N002049
Friday, January 11, 2002 1:31 PM
Comments on December 11, 2001 Interim Final Rule
Comments on December 11, 2001 Interim Final Rule
September 11th Victim Compensation Fund of 2001
28 CFR Part 104
Background and Format
, the commenter, is a retired former divisional general counsel for a Delaware corporation, and a member of the NYS Bar. The
commenter has volunteered to provide pro bono assistance, but does not
currently represent any particular 9-11 victim.
Simply opening this email does not reveal the charts - each of which is worth
1,000 words. The attached document in Microsoft Word® has identical text,
but does show the charts. If, for any reason, the charts in the Word
document cannot be seen or printed, open the second attachment, an Excel®
workbook with four worksheets. It would be preferable to place the document
and workbook - not this email - in the electronic public record. If this
cannot be done, please invite any interested person to contact me directly.
Page references are to the Interim Final Rule as published on the DOJ
website.
Address information is provided at the foot of this document.
Summary of Comments
All three comments relate to problems and errors in the calculation of
Presumed Economic Loss, and are set forth in descending order of the likely
magnitude of harm to many claimants. Without access to the actual formulae
used to prepare the Presumed Loss Tables, it is difficult to pinpoint the
reason for any of the problems. The opening suggestion is to fully publish
these formulae. There is no reason not to make the method completely
transparent, like that in Sheet 4 of the workbook. This would equip
claimants and their representatives with a precise method to determine
Presumed Losses.
The three problems or errors that are apparent in studying a representative
sample of two of the Tables and the accompanying material are:
1. The broad, flat age brackets for the promotion/merit assumptions are
inequitable and are terribly unfair to the survivors of those who were in
their early 30's, and to a lesser extent to survivors of those who were in
their early 50's. This is contrary to the stated intent of the rules to
"treat similarly situated claimants alike." (p. 4)
2. The increases in Estimated Losses are greater within the $10-15,000 income
bracket than it is within either the $15-25,000 bracket, or within the
$25-30,000 income bracket. If not addressed, this could be detrimental to
survivors of relatively low-income victims.
3. The inflation factor is not stated, but appears to be slightly lower for
older workers.
(1) Broad Age Brackets
The broad age brackets for the promotion/merit assumptions are inequitable
and are terribly unfair to 31-40 year olds, and to a lesser extent to 51-57
year olds. The rules state that "each claimant should, to the greatest
extent possible, be treated fairly â?¦ relative to other claimants." "In
principle, similarly situated claimants should not receive dramatically
differing treatment." (p. 9) Yet the choice of very large brackets for
assumed income increases does exactly that. The below two representative
charts both show a dramatic difference between the calculations for 30- and
35-year old victims.
(Sheets 1 & 2)
The explanation for the Presumed Economic and Non-Economic Loss Tables states
the assumptions for calculating lost future income from decedents.
"(I)ndividuals in the age range up to 30 would have received wage increases
of 6.6 percent per year; those between 31 and 50 would have received a wage
increase of 5.1 percent per year; and those above 50 would have received a
wage increase of 4.2 percent per year. These figures are based on two
factors: wage increases due to general inflation and wage increase due to
promotion/merit. The wage increases incorporate an assumed salary increase
of .5 percent over inflation and a merit and promotion increase for young,
middle- and older-age workers of 3 percent, 1.5 percent, and .7 percent
respectively. Both of these wage increase assumptions are based on an
analysis of data from independent Boards of Actuaries of the two largest
pension systems: the Board of Actuaries of the Civil Service Retirement
System and the Board of Actuaries of the Military Retirement System."
The problem with this broad-bracket approach, and the reason for the dramatic
differences, is the precipitous decline from assumed level annual 6.6%
increases through age 30 to assumed level annual increases thereafter of
5.1%. There is also a decline after age 50 when the assumed level annual
increases drop to 4.2%. The latter is not as visible on the above charts
since it does not have as many years to work its inequities, but it is there
nonetheless.
Using a sliding scale of percentage annual increases that changes at least
once each year would have been the best way to prevent these inequities.
(Sheet 3)
Of course, changing it now will decrease the assumed amounts somewhat for
workers in the older side of each of the three age brackets. Some of their
survivors may already have relied on the published tables and given up their
lawsuit alternative in order to obtain the $50,000 Advance Benefit. (p. 8)
Under the circumstances, the most equitable correction would be to freeze the
assumed annual increase at 6.6% per year for all ages. While it may be a
statistical fact that average annual increases are inversely related with
age, there is no consensus that this is right or, indeed, that it is always
lawful.
The impact of these broad brackets is not trivial. One can estimate the
difference that a continuous sliding scale would make. It should increase
the Presumed Losses of 35-year old workers by about one-quarter of the
difference between them and the Presumed Losses of 30-year old workers. This
increase represents nearly two years' income and about 10% of the Presumed
Economic Losses for the survivors of these people who had the misfortune of
perishing in the wrong age bracket. At the $25,000 income level it would
raise the award about $47,000, at $50,000 it would rise by $95,000 and at
$100,000 it would rise by $179,000. (See Sheet 4.)
(2) Low Income Bracket Increase Question
The increases in Estimated Losses are greater within the $10-15,000 income
bracket than they are within either the $15-25,000 bracket, or the $25-30,000
income bracket. A possible symptom of the problem is the lack of a column in
the Tables for a $20,000 income level even though there is a column for every
other $5,000 of income between $10,000 and $50,000. In any case, the
increases within the "double" $15-25,000 bracket should be greater than the
increases within any of the $5,000 brackets. See the below tables. If not
addressed, this could be detrimental to many survivors of relatively
low-income victims.
(Sheets 1 & 2)
(3) Inflation Factor for Older Workers
The explanation for the Presumed Economic and Non-Economic Loss Tables states
the assumptions for calculating lost future income from decedents:
"(I)ndividuals in the age range up to 30 would have received wage increases
of 6.6 percent per year; those between 31 and 50 would have received a wage
increase of 5.1 percent per year; and those above 50 would have received a
wage increase of 4.2 percent per year. These figures are based on two
factors: wage increases due to general inflation and wage increase due to
promotion/merit. The wage increases incorporate an assumed salary increase
of .5 percent over inflation and a merit and promotion increase for young,
middle- and older-age workers of 3 percent, 1.5 percent, and .7 percent
respectively."
The inflation factor is not stated, but can be derived by simple formula: (a)
assumed total increase, minus (b) assumed merit/promotion increase, minus (c)
0.5 percent. The calculations show that the inflation factor for older
workers is less than it is for the others.
· Young workers: 6.6% - 3.0% - 0.5% = 3.1%.
· Middle-age workers: 5.1% - 1.5% - 0.5% = 3.1%.
· Older-age workers: 4.2% - 0.7% - 0.5% = 3.0%.
It is difficult to see how the decrease for older-workers could be due to
rounding, but without the formulae one cannot be certain. It is possible
that there is simply a typo in the explanation. This should be checked
thoroughly lest the survivors of older workers be adversely impacted.
Attachment 1:
Attachment
Commenter:
New Providence, NJ
Date: January 11, 2002
Individual Comment