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2008 dividend and 2007 Rate holiday questions & answers
New information about the 2008 dividends was added June 20, 2008 in a question and answer format.
The 2007 rate holiday information was published when L&I announced the rate holiday in the spring of 2007. It explains how and why the rate holiday came about in a question and answer format.
2008 Dividends
New! June 20, 2008.
L&I will be issuing dividend checks totaling more than $32 million in July 2008 to approximately 100,000 employers.
Checks will range from $10 to several thousand dollars. Another 28,000 employers entitled to dividends of less than $10 will have their dividend amounts credited to their workers' compensation accounts. About 11,000 employers who owe workers' compensation premiums or may otherwise have a debt with L&I or other agencies may see their dividends applied to those debts rather than receive a check or account credit directly.
When will the dividends be mailed?
The dividends will start to be mailed June 30, 2008. It will take several days for all the checks to be mailed.
- Why did L&I give a rate holiday for the third and fourth quarter of 2007, then raise the rates for 2008 and now send money back in the form of a dividend?
L&I invests workers' compensation reserve funds and resulting earnings are used to help pay costs. During 2005 and 2006, the Medical Aid Fund's reserve funds had unexpectedly high investment returns in the stock market. L&I's director decided that the Medical Aid Fund's contingency reserve was larger than needed to pay for unexpected costs. The decision was made to return money in two phases. The first phase was a Medical Aid Fund rate holiday in the third and fourth quarters of 2007. The rate holiday meant that L&I paid the Medical Aid Fund portion of the rates for both employers and workers. This resulted in employers and their employees both avoiding a total of more than $300 million in premiums. In addition, the retrospective refunds paid from the Accident Fund were not adjusted for this rate holiday. To make sure "non-retro" employers pay only their fair share of workers' compensation insurance, L&I will complete the rate holiday by paying non-retro employers dividends totaling $37 million.
Workers' compensation rates were raised in 2008 in order to keep up with wage inflation and medical cost increases. The dividend is based on premiums and claim costs for 2007.
Learn more About Retrospective Rating.
- Why don't you just lower the rates?
First, a rate holiday provides a quick way to return excess funds and, second, both employers and workers are likely to be those who were paying premiums when the unexpectedly high investment returns occurred. Third, using a rate holiday rather than lowering rates helps keep rates stable. Lowering rates has the possibility of requiring big rate increases in future years to keep up with wage inflation and medical cost increases.
- Why can't L&I find a way to hold rates steady instead of the rates fluctuating?
Using the rate holiday method of returning excess reserves is an example of our efforts to make sure rates are relatively steady. We want to limit rate increases to yearly boosts that are necessary to pay for wage inflation and medical cost increases.
- How will this dividend affect my federal tax filing?
This is not an area where L&I has expertise. You should talk to your tax adviser or the Internal Revenue Service.
- What are the criteria for receiving a dividend?
A business needs to have paid Accident Fund premiums for work done during the third and/or fourth quarter of 2007 while not participating in the Retro program either individually or as a member of a retro group. The dividend amount is based on 14.49% of the Accident Fund premium paid during this time period.
- What employers will not receive a check?
There are several reasons why an employer would not receive a check:
- The employer owes a debt to L&I or another government entity such as the Internal Revenue Service, Employment Security Department, or the Department of Revenue. The employer will be notified if their dividend is applied to other debt.
- The employer is enrolled in the Retrospective Rating program either as an individual or as a member of a group. If an employer was in Retrospective rating for one quarter but not the other, the employer will get a dividend for the one quarter reporting to the State Fund.
- The employer is self-insured.
- The employer does not have an industrial insurance account.
- The total dividend would be less than $10. In that case, the amount is credited to the employer's account. The employer will be notified if their account is credited.
- What determines the amount of my check?
Check amounts will range from $10 to several thousand dollars. The amount you will receive depends on:
- The amount of premiums you paid into the Accident Fund for the third and/or fourth quarters of 2007. Your dividend would be 14.49% of the Accident Fund premiums you paid.
- Whether your business owes money to L&I or another government entity but the debt is less than your total calculated dividend. You will receive a check that is offset by the amount of the debt.
- Any dividend under $10 will be applied as a credit on your account.
- Is there a portion of the dividend that should be shared with my employees?
This is a decision that the employer must make.
- Can L&I direct deposit my check?
No. L&I is not set up to provide direct deposits.
- My check is missing or lost. What do I do now?
Call 360-902-4817. The person who answers will be able to help get the process started for you to replace the check.
- I feel a mistake was made in calculating my dividend. How do I file a complaint?
You can contact your account manager.
- What happens if I don't cash my check?
If a check is not cashed after 180 days from cutting the check, the check becomes null and void. The amount gets applied to the account's premium payment record as a credit. A letter will be sent to the firm about the credit asking whether the firm wants to get the amount in a check or applied to the firm's next quarterly payment. If the firm's account carries this amount for 2 years or more, the amount is sent to the Unclaimed Property section at the Department of Revenue. We also have a method to re-issue lost checks.
- If a firm pays their third and/or fourth quarter 2007 bills after June 1, 2008, are they eligible for a dividend?
No. The dividend is calculated on premiums paid by June 1, 2008.
Need more information?
Contact Ron Moore:
- Phone: 360-902-4748.
- E-mail: mooa235@LNI.wa.gov.
2007 rate holiday information
Rates and rate holiday
- How is L&I reducing workers' compensation rates in 2007?
The reductions are in three parts:
- In December, L&I adopted rates for 2007 that, on average, are 2 percent lower than 2006 rates. Virtually all of that savings – about $31 million – will go to employers.
- L&I also adopted a six-month partial rate holiday in one of its major funds. For work performed from July 1 through Dec. 31 of this year, workers and employers won't pay the Medical Aid Fund portion of their premium.
- In addition, because of the way the rate holiday is structured, employers who don't participate in L&I's retrospective rating program will receive a small dividend in 2008 for premiums paid in the second half of 2007.
- What is a rate holiday?
In this case, L&I has temporarily suspended the hourly rate employers and workers pay into the Medical Aid Fund for work performed during the second half of 2007. That fund pays for health-care benefits for work-related injuries. Employers and workers pay equally into the fund, so both would benefit equally from the rate holiday. Total savings will be about $315 million.
- Why are you able to cut rates and suspend the rate in the Medical Aid Fund?
When the rate holiday was proposed, Washington's workers' compensation system had a contingency reserve of $1.8 billion. That's considerably more than will be needed to pay anticipated benefits. Most of that money – nearly $1.3 billion – is concentrated in the Medical Aid Fund. We decided to use some of that excess reserve to reduce workers' compensation premiums.
- Why does the Medical Aid Fund have so much money in it?
Primarily three reasons:
- L&I invests workers' compensation premiums through the State Investment Board, and those investments have done extremely well.
- For more than a decade, workers and their employers have done a very good job of working safely and reducing injuries. L&I has helped in that effort through its workplace-safety program.
- L&I has done an effective job of managing health-care costs. In recent years, the agency's annual medical inflation rate has averaged less than 6 percent, compared with a 7.7 percent national average for all other workers' comp insurers.
- Why didn't L&I simply drop rates even lower in 2007 rather than the combination of the 2 percent rate reduction and rate holiday?
That option was considered. However, employers have told us they don't want rates that vary widely from one year to the next. Were we to lower overall rates enough to make a considerable dent in the contingency reserve, we would eventually have had to raise rates to catch up with costs and inflation. Our decision was to take a cautious approach – do this for six months and see what happens to the contingency reserve.
- I've heard criticism that L&I has too much money in the workers' compensation funds. Is that the case? Is the agency collecting more than it needs to pay benefits to injured workers?
L&I is working with the Workers' Compensation Finance Committee to determine the appropriate range for the workers' compensation insurance contingency reserve. We anticipate settling on an appropriate level soon. Each year we put a considerable amount of effort into determining how much money will be needed to pay injured-worker benefits. Recently, a nationally recognized actuarial consulting firm, hired by the State Auditor, concluded that our 2007 rates, and the assumptions we used to set those rates, were appropriate. The primary reason we have so much money in the contingency reserve is recent investment earnings, and those earnings fluctuate considerably from year to year. We cannot assume high returns will always occur.
Impact on retrospective rating employers
- How will the rate holiday impact retrospective rating refunds?
As structured, the rate holiday will not impact retro refunds.
- How does the rate holiday L&I adopted differ from what it proposed late last year?
At public hearings and in written testimony, concern was expressed that the rate holiday, as proposed, would reduce the income some retrospective rating groups receive to administer their programs. One of the ways retro groups spend that money is on workplace-safety programs for their members. In response to their concerns, we made some adjustments so that those programs wouldn't be negatively impacted by the rate holiday.
How will this impact me?
- How much will employers save by the rate reduction and the rate holiday?
They will save about $157 million overall. Here are some approximate examples of what employers and individual workers will save in a cross section of industries. Employers would multiply the dollar figure below by the number of full-time workers they have:
Industry Savings Wood-products manufacturer $232 per worker. Concrete contractor $291 per worker. Orchardist $113 per worker. Fruit and vegetable packing $142 per worker. Framing contractor $440 per worker. Machine shop $176 per worker. Electrician $179 per worker. Roofer/contractor $832 per worker. Nursing-home worker $177 per worker. Restaurant worker $67 per worker. Clerical office staff $11 per worker.
These numbers are based on the base rate for these industries. The savings will vary depending on a company's claims history. In June, L&I will send out new rate notices to employers, detailing what the individual savings will be.
- Will all workers and employers benefit from the rate holiday?
Not all will benefit. State law directs employers to deduct half of the Medical Aid Fund rate from their employees' paychecks. Many employers do that, but some pay the premiums themselves. In those cases, the employees won't see a change in their deductions. The rate holiday also only applies to workers and companies insured by L&I. Large, self-insured employers such as Boeing and Weyerhaeuser, and their workers, don't pay premiums into the Medical Aid Fund.
- Will workers and employers pay any other premiums during the rate holiday?
This rate holiday does not affect premiums employers pay into the Accident Fund, which pays benefits for injured workers, such as time-loss and disability awards. The rate holiday also does not affect premiums employers and workers pay into the Supplemental Pension Fund, which pays annual cost-of-living adjustments that are required by state law. Though the Supplemental Pension Fund premium is small, employers and workers will continue to pay it.
- How will the rate holiday impact my company's experience modification factors?
The future experience modification factors (EMF) calculated by L&I are not affected by the upcoming 2007 rate holiday. The EMFs are based on the claims experience, the hours reported and the prior EMF of the firm. Premium rates never factor into the experience rating formula.
None of the parameters used to calculate the EMFs, such as expected loss rates or primary ratios, are affected by the 2007 rate holiday.
Learn more about Experience Rating.
- Please explain the dividend employers who are not members of a retrospective rating group will receive next year.
We strive to make sure no individual or group pays more than it should for workers' compensation insurance. Because of the way this rate holiday was structured, employers who are not members of a retrospective rating group would wind up paying a slightly higher percentage of premiums. The refund will balance out what the group member and non-member employers pay for their insurance.
- When will the dividend checks be sent?
We're planning for July 2008, but it could be paid later than that. The amount of the refund will be based on the premiums employers who are not members of a retrospective rating group paid in the second half of 2007. To receive the dividend, employers need to be current in their workers' compensation premiums. Any money owed L&I will be deducted from the dividend.
- As a worker, what should I do if my employer continues to deduct premiums from my paycheck?
In some cases, employers pay the Medical Aid Fund premium for their workers. If that's the case, your deductions won't change during the rate holiday. Employers who deduct premiums should continue to deduct half of the premium for the Supplemental Pension Fund. For the following classes half of the Supplemental Pension Fund premium rate is:
Drywall classes (540, 541, 550, 551) $0.00025 per square foot of drywall Volunteer classes (6901, 6906) Zero All other classes $0.0334 per hour worked Also remember that the partial rate holiday is for work being done from July 1, 2007 to December 31, 2007.
If you have questions about how much is being withheld from your paycheck, talk to your employer first. If you're not satisfied with the answers you get, call L&I Employer Services at 360‑902‑4817.
- Who do I call if I have questions?
Employers should call their L&I account manager. His or her phone number is on your more recent rate notice and on your quarterly reports. L&I counter staff also can answer most questions.
