The new law also allows the insolvent trusts to reduce by 20% the amount of money they owe—but only if they agree to pay the remaining 80%. That measure is supposed take effect by the end of the year and is expected to reduce the shortfall, a Cuomo administration official said.

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