Occam's Razor

Raiding the Montana State Fund

I express my extreme displeasure and disappointment that the Legislature and the governor have decided to raid the MSF reserves

In 2011, Montana Gov. Brian Schweitzer appointed me to the Montana State Fund Board of Directors. I didn’t even know Montana State Fund (MSF), the workers compensation provider for most employers in Montana, had a board of directors. I’m not sure why Schweitzer thought that a farmer had the qualifications to serve on such an important board, but that was the beauty and brilliance of Brian, he was not bound by conventional political constraints and often displayed an astonishing ability to do unusual things that later proved to be quite profound. I’m not sure my appointment fell into that category; however, likely not.

MSF was created by the Legislature in 1990 to replace the workers compensation operation at the time, which was in big, big financial trouble because of a lack of reserves. Due to the complexity of workers compensation insurance, I had a lot to learn. Fortunately, I have a fascination with financial numbers and operational characteristics of business management. Before each board meeting the directors received a huge packet with pages and pages of financial reports, forecasts, recommendations, and procedural information. I would sometimes read portions of these reports to my wife who pronounced it undoubtedly the most boring information ever assembled into one collection.

It is with this experience and the educational time spent learning about the workers compensation insurance business, as well as being a long time policy holder, that I express my extreme displeasure and disappointment that the Legislature and the governor have decided to raid the MSF reserves. I’m disappointed that the current board of directors has dropped their lawsuit regarding that theft, and I’m disappointed the governor chose to replace the directors that supported the legal action.

Theft is exactly what this is. The reserves at MSF only exist because of policy holder rate payments and are necessary to meet probable payments to injured workers. Some of these payments might stretch out for more than 60 years, and some claims have medical costs of hundreds of thousands of dollars every year. The reserve amounts are not arbitrary numbers but based upon the recommendations from highly trained actuaries who use mathematical formulas and science-based techniques to make their recommendations on what the reserves should be. There is a range in this estimate and the MSF board of directors is responsible for picking what they think is a reasonable number. Other than investment earnings on the reserves held by MSF all the money used for operations as well as the creation and building of reserves comes from policy holder premium payments.

Every legislative year during my time as a MSF director some legislator would get his or her knickers in a bunch over the high salary received by the CEO and come up with some cockamamie bill to steal money from MSF. MSF does have an unnecessarily generous executive pay rate. Perhaps when MSF was created the Legislature should have tied executive salaries more closely to the state pay schedule. They didn’t, and it would be disastrously disruptive and counter productive to change it now. Regardless, raiding actuarially sound reserve funds because the CEO is perceived to be overpaid is a startlingly stupid business decision even for a politician. Now that Montana has a financially strong workers compensation insurance program, rates have been stable and significant dividends paid to policy holders in recent years. However, since the theft of reserve funds is approximately equal to what the dividend has been over the last number of years, I’m sure we policy holders can forget about getting any money back in the form of future dividends. Worse yet, now that it appears the door has been bashed down I expect the thievery will only get worse.     

Joe Brenneman is a rancher, farmer and former Flathead County commissioner.