Retro is one of three kinds of Workers Compensation programs run by the Department of Labor and Industries.
The first program is Self-insured companies who are large enough to provide their own Workers Comp insurance.
The second program is Non-retro where in companies pay the State to insure their workers.
The third program is Retro where in companies pay the State to insure their workers, but they get back a Retro refund if they are able to reduce claims compared to non-retro companies.

Retro was started in 1980 as an attempt to increase on the job safety and reduce accidents by giving retro companies an incentive to improve safety. The incentive was that they would receive back a refund of whatever savings they were able to create compared to non-retro companies. Unfortunately, Retro has not improved safety or reduced accidents. Instead, the Retro program was corrupted into the worst economic and political scandal in the history of our State. It is currently costing tax payers over $100 million dollars per year, of which over $10 million dollars a year is being diverted into buying elections.

The drawing shown here was taken from an L & I Presentation depicting how much money Employers would save by switching from the normal Workers Comp program to a privately run Retro program. But because there were no real savings, billions of dollars in Retro subsidies were paid for by the tax payers. In short, the money being hauled off in the wheelbarrow is the TAXPAYERS MONEY!

“Adopting the Retro Reform measures advocated in this report will save Washington State tax payers over one billion dollars per year. Conversely, if we do not enact Retro Reform, it will cost tax payers over a billion dollars per year for every year that reform is delayed.” -- David Spring, M. Ed.

Illustration: From “Other’s People’s Money… And How the Bankers Use It”

by Louis D. Brandeis  Harper's Weekly, November 29, 1913 by James Montgomery Flagg

“ Using the workers compensation system as a cash cow for their (BIAW) political ambitions is flat out corrupt and should be stopped."    - Senator Karen Keiser

The research for this report began as an attempt to answer two simple questions:

First, why has school funding in our State plunged dramatically in the past 10 years?

It became obvious that the Building Industry of Washington (BIAW) played a major role in electing dozens of anti- school politicians during the past 10 years, as well as defeating dozens of pro-education candidates. In the 2008 election alone, the BIAW spent nearly $10 million dollars and boasted in their Building Insight Newsletter that they were “5 for 5” in defeating progressive pro-education legislative candidates in hotly contested swing districts.

This led to the second question: Where did the BIAW get $10 million to spend on the 2008 election? Like most people, I assumed the money came from contributions from BIAW’s own members. However, this turned out not to be the case. Instead, as is explained in more detail below, nearly all of the $10 million came from diversion of tax payer dollars.

This report explains how the BIAW diverted more than $10 million dollars per year in tax payer money to use for political purposes. We conclude that this questionable activity has corrupted the entire political process in the State of Washington and is the underlying reason school funding in our State plunged to 47^TH in the nation.

While researching where BIAW was getting tens of millions of tax payer dollars every year, I discovered an even bigger scandal, this one involving a “Retro” insurance scam. In 2007 alone, nearly $200 million dollars of tax payer money was diverted through the Workers Compensation “Retro” program to nearly five dozen private Retro insurance agencies such as BIAW. The total cost to tax payers of this questionable Retro “refund” program has been more than $2 billion dollars and is rising rapidly.

But it turns out that even $2 billion dollars in losses is just the tip of the iceberg… because Retro is only a  part of a much larger Department of Labor and Industries scandal that is losing more than $3 billion dollars annually such that the Workers Comp program is now in debt by nearly $30 billion dollars. $1 billion of this unpaid annual debt is from Retro employers, bring the entire tax payer cost of the Retro program to more than $1.2 billion dollars per year.

 Such a claim may seem difficult to believe. After all, our entire annual State budget is only $16 billion dollars. How can a single State agency be losing billions of dollars every year for more than 10 years without it being noticed? Recently the United States Senate held a hearing to determine how Bernie Madoff could have constructed a $50 billion dollar Ponzi scheme without any federal regulators noticing his questionable accounting practices. I believe we have uncovered an even worse Ponzi scheme right here in our own State. At least Madoff was only losing the money of private investors. The Ponzi scheme we are about to describe involves the loss of billions of tax payer dollars, millions of which were improperly diverted to subvert hundreds of elections throughout our State. In short, what we are about to describe is the worst economic and political scandal in the history of our State.

The diagram on the following page shows only a small portion of the flow of money from the State tax payers to the BIAW/ Retro program using the 2006 calendar year as an example.

The original intention of the State Workers Comp Retro Insurance program was to lower the cost of workers compensation insurance by increasing safety. The Retro program has failed to reduce cost or improve safety. Instead it has added $1 Billion in tax payer dollars being diverted to non-insurance purposes, of which BIAW has diverted over $10 million dollars per year into buying local and state wide elections.

BIAW is just a fraction of the Retro Monster. Retro is a Workers Comp insurance option that was started in 1980 and was supposed to save tax payers money. Instead it has cost tax payers BILLIONS of dollars without providing any public benefit. This program has spiraled out of control largely because “retro refunds” have been greatly inflated.

There are many reasons Retro refunds have been much higher than they should have been. These reasons include but are not limited to:

1.      A 1994 Double Entry Computer Coding “error”, which artificially increased the estimated cost of non-retro programs by 10%, made retro programs appear to be doing much better than they were actually doing and thereby led the Department of Labor and Industries (L & I) to issue retro refunds at a rate far higher than were actually deserved. L & I concedes this error cost tax payers $150 million dollars during the past 15 years. 

2.      A 1994 Occupational Disease Mis-assignment formula which also artificially inflated non-retro claims increasing retro refunds by another 30%. L & I concedes that this error costs tax payers $300 million in erroneously issued subsidy checks.

3.      An Actuarially “Unsound” cut off of retro claims adjustments at 45 months causing Retro claims to be under-stated by yet another 5%. or $50 million dollars.

4.      Failure to correctly calculate the “Performance Adjustment Factor (PAF). This factor is required by Washington State law to insure that Retro and non-retro programs are fair and equitable. WAC 296-17-90402 requires that retro employers as a group and non-retro employers as a group fund the same portion of their total claim costs relative to their total premium. Failure to correctly calculate the PAF may be a violation of law.

5.      Failure to require Retro groups to pay back erroneously issued subsidy checks. Incredibly, L & I is only asking Retro groups for $30 million of the $500 million in undeserved subsidies. This is likely a violation of RCW 51.48.260.

While there have been many reports of BIAW and/or Workers Comp corruption in the past, this report provides evidence for five findings never confirmed before:

First: BIAW funds do not come from its members, but rather from tax payer subsidies.

Second: The cost to tax payers of all Retro subsidies is over $2 billion dollars and rising rapidly.

Third:  There has been no “cost savings” to any of these Retro programs. Instead, the public and the State legislature have been mis-informed about the true costs of the Retro program. If any thing, Retro programs have higher claims and costs than non-Retro programs.

Fourth: The entire Workers Comp program is now $30 billion dollar in debt. More precisely, the Workers Comp program has $10.8 billion in assets and $41 billion dollars in liabilities for a deficit of $30 billion dollars which will eventually have to be paid by our State’s tax payers.

Fifth: BIAW as well as L & I  may have violated several State laws.

We are therefore requesting that our Governor appoint an independent investigator to look into the concerns we have raised in this report. In particular, we ask that the assets of the BIAW and its 15 affiliates and 20 political action committees be frozen so that tax payer funds can be protected from further diversions and returned to the State treasury as soon as possible.

Finally, we recommend specific Retro Reform measures which will save Washington State tax payers over one billion dollars. For example, we ask the Governor to order L & I to seek immediate re-imbursement for the entire $500 million in undeserved retro subsidies.