WORKERS’ COMPENSATION INSURANCE AND RESERVES

We provide workers’ compensation insurance for our temporary and permanent employees. The majority of our current workers’ compensation insurance policies cover claims for a particular event above a $2.0 million deductible limit, on a “per occurrence” basis. This results in our being substantially self-insured.

In connection with the acquisition of MDT, we assumed certain workers' compensation insurance policies, which cover claims for the policy year ended February 13, 2013.

For workers’ compensation claims originating in Washington, North Dakota, Ohio, Wyoming, Canada, and Puerto Rico (our “monopolistic jurisdictions”), we pay workers’ compensation insurance premiums and obtain full coverage under government-administered programs (with the exception of our Labor Ready service line in the state of Ohio where we have a self-insured policy). Accordingly, because we are not the primary obligor, our financial statements do not reflect the liability for workers’ compensation claims in these monopolistic jurisdictions.

Our workers’ compensation reserve is established using estimates of the future cost of claims and related expenses that have been reported but not settled, as well as those that have been incurred but not reported. Our workers’ compensation reserve for claims below the deductible limit is discounted to its estimated net present value using discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. The weighted average rate was 2.1% and 2.4% at December 27, 2013 and December 28, 2012, respectively.

The table below presents a reconciliation of the undiscounted workers’ compensation claims reserve to the discounted workers' compensation reserve for the periods presented as follows (in millions):



	December 27, 2013		December 28, 2012
Undiscounted workers’ compensation reserve	$	234.4	$	216.0
Less discount on workers' compensation reserve	19.6		20.4
Workers' compensation reserve, net of discount	214.8		195.6
Less current portion	49.9		44.7
Long-term portion	$	164.9	$	150.9

The table below presents the estimated future payout of our discounted workers' compensation claims reserve for the next five years and thereafter as of December 27, 2013 (in millions):



2014	$	49.9
2015	29.5
2016	18.6
2017	12.9
2018	9.9
2019 and thereafter	59.9
Sub-total	180.7
Excess claims reserve	34.1
Total	$	214.8

Our workers’ compensation reserve includes estimated expenses related to claims above our self-insured limits (“excess claims”), and we record a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance carriers. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. At December 27, 2013, the weighted average rate was 3.9%. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 15.5 years. The discounted workers’ compensation reserve for excess claims and the corresponding receivable for the insurance on excess claims were $34.1 million and $27.1 million as of December 27, 2013 and December 28, 2012, respectively.

Certain workers’ compensation insurance companies (“Troubled Insurance Companies”) with which we formerly did business are in liquidation and have failed to pay a number of excess claims to date. These excess claims have been presented to the state guaranty funds of the states in which the claims originated. Some of these excess claims have been rejected by the state guaranty funds due to statutory eligibility limitations. We have recorded a valuation allowance of $5.7 million and $5.6 million against all receivables from Troubled Insurance Companies for the excess claims that have primarily been rejected by the state guaranty as of December 27, 2013 and December 28, 2012, respectively. Total discounted receivables from insurance companies, net of the valuation allowance, were $28.4 million and $21.4 million as of December 27, 2013 and December 28, 2012, respectively, and are included in Other assets, net in the accompanying Consolidated Balance Sheets.

Management evaluates the adequacy of the workers’ compensation reserves in conjunction with an independent quarterly actuarial assessment. Factors considered in establishing and adjusting these reserves include, among other things:


•	changes in medical and time loss (“indemnity”) costs;


•	changes in mix between medical only and indemnity claims;


•	regulatory and legislative developments impacting benefits and settlement requirements;


•	type and location of work performed;


•	impact of safety initiatives; and


•	positive or adverse development of claims.

Workers’ compensation expense of $63.2 million, $52.3 million, and $51.2 million was recorded in Cost of services for 2013, 2012 and 2011, respectively. Workers’ compensation expense consists primarily of: changes in self-insurance reserves net of changes in discount; monopolistic jurisdictions’ premiums; insurance premiums; and other miscellaneous expenses.