Question: Why is the PPD lump sum so much less than the total installment amount?
Answer: An injured worker may take up to a 25% whole person permanent partial disability award in a lump sum reduced to present value under Nevada law (NRS 616C.495). Present value means the current worth of all the installment payments after discounted at a particular discount rate. The higher the discount rate, the lower the present value of the installment payments. Theoretically, if the injured worker didn’t touch the annual or monthly installments paid on the PPD award until the worker is age 70, the untouched lump sum, earning interest, should approximate the total installment amount. When you examine the insurer’s Election of Method calculation included with the PPD award letter, you will see a tremendous difference in how much money the injured worker would receive over time in total installment payments versus what the worker would receive by taking the award in a lump sum now.
What has happened is that Nevada has not updated the discount rate used to reduce total installment payments to present value lump sums in over 18 years. Insurers are allowed to take a huge discount at a 6% interest rate adopted in 1997. This is wrong and does not reflect our current economic climate. A more realistic interest rate should be in the 2.75% to 3% range. In fact, Nevada law requires that DIR (Division of Industrial Relations) have the discount rate reviewed annually. NRS 616C.495(5). However, DIR has not had the present value chart and discount interest rate reviewed since 2000. Nevada is still using a chart from 1997. See NAC 616C.502.
Last week I filed a Petition with DIR to update the chart and interest rate used to convert installment PPD awards to lump sums. DIR has already responded in a prior letter to me that it has been an oversight by DIR not to be reviewing the present value chart every year. Let’s hope DIR does the right thing and proposes an amendment to the regulation so that a nationally accepted discount rate can be used each year to get an accurate present value for lump sum PPD awards. That would greatly increase the lump sum PPD awards paid to injured workers. The DIR has 30 days to respond to my Petition. I will keep you informed.
Meanwhile, is there any way for injured workers to try to obtain more money on the PPD awards they have already accepted in a lump sum? Probably not. I am advising my current clients that if they have a PPD award recently offered, they might want to take it in installments now until we see what happens with the Petition I filed. There might be a possibility of converting installment PPD’s to higher lump sum awards once the present value discount rate is changed, but I cannot predict exactly what will happen, when something will happen, and which claimants will benefit from the overdue change. All I can tell you with any certainty is that I’m doing my best to get lump sum awards properly increased to reflect true present value.
The reality is that most injured workers must accept their PPD awards in a lump sum when their claim is closed as opposed to accepting monthly or yearly installments until they are age 70. This is because injured workers only receive two-thirds of their average monthly wage when out of work recovering from the work injury, and most go into debt trying to make ends meet if their injury is a serious one. You can’t blame the injured workers for not electing installment payments even knowing they are getting a rotten deal with the way awards are reduced to present value. Let’s hope the DIR steps up and quickly corrects this injustice.