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Monday, January 25, 2010

NJ Second Injury Fund Is In Financial Trouble

Governor Christie's transition team reported that the NJ Second Injury Fund (SIF) is insolvent. Several options were presented, if the SIF is going continue to operate.

The SIF was established to compensate totally disabled workers for their pre-existing disabilities shield the last employer from the total cost of the last compensable injury. The was enacted by NJ prior to the existence of the American With Disabilities Act (ADA) and theoretically was to encourage employers to hire handicapped workers.

Since the enactment of the ADA many states have felt that their was no need to continue the SIFs and the growing trend is to eliminate them. The SIF in NJ currently  supports the operating funds on the NJ Division of Workers' Compensation.

The transition report concludes:

"The SIF has been experiencing cash flow problems recently due to diversions from the fund in 2003 and 2004 and also as a result of legislative changes made in 2000 and 2003. Prior to 2000, the assessment against employers and insurance companies that finance the Division of Workers Compensation was determined by estimating the costs incurred to run all programs (including benefits) and multiplying that by 150%. In 2000, this was changed to 125% of estimated benefits and 100% of estimated administrative costs. These changes initially did not cause any significant cash flow issues; however, when the State began diverting money the combination of these factors resulted in an insufficient amount of cash being collected through assessments.

Solutions: Due to the legislative changes to the assessment calculations, the fund will never be able to restore solvency. The only solution requires legislative approval to phase out the $40 million “add back” and adjust the $5 million fund balance cap to a percentage of the prior years’ benefit payments. The only other option would be to find a supplemental appropriation to replenish the diverted money from FY2010."

Historically, surpluses in the NJ SIF have been raided by the Legislature and Governor and the funds diverted to the general treasury of the State. Like other NJ agencies, the NJ Division of Workers' Compensation has been challenged by mandated furloughs and short staffing issues. The fiscal problems of the SIF have compounded Medicare delays in the workers' compensation program in dealing with catastrophic and serious disability claims.

Click here to read more about The Second Injury Fund.