A Fake Discount Rate for Widows And Orphans
The rights of injured workers just got a whole lot more complicated after the Koch Brothers passed their legislative package through the brain-dead Republican controlled Iowa legislature. Sounds harsh doesn’t it? I admit it, it does sound harsh, because what it does is take food off of your table.
Republican legislators in Iowa had not even taken the time to read what they were voting on and like the robots they have become, simply voted along party lines.
GARBAGE IN, GARBAGE OUT
Let me get right to today’s point about how Iowa workers’ compensation is turning into a fake compensation program.
For over a hundred years, widows and widowers whose spouse was killed at work enjoyed life-time benefits and the right to commute that stream of income into one lump-sum payout. If they remarry they are paid two years in one lump sum. Today I want to focus on those not marrying but still wanting to commute their life-time benefit.
WHY SWITCH FROM WEEKLY WORKERS' COMP TO A LUMP SUM?
There are various reasons to switch from a survivor's weekly workers' compensation payment to a lump sum. The reason many people give is to pay off accumulated debt and to be able to restart their life. Reasons are personal and you can’t know what they will be until after you lose your breadwinner.
HOW IS A SURVIVOR'S WORKERS' COMP LUMP SUM CALCULATED?
Here is essentially how you turn a stream of income into one lump sum. Let us look at the formula.
Using a discount rate realistically tied to the interest rate of U.S. Treasury bills the lump sum amount is calculated using math that is quite simple.
It is referred to as IRV.
Here is an example of how it works. I have simplified the example to make it understandable to working humans not familiar with how to capitalize a stream of income.
WE USE A DISCOUNT RATE
You take the rate you can borrow money for and use it to discount what a lump sum would look like that would allow you to invest the lump sum and derive the same or a similar stream of income.
THE LUMP SUM AMOUNT REACTS OPPOSITE TO THE DISCOUNT RATE
Now understand what happens when you raise the discount rate. If you increase the discount rate, you decrease the amount of the lump sum. If you lower the discount rate [the interest rate] you have to increase the lump sum in order to get the lump sum to make the stream of income. What this means to injured workers, is you want a low discount rate. And the insurance companies want one that is high.
A VERY SIMPLE EXAMPLE THAT EVERYONE WILL UNDERSTAND
Here is an over simplified example that everyone will understand.
I borrow $1,000.00 from you. I agree to repay you $10.00 per week for 100 weeks.
If I need to pay you ten dollars a week I would put some amount of money into an interest bearing account, earning interest and pay you $10.00 each week. If I start off putting $1,000.00 in the bank and it earns interest, at the end of ten weeks there will be money left in the account. That amount will equal what the $1,000.00 earned in interest.
As you can see if I am earning interest on the money that I initially deposit, I need to deposit less than the $1,000.00 I borrowed.
THIS IS THE TIME-VALUE OF MONEY
As a result, again using math, I can calculate exactly how much less than $1,000.00 I initially need to deposit. Trust me, it will be less than $1,000.00.
So using the current interest rate, it allows me to use passive income earnings to help pay off the money I borrowed from you. If the interest rates rise, I need less and less.
THE LUMP SUM GAME
If instead of waiting the ten weeks, you want to get paid in week two, then under Iowa’s Workers’ Compensation Act, before July 1st, 2017 we would use the discount rate to pay you less. Pre-July 1st your lump sum used a rate that no one could manipulate.
Now, that’s not true.
Now, the insurance company will say they will not consent unless you agree to use a higher discount rate. So now the insurance industry will make money off using a higher discount rate, while paying you less.
BULLET POINTS TO REMEMBER:
- THE INTEREST RATE [THE DISCOUNT RATE] IS EVERYTHING TO THE AMOUNT YOU RECEIVE
- LOWER THE DISCOUNT AND INCREASE THE LUMP SUM
- INCREAST THE DISCOUNT AND YOU REDUCE THE LUMP SUM
Before the changes workers and insurance companies had a bright line for what they had to use for the discount rate. After the Republican controlled Iowa Legislature voted to pass changes, the line is anything but bright, it can't get any blurrier. Because now all the insurance company has to do is refuse to consent to the conversion from weekly to lump sum.
YOU GOT ROBBED, THE WORKERS OF IOWA WERE ROBBED BY THE REPUBLICAN POLITICIANS
You should want the right to choose because you and you alone know what is right for your life. You earned the right to choose with your spouse’s life. You earned it and you deserve it. There is no other explanation necessary to justify the choice.
THE IOWA REPUBLICAN CONTROLLED LEGISLATURE JUST RIPPED YOU OFF
Here is how to think about what this means.
WHAT YOU CAN DO TO FIGHT BACK
The entire Republican Party turned into Donald “Effin” Trump. I am registered with the Republican Party, although I’m not sure just how long this can go on, and I am telling you to pull the lever to vote straight Democratic during all upcoming state elections.
That and tell them no when they offer you less than the treasury constant index interest rate for a full-commutation.
Has your spouse died on the job? Contact me online or call me directly at 515.222.1110 before making a workers' compensation decision.
ADDITIONAL BLOG POSTS
- Workers Comp: This widow's fake health-check phone call
- Iowa's New Workers’ Compensation: The fake job offer
- A FAKE DISCOUNT RATE FOR WIDOWS AND ORPHANS
- Do we have a real workers’ compensation program or a fake one?
- Iowa’s Newly Forgotten Workers
- Major Mistakes When Giving A Recorded Statement
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