Tuesday, October 4, 2011, 12:53 PM - Understanding the CA WC systemCalifornia falls short of compensating many injured workers for their earnings losses.
The 2004 reforms and the failure of the DWC to revise the PD schedule has effectively meant that uncompensated wage losses have increased.
What is often not considered is retirement security.
As many folks who are working and who have 401ks know, retirement security seems dodgy at best.
Injured workers who are unable to return to their jobs often have to cash out 401k plans just to make ends meet. That's if they even have such plans.
And for the lucky minority who have legacy-style "defined benefit plans", an injury may make a difference in the ultimate benefit or may stop a career years before the qualifying age for the pension.
So it's with interest that I noticed a study done by the UC Berkeley Labor Center . The paper, entitled "Meeting California's Retirement Security Challenge", is edited by Nari Rhee of the UC Berkeley Center for Labor Research and Education. Included are chapters by Jacob Hacker, Sylvia Allegreto, Joaad Saad-Lessler, Lauren Schmitz, Christina A. Clarke, Amal Harrati, Beth A. Almeida, Christian E. Weller, Anthony Webb, and Theresa Ghilarducci.
The paper notes that in California only slightly over half of employers offer pension plans, and the majority of those are not defined benefit plans.
As the paper notes, we have gone from a 3 legged stool model (Social Security, employer sponsored pension and private savings) to a 2 leg model.
Here, quoted at some length, is a summary from the paper's introduction by Jacob Hacker:
"America’s framework for providing retirement security was historically referred to as a “three- legged stool.” Social Security, private pensions, and personal savings—each “leg” was supposed to carry an important part of the weight of securing workers’ retirement. For lower-income workers, Social Security was far and away the most important leg of the stool, providing a lion’s share of retire- ment income (Frolik & Kaplan, 2010, pp. 282-3). But for middle- and higher-income workers, tax-favored private pensions were assumed to be vital for achieving a secure retirement—especially after the Employee Retirement Income Security Act of 1974 put in place rules designed to ensure that DB pension plans would be properly run, broadly distributed, and secure (Purcell & Staman, 2009)."
"The problem is that this unique employment-based system is coming undone, and in the process, risk is shifting back onto workers and their families. As recently as 25 years ago, more than 80% of large and medium-sized firms offered a DB pension; today, less than a third do, and the share continues to fall (Langbein, 2006). Companies are rapidly “freezing” their defined-benefit plans (that is, preventing new workers from joining the plan) and shifting them over to alternative forms (such as the so-called cash-balance plan) that are more like 401(k)s. For workers fortunate enough to partici- pate in an employer sponsored retirement plan, 401(k) plans have become the default vehicle for private retirement savings.
The expansion of 401(k)s has not led to an overall increase in employer sponsored retirement plan coverage. Instead, 401(k)s have largely substituted for traditional pension plans, and the share of workers offered any plan at their place of work has actually declined. In 1979, just over half of private wage and salary workers aged 18–64 who worked half-time or longer were covered by an employer sponsored retirement plan. Thirty years later, the share had fallen to less than 43% (Economic Policy Institute, 2011). For younger private workers, even college-educated workers, traditional pensions are essentially unavailable; they are lucky if they have access to a 401(k)."
"The one exception to this story is, of course, the public sector, where DB pensions remain the norm—almost certainly because of the much higher rates of unionization in the public sector than in the private sector (Munnell, Haverstick, & Soto, 2007, pp. 2-3). Recently, these pensions have become a source of controversy for two reasons. First, in part because of the severe downturn of 2007–2008, many states’ plans are substantially under-funded (Dalton, 2011). The scale of this shortfall is frequently overstated and funding ratios have improved with recovering stock values. But states will nonetheless have to increase contributions to plans going forward (which currently represent a little less than 4% of state expenditures) or reduce future outlays (which is difficult given union contracts) to achieve adequate funding (Lav & McNichol, 2011, pp. 3-4). It is crucial to note, however, that “state and local plans do not face an immediate liquidity crisis; most plans will be able to cover benefit pay- ments for the next 15–20 years” (Munnell, Aubry, & Quinby, 2010, p. 14)."
"The second reason for controversy is more political than economic. As private DB pensions have disappeared, the argument that the public sector should follow suit becomes increasingly powerful. Yet assessing the virtue of such a shift requires examining the shortcomings of 401(k)s and other DC plans alongside the financial problems faced by public DB plans.
401(k) plans are not “pensions” as that term has been traditionally understood, i.e., a fixed benefit in retirement. They are essentially private investment accounts sponsored by employers. As a result, they greatly increase the degree of risk and responsibility placed on individual workers in retirement planning."
"Traditional DB plans are generally mandatory and paid for largely by employers (in lieu of cash wages) (Frolik & Kaplan, 2010, p. 361-363). Thus, they represent a form of forced savings. DB plans are also insured by the federal government and heavily regulated to protect participants against
￼mismanagement (Ibid.). Perhaps most important, their fixed benefits protect workers against the risk of market downturns and the possibility of living longer than expected (so-called longevity risk) (Broadbent, Palumbo, & Woodman, 2006)."
"None of this is true of DC plans. Participation is voluntary, and many workers choose not to participate or contribute inadequate sums (Munnell & Sundén, 2006, pp. 2-3). Plans are not ade- quately regulated to protect against poor asset allocations or corporate or personal mismanagement (see Stabile, 2002). The federal government does not insure DC plans, and DC accounts provide no inherent protection against market or longevity risks (Jefferson, 2000). Indeed, some features of DC plans—namely, the ability to borrow against their assets, and the distribution of their accumulated savings as lump-sum payments that must be rolled over into new accounts when workers lose or change jobs—exacerbate the risk that workers will prematurely use retirement savings, leaving inad- equate income upon retirement. Perversely, this risk falls most heavily on younger and less highly paid workers, the very workers most in need of protection.
As DB pensions vanish, Social Security is the only guaranteed pension left for the vast majority of private sector workers. Yet the role of Social Security has declined in the last 20 years. The wealth represented by expected Social Security benefits fell in the 1980s and 1990s, due both to the maturation of the program and cutbacks that occurred in the late 1970s and early 1980s (Wolff, 2002). Looking forward, Social Security is expected to replace a smaller share of pre-retirement income than it did in the past (CBO, 2005). That is true even if Social Security pays promised benefits—an assump- tion that is safer than many believe but still hinges on favorable economic and demographic trends and some adjustments in the program (Ibid.; Sanders, 2011; AARP, 2010)."
"In essence, we have moved from the traditional three-legged stool of retirement security to a much more wobbly two-legged stool—Social Security and private savings (inside and outside of 401(k)s). Rather than enjoying the protections of pension and retiree health plans that pool risk broadly, Americans are increasingly facing these risks on their own. The greatest impact has been on the middle class, which relied much more much more heavily on DB pensions than either poor or affluent households. As private risk protections have eroded, in short, retirement savings has become at once less equal and more risky."
These trends have great consequences for injured workers in particular.
It's once more reason that California workers' comp policymakers need to keep in focus the goal of adequately compensating long term earnings
Here is a link to the entire report by the UC Berkeley Labor Center:
http://laborcenter.berkeley.edu/researc ... e_1011.pdf
Monday, October 3, 2011, 08:05 AM - Political developmentsOne down, a bunch more to go.
That's the legislative update as of this morning.
Governor Brown has signed AB 436:
http://www.leginfo.ca.gov/pub/11-12/bil ... ptered.pdf
According to the bill summary:
"This bill would also provide that, upon an order of the Director of Finance, a loan in an amount not to exceed $4,300,000 shall be made from the Uninsured Employers Benefit Trust Fund to the State Public Works Enforcement Fund, thereby depositing additional moneys into a continuously appropriated fund."
AB 436 is a bill that organized labor wanted, particularly the various building trades unions.The bills allows a loan from the UEBT of up to $4.3 million to create a program for monitoring prevailing wages on public works projects.
Here is a bit of background from the Assembly analysis:
"The laws regulating public works contracts require, among other
things, that contractors and subcontractors pay their workers
not less than the general prevailing wage rates as determined under
the Labor Code. State prevailing wage requirements are enforced
both by contracting agencies, known as "awarding bodies," through
review of certified payroll records and taking cognizance of
violations, and by the state Labor Commissioner (also known as the
Chief of the Division of Labor Standards Enforcement), through the
investigation of complaints and issuance of civil wage and penalty
"Since the adoption of Labor Code Section 1771.5 in 1989, the
Director of DIR also has approved "labor compliance programs"
(LCPs) to monitor and enforce compliance with state prevailing wage
requirements on behalf of awarding bodies. The first DIR-approved
LCPs were established on a voluntary basis to obtain higher
exemptions from prevailing wage requirements under the law.
However, the Legislature later began to require awarding bodies to
use LCPs to monitor and enforce compliance on specified projects,
including school construction projects funded by the
Kindergarten-University Public Education Facilities Bond Acts of
2002 and 2004, projects funded by the Water Security, Clean
Drinking Water, Coastal and Beach Protection Act of 2002, and
projects built under a variety of statutes authorizing design-build
"Dissatisfaction with the overall performance of LCPs led to the
adoption of SB 9 X2 (Padilla), Chapter 7, Statutes of the 2009-2010
Second Extraordinary Session in 2009. Essentially, SB 9 X2
replaced the LCP requirement in a variety of statutes with a
requirement to pay a fee for compliance monitoring and enforcement
by DIR on the same types of projects covered by those statutes.
SB 9 X2 also expanded the number of projects that would be covered
by this requirement by extending it to any project funded in whole
or in part by a state public works bond rather than just the four
bonds that previously had been subject to an LCP requirement."
"SB 9 X2 required the Director to establish the fees with the
approval of the Department of Finance for this service and to adopt
reasonable regulations setting forth the manner in which DIR would
enforce compliance on covered projects. The legislation further
provided that the new fee-based monitoring and enforcement system
would only apply to projects awarded after the fees and regulations
had been adopted. Thereafter, the Director proposed and adopted
regulations that, among other things, addressed the new system's
applicability, notices, fees, fee waivers, the establishment of a
Compliance Monitoring Unit (CMU), payroll record review and other
CMU monitoring and investigative activities, complaints, and the
withholding of contract payments when payroll records are
delinquent or inadequate. These regulations were approved on June
29, 2010, and became effective on August 1, 2010, making the
provisions of SB 9 X2 effective for projects for which the contract
was awarded on or after that date."
"However, subsequent to the adoption of these regulations, bond
counsel for the State Public Works Board indicated that it was
unwilling to write an unqualified opinion letter for specified bond
sales due to potential questions about the legality of using bond
funds to pay for fees in the manner prescribed in SB 9 X2 and the
"As a result, DIR sought to amend and delete portions of the
regulations on a temporary emergency basis, for the purpose of
suspending and postponing the commencement of fee-based compliance
monitoring and enforcement by DIR on public works projects until
these legal issues were resolved."
"According to DIR, discussions have occurred over the past several
months with bond counsel and other interested stakeholders
regarding resolving the potential legal questions at issue with the
funding mechanism. Therefore, according to DIR this bill would
make the necessary statutory changes to address these potential
issues and allow the enforcement mechanism to move forward."
AB 436 is a bill that employers opposed. Since the UEBT is one of the funds that relies on employer assessments, there was opposition from some employer groups who oppose use of assessment funds for other purposes, even if for a loan that is to be paid back.
Dean Fryer of the California Department of Industrial Relations is quoted in WorkCompCentral (www.workcompcentral.com) this morning as saying that
the money will be repaid and that the prevailing wage compliance fund will be self-sustaining.
Sunday, October 2, 2011, 10:25 AM - Political developmentsWithin the next week we'll see how Governor Brown acts on the slew of workers' comp bills on his desk. As of today the Governor's office has not released any information on the fate of those bills.
Meanwhile, it's worth noting that a number of health reform bills are also awaiting action by Brown. With the fate of and implementation of Obamacare uncertain as that law appears headed to the U.S. Supreme Court, many of these state bills have added importance..
Here's a rundown on those bills in a piece by Christina Jewett on the blog California Watch, founded by the Center for Investigative Reporting:
http://californiawatch.org/dailyreport/ ... desk-12802
Among the measures is a bill that like the federal Obamacare law "would require that health insurers in the large group market spend 85 percent of premium dollars on services to patients".
Here is a link to a piece by Anthony Wright of Health Access California, "Waiting for the Governor on Key Health Bills":
Friday, September 30, 2011, 08:58 AM - Understanding the CA WC systemAmong the en banc rulings of the WCAB this week was "In Re: Daniel Escamilla".
Escamilla, appearing as a lien rep in various WCAB proceedings in Southern California, is noted to have engaged in a pattern of misleading statements and frivolous tactics. Despite having been sanctioned by various judges and even called before the WCAB itself for a commissioner's conference, the
pattern is said to have continued.
The WCAB has directed Judge David Hettick "to receive evidence and arguments concerning the suspension or removal of Mr. Escamilla’s privilege to appear pursuant to Labor Code section 4907 and this Notice and to receive any mitigating or other relevant evidence he may have to offer. (Lab. Code, § 5309(b).)"
As the board notes, "Acting as a hearing representative and appearing before the Appeals Board and WCJs constitutes the performance of legal services. (Eagle Indemn. Co. v. Industrial Acc. Com. (Hernandez) (1933) 217
Quoting a 1980 case regarding one Louis Moran, the WCAB en banc Escamilla decision says:
"The State Bar Rules demarcate the sanctionable limits of advocacy and indicate how – what may at times be – conflicting duties to clients, opposing parties and the Board are to be reconciled. These rules also give an attorney or lay representative notice of what sort of conduct is required. By appearing as a lay representative he [Mr. Moran] is charged with accepting certain limitations on his advocacy.” (Moran, supra, 45 Cal.Comp.Cases at 525).
Yet, hearing reps are never certified or sworn in. There is no test they must pass.
In my years of experience in handling workers' comp cases In Northern California, I've seen very few problems with hearing reps. Mostly hearing reps are used by lien claimants, and by and large they seem to conduct themselves well at the Oakland and San Francisco boards where I practice.
But if the proliferation of liens spreads from some Southland boards statewide we could see more fly by night lien reps and more problems.
Some self-insured employers use hearing reps to attend settlement conferences and handle walk-thru settlements. Some of these folks are very skillful and very productive.
And some law firms use hearing reps. Occasionally these are new admittees waiting for bar results, law students who are also working, graduates struggling to pass the bar, or office paralegals pinch-hitting for a busy attorney.
Could the WCAB tighten its procedures and regulate hearing reps more?
Undoubtedly. Hearing reps could be required to register, certify (or test) their familiarity with benefits and procedures, do CLE, file documents revealing their employer or compensation arrangement, etc etc..
But just as Jerry Brown has noted that not every human problem needs a legislative solution, perhaps not every problem needs a regulatory solution either.
What's clear is that this WCAB is concerned about ethics and misbehavior at the board. They intend to move on egregious behavior in order to protect the integrity of the judicial process. We've seen that already with some high profile panel decisions involving attorney misrepresentations to the WCAB.
Here is a link to the Escamilla decision:
http://www.dir.ca.gov/wcab/EnBancdecisi ... Daniel.pdf
Wednesday, September 28, 2011, 10:14 PM - Understanding the CA WC systemI've been on the road the last couple of days, speaking as a guest lecturer at the California Workers' Compensation & Risk Conference, held in Monarch Beach in Orange County.
The conference is primarily attended by insurer claims representatives, self insured administrators, and some defense attorneys. Speakers this year included WCAB Commissioners Ronnie Caplane and Al Moresi as well as the new Administrative Director of the Department of Industrial Relations, Rosa Moran.
Presenting on panels from the viewpoint of injured worker advocacy were myself (on Almaraz-Guzman issues and the Ogilvie decision) and Los Angeles attorney Barry Hinden.
While gone, the California Workers Compensation Appeals Board release 3 en banc decisions. I'll be providing more commentary on those decisions in coming posts.
One decision dealt with claims of misconduct by a hearing representative who appears on behalf of lien claimants at workers' comp proceedings. That's In Re Daniel Escamilla, the text of which can be found here:
http://www.dir.ca.gov/wcab/EnBancdecisi ... Daniel.pdf
Another dealt with timeframe technicalities where applicant attorneys and defense attorneys are "racing" to be first to request a QME panel. It's a procedural case that addresses some uncertainties regarding how panel disputes are to be construed. The case is Tsegay Messele v. Pitco Foods, and the text can be found here:
http://www.dir.ca.gov/wcab/EnBancdecisi ... /Messele_T
The most significant of the 3 is Elayne Valdez v.Warehouse Demo Services.
The WCAB had issued a prior en banc from which the applicant appealed.
The text of Valdez II is here:
http://www.dir.ca.gov/wcab/EnBancdecisi ... ldez_E.pdf
Check back in the next couple of days for more in-depth commentary on these.