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State Fund Closing Offices 'Relocating' Employees

State Compensation Insurance Fund is closing offices, consolidating functions, and significantly downsizing its San Francisco headquarters. State Fund says it’s to achieve greater efficiency and save money. Starting September 2011, hundreds of employees will be relocated as State Fund grapples with a declining premium base in a shrinking workers’ comp market. 

But, like always with State Fund, there is another side.

This plan is expected to save State Fund $200 million in operating costs over 3 years, according to Spokesperson Jennifer Vargen.  But compare this to underwriting losses of some $722 million last year and the changes seem almost irrelevant. And perhaps that’s where the other side comes in.

Employees are still “absorbing” the news, most unhappily, while State Fund is telling brokers that its ability to service State Fund policy holders will not be negatively affected. 

Vargen says the carrier is consolidating its claims and underwriting functions. She says roughly 700 plus of the 850 employees at Home Office will be will relocating to Pleasanton, Vacaville and Sacramento.  State Fund is statutorily required to have an office in San Francisco, so members of the executive committee, some employees in legal and in finance will remain, Vargen says.

But sources in the Legislature say it would likely relieve State Fund of that statutory obligation if its officers asked. And they might ask if they were willing to forgo the benefits of the city.

“We’ve been looking at ways we can make the organization more efficient…and it’s not just efficiency we want to achieve. We want to be efficient in a way that’s sustainable,” Vargen says, adding that State Fund has excess real-estate and some areas including San Francisco are very expensive to live and operate in.

Vargen says offices in Burbank and Glendale are closing down completely.  Offices from where State Fund will be re-locating claims and underwriting include Oxnard, San Jose, Santa Rosa and San Diego. She says there will still be representation in these areas in store fronts or field offices, so service will not be disrupted.

Over the next three years, State Fund says it will consolidate regional claims functions into central locations including Redding, Stockton, Pleasanton, Fresno, Riverside and Santa Ana. Vargen says that there will be satellite offices in Eureka, Bakersfield and Monterey Park. In underwriting, offices will also be consolidated into central locations in Sacramento, Fresno, Santa Ana, Monterey Park, and Pleasanton.

There have been no decisions about the buildings. There are also no plans currently to sell the Home Office building, despite rumors to the contrary.

“We have not made any decisions about real-estate,” she says, adding that State Fund’s real-estate team is still assessing the situation. Ultimately, the Board of Directors will make the final decision.

Professional real estate developers say that about 30 days is all that’s needed to adequately assess the values and to develop a disposition plan for commercial real estate in this market. But State Fund’s business considerations play a part as well.

Impact on Employees and Service

All totaled, including the home office, Vargen says this will put about 1,400 jobs in motion. And it is precisely that fact that belies the subtlety of the plan. 

Vargen is also adamant that there are no layoffs. “This is not a layoff plan. We understand that not all employees will want to relocate or can. They will have the option to do voluntary layoffs,” she says, adding that execs asked managers for estimates on how many employees may not relocate based on where they live.

“Those numbers vary [but] overall we estimate that on the whole most employees will make the move,” she says.

These changes—the biggest in State Fund’s history employees are saying—are part of the strategic plan being implemented by new President Tom Rowe. The rumors have been swirling for days about what would happen. During a series of meetings over three days State Fund execs broke the news to employees. Not all employees share State Fund’s positive take on the situation and disagree with the impact.

“What about the people who don’t leave?  How are they going to be able to provide good customer service when they are so overwhelmed with work?” one employee tells Workers’ Comp Executive. “Everyone knows that this is a de facto layoff.  I would anticipate that probably 25-30 percent of the current employees cannot make that change due to their personal circumstances.”

Some employees tell Workers’ Comp Executive that Rowe could not connect to any of the employees whose jobs were being relocated and insinuated the State Fund employees have a sense of “entitlement.”

But Vargen says reaction from employees has been mixed, mostly along the lines of how State Fund will offer support for those employees who will have to move. As for service, Vargen says that was also a major consideration.  She says there will continue to be representation in those areas where the functions being centralized. “There will be staff to serve including loss control, auditors, and marketing reps. [They will] work with brokers.”


--- Bess Shapiro in Sacramento

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