Pursuant to the authority vested in him by Labor Code Sections 55 and 3702.10, to implement and make specific the provisions of Labor Code Sections 3700, 3701 and 3701.8, the Director of Industrial Relations proposes to amend Article 3, Sections 15210,15210.1, 15210.2, 15216, Article 9, Section 15400, Article 11, Section 15430 and to adopt a new Article 3.1, Sections 15220 through 15220.8 in Title 8, Chapter 8, Subchapter 2, regarding Alternative Composite Deposits.

Pursuant to Government Code Sections 11346.4 and 11346.5, notice is hereby given that any interested person may present statements or arguments in writing relevant to the action proposed to the agency officer named below no later than 5:00 p.m. on April 8, 2003, which shall constitute the close of the public comment period.

A public meeting at 9:00 a.m. will be held explaining the process of the alternative composite deposit. We will not accept any comments during that time. The public hearing will follow afterwards.

A public hearing has been scheduled as follows:
Date: Tuesday, April 8, 2003
Time: 10:00 a.m.
Room: Auditorium, EDD Building
Place: 722 Capitol Mall, Sacramento

At the public hearing any interested person or his/her duly authorized representative may present oral comments or submit written comments regarding the proposed changes being considered for adoption. Following the public hearing, the Director may adopt the proposal substantially as set forth without further notice.

If modifications are made which are substantially related to the originally proposed text, the modified text with changes clearly indicated shall be made available to the public for at least 15 days prior to the date on which the Director adopts the

regulations. Requests for copies of any modified regulations should be addressed to the agency officer named below. Written comments on the modified regulations (if any) will be accepted

for 15 days after the date on which the modified text was made available.

Agency Officer:

WRITTEN COMMENT PERIOD: Any interested person, or his or her authorized representative, may submit written comments relevant to the proposed regulatory action to Mark B. Ashcraft, Manager, Self Insurance Plans, 2265 Watt Avenue, Suite 1, Sacramento CA 95825. The written comment period closes at 5:00 p.m. on April 8, 2003.

Written comments may also be sent to Mark B. Ashcraft, Manager

Via fax (916)483-1535 or via electronic mail to

Contact Person: Nonsubstantive inquiries concerning this action, such as request for copies of the text of the proposed regulations, may be directed to Diana Reed at (916) 483-3392 extension 3005. The backup contact person is Tina Freese at (916)483-3392 extension 3007 or email at Inquiries regarding the substance of the proposed regulations may be directed to Mark Ashcraft at (916)483-3392.

1. Title 8, Article 3, Sections 15210 - 15210.2, and 15216, Article 3.1, Sections 15220 – 15220.9, Alternate Composite Deposit Program, Article 11, Section 15430, Hearing and Appeal Procedures

Informative Digest/Policy Statement Overview:

Existing law in Section 3701 of the Labor Code requires every private self insuring employer to post a security deposit to secure incurred worker's compensation liabilities and requires the security deposit to be cash, securities, surety bonds or irrevocable letters of credit, in any combination.

Labor Code Section 3701.8 was added by legislation, (Chapter 866, Statutes 2002), that would permit the Director to accept an

alternative security deposit system posted by the Self Insurers' Security Fund rather than individually by each private self insured employer to secure workers' compensation liabilities. This alternative composite deposit would be in lieu of each private self insured employer posting their own security deposit.

Existing Article 3 provides the requirements for posting security deposit with the Office of Self Insurance Plans. This section will be amended to reference the new requirements in Article 3.1 and Labor Code Section 3701.8. This section is also amended to clarify security deposit requirements.

The new Article 3.1 is proposed to establish regulations for posting an alternative composite deposit and to establish the qualification and procedures for the new alternative security deposit system.

Existing Article 11 provides for requirements for hearing and appeal procedures. This section will be amended to establish provisions for hearings on appeals for the alternative composite deposit assessments.

Article 3

Existing Section 15210 requires all private self insured employers to post and maintain a security deposit in accordance with the provisions of Labor code Section 3701. This section will be amended to add a reference to security deposits posted in accordance with Article 3.1.

Existing Section 15210.1 discusses adjustments in the amount of security deposit. This section will be amended for clarification with editorial revisions as required by Labor Code Section 3701.

Existing Section 15210.2 requires as part of the revocation of a Certificate to Self Insure, the Manager shall determine the need for a special revocation audit of the claims of any private self

insurer and the need to a deposit adjustment to secure future liabilities of the revoked private self insurer. Amendments to subsections (a) and (b) editorially revised to reference the new Labor Code Section 3701.8.

Existing Section 15216 requires that if a self insurer fails to pay workers' compensation benefits due, the cost of the administration and legal expenses of existing and new claims shall be made from the security deposit set aside for this purpose.

Subsection (c) is amended to editorially change the title of the section to "Defaulted".

Article 3.1

A new section 15220 will specify that Self Insurance Plans will annually develop a list of the security deposit amounts required for each self insurer qualified for the alternative composite deposit program. Any private self insurer that fails to file their Annual Report by April 1 of each year, shall be deemed to have twice the liabilities indicated on their prior year's Annual Report for the purpose of preparing the listing of required security deposits. This list will be provided to the Self Insurers' Security Fund.

A new section 15220.1 will establish a procedure for rating the financial stability of a self insurer that does not have a public

financial statement. This section will require the private self insurer to provide financial information from their current financial statement. This section will also require the information to be included on a new form.

A new Section 15220.2 will propose to establish the lay out process for the Alternative Composite Deposit between the Department and the Security Fund. This section requires the Security Fund to make a proposal in writing to the Manager and what the contents are in the proposal.

A new Section 15220.3 will establish the private self insurers who can participate in alternative composite deposits.

A new Section 15220.4 will establish the four different types of deposit assessments. The Default Loss Fund Fee, Excess Liability Protection Fee, the Pre-Existing Deposit Shortfall Fee and the New Self Insurers' Fair Share Contribution Fee.

A new Section 15220.5 will require the Self Insurers' Security Fund Board of Trustees to track and develop a historical, annual

schedule of cash contributions for the first 10 years to building net worth in the Default Loss Fund. Each new self insured employer is then surcharged a "fair share" contribution for any

years of the initial ten years that the new self insured employer did not contribute to the Default Loss Fund. This 10 year

contribution to the new worth is called the "New Self Insurers Fair Share Contribution Surcharge Fee".

A new Section 15220.6 will require each private self insurer who participates in the alternative composite deposit to pay a deposit assessment and to establish civil penalties for the private self insured employer who fails to post the deposit assessment in the time allotted by the Self Insurers' Security Fund.

A new Section 15220.7 will establish appeals on deposit assessments and deposit assessment penalties.

A new Section 15220.8 will require the Board of Trustees of the Self Insurers' Security Fund to make a detailed accounting of monies collected from each deposit assessment to the Director within 90 days of each payment due date of the assessment.

Article 11

Existing Section 15430 discusses the requirements that the Director may investigate or hold a hearing to implement the law and regulations with respect to self insurance matters.

This proposal will establish provisions for hearings on appeals for the alternative composite deposit assessment.

  1. Title 8, Article 9, Sections 15400, Claim File Contents

Existing regulations in Group 2, Article 9, of Chapter 9, Title 8, California Code of Regulations contain general requirements for maintenance and retention of self insured workers' compensation case files and logs, self-insurance plan administration and audits.

This proposal will expand and clarify the required contents of workers' compensation claim files to ensure that the entire documentation related to this claim are maintained in the claim file for the self insured employers and be arranged in some

consistent chronological order, with the most recent occurrence filed on top utilizing metal file fasteners to keep documents secured to the folder.

Existing Section 15400 requires every self insurer or its administrative agency to maintain a claim file for each self insured indemnity and or medical only working injury.

This proposal will require every self insurer or its administrative agency to keep the claims files in chronological order and by subject matter and also require additional documents. This proposal will also insure each claims administrator maintains for a self insured employer a claim files that will reflect a more complete history of the action taken by the administrative agency and better assist Self Insurance Plans to monitor the claims administrator's estimates of future liability on workers' compensation claims and will assist the claims auditor in their responsibility of handling the file.


Costs or Savings to State Agencies

No costs or savings to state agencies will result as a consequence of the proposed action.

Determination of Mandate

The Director of Industrial Relations has determined that the proposed regulations do not impose a mandate on local agencies or school districts or a mandate requiring reimbursement by the State pursuant to Part 7 (commencing with Section 17500) of Division 4 of the Government Code because the proposed amendment will not require local agencies or school districts to incur additional costs in complying with the proposal. Furthermore, these regulations do not constitute a "new program or higher level of service of an existing program within the meaning of Section 6 of Article XIII B of the California constitution."

Cost or Savings to Local Agencies or School Districts Required to be Reimbursed

No costs to local agencies or school are required to be reimbursed in accordance with Government Code Sections 175000 through 17630.

Other Non-discretionary Costs or Savings Imposed on Local Agencies or School Districts

This proposal does not impose non-discretionary cost or savings imposed on local agencies or school districts.

Costs or Savings in Federal Funding to the State

This proposal will not result in costs or savings in federal funding to the state.

Impact on Housing Costs

The Department of Industrial Relations has made an initial determination that the amendment of this regulation will not have a significant effect on housing costs.

Cost Impact on Representative Private Persons or Businesses

The department is not aware of any cost impacts that a representative private person or business would necessarily incur in reasonable compliance with the proposed action.

Impact on Business

The Department of Industrial Relations has made an initial determination that the amendment of this regulation will not have a significant, statewide adverse economic impact directly affecting business, including the ability of California business to compete with businesses in other states.


The Director must determine that no reasonable alternative considered by the agency or that otherwise been identified and brought to it's attention would be more effective in carrying out the purpose for which the action is proposed or would be as effective and less burdensome to affected private persons than the proposed action.


This regulation will have no adverse impact on small business because it does not impose any new requirements on employers nor

does it amend any existing requirements impacting small business. In addition, small businesses are not affected by Self Insurance regulations, since small businesses cannot qualify for self insurance and the banks affected by these regulations are not defined as small businesses.


The Department has made an assessment that the proposed amendment to the regulation would not (1) create nor eliminate jobs within

California, (2) create new business or eliminate existing businesses within California, and (3) affect the expansion of businesses currently doing business within California.

A copy of the express terms of the proposed changes in strikeout-underline format is available upon request to the agency officer listed above. An Initial Statement of Reasons describing the specific purpose and factual basis for the proposed regulations and the substantive facts upon which the proposed regulations are based is also available upon request from the agency officer. These documents are also available on the SIP Website at, the SIP Rulemaking Section.

The copy of the final statement of reasons will be prepared after the close of the public comment period. To obtain a copy of the final statement of reasons, contact Tina Freese at the address above and will also be available on the SIP Website at, under the SIP Rulemaking Section.

A copy of this Notice will be automatically sent to those persons on the Self-Insurance Plans Public and Private Self-Insurer's mailing list; to all Third-Party Administrators or exempt

insurance carriers that are claims administrators for self insured workers' compensation plans; to the Self-Insurers' Security Fund.

The rulemaking file for the proposed action is open to public Monday through Friday, from 8:00 a.m. to 5:00 p.m. at the Office of Self-Insurance Plans, 2265 Watt Avenue, Suite 1, Sacramento, California 95825.




Chuck Cake, Director