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Chapter 8. Office of the Director
Subchapter 2. Administration of Self-Insurance Plans
Article 13. Group Self Insurance
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§15477. Surplus or Insufficient Funding.

(a) The Board of Trustees of a group self insurer shall not declare that surplus contributions collected in excess of the amount necessary to fund all obligations for any given program year will be refunded to group members unless the group self insurer's most recent annual certified, independently audited financial statement indicates that the group self insurer's assets exceed its liabilities and unless the group self insurer's current actuarial report indicates a surplus of group funds for each program year as indicated in subsections (a)(1) and (a)(2) below.

(1) The group self insurer may transfer excess funds to an escrow account at any time, but shall not declare surplus fund amounts or distribute any surplus funds to group members for any given program year sooner than 23 months after the close of the program year without express written consent from the Chief. Any such disbursements made without written consent from the Chief, including any subsequent disbursements from the same program year or disbursements from a subsequent program year, shall only be from a program year that remains funded as required by Section 15484, subdivision (e). Approval from the Chief is not required as long as the group self insurer's current actuarial report and current financial statement support the determination of the surplus amount, and as long as claim funding for each program year meets or exceeds the funding required by Section 15484, subdivision (e).

(2) Notwithstanding subsection (a)(1) of this section, the group self insurer may request the Chief to allow that funds be released sooner than 23 months after the end of a program year and/or that the determination of a program year's surplus be based upon the actuarial study conducted with a confidence factor of less than the funding required by Section 15484, subdivision (e), and the Chief may allow such a release of surplus funds upon a showing of good cause by the group self insurer. The Chief may require that a special audit be conducted, an independent actuarial study be completed at the group self insurer's expense, and/or other documentation be submitted to support the request from the group self insurer. In no event shall surplus funds be distributed sooner than 23 months after the completion of a program year without express written consent of the Chief.

(3) No reduction in contribution rates for group members shall be authorized unless supported by an actuarial study less than one year old conducted pursuant to Section 15481 of these regulations.

(b) If at the end of any program year member funds collected and investment income associated with any program year are insufficient to completely fund all estimated future claim liabilities and expenses at the required confidence level for any program year, unfunded amounts by program year shall be immediately reported to the Chief, along with a proposed plan to achieve correction of the deficiency. Any plan to correct the deficiency shall be subject to approval by the Chief. The plan may include, but is not limited to, any or all of the following:

(1) Reallocation of surplus group self insurer funds collected in other program years that are unnecessary for the payment of claims or expenses for the program year collected;

(2) Reallocation of investment earnings associated with other program years that are not necessary for the payment of claims or expenses in the program year in which the earnings are associated;

(3) One or more special assessments of all group self insurer members participating in the program year or years in which the deficiency exists to make up the funding insufficiency;

(4) Re-evaluation of past group member contribution rates and the projected plan for future contributions from members to properly collect past rating shortfalls, and/or a revised current and future contribution rating plan for group members for any period of time necessary to correct past and present rate inequities.

(5) Prohibition of the addition of new members into the group; suspension of any distribution of over-collected contributions or assessments and any earnings on investments; or, the immediate collection of all assessments or any portion of such assessments until the group self insurer is deemed by the Chief to be adequately capitalized in accordance with this section;

(6) An examination and restructuring of the group self insurer's operations, contracts with vendors, and finances by an outside qualified professional acceptable to the Chief;

(7) Any other action the Chief may determine appropriate to promptly correct the group's funding deficiency.

(c) If the plan to achieve prompt correction of the funding deficiency for all claims is not approved by the Chief, the Chief may order the Board of Trustees of the group self insurer to show good cause before the Director why it should not be ordered by the Director to (1) immediately assess the group members for the full amount of the funding deficiency and/or (2) order that any surplus funds distributed to group members during the previous twelve calendar months from the date of discovery of the funding deficiency by the group self insurer be immediately returned to the group self insurer; and/or (3) why the Director should not order the appointment of a conservator or liquidator for the group self insurer.

(d) If the Director determines that actions specified in subsections (b) and (c) of this section will not achieve full funding of all claim liabilities for the group self insurer, the Director may in his or her discretion order that an outside conservator or liquidator, including the Self Insurer's Security Fund, be appointed at the expense of the group self insurer to manage the financial affairs of the group self insurer and to take whatever steps may be necessary in order to return a financially troubled group self insurer to full financial solvency or to liquidate the group's liabilities.

Note: Authority cited: Sections 54, 55 and 3702.10, Labor Code. Reference: Sections 3700, 3701, 3701.5 and 3702.10, Labor Code.


1. New section filed 6-30-94; operative 6-30-94 (Register 94, No. 26).

2. Amendment of section heading and section filed 3-2-2009; operative 3-2-2009 pursuant to Government Code section 11343.4 (Register 2009, No. 10).

3. Amendment of subsections (a)(1)-(2), (b) and (b)(5)-(c) filed 12-31-2012 as an emergency; operative 1-1-2013 pursuant to Government Code section 11346.1(d) (Register 2013, No. 1). A Certificate of Compliance must be transmitted to OAL by 7-1-2013 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 1-1-2013 order, including additional nonsubstantive amendments to subsections (a)(1)-(2), transmitted to OAL 7-1-2013 and filed 8-13-2013 (Register 2013, No. 33).

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