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Little Noticed! SDTF Slowly Declines

It was once the most controversial issue in workers' compensation, stretching as far back as the late 1990s when the Democrats still held a majority in the House of Representatives. The Special

By Michael H. Adams | Updated on January 31, 2006

It was once the most controversial issue in workers’ compensation, stretching as far back as the late 1990s when the Democrats still held a majority in the House of Representatives. The Special Disability Trust Fund (SDTF), or the so-called second injury fund, initially was created in 1955 to encourage employers to hire previously injured workers by reimbursing employers/carriers for a portion of a workers’ comp claim that was attributable to earlier workplace accidents. However, like many decades-old legislative pro-grams, the fund had long since outlived its original legislative purpose and had become a relic of a workers’ comp system, bearing little resemblance to the more modern system that emerged from reform laws enacted in the 1980s and 1990s. But as is the case with many programs that outlived their original purposes, the SDTF found a new role as carriers discovered other ways to make use of the financial structure of the fund.

As a result, when lawmakers finally turned their attentions to the SDTF in the late 1990s, the debate over the fund far exceeded its impact on workers or workers’ comp claims. Instead, lawmakers found themselves in the position of trying to prop up the fund, on which a large part of the industry had grown dependent, though it was little more than an accounting method used to artificially pump up a carrier’s surplus. By the time lawmakers moved to close the fund to new claims as of 1998, the fund had run up a deficit estimated at $3.62 billion that was a crucial part of many carriers’ financial status. However, in 1997, lawmakers enacted a series of reforms that stabilized the fund, gradually reduced its financial role on carriers’ balance sheets, and were designed to eventually reduce its economic burden on the industry.

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