Subject
title
Authorization for the City Manager to execute a Memorandum of Understanding with the Maryland Workers’ Compensation Commission
end
Department
Human Resources
Recommendation
Staff recommends the Mayor and Council authorize the City Manager to Execute a Memorandum of Understanding with the Maryland Workers’ Compensation Commission pertaining to financial security requirements of the City’s self-insurer status.
Discussion
On June 28, 2024, the Maryland Workers’ Compensation Commission (“Commission”) issued a Conditional Order approving the City’s application for the privilege of self-insurance for workers’ compensation with an effective date of July 1, 2024. A copy of the Conditional Order is attached to this staff report. The approval for the privilege of self-insurance is subject to the City securing excess insurance with a retention amount not greater than $750,000 and providing a security deposit in the amount of $1.5 million. The City has 60 days from the date of the Conditional Order to satisfy these requirements.
During the June 10, 2024, meeting, the Mayor and Council issued an award to bind excess workers’ compensation insurance for the FY 2025 policy period to Arch Insurance Group, Inc.; which satisfied the state’s excess insurance requirements.
To satisfy the requirement to establish a $1.5 million security deposit, the City will be issuing an irrevocable letter of credit (“LOC”) issued by our banking contractor, Truist. Issuance of the LOC will serve as proof of compliance with the Commission’s requirements to secure payment of compensation instead of a surety bond, book entry or securities. The City’s Finance Department has submitted an application to Truist to issue this standby LOC and staff expects to receive the LOC in time to meet the state’s requirements. The City is required to enter into a Memorandum of Understanding (“MOU”) with the Commission that outlines the issuance of the LOC to meet the security requirements pertaining to the City’s privilege to self-insure risks pursuant to Section 9-405 of the Maryland Workers’ Compensation Law. The MOU will be filed concurrently with the irrevocable LOC to satisfy the remaining requirement of the Conditional Order issued by the Commission.
Of note, it is a common and well accepted practice to issue LOC to satisfy security requirements of a partially-or-fully self-insured insurance program. The City has issued LOC to meet the security requirements of our workers’ compensation insurance program in the past and has a current LOC with our former workers’ compensation insurer, the Pennsylvania Manufacturers Association Insurance Company, in the amount of $1.1 million.
The City’s adopted FY 2025 budget contains funds to pay for workers’ compensation claims/losses as they’re incurred. The City will not expect the Commission to draw upon the LOC to pay for any claim and claim administration expenses; which ultimately are the responsibility of the City as the authorized self-insurer.
Mayor and Council History
This is the first time this item has been brought before the Mayor and Council.
Fiscal Impact
The City expects to pay a 1% fee to Truist for the issuance of the $1.5 million LOC. The FY 2025 adopted budget for workers’ compensation insurance is $1,210,000 (all funds), which will be sufficient to cover the cost of the LOC.
Next Steps
Upon Mayor and Council authorization, the Safety and Risk Management Division will obtain appropriate signatures from the City Manager to execute the enclosed MOU with the Commission.