Plan to convert workers comp hinges on IRS

CARSON CITY -- Gov. Kenny Guinn's plan to convert the 86-year-old state workers compensation system into a private company hinges on a favorable tax ruling from the Internal Revenue Service.

Douglas Dirks, general manager of Employers Insurance Co. of Nevada, testified today he has been working with the IRS to avoid the possibility of millions of dollars in tax liabilities when the system is converted next January.

The ruling by the IRS isn't expected to come until after the Legislature adjourns. Dirks told the Senate Commerce and Labor Committee that a section is included in Senate Bill 37 that the governor could cancel the switch if there are "unfavorable tax consequences" in the transfer.

Then the issue would return to the 2001 Legislature.

The switch to a private company is needed, said Guinn's legal counsel Scott Scherer, because a state system won't be able to compete with private insurance companies when open competition arrives in July.

Employers Insurance now collects premiums from some 44,000 businesses. It expects to lose anywhere from 50 to 65 percent of its business when the market opens.

Anywhere from 450 to 600 workers could be laid off by Employers Insurance when the downturn in business comes. Guinn has fashioned a plan to buy out workers who want to retire early, set aside $2 million for retraining, give those laid off first crack at other state jobs and allow agencies under a hiring freeze to employ workers from the system, formerly called the State Industrial Insurance System.

The committee has scheduled several days of hearings on the bill.

Dirks told the committee today the plan to transfer the system to a private company calls for shifting the system's $1.6 billion liability to private re-insurance companies, which will be given $775 million to $800 million from Employers Management.

The $775 million to $800 million will be placed in trust to cover the liability of $1.6 billion needed to pay off claims of workers injured before 1995, who will be eligible for benefits for the next 30 to 40 years.

That way, Dirks said, if the private reinsurance firms ever went broke, the money would still be there gathering interest and paying claims. In addition, Employers Insurance would continue to manage the claims for the reinsurance firms.

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