Calculating the Life Pension: A Sixty-Second Seminar in Workers’ Compensation Claims Handling

We believe with a high degree of certainty that very few claims professionals have ever received instruction on how to calculate a weekly life pension (LP) rate. Most claims professionals, including judges and attorneys, rely on the Disability Evaluation Unit (DEU) to do the calculations for them. Today we will show you how to double-check the DEU’s work by providing instruction on how to easily calculate a life pension. It’s not difficult at all, and in fact, you will be pleasantly surprised as it involves only 5^th grade math!

To calculate a life pension, all you need are two bits of information, namely, the injured worker’s average weekly wage (AWW) and the PD rating. That’s all the information you require. Once you obtain the AWW and PD rating, just follow these four easy steps:

Step One: Take the PD rating (omit the % sign) and then always subtract 60 from it. For example: If the PD rating is 90%, simply subtract 60. The calculation is 90 − 60 = 30. That wasn’t so hard, was it?

Step Two: Always multiply the answer in step one (30) by .015. Therefore, 30 x .015 = 0.45.

Step Three: Determine the AWW. However, per Labor Code 4659(a) never use a figure greater than $515.38. Let’s presume the AWW is $1,200, but because that amount is above the maximum allowed, we must use $515.38.

Step Four: Multiply the answer in step two (0.45) by the answer in step three ($515.38). The calculation is 0.45 x $515.38 = $231.92.

There, you are all done! $231.92 is the weekly life pension rate. You can now apply the LP rate when setting reserves or determining a settlement value. More importantly, you can easily double-check the DEU’s LP calculations, where sometimes errors occur. Given that a weekly life pension (with COLA adjustments) is to be paid to the applicant over a lifetime, we urge claims professionals to take a moment to at least double-check the accuracy of the DEU’s calculations.  In summary, the LP formula is (PD − 60) x .015 x AWW = LP rate.

One final comment: You already learned that when calculating a life pension use the actual AWW subject to a maximum of $515.38. Note: there is no minimum. Errors often occur when the AWW is below maximum. Claims professionals sometimes rely on LP charts where the calculations are based on a maximum AWW of $515.38. Keep in mind that if the AWW is below $515.38, do not rely on the chart – it will be in error. You will need to calculate the LP manually. Fortunately, we just showed you how to do so!