Christopher C. Roskos by Mark Roskos v. Bauer Electric, No. WC14-5699 (September 23, 2014)
This matter is on appeal to the Minnesota Supreme Court. We will provide an update to this posting when a decision is published.
In this case, the employee was involved in an accident while working for Bauer Electric. The injury was accepted and Bauer and its workers’ compensation insurer, Federated, paid various workers’ compensation benefits. The average weekly wage was not in dispute and the parties agreed the employee had sustained a 99 percent PPD rating as a result of the work injury. Bauer Electric and Federated began making periodic payments.
The employee, through his guardian, requested a lump sum payment of PPD benefits. Bauer and Federated applied a 5 percent discount rate under Minn. Stat. § 176.165, subd. 2a(b) to account for the present value of the benefits. The maximum discount rate under the statute is 5 percent. Bauer and Federated made a lump sum payment of $373,079 to the employee.
The employee’s guardian subsequently filed a Claim Petition alleging Bauer and Federated erred in applying the 5 percent discount rate. Through his guardian, the employee argued the discount rate should have been 1.59 percent, which would have yielded a lump sum that was $85,000 higher.
At the hearing, the employee argued 1.59 percent is the appropriate discount rate based on 10-year U.S. Treasury Bills. Bauer and Federated secured a financial expert who testified at the hearing and his report was entered in to evidence. Under the “prudent investor standard,” the expert opined a 5 percent discount rate is appropriate in this case when compared to mutual index funds and other low risk but high return investments. The compensation judge accepted the financial expert’s opinions and concluded Bauer and Federated were entitled to use a 5 percent discount rate under the statute to arrive at the present value of the PPD benefits. The WCCA affirmed.
Bauer and Federated cross-appealed to the WCCA and argued that under the statute, the insurer had the sole authority to determine the discount rate to use, up to 5 percent. Since the WCCA affirmed the compensation judge’s determination that 5 percent was appropriate, it did not decide this issue.