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Friday, December 20, 2013

NJ COLA Bill Passed by Senate

The NJ Workers' Compensation Total Disability and Dependency Cost of Living Increase (COLA) bill was passed by the NJ Senate 26-1 yesterday.

STATEMENT TO [First Reprint]  SENATE, No. 613 with committee amendments

The Senate Budget and Appropriations Committee reports favorably Senate Bill No. 613 (1R), with committee amendments.
As amended, this bill provides, from July 1, 2015 forward, an annual cost of living adjustment (COLA) in the weekly workers' compensation benefit rate for any worker who has become totally and permanently disabled from a workplace injury at any time after December 31, 1979 and for the surviving dependents of any worker who died from a workplace injury after December 31, 1979.
The COLA would be an amount such that, when added to the workers' compensation weekly benefit rate initially awarded, the sum will bear the same percentage relationship to the maximum benefit rate at the time of the adjustment that the initial rate bore to the maximum rate at the time of the initial award, except that:
1. The bill reduces the amount of the adjustment as much as necessary to ensure that the sum of the adjustment and the amount initially awarded does not exceed the amount which would cause any reduction of disability benefits payable under the Federal Old Age, Survivors and Disability Act; and
2. The bill reduces the supplemental workers’ compensation benefits (but not regular workers’ compensation) for claimants injured after 1979 by the amount of any Social Security benefits (other than Social Security disability benefits and any increases in Social Security benefits due to federal statutory changes after May 31, 1980), Black Lung benefits, or the employer’s share of disability pension payments received from or on account of an employer, except that if the worker's original workers' compensation award was already reduced under current law, there would be no further reduction of the supplemental benefits under the bill.
3. The bill requires that the COLA benefits will not be paid to any individual who elects to not receive benefits under the Federal Old Age, Survivors and Disability Act for which the individual is eligible.
These reductions parallel the reductions provided under current law for claimants who were injured before 1980. The bill also provides that no supplemental benefits would be paid in any case where they are calculated to be less than $5 per week.
Current law requires such annual adjustments in the rate of workers' compensation benefits for death and permanent total disability to be paid from the Second Injury Fund (SIF), but only for cases of injury or death occurring before January 1, 1980. The bill extends the adjustments paid from the SIF to claims originating after December 31, 1979, although the adjustments would apply only to benefits paid on those claims after July 1, 2015, thus avoiding a backlog of retroactive benefits.
The bill provides that COLA benefits will commence six months after the increased SIF assessment to ensure the SIF has sufficient funds to pay the benefits without using General Fund money. The supplemental benefit payments would start on July 1, 2015 and the Department of Labor and Workforce Development is required to take into account the supplemental benefits when calculating the amount of the SIF assessment which starts on January 1, 2015, thus avoiding the need for any General Fund appropriation.
To avoid an abrupt fiscal impact on the workers’ compensation system, the bill provides that one third of the supplemental benefit rate be paid during the first year, two thirds of the rate be paid during the second year and the full amount be paid during the third and subsequent years.
The bill sets time limits for workers’ compensation insurers and self-insured employers to notify the SIF when supplemental workers’ compensation benefits are required under the bill. An insurer or self-insured employer is required to provide the notice not more than 60 days after the supplement is awarded or voluntary payment is to begin. If a failure to notify results in the payment of an incorrect amount of benefits, the liability for the payment of the supplemental benefits is transferred from the SIF to the insurer or employer until the required notice is provided.
The bill makes no change in the provisions of sections 1 and 9 of P.L.1980, c.83 (C.34:15-95.4 and 34:15-95.5), which provide for the reduction of certain portions of workers' compensation benefits by the amount of Social Security disability benefits paid. In addition, the bill expressly states that the supplemental benefits shall not be paid in a manner which in any way changes or modifies the provisions of those sections. The bill, therefore, will have no effect on existing provisions of State and federal law regarding offsets between workers' compensation and federal Social Security disability benefits.
The committee amendments provide that the application of the cost of living adjustment commence on July 1, 2015, instead of July 1, 2013.
The committee amendments also require that the COLA benefits will not be paid to an individual who elects to not receive benefits under the Federal Old Age, Survivors and Disability Act for which the individual is eligible.
While there is uncertainty about a number of relevant variables, the OLS estimates that the cost of this program will be approximately $57.8 million in FY 2018 when the supplemental COLA benefits are fully funded.
The cost is phased in, and will be approximately $17.99 million a year in FY 2016 (1/3 of the total cost), $37.61 million in FY 2017 (2/3 of the total cost) and $57.8 million (100 percent) in FY 2018. The cost will then continue to increase at a rate equal to the rise in the benefit of workers compensation.
The estimates as to the costs of this program vary widely due to uncertainty on the number of beneficiaries and the amount of the supplemental benefit which will be offset by Social Security benefits for each beneficiary. Each beneficiary’s situation is unique as to income earned at date of injury, Social Security benefit level and workers’ compensation benefit level.
The cost for this program will be funded entirely through the SIF. The SIF, pursuant to P.L.1988, c.26 (C.34:15-94 et seq.), is financed through a direct annual surcharge (in an amount equal to 125 percent of the expected benefits to be paid in the upcoming year) levied on “all employers who are workers’ compensation and employer’s liability insurance policyholders or who are self-insured employers under the workers’ compensation law, except any reinsurance or retrocessional transactions and the State or any political subdivision thereof which acts as a self insured employer.” The State, and a majority of its political subdivisions, choose to self-insure and do not contribute to the SIF.
However, certain political subdivisions choose not to self-insure and instead purchase a workers’ compensation insurance policy. These entities currently pay the SIF annual surcharge levied on all policyholders (6.56 percent of premiums in 2014). If this legislation is approved, these political subdivisions will incur an increased SIF surcharge. However, no information is available to the OLS to quantify the number of political subdivisions affected.