
Indemnity payments for a person who is totally permanently disabled^{1}
are
set at the same rate as total temporary disability indemnity payments.
Payments are made for the remainder of the injured person’s
life.
This article describes how a computer program calculates the present
value of
the total permanent disability benefit.
Determine
Initial Payment  Determine Future Payments
Discount Future Payments  Discount
for Proability of Living
Add All Discounted Future Payments  Programming
Considerations
Examples  Conclusion
1: DETERMINE INITIAL PAYMENT IN 2007
The payment rate is based upon the weekly earnings before the injury.
LC 4659(b) states:
“If the permanent disability
is total, the indemnity based upon the average weekly earnings
determined under Section 4453 shall be paid during the remainder
of life.”
LC 4453(a) lists the minimum
and maximum allowable weekly wage. It states:
(5) Not less than one hundred
sixtyeight dollars ($168) for permanent total disability,
… nor more than six hundred nine dollars ($609), for
injuries occurring on or after July 1, 1994.
(6) Not less than one hundred sixtyeight dollars ($168)
for permanent total disability, … nor more than six
hundred seventytwo dollars ($672), for injuries occurring
on or after July 1, 1995.
(7) Not less than one hundred sixtyeight dollars ($168)
for permanent total disability, … nor more than seven
hundred thirtyfive dollars ($735), for injuries occurring
on or after July 1, 1996.
(8) Not less than one hundred eightynine dollars ($189),
nor more than nine hundred three dollars ($903), for injuries
occurring on or after January 1, 2003.
(9) Not less than one hundred eightynine dollars ($189),
nor more than one thousand ninetytwo dollars ($1,092),
for injuries occurring on or after January 1, 2004.
(10) Not less than one hundred eightynine dollars ($189),
nor more than one thousand two hundred sixty dollars ($1,260),
for injuries occurring on or after January 1, 2005. …”

^{1}LC 4452.5 defines total as 100% disabled.
The person would have no future earning capacity.
This code section sets the initial limitations of the weekly earnings.
Example: A person injured in the year 2005 the average weekly
earnings
can be no less than $189.00 or more than $1260.00. So, if the person
only
earned $100.00 per week the average weekly earnings for calculating
the
payment is set at $189.00. If the person earned $3,000.00 per week
the
average weekly earnings for calculation the payment would be set at
the
maximum of $1260.00 per week.
This isn’t the end of the story. Things get more complicated.
The labor code says
that the minimum and maximum are to be increased each year based upon
the
state average weekly wage^{2} (SAWW). The increases commence on 1/1/07
and
are applicable only to injuries on or after 1/1/05. This is a type
of cost of living
adjustment (COLA) only it is based upon average wages paid in the
state of
California.
The limits for dates of injury before 1/1/05 are fixed. Only injuries
occurring on or
after 1/1/05 do the limits increase each year.
LC 4453(a)(10) continues:
“…for injuries occurring on or
after January 1, 2005. Commencing on January 1, 2007, and
each January 1 thereafter, the limits specified in this
paragraph shall be increased by an amount equal to the percentage
increase in the state average weekly wage as compared to
the prior year. For purposes of this paragraph, "state
average weekly wage" means the average weekly wage
paid by employers to employees covered by unemployment insurance
as reported by the United States Department of Labor for
California for the 12 months ending March 31 of the calendar
year preceding the year in which the injury occurred.”

^{2}This
is total wages in state that is covered by unemployment insurance
divided by
total covered employment divided by 52.
The SAWW reported for the past relevant years are shown in Table
1.
Table 1. SAWW as Report in April by Year^{1}
Note that the applicable SAWW for any particular year is the SAWW
in March 31
of the prior year. Even though the SAWW is published in April or
May the data is
actually six months old by the time it is published.
The definition SAWW in last sentence of LC 4453(a)(10) refers to
the year
“preceding the year in which the injury occurred”. This
is inconsistent
with preceding sentence that says: “Commencing on January
1, 2007, and
each January 1 thereafter, the limits specified in this paragraph
shall be increased
by an amount equal to the percentage increase in the state average
weekly wage
as compared to the prior year.”
The prior year in the statement, “… as compared to the
prior year.” must refer to the
year before 2007^{3} , i.e. 2006. This means compare the SAWW applicable
to 2007
to the SAWW applicable to 2006. If the last sentence were to control
all increases
would be constant and based upon the date of injury.
This does not comport with an interpretation that ties benefits
to the varying state
average weekly wage. So, the interpretation here is that the limits
will increase
based upon the year prior to the current year rather than the year
prior to the date
of injury.
The comparison is then of the SAWW reported in April 2005 (for the
applicable
year 2006) to the SAWW reported in April 2006 (for the applicable
year 2007).
The SAWW report in April 2005 is 838.42. The SAWW reported in April
2006 is
880.00. This is an increase of 4.96%. Refer to Table 1 above.
The limits for injuries on or after 1/1/05 commencing 1/1/07 are:
minimum is
$198.37 and maximum is $1322.49 shown in bold in Table 2.
^{3}There is an ambiguity with statement
and the last sentence defining SAWW but interpretation given in
the text here comports more with the context of the code.
Table 2. Minimum and Maximum Weekly Earnings
A person injured in 2005 has weekly earnings limited to $1260.00
in 2005 and
2006 but in 2007 the limit is raised to $1322.49. The limits for
dates of injury on
or after 1/1/05 get increased every January 1. This is because the
paragraph of
LC 4453(a)(10) is describing the limits for injuries occurring on
or after 1/1/05.
Is this increase in limits applied retroactively to injuries occurring
back to 1/1/05
and after? It may be that the legislature only intended the increase
in limits to
apply at the initial setting of the allowable weekly earnings. But
the language of the
code section states it applies to injuries on or after 1/1/05. If
the legislature had
intended for the increase to apply only for setting the initial
limit it would not have
the increase to become effective at a later time, i.e. effective
1/1/07. It would
have simply said the increase only applies to an injury occurring
on or after 1/1/07.
As a result of this language the limits for dates of injuries on
or after 1/1/05 are
recalculated on 1/1/07. In effect this is applying the limits retroactively
to earlier
dates of injury.
The weekly indemnity payment
is twothirds of the allowable weekly earnings. LC 4653
states:
“If the injury causes temporary total disability,
the disability payment is twothirds of the average weekly
earnings during the period of such disability, consideration
being given to the ability of the injured employee to compete
in an open labor market.”

Example
continued: In the above example, the minimum earner would
be
allowed a weekly payment of 2/3 x 189.00 = $132.25. Thus, the totally
disabled
minimum earner would receive payments for remainder of his or her
life of
$132.25 per week. A totally disabled person who earned more than
$1260.00
per week would receive a weekly payment of $881.65 for the remainder
of
his or her life.
In summary the weekly indemnity payment between the minimum and
maximum allowable weekly wage is 2/3 of the weekly wage.
Payments are actually made every two weeks at the end of the twoweek
period.^{4}
To determine the present value of total disability payments a starting
date must
be established. It is assumed that the present value is being determined
in the
year 2007, so, the starting date for payments will be in the year
2007. It is then
necessary to determine the starting payment in 2007.
More complications. Once the initial payment is set as described
above there
is another code section that operates to increase that payment similar
to a cost
of living increase.
LC 4659(c) states,
“For injuries occurring on or after January
1, 2003, an employee who becomes entitled to receive a life
pension or total permanent disability indemnity as set forth
in subdivisions (a) and (b) shall have that payment increased
annually commencing on January 1, 2004, and each January
1 thereafter, by an amount equal to the percentage increase
in the "state average weekly wage" as compared
to the prior year.”

The above section
of this article dealt with the limits of allowable weekly earnings.
This code section is dealing with the weekly benefit payment –
not limits.
This payment increase applies to dates of injuries on or after 1/1/03
and
commences 1/1/04. Note this differs from the adjustment of the limits
of weekly
earnings. The limits increases applied to injuries on or after 1/1/05
and applied
commencing 1/1/07.
The payment for injuries occurring before 1/1/03 are fixed and do
not get increased.
These adjustments to the payment rate accumulate. The increase for
any
particular year is on top of the previous year’s payment.
It works like a cost of living
increase. The payment increase applies to the increase of the payment
from the
previous year.
A person injured in 2003 will get an increase in payment rate on
1/1/04 and again
on 1/1/05 and again on 1/1/06 and again on 1/1/07. Each increase
may be at a different percentage depending on the applicable percentage
increase in SAWW.
^{4}LC 4650(c) “Payment of temporary
or permanent disability indemnity subsequent to the first payment
shall be made as due every two weeks on the day designated with
the first payment.”
Table 3 shows the accumulation of the increase factors. The payment
rate in the
year 2007 for an injury that occurred in 2003 would be 1.1132191
multiplied by
the original rate in 2003.
Table 3. Payment Increase Factor by Year for Total Permanent Disability
* No increase in applicable SAWW.
Only increases apply. Decreases do not apply.
In summary the payment in a particular year is computed as follows:
first, the
weekly wage is adjusted between the minimum and the maximum based
upon
Table 2; second, the adjusted weekly wage is multiplied by 2/3 and,
third, the
weekly rate is multiplied by 2 to get the payment, fourth, the payment
is multiplied
by the payment increase factor for the particular year as shown
in Table 3.
Example: A person injured in 2006 who earned $1200
per week has weekly
earnings between the minimum and maximum according to Table 2. So,
the
weekly rate in the year 2006 is 1200 x 2/3 = $800.00. On 1/1/07
the maximum
allowable weekly earning was increased. But this has no effect because
the
weekly earnings were below the maximum already. The weekly rate
is increased
on 1/1/07 by 4.95932% to $839.67. Every January 1, thereafter, the
weekly rate
would be increased.
Example: A person is injured in 2005 earned $1500.00
per week. In the year
2005 the maximum weekly earnings allowed is $1260.00. So, the payment
would
be 2/3 times 1260 = 840.00 in the year 2005. On 1/1/06 the weekly
rate would be
increased by 4.00813% to $873.67 for the year 2006. Separate code
sections apply
to the maximum and to the payment; so, each section must be applied
separately
or independently.^{5} The payment code section says “shall have
that payment
increased annually commencing on January 1”.
It is interpreted that the legislature meant by “that payment”
the amount of the first
payment. The payment increase then depends upon the prior year’s
payment rate.
This is shown in Table 4.
Table 4. Payment Increases
If the increase in the limits results in a greater
increase than the increase based
upon the payment in the prior year then the increase
based upon the limit increase
will be controlling. The method that results in the largest payment
will be applied.
The increase in limits is shown in Table 4.
Table 5. Limit Increases
^{5}It can be argued that the payment was already increased by the SAWW
when the
maximum was raised. But this argument fails where the weekly wage
was already
at the maximum and raising the maximum results in no increase.
On 1/1/07 the maximum weekly earnings allowed was increased to $1322.48.^{6}
So, for a DOI in 2007 2/3 of 1322.48 is 881.65. Does that 881.65
payment also get
increased for SAWW? If “that payment” means a payment
in the prior year going
back to the initial payment rate then the answer is no because there
was no
prior year.
For an injury occurring in 2007 there would not be an increase due
on the payment
because the first payment increase does not come until 1/1/08. There
was no prior
year payment.
For a DOI in 2006 the weekly earnings in 2006 is limited to $1260.00
and the
payment is $840.00. On January 1, 2007, the limit increased and
a payment based
upon the maximum weekly earnings is 2/3 of that, which is 881.65.
The payment in
the prior year was 840.00. The annual increase in payment of 4.95932%
makes the
new payment 881.65. Since these are the same there is no need to
quarrel as to
which method takes precedents.
Once weekly earning is adjusted within the allowable limits given
in Table 2, the
initial payment is 2/3 of the allowable weekly earnings times the
payment factor
shown in Table 3. Payment = 2/3 x allowable weekly earnings x payment
factor for
the applicable year. Examples are given in Table 6.
For injuries occurring in 2005 there is a difference. The maximum
payment in 2005
was 840.00. This increased in 2006 to 873.69 and in 2007 to 917.02.
But the
maximum payment based upon the weekly earnings limit of 1322.48
is 881.65.
So, the payment used for 2007 is 917.02.
For present value purposes the only concern is the starting payment
in the year
2007. Step 1 is completed. It has established the disability payment
in the
year 2007.
When the program needs to be updated for 2008 new values will have
to be calculated for tables 16 and table 8.
^{6}It can be argued that the increase
in maximum only applies to injuries occurring on or after
1/1/07. But the code section says “the limits specified in
this paragraph shall be
increased”. Limits for dates of injuries on or after 1/1/05
are specified in the paragraph.
Table 6. Examples of Weekly Payment in 2007
* Maximum limit was increased
to 1322.48 but since the increase in payment method produces the
higher payment, the prior limit must be used to compute weekly earning
values between the minimum and the maximum when applying the accumulated
SAWW increase factor.
Determine Initial Payment
 Determine Future Payments
Discount Future Payments  Discount
for Proability of Living
Add All Discounted Future Payments  Programming
Considerations
Examples  Conclusion
