State Considering Tapping SAIF Corp. Reserve to Cover Pension Deficit

Wednesday, July 26, 2017 | 0

SAIF Corp.’s $1.6 billion surplus has caught the eye of Oregon lawmakers, who are trying to address a $22 billion shortfall in the state’s public worker pension program.

Oregon State Capitol

A task force created by Gov. Kate Brown to address the Public Employees Retirement System’s unfunded liability discussed selling the state-chartered workers’ compensation carrier during its first meeting Monday. The pension program, PERS, has an unfunded liability of $22 billion, but the governor in a July 18 letter said the goal for the task force is to “consider what assets held by the state or other public employers might be monetized to allow us to pay up to $5 billion of the PERS unfunded actuarial liability over the next five years.”

The governor in her letter urged the seven members of the task force to be creative and consider “ideas that are controversial, difficult or will ultimately be rejected, rather than risk overlooking an opportunity.”

Potential funding options identified by members of the task force include privatizing the state’s liquor operations, selling state-owned office buildings and selling off water rights owned by state agencies. SAIF Corp. tops the list of state-owned businesses that could be privatized to fully fund the pension program.

Materials from Monday’s meeting say SAIF ended 2015 with assets of $3.8 billion and total liabilities of $3.4 billion, leaving a $1.4 billion unassigned surplus. SAIF’s annual report for 2016 identifies $4.9 billion in assets and $3.3 billion in liabilities, leaving a surplus of $1.6 billion.

Documents from Monday’s task force meeting say the option to privatize SAIF Corp. “requires additional financial and legal analysis to determine potential options for monetization.”

Anthony Smith, Oregon state director for the National Federation of Independent Business, said it’s always good to be vigilant and pay attention to proposals such as selling off SAIF Corp. that could impact workers’ compensation rates that employers pay.

Smith said there were so many ideas on the table during Monday’s meeting that it’s difficult to predict what the group may propose. He said members of the task force on Monday were focused on paring down the ideas they’ll entertain going forward. Selling SAIF Corp. is definitely on that list, but Smith said it’s too early to start staking out positions.

“It would be premature to decide which solution the task force is going to recommend,” he said. “Until I see a concrete proposal that seems to have some traction, I’m not overly concerned.”

SAIF Corp. is also taking the wait-and-see position, according to spokeswoman Lauren Casler.

“We are committed to providing the task force with any information they need, but we can’t speculate about what options they will explore,” Casler said in an emailed statement Tuesday. “We are confident in the value we bring to the state, including our service to our policyholders and injured workers.”

Oregon last flirted with privatizing SAIF Corp. more than a decade ago, when a ballot initiative funded by the carrier's main competitor, Liberty Northwest Insurance Corp. of Portland, asked voters to decide whether to abolish the public company. Only 39% of voters in 2004 supported the proposal.

Employer groups including NFIB, Associated General Contractors of Oregon and Associated Oregon Industries fought against the ballot initiative.

Oregon employers petitioned state courts to invalidate a transfer of $81 million from SAIF Corp. to the general fund in 1982. The Oregon Supreme Court said money collected by SAIF is held in the Industrial Accident Fund, and that account is a statutory trust fund.

“Within constitutional limitations, the Legislature may dispose of the assets of a statutory fund in any manner that it sees fit,” the state Supreme Court said.

However, the court said statutory language creating the Industrial Accident Fund established a contract between insured employers and the state that would be unconstitutionally violated by the fund sweep. In reaching its decision, the high court cited Oregon Revised Statutes Section 656.634(2), which says the state “declares that it has no proprietary interest in the Industrial Accident Fund” and “disclaims any right to reclaim those contributions and waives any right of reclamation it may have had in that fund.”

While the Supreme Court said the $81 million fund raid was illegal, it nonetheless said the state was not required to return to SAIF the money it took.

The question of who actually owns the funds of a state-chartered carrier is often a thorny issue when it comes to privatization talks.

Employers in Colorado bristled when the state-chartered carrier, Pinnacol Assurance, in 2012 offered the state $340 million in ownership shares for permission to form a mutual company. Pinnacol also promised to pay the state annual dividends of $13 million.

Pushback from employers prompted Gov. John Hickenlooper to pull the plug on the proposal.

Montana lawmakers this year flirted with the possibility of eliminating the Montana State Fund or converting it to a mutual carrier. One bill before lawmakers would have swept half of MSF’s $526.5 million surplus into the general fund, with the rest held in reserve for future liabilities. That measure died, and lawmakers ended up passing a resolution calling for an interim study of whether a state-chartered carrier is good for employers.

At the same time, Maryland’s state chartered comp carrier had to pay the state a total of $110 million under the terms of a 2013 deal that allowed it to become Chesapeake Employers’ Insurance Co. To complete the transition, the Injured Workers’ Insurance Fund was required to pay $60 million to cover the liabilities of its employees who participated in state pension and health plans. The carrier also had to pay $50 million to cover the estimated taxes it avoided because of its quasi-public status.

The governor’s task force in Oregon has not scheduled its next meeting. The group has until Nov. 1 to present the governor with its final recommendation.