How To Apply Cola To Lifetime Benefits

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By Tim Mussak Managing Attorney
Bradford & Barthel, Rating Department

The Bradford & Barthel Rating Department wishes you a happy New Year, and with that, a friendly reminder that the cost of living adjustments are changing again.

On Jan. 1, 2022, all continuing permanent total disability and life pension benefits (70% PD or greater) for dates of injury on or after 1/1/2003 should be increased with a cost of living adjustment (COLA) pursuant to Labor Code 4659. 

FOR 2022, COLA IS 13.5213%

According to a DWC Newsline dated 10/25/21, the state average weekly wage (SAWW) increased from $1,383 to $1,570—an increase of 13.5213 percent.

TTD FOR 2022 DATES OF INJURY

With the setting of the new average weekly wage, we now know that the temporary total disability (TTD) rate for 2022 dates of injury are as follows:

  • $346.42 minimum TTD earnings x 2/3 = $230.95 minimum TTD rate for 2022
  • $2,309.56 maximum TTD earnings x 2/3 = $1,539.71 maximum TTD rate for 2022

HOW DOES COLA AFFECT WORKERS’ COMPENSATION BENEFITS

Cost of living adjustments can affect life pension, permanent total disability, temporary total disability and death benefits directly or indirectly. Permanent partial disability (PPD) benefits are not affected by COLA adjustments.

APPLYING COLA TO LIFETIME BENEFITS (70% OR GREATER)

COLA adjustments should be applied to the current benefit rate BEFORE any reduction. One can use one of two methods to perform a reduction.

COLA Application – Examples

For our first example, let’s take a case with a:

  • 2007 date of injury, with a findings and award dated 10/16/2010 for 83% permanent disability. The PPD benefits “start date” is 7/19/2008, and the life pension start date is 11/1/2020. The amount of the weekly life pension rate is $177.81. The attorney fees are to be commuted “from the side” using the uniform reduction method.

Next, let’s take a look at what the DEU Attorney Fee/Commutation Calculator has to say. Be sure to pay attention to the bolded text:

The claims administrator is cautioned that when calculating the annual increase in PTD pursuant to LC 4659(c), the applicable SAWW adjustment is to be applied to the prereduced PTD rate, i.e. the rate before reduction for any prior commutations.

Now, we are ready to examine the first method of applying a COLA application. This is the Uniform Reduction Method.

Method #1: Uniform (Constant) Reduction notes:

Method #1 is the Uniform Reduction Method. The weekly deduction remains constant or uniform for the life of the injured worker, thus the use of the word “uniform” in the name. The reduction becomes effective on the day after the date of commutation.

Method #1 – Uniform (constant) Reduction – Application Example
2020 LP Start Rate: $177.81
The Uniform Reduction ($39.14 in this example, based on DEU Commutation) is then subtracted from the rate before reduction.
LP Start in 2020: $177.81 – $39.14 = $138.67 to the injured worker
2021 COLA = 4.3774%
$177.81 x 1.043774 = $185.59

The Uniform Reduction ($39.14 in this example) is then subtracted from the updated rate before reduction.
Effective 1/1/2021: $185.59 – $39.14 = $146.45 to the injured worker
2022 COLA = 13.5213%
$185.59 x 1.135213 = $210.68

The updated rate for 2022, before reduction = $210.68.

Effective 1/1/2022: $210.68 – $39.14 = $171.54 to the injured worker

COLARate BeforeReductionBenefit
ABC
2020$177.81$39.14$138.67
20214.3774%$185.59$39.14$146.45
202213.5213%$210.68$39.14$171.54
2023TBD+ COLA$39.14A minus B
2024TBD+ COLA$39.14A minus B
2025TBD+ COLA$39.14A minus B

Method #2 [Uniform (Increasing) Reduction] notes:

Method #2 is the Uniformly Increasing Reduction Method. The weekly reduction increases every year effective January 1st by the same fixed percentage equal to the “assumed annual SAWW increase” listed above. The initial reduction becomes effective on the day after the date of commutation. For the convenience of the parties, the reductions for the current year plus the next fifteen years are shown below.

YearReduction:
(Input  year LP starts)2020$26.67
2021$27.47
2022$28.30
2023$29.14
2024$30.02
2025$30.92

In this case, the reduction increases annually by 3% for the duration of the Life Pension Benefit.

  • Check the Award specifics for the amount of annual increase.

Method #2 – Uniform Increasing Reduction- Application Example

Rate BeforeReductionBenefit
COLAABC
2020$177.81$26.67$151.14
20214.3774%$185.59$27.47$158.12
202213.5213%$210.68$28.30$182.38
2023TBD+ COLA$29.14A minus B
2024TBD+ COLA$30.02A minus B
2025TBD+ COLA$30.92A minus B

ADDITIONAL TIPS

Here are some additional tips to keep in mind when applying COLA calculations.

  • Check your award and associated paperwork, including any commutation worksheets from the DEU. The commutation worksheets should identify any reduction from that award. That calculation may or may not be written into a stipulation or award.
  • Reductions would only apply with a commutation from future benefits, such as for attorney fees.
  • Consider review of any prior COLA and benefit rate adjustments for correct application.