HELENA -- A group of employers who get workers’ compensation coverage from Montana State Fund are suing over a 3 percent management fee imposed on the Fund during a November special legislative session as a solution to fix the state’s budget woes.
The lawsuit, filed in Lake County District Court on Monday, calls the management fee an “improper taking” of assets to help pay the costs of fighting fires in the most expensive fire year the state has ever seen.
Late last year, the State Fund tried its own legal attempt to stop payment of the management fee, but after a denial of their request for a temporary restraining order to stop the payments, the Fund’s own board voted 5-2 in November to end any further attempt.
That was after Gov. Steve Bullock, whose office initially pitched the management fee as a way to generate $30 million, appointed two new members to the board who both voted to drop the lawsuit.
Monday’s lawsuit was filed by a handful of business organizations and is against the State Fund, the state Board of Investments that is charging the management fee, and the state of Montana.
“The purported ‘management fee’ is not calculated or based on actual administrative costs,” the lawsuit reads. “The ‘management fee’ was instead designed, and the dollars likely calculated, to provide the state of Montana funding to cure budgetary issues.
“It is not the duty of Montana State Fund policyholders to solve the state’s budgetary or fiscal woes.”
The suit was filed Monday in Lake County District Court by a handful of businesses, including:
- Moody's Market, Inc., in Polson;
- Liquid Engineering Corp., in Billings;
- Stieg Ranch LLC, in Billings;
- Z Inc., in Lewistown;
- Story Distributing Co., in Bozeman;
- Montana Roofing Contractors Association Inc., in Bozeman;
- Ace Roofing LLC, in Wilsall;
- Cory Simons Construction Inc., in Billings; and
- National Federation of Independent Business, a California nonprofit.
Moody's Market is owned by state Rep. Greg Hertz, a Republican from Polson who voted against the bill to charge the management fee.
Montana State Fund provides workers’ compensation and is the insurer of last resort for companies that cannot get coverage elsewhere. It is funded through insurance premiums and investment income and does not receive tax dollars.
State Fund must pay a dividend to policyholders of any surplus in the account for new fund claims.
The lawsuit argues that by paying the fee, both the State Fund and Board of Investments are violating their fiduciary duties and obligations to policyholders and workers who have been or will be injured. The lawsuit also argues that charging the management fee, which has been changed since the special session adjourned in mid-November, violates several section of the state Constitution.
The new management fee “bears no relationship to any legitimate, appropriate, justified or legal asset management fee,” the lawsuit says, arguing that no additional services come along with the management fee.
The Board of Investments can charge State Fund management fees “calculated upon the actual cost of administering funds and assets under its supervision, but no more,” according to the suit.
In fiscal year 2017, the fund paid $334,249 in management fees to the Board of Investments, according to the lawsuit.
The temporary management fee, levied on State Fund investments of more than $1 billion with the Board of Investments, would generate $14.6 million in fiscal year 2018 and $15 million in fiscal year 2019, for a total of just shy of $30 million over the biennium. The fee would expire June 30, 2019.
The lawsuit asks for an order preventing the Board of Investments from transferring funds paid through the management fee and paying back the State Fund with interest. It also asks the state pay any attorneys fees.
The State Fund declined to comment Monday.