​ The Funding Commission was established as a result of the 1987 Extraordinary Session of the Kentucky General Assembly to address workers' compensation issues. In 1986, Governor Martha Layne Collins appointed the Task Force on Workers' Compensation to review current conditions, report findings and recommend solutions. Research by the Task Force indicated that the outstanding liability for all injuries and disabilities occurring before July 1, 1986, approached $1.6 billion. The 1987 legislation then created the Commission to establish a stable funding plan to retire the pre-1986 liabilities and pre-fund a portion of subsequent liabilities of the special fund and to fund the administration and operation of the of the Commission and the Kentucky Labor Cabinet. In 1996, in response to a rise in outstanding liabilities of the Special Fund to more than $2.5 billion, additional legislative action closed the Special Fund to future claims and codified December 31, 2018 as the "sunset" date for funding the outstanding liability. In 2010, the law was amended to extend the full-funding date to December 31, 2029.

Tasked to administer the workers' compensation benefit reserve fund, the Commission is responsible for performing audits and collection functions associated with the fund. The resulting assessments provide the financial resources necessary to administer the benefit reserve fund from which workers' compensation benefit are paid to injured workers in claims in which liability has been assessed against the special fund. As the Funding Commission works toward the 2029 sunset of its funding strategy, its fiduciary obligations are focused on controlling, investing, and managing the funds designated to provide for the pre-1996 claims. The Funding Commission is required to determine the annual assessment rates and investment strategies that will generate sufficient resources to retire this liability.