If the LS award specifies a rate based on LE, determine whether excludable expenses were deducted in deriving the LE rate specified in the award:

EXAMPLE 1:

A LS award of $100,000 is approved with a valid excludable attorney fee of $20,000 and a valid excludable medical expense of $10,000. The LS settlement states the NH’s LE is 2,000 weeks and a life expectancy rate of $40 per week.

• •

  The $20,000 attorney fee was taken into consideration to compute the life expectancy rate ($100,000 - $20,000 = $80,000 divided by 2,000 weeks = $40 week.)

• •

  The correct LE rate for proration purposes is determined by dividing the gross LS by the NH’s life expectancy: $100,000 divided by 2,000 weeks = $50.

• •

  To prorate the LS, the correct weekly WC rate to use is $50 (i.e., the amount to enter in the Modernized Claims System (MCS) or the Interactive Computation Facility (ICF)).

• •

  Medical expenses of $10,000 and attorney expenses of $20,000 are then deducted from the gross LS (i.e., enter expenses in the appropriate data fields in MCS or ICF). MCS and ICF use all three proration methods to determine the method most advantageous.

EXAMPLE 2:

A NH receives a LS award of $45,000 with valid attorney expenses of $11,250 and valid medical expenses of $1,730.77. The award contains language indicating the settlement represents $57.63 per month for 46.3 years. To determine whether excludable expenses were deducted in deriving the $57.63 LE rate in the LS award:

• •

  Multiply $57.63 x 12 (months) x 46.3 (years) = $32,019.23.

• •

  $32,019.23 + $11,250.00 + $1,730.77 = $45,000.00 (total award amount)

This example illustrates that all attorney and medical expenses were deducted. Therefore, we must determine the correct LE rate for proration purposes.

• •

  Consider all three proration methods and determine which is most advantageous. Compute the monthly rate before deduction of the expenses.

• •

  Multiply 46.3 x 12 = 555.6 (total months represented in award)

• •

  Divide $45,000 by 555.6 = $80.99 (rounded to the next lower dime) = $80.90 (LE monthly rate before expenses).

To input into the MCS and ICF programs, enter the gross LS amount of $45000, the LE monthly proration rate of $80.90, excludable attorney expenses of $11,250, and excludable medical expenses of $1,730.77.  MCS and ICF use all three proration methods to determine the most advantageous method.

If the wording in an LS award appears to be unreasonable and existing Regional Office of the General Counsel (OGC) precedents (Workers' Compensation/Public Disability Benefits Offset Opinions by State), fail to provide guidance:

• •

  Prepare the case for policy submittal per DI 52140.015.

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  Continue to offset at the previous weekly rate to prevent overpayment but do not make any determination on the lump sum until receiving a submittal response.

  NOTE: Effective December 19, 2015 or later, WC offset termination now extends from age 65 to full retirement age (FRA). See 2015 Amendment in DI 52101.005.

Examples of unreasonable language in an LS award include:

• •

  A proration period that greatly exceeds life expectancy

  EXAMPLE: The LE period ends when the worker attains age 200.

• •

  Stipulation of a proration start date that precludes offset

  EXAMPLE: The terms of the settlement specify that the lump sum settlement is “for WC benefits payable beginning at age 65." (See PR 02505.046 South Dakota)

• •

  Settlement language cites a small monthly rate up to age 65 with a significantly larger rate beginning at age 65 and continuing

  EXAMPLE: The plaintiff’s average weekly wage is determined to be $350. Based on this, the rate for temporary total WC payments is determined to be $250 weekly and permanent total payments to be $175.

  The NH is found permanently and totally disabled as a result of an injury occurring on 05/08/2001 and is awarded benefits from the date of maximum medical improvement, 07/12/2001 and continuing.

  The award states the settlement represents weekly WC payments of $100 beginning the date of maximum medical improvement (07/12/2001) up to age 65 (09/02/2012) and weekly payments of $250 effective age 65.

Commutation awards are typically an order by a WC judge for a LS payment paid in lieu of future periodic payments to compensate the individual for a work-related injury or illness. The commuted amount is merely a change in payment of part or all of a worker’s future WC benefits from that designated in the original WC award. The commuted amount can be a lower total WC amount than designated in the original settlement, and/or may hasten the time-frame for payment of future WC payments due. A commutation award can specify payment in a variety of ways.

Apply the following to any award involving a commuted value of future periodic payments:

1. a. 

   Impose offset based on the commuted WC amount.

2. b. 

   If the award involves an LS, use all three proration methods described in DI 52150.060 to compute offset and select the most advantageous method.

3. c. 

   If the award does not specify a proration rate based on the commuted value of the award but specifies an exact time-frame that the commuted amount will be paid, prorate the commuted value of the award over the entire specified period as described in the example in DI 52150.065B.3. in this section.

4. d. 

   If the award does not provide an exact time-frame, but does provide the specific commuted amounts to be paid, offset at the specified amount as described in the example in DI 52150.065B.4. in this section.

In the following example, the commutation order does not provide a specified rate based on the commuted value. Therefore, the proration rate is derived using the remaining time-frame and commutation amount. The commuted WC amount (and offset computation) are spread out over the entire period specified.

EXAMPLE:

The NH receives a letter dated 09/25/2005 and it shows the following:

• •

  Date of Maximum Medical Improvement: 04/24/2005

• •

  Period of Award: 04/24/2005 to 04/14/2009

• •

  Number of Weeks of Compensation: 207.36

• •

  Weekly Compensation Rate = $282.28

• •

  Effective Date of Pay Rate: 11/01/2003

• •

  After cost of living adjustments (COLAs), weekly compensation: $289

• •

  First payment and the period covered: $5,614.86 for the period 04/24/2005 through 09/06/2005

• •

  Continuing Payment every four weeks: $1,156

The letter also states the NH has the option to an LS of $49,995.67 in payment of compensation representing a commuted value of future payments due for the remainder of the award payable from 10/05/2005 to 04/14/2009. If the NH did not opt for the commuted value, the remaining value of his original WC award is $53,156.18, as follows:

           $59,927.04 = $289.00 x 207.36 weeks

          -     5,614.86 (paid 04/24/05 through 09/06/2005)

         - $1 , 156 (paid 09/07/05 through 10/04/2005)

              $53,156.18 (balance to be paid by 04/14/2009)

The difference between the $53,156.18 remaining balance of the original WC settlement amount and the commuted value of $49,995.67 for future payments is $3,160.51.

This commutation award specifies a total commuted amount and the time-frame it represents, but there is no rate specified in the commutation order. Therefore, we must prorate the commuted value ($49,995.67) over the entire period remaining in the award (10/05/05 to 04/14/09) to determine the appropriate periodic rate.

The following calculations are required to determine the weekly rate of the commuted $49,995.67 amount:

• •

  Determine the number of days from 10/05/2005 through 04/14/2009 (1288)

• •

  Divide the commuted value of $49,995.67 by the number of days remaining in the specified period (compute to 3 decimal places and round to the nearest penny):

  •  

    $49,995.67 divided by 1288 = $38.817 daily rate

• •

  Multiply the resulting figure by 7 to determine the weekly rate: $38.817 X 7 = $271.719 rounded to the nearest penny = $271.72

• •

  $271.72 is the weekly rate used to compute offset for $49995.67 over the 10/05/2005-04/14/2009 time-frame specified in the commutation award.

In the following example, the commutation agreement does not specify a particular time-frame the commuted award represents. It does provide the specific amounts to be paid (i.e., a WC lump sum, then the remaining commuted amount to be paid via specific monthly amounts).

EXAMPLE:

• •

  The NH receives weekly WC of $170 and subsequently requests an LS commutation of $85,000.

• •

  The commutation is approved, but the claimant elects to receive the benefits in accordance with an agreement for payment of proceeds. This agreement provides an initial LS payment of $25,000 less $17,000 for the attorney. It also states the NH will receive $1,000 per month for 60 months with payments beginning the month after the approval of the commutation petition.

In order to best reflect the actual payment amounts and how they will be paid, offset will be based on the $25,000 LS prorated at $170 per week with excludable attorney expenses of $17,000, and periodic payments of $1,000 per month for 60 months. This example does not specify a particular time-frame the WC payments represent, and since the first payment under the commutation order is the lump sum, the start date for the LS is the day after the previous weekly WC of $170 stopped (per the order of priority in establishing the LS start date in DI 52150.060D.2.). The subsequent $1,000 periodic payment start date is the month after the approval of the commutation petition. If the lump sum proration and subsequent $1,000 periodic payments overlap, a manual computation using Informational/Certified Earnings Records (ICERS) is necessary. ICF cannot accurately compute offset when periodic WC/PDB payments and lump sum prorations overlap, or when one lump sum proration period overlaps another lump sum proration period.

• •

  Allocate installment payments to the period specified in the award.

• •

  Do not allocate payments to a period other than what is specified in the award.

• •

  Disallow award language that deems payments or expenses to be allocated to periods that are different than the periods for which the payments are actually made or expenses incurred.

• •

  If a rate is specified for the initial LS payment only, use that specified rate to prorate both the initial LS payment and the subsequent installment payments.

• •

  If the award does not stipulate any rate, use the prior periodic payment rate for proration of both the initial LS payment and the subsequent installment payments.

• •

  If the award does not stipulate any rate and no previous periodic payments were paid, see DI 52150.060D.3.e. and DI 52150.060D.3.f. to determine the LS proration rate.

Example:

• •

  DOB: 02/04/1958

• •

  DOI: 01/19/1998

• •

  DOED: 07/1998

• •

  Periodic payments issued 01/20/1998-02/15/2003 at $262.56 weekly.

Structured settlement approved 07/19/2003, paid in installments as follows:

• •

  $20,000 at time of approval, $2,000 allotted for future medical

• •

  $30,000 payable 07/01/2004, $3,000 allotted for future medical

• •

  $50,000 payable 07/01/2006, $5,000 allotted for future medical

• •

  $50,000 payable 01/01/2010, $5,000 allotted for future medical

No stipulation found in the award for prorating the various LS payments.

• •

  When making MCS or ICF inputs - enter the periodic payments as indicated above

• •

  Enter the initial LS amount of $20,000, the proration rate of $262.56 weekly, a start date of 02/16/2003, and $2,000 excludable medical expenses. Select the most advantageous proration method.

• •

  Enter the second LS as a second claim (e.g., assign a different WC claim number on the WPMU screen in MCS and the WCCL screen in ICF, such as #WC 634JB-1 for the initial $20,000 LS installment amount and #WC 634JB-2, for the $30,000 second LS installment, etc).

• •

  Enter the LS amount of $30,000, the proration rate of $262.56 weekly, a start date of 07/01/2004, and excludable medical expenses of $3,000. Select whichever proration method is most advantageous.

• •

  Enter the third LS as a third claim (e.g., assign a different WC claim number on the WCCL screen in ICF: #WC 634JB-1, #WC 634JB-2, #WC 634JB-3, etc). Key the LS amount of $50,000, the proration rate of $262.56 weekly, a start date of 07/01/2006, and excludable medical expenses of $5,000. Select the most advantageous proration method.

• •

  PC prepares a PCACS diary for the fourth LS to be paid 01/2010 at the time the final installment will be added to the current computation as a fourth LS claim. The LS amount to key at that time is $50,000, the proration rate remains $262.56 weekly, the start date is 01/01/2010, and excludable medical expenses are $5,000. Select the most advantageous proration method.

Regarding breaks in WC/PDB offset, payment, and entitlement, review DI 52150.055.

Be alert to potential systems limitations when processing a structured settlement. MCS cannot process an offset computation when there are breaks in the offset between each LS, use ICERS.

1. 1. 

   Multiple WC/PDB claims (more than one injury or illness)

   Make the following selections when no ongoing periodic payments are involved:

   • •

     ICF FUNCTIONS 31 (WC/PDB: PRE-ADJUDICATE CLAIM) AND 32 (WC/PDB: ADJUDICATE CLAIM)

   • •

     Other Program Limitations (Not Documented in MSOM)

   • •

     Gap Between Two Different WC/PDB Claims

2. 2. 

   One WC/PDB claim (one injury or illness)

   Make the following selections when periodic payments are involved:

   • •

     ICF FUNCTIONS 31 (WC/PDB: PRE-ADJUDICATE CLAIM) AND 32 (WC/PDB: ADJUDICATE CLAIM)

   • •

     Known Program Problems (With Workarounds, if Any)

   • •

     Problems Relating to Lump Sum Prorations

   • •

     Overlapping LS and Periodic Payments for Same WC Claim