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California Insurance Fund Ready to Pay $50 Million in Severance for Workers Who Leave

Source: Sacramento Bee

Posted on 21 Nov 2011

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Despite a yearlong campaign to slash its expenses, a quasi-government agency is ready to pay up to $50 million in severance packages for state workers who volunteer to leave by the end of this year – even though civil service rules don't require it.

The State Compensation Insurance Fund and SEIU Local 1000 this week reached a first-of-its-kind "transition payments" arrangement covering as many as 1,800 employees. The union had blasted the fund for forcing some of its members to relocate without telling them in advance that they would be laid off anyway.

While news of the deal spread Friday, State Fund announced that it has earmarked $50 million in dividends for policyholders that it will pay as premium discounts next year. It's the first time in a decade that the fund has paid a dividend.

Neither payout directly affects taxpayers. State Fund operates on client premiums and investment returns, not tax money. It also administers state government workers' compensation claims, but the state covers the payouts itself.

Asked whether the two events were linked because policyholders might not like the first $50 million expense but would welcome the second, fund spokeswoman Jennifer Vargen said that there was "nothing intentional in the timing."

Although civil service rules don't require severance for terminated employees, the deal "reflects the board's commitment to doing the right thing for employees facing layoff," Vargen said.

A copy of the contract between the fund and the union obtained by The Bee shows that up to 1,800 state employees in 26 job classifications targeted for layoffs early next year may receive from $17,000 to $55,000 each, depending on their job, pay and service time if they voluntarily exit by Dec. 31.

Established in 1914 as California's business "insurer of last resort," the fund operates as both a private enterprise and a public entity: It competes with insurers and operates solely on investment returns and client premiums. At the same time, it's staffed with government workers, and it isn't supposed to make a big profit.

In the past six years, the fund has lost about 70 percent of its business, and staffing declined by about 20 percent.

State Fund last year began closing offices, cutting its vehicle fleet and consolidating operations. In October, officials announced it would lay off about a quarter of its 7,300 employees early next year.

The exit agreement reached this week isn't a so-called "golden handshake," since it only affects staff in jobs slated for elimination.

The agreement gives departing employees with seven or more years of State Fund service six months of salary plus $9,000 "for the loss of health care and other benefits," according to an internal memo to the organization's staff.

Employees with less than seven years at State Fund would receive a payment equal to four months of gross salary plus $6,000 for lost benefits.

State Fund expects its layoff plan to be approved by the Department of Personnel Administration around the end of this month. Employees whose jobs are targeted for layoff will have until Dec. 15 to apply for the severance money and leave by Dec. 31.

SEIU Local 1000 negotiated the package after it contended State Fund officials forced some of its members to relocate in September or lose their jobs without telling them they would be laid off anyway.

A Nov. 9 union newsletter said that such "corporate behavior is what one sees on Wall Street – you don't expect it from a state agency."

Vargen said that the fund's leadership "felt terrible" that those people were caught between the plan to close offices and the plan to lay off staff, but said they number in "the tens, not hundreds."

All along the way, State Fund's decision-makers have talked with labor representatives, Vargen said. "We view the union as a partner in the process," she said.

When asked whether any other group of state civil service employees have ever received a similar severance deal, Lynelle Jolley, spokeswoman for the Department of Personnel Administration, said, "Not to our knowledge."

Meanwhile, the fund's decision to issue a dividend "is the result of improvements in expense management combined with disciplined underwriting," Vargen said.

It's also a signal about the State Fund's determination to hang on to policyholders, said Mark Sektnan, president of the Association of California Insurance Companies, because the dividend is a discount for future business and not a cash payment.

"They're certainly making a strong statement about retaining their book of business," Sektnan said.