Sunday, September 20, 2009

Workers' Compensation Funded Status and Funding Policy

Last time I wrote about why funding status is important. The recent economic crisis has had an impact on the funding status of many workers’ compensation systems. Since most use fair value accounting, many saw the value of assets at the end of 2008 and hence their funding levels decline dramatically.

Funding status is typically defined as assets (including reserves) over liabilities with 100 representing a ‘fully funded’ position. Using published Annual Reports from individual workers’ compensation funds in Canada, the funding levels for 2008 looked like this:

  • [corrected Jan 18, 2010]
  • WorkSafeBC 115.5%
  • WorkSafeNB 87.7%
  • WHSCC Nfld 77.3%
  • WSIB Ontario 53.5%
  • WCB PEI 89.2%
  • WCHSB Yukon 105.2%
  • WCB Sask 101.8%
  • WCB Alberta 111.7%
  • WCB NS 59.9%
  • WCB MB 106.6%
  • CSST 69.9%

Funding status using this measure is not the same as the ‘funding policy’. Alberta, for example, has a funding policy where “the Accident Fund is considered fully funded when it is within the Funded Ratio target range of 114% to 128%”. Saskatchewan and BC have alternative funding policy measures that are more complicated. Current funding status of both systems, if expressed using the standard calculation discussed above, would be greater the 100%.

To get around the differences, the AWCBC publishes key statistical measures for all Canadian boards using a standard calculation (total assets divided by total liabilities times 100) to generate a ‘Percentage Funded’ standardized statistical measure. These are compiled annually and reported on their website. Because of timing of release of information, however, the results are usually published about eleven months after the calendar/fiscal year end. As of this writing, the results for 2007 are the most recent ones available at that site.

The point here is that there is no one ‘right’ funding policy or strategy. When comparing systems, you need to look beyond the published measure a system may post. The standard calculation helps put the systems on an equalized basis but the funded percentage may not tell the whole story

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