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LGC subsidiary's financial woes could have been avoided, union official says

New Hampshire Union Leader

October 22. 2013 10:10PM

CONCORD — The potential financial insolvency of a former New Hampshire Local Government Center subsidiary could have been avoided with proper oversight by the state Department of Labor, according to the man largely responsible for forcing the LGC to open up its operations.

Property-Liability Trust, which provides property insurance and workers' compensation coverage for hundreds of New Hampshire towns and cities, may collapse because DOL failed to regulate the workers' compensation program for more than a decade, said David Lang, president of the Professional Fire Fighters of New Hampshire, who waged a decade-long battle with the LGC that culminated in a state Supreme Court decision that forced the administrator of public insurance risk pools to comply with state Right-to-Know laws.

The lack of regulation led to LGC taking money from members of its public health insurance risk pool, HealthTrust, and using it to subsidize the workers' compensation program with more than $17 million, Lang said. A state hearing officer last year ordered PLT to return the money to HealthTrust members by Dec. 1, but PLT officials have said the organization does not have the cash to do so.

"Had the Department of Labor paid attention over the last decade, taxpayers and active and retired employees would never have had their money taken away from them," Lang said.

Labor Commissioner James Craig, who was appointed to the job in June, rejected the claims and said the Labor Department has, by compelling LGC and other risk pools to post secure guarantees that would cover all workers' compensation claims, done its job by ensuring that injured workers would be protected.

"My duty is to make sure the guy out in the tractor or the teacher, if they get hurt, the money is there to pay the claims," he said.

PLT has appealed the order to the state Supreme Court and PLT officials have said the program could be forced to close if the court does not alter or overturn the order. PLT has also requested a stay of the payment until its appeal is decided, though the court has not yet ruled on the stay request.

Lang compared the Labor Department's regulation of PLT's workers' compensation program to the alleged failure of regulatory oversight that led to the Financial Resources Management scandal, in which investors lost tens of millions of dollars in the largest Ponzi scheme in state history. State regulators in the Banking Commission, Attorney General's Office and other state agencies were accused of failing to see or act on warning signs about FRM before it abruptly closed in 2009.

"The Department of Labor had an obligation to annually permit these self-insured programs, whether they be public or private, and to review their actuarial information annually, all in order to ensure that there was enough money collected in contributions from the employers to cover the cost of injured workers," Lang said. "The money was supposed to be taken from the municipalities (in the pool), not from the health insurance trust risk pool.

"I realize this did not happen under (Craig's) watch," Lang said. "However, I see two choices: continue with the same path or make (PLT) follow the law."

Did state officials do enough?

State workers' compensation law says communities must appropriate enough funds to directly cover all workers' compensation claims.

Annual financial statements from LGC showed that LGC transferred more than $17 million from HealthTrust, which administers health insurance for public employees, and PLT from 2000 through 2010 — the most in a single year was nearly $4 million.

And the practice continues, as PLT Executive Director Wendy Parker confirmed that PLT will be transferring $380,000 to the workers' compensation program this fiscal year, which ends June 30. She said the program is scheduled to be self-sufficient in the 2014-15 fiscal year.

By not ensuring that LGC was billing only members of its workers' compensation program for its costs, the Labor Department was derelict in its duty and contributed to the problems that could lead to PLT becoming financially insolvent, Lang said.

According to state law, the Department of Labor has "exclusive jurisdiction" over all public and private self-insured workers' compensation programs. When DOL's role was expanded to include jurisdiction over all public programs in 1992, then-Commissioner Richard Flynn testified the new law will "address the adequacy of contribution rates to fund the benefits to be provided to injured workers."

LGC and its successor entities, according to financial reports, has yet to raise enough money from members of its workers' compensation program to cover costs in any year and has consistently subsidized the program.

Craig, though, said the Labor Department is not responsible for policing where the programs raise their funds.

"We are required to make sure that claims can be paid," Craig said. "It is not the department's job to find out where the money comes from. The department's job is to make sure the money is there should something happen."

When asked who, if not the Department of Labor, should keep an eye on whether self-insured workers' compensation risk pools are collecting money appropriately, Craig said: "You might have hit on a breakdown in the system."

Craig said the Labor Department does not have the resources to conduct independent financial audits of each workers' compensation program — he said there are more than 100 in the state — and would do so only if there were "specific" complaints.

Lang, though, said he filed such complaints in 2009 and 2010, alleging that LGC was funding its workers' compensation program with contributions from LGC's other risk pools, primarily from HealthTrust. Lang said he met with Labor Department officials about the allegations and provided the New Hampshire Union Leader with follow-up letters sent to DOL regarding the complaints.

"It's very disappointing that I must report that nothing was done," Lang said.

The Labor Department also received a letter from LGC attorneys in 2007 which said, in part: "While the program continues to make progress toward economic self-sufficiency, it also continues to draw financial support from PLT and its complementary programs."

Craig was asked last Wednesday morning what the Labor Department did to investigate the 2007 LGC letter or the Fire Fighters Association's allegations. As of Tuesday afternoon, he was not able to provide an answer.

State laws and rules

Lang contends that the Labor Department does not have the authority to impose a requirement on PLT to supply the Labor Department with the secure guaranty, which is more than $14 million, to cover workers' compensation claims should PLT go out of business.

He points to a Labor Department rule, 406.01, which reads: "No guarantees shall be required of the state or any of its political subdivisions by virtue of their direct or indirect taxing power."

The only members of PLT's workers' compensation program are political subdivisions, Lang said, meaning PLT should be exempt from posting the guaranty. Without that guaranty, which is secured against PLT's investment holdings, PLT could have a substantial amount to go toward paying the $17.1 million order and getting out of financial trouble, Lang said.

Craig, though, said DOL has the authority to require the guaranty, as it is one way a workers' compensation program can provide the DOL with "satisfactory proof" of ability to pay claims.

"So if they go belly up, which is possible for LGC," the bond makes sure all claims are paid, he said. He also said he viewed LGC and PLT as "hybrid" entities rather than political subdivisions.

However, under the state workers' compensation law, RSA 281-A, the term "public employer" also includes public employers' "insurance carrier or any association or group providing self-insurance to a number of employers."

PLT is an association or group providing self-insurance to political subdivisions, Lang said, making it a public employer under state law.

Craig said he didn't believe that definition was for him to decide.

"One could argue anything one wants," he said. "That's what the courts are for."

Lang said the state Supreme Court already has already determined that LGC and its subsidiaries are public entities.

"The courts have ruled on this issue not only once, but twice. And they have unequivocally said these are public bodies," Lang said.Craig said any argument over the guarantees could be moot because PLT willingly provided the guarantees. This is despite an opinion provided to the DOL in 2007 by then-LGC attorney Mark McCue, who argued that the workers' compensation program had taxing authority and should not be required to post a secure guaranty.

"When we got it, we were surprised a bit," Craig said. "They didn't object."

He said LGC attorneys gave the DOL a letter last year saying LGC did not have taxing authority and agreeing to post the guaranty. The Union Leader asked for a copy of the letter, but Craig was not able to produce one.

Parker said PLT believes the Labor Department has the authority to require the guaranty, saying in a statement that "Property-Liability Trust, Inc. is not aware of any statute, regulation or specific guidance from the Department, that expressly exempts it from providing such a guarantee or security."

She also disputed Lang's contention that the money could be used to satisfy the hearing officer's order."Even if the Department of Labor was to release PLT of that obligation, the funds are currently and would continue to be held by PLT as claim reserves," she said.

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