The sum of the estimate of future compensation as defined by section 3207 plus an estimate for administration of claim and legal costs represents which liability?

• A. Estimated future liabilities
• B. Current compensation reserve
• C. Administrative reserve
• D. Incurred liabilities for the payment of compensation

Answer: (D)

When valuing a self‑insurance plan’s obligations, you recognize the total expected cost of future benefits plus the costs of administering and defending those claims. The estimate of future compensation (as defined by section 3207) projects the benefits that will be paid in the future, and you add the anticipated administration and legal costs. Together, these amounts form the liability the plan has incurred for paying compensation in the future. That total is described as incurred liabilities for the payment of compensation because it reflects obligations that have been incurred, even though the payments will be made over time.

This is broader than just estimated future liabilities, which would omit the administrative costs, and broader than a current compensation reserve or an administrative reserve, which would focus on only one component. The combination of future benefit estimates and admin/legal costs accurately captures the full liability the plan expects to pay.