Another present value example where we recovered more money for the
attorney: From the beginning, we used a P&S date of 12/1/2007 because
the DEU used a P&S date of 8/1/2007 with 123 days of TTD after that. That
would be equivalent to a P&S date of 12/1/2007. The starting life pension weekly payment is $85.04. This is calculated
by using the maximum of $515.38 as specified in LC 4659(a) last sentence.
In this case the date of injury was 11/3/2006. This is after 1/1/2006
so the last sentence applies. The weekly earnings for the applicant were
$580.05 so the maximum of $515.38 must be used.
It appears that the rater may have mistakenly
used the payment rate for temporary total disability as specified in
LC 4653 because they took 2/3 of $580.04 to get $386.70. That's the figure they used in the
life pension formula. This is wrong. The formula uses the average weekly
wages and not the TTD payment rate. Note also that LC 4453(b) does
not apply because it says, "...except as provided in Section 4659..."
As a check on this the Example E in the back of the Lexis-Nexis book calculates
the formula using the maximum weekly earnings the same way I do.
To be on the conservative side, we used the 2000 United States Decennial
Life Table rather than the latest life table.
The SAWW increases were started on 1/1/2007
based on the Duncan case.
The Duncan case says that SAWW increases could start of 1/1/2004 but
since the life pension maximum jumped on 1/1/2007, we used that date
because it is more fair to the defense.
The rater probably used tables that started the SAWW increases at the
start of life pension payment. That's what the raters previously did.
This is not correct according to the Duncan case.
The discounts for interest and probability of mortality start at the
date of commutation (same as date of calculation) of 3/1/2010. The program
calculates the present value of each payment whereas the rater used a
table. We cannot tell what calculations or presumptions were used
to generate the table. A problem with the table method is that
there must be an interpolation for age for a whole year and another interpolation
for deferral period for a whole year. This method introduces inaccuracies.
Here's an explanation of present value of a life pension for 100% This may be
helpful in understanding the process.
Since a total disability case is paid at the TTD rate in effect the
rate of payment will not change if the average weekly earnings of the
applicant is between the minimum and the maximum. This payment continues
until the applicant dies.
But the minimum and maximum are increased
yearly by the percentage increase in the SAWW for DOI after 1/1/2003.
If the AWE is above the maximum then the rate of payment will get increased
each year until the maximum gets above the AWE. When the minimum
gets above the AWE then the applicant would get a rate increase every
year. These payment are paid for life no matter how long the applicant
lives.
The present value of those payments is
not based on life expectancy. The
present value is calculated by reducing each biweekly payment by the
probability of applicant living to the age at which the payment is made.
That's the way the actuary guys do it.
The probabilities are based on US Decennial
Life Tables. Tables
2 and 3 in the back of the Lexis-Nexis labor code are based on the 1989-91
table. There is a later table for 2000 at http://www.cdc.gov/nchs/data/nvsr/nvsr57/nvsr57_01.pdf. Even
that table is now 10 years old. The DEU may have updated tables based
on the 2000 US Life Table but the Lexis-Nexis book does not have those
tables and I don't know how to get them from the DEU. There is a reg
on this: 10169.1.
The probability diminishes each year. This causes a reduction in the
calculated
payment rate. This reduction continues until by the time the applicant
reaches age 100 the probability is very small -- close to zero. When
the probability is zero the calculations stop. Keep in mind this is only
a deduction for purposes of calculating the present value. Actual payments
to the applicant are set out in the first paragraph.
For present value purposes each payment
is also discounted by the interest rate.
That's usually 3%. This is the way a standard loan works. You borrow
$100 but by the time you finish making payments you might have paid $200.
The $100 is the present value. The $100 is like your fee and the $200
gets deducted from the
applicant's payments.
(The amount that eventually gets deducted from the applicant's life
pension payments is much higher than the amount paid to the attorney.)
So, for present value purposes each payment may get increased by SAWW
and
decreased by probability and interest. The total of the payments up to
age 100 is the present value.
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