June 27, 2014. Perhaps not a day that will “live in infamy,” but it is important nonetheless to stakeholders of the South Carolina Workers’ Compensation system. Prior to June 27, 2014, all lump sum payments were commuted at a 5% discount. The regulation becomes the rule when it is published in the State Registry June 27, 2014. The regulation provides that the new Net Present Value (NPV) tables will be at a 2% discount and will be calculated at the yield-to-maturity rate of the Five Year U. S. Treasury Note reported by the Federal Reserve on the first business day following January 1. The regulation further states the discount rate shall not exceed 6% or be less than 2%.
What does this mean to stakeholders? When the economy is good, the amount of lump sum awards will go down as the U.S. Treasury rate will be high. When the economy is bad, the amount of lump sum awards will go up as the U.S. Treasury rate will be low. Right now, growth in the economy is stagnant, which results in a low U.S. Treasury rate of return.
Expect litigation over application of the new present value tables in the middle of the year. The enabling legislation allows the Commission to set the rate on “the first business day following January 1.” The Regulation does not provide for a mid-year change in the commutation rate. There is little doubt, however, that the commission will be using the 2% commutation table effective today.
If you need a link to the new NPV to calculate your lump sum on or after June 27, 2014, click here to view the Collins & Lacy Net Present Value Table.