Opinion
No. 55911-7-I.
May 22, 2006.
Appeal from a judgment of the Superior Court for King County, No. 04-2-16430-3, Nicole MacInnes, J., entered February 14, 2005.
Counsel for Appellant(s), Jennifer Marg Cross-Euteneier, Vail Cross-Euteneier Associates, PO Box 5707, Tacoma, WA 98415-0707.
Counsel for Respondent(s), Gretchen M. Leanderson, Attorney Generals Office, PO Box 2317, Tacoma, WA 98401-2317.
Affirmed by unpublished opinion per Appelwick, C.J., concurred in by Baker and Cox, JJ.
Pete Talaga appeals the Department of Labor and Industries' (Department) determination of his monthly pension benefit amount. Talaga asserts that Table C, the annuity table used to determine his pension reserve amount, is not actuarially valid. He claims that because RCW 51.44.070(1) does not create any standards by which annuity tables can be created or assessed, the Department should instead follow RCW 51.12.010 and use the reasonable table most favorable to workers. Further, he asserts, the court in Messer v. Labor Indus., 118 Wn. App. 635, 77 P.3d 1184 (2003) misinterpreted RCW 51.44.070(1) and created an improper standard. We disagree and affirm.
FACTS
Pete Talaga was injured during the course of his employment in 1996. He filed a claim with the Department of Labor and Industries (Department), and the Department allowed his claim. The Department closed Talaga's claim in 1998 with a permanent partial disability (PPD) award for his right arm. In 2001, the Department found Talaga totally and permanently disabled, and awarded Talaga a pension.
To determine the amount of Talaga's pension, the Department conducted a multi-step analysis. First, the Department used Talaga's monthly wage on the date of his injury to determine his monthly pension benefit. This amount was $1,139.42.
Then, the Department calculated Talaga's pension reserve amount, which is the total present value of his monthly benefit. To do this, the Department multiplied the monthly benefit by an annuity value in an actuarial table called Table C. Each age is given a different annuity value in Table C, with older ages receiving lower values. Talaga was 63 at the time he began to receive benefits, his Table C annuity value was 108.27, and his pension reserve amount was $123,365.
However, since Talaga had already received compensation through his PPD award, that amount had to be deducted from his pension reserve. RCW 51.32.080(4). The Department deducted the amount Talaga had already received for PPD, $3,090.30, from his pension reserve, leaving a new pension reserve amount of $120,274. This reduced his monthly benefit amount to $1,110.88. Thus, Table C is significant because it reflects the time period over which the pension reserve is paid out. The shorter the time period, the greater the reduction in the monthly benefit necessary to amortize the PPD award. The greater the time period, the smaller the monthly reduction in benefits necessary to account for the PPD deduction. The Department further reduced Talaga's monthly benefit amount because of his choice of survivor benefits and because he received social security benefits. These two reductions did not reduce Talaga's pension reserve amount, but were only applied to his monthly benefit amount.
Talaga appealed to the Board of Industrial Insurance Appeals (Board). He challenged the use of Table C to calculate his pension reserve amount, contending that the values in Table C were not actuarially correct. To support his contention, he introduced testimony at the hearing from James Berry, an actuary. The Department countered with testimony from Bill Vasek, a Department actuary.
Berry and Vasek agreed on many things. They agreed that pensioned workers tended to have lower life expectancies than the average population. They also agreed that Table C was created in 1986 and was based on male mortality data from the 1980 U.S. census. When an earlier actuary examined Washington worker mortality data in 1986, he found that the results were very close to those of the 1980 U.S. Census, and so the actuary used that table as the basis for Table C. Berry and Vasek also agreed that the Department had begun creating a new Table C in 2001, but that this new data had not been adopted.
But Berry and Vasek differed in their testimony, too. Berry testified that he thought the 1980 data was too old, and that the Department should instead base Table C on mortality data from the 1990 U.S. census, as life expectancies had increased since 1980. But Vasek testified that Table C conformed with accepted actuarial practices and RCW 51.44.070. Vasek also testified that the 1980 census mortality data was a better model than mortality data from the 1990 census or a 1997 Centers for Disease Control table.
The Board issued its decision in April 2004. The Board found that Talaga had failed to prove that the Department violated RCW 51.44.070(1) in using Table C, and affirmed the Department order. Talaga appealed to superior court. The superior court affirmed the Board's decision, finding that Messer v. Dep't of Labor Indus., 118 Wn. App. 635, 77 P.3d 1184 (2003) controlled and that substantial evidence supported the Department's decision. Talaga appeals.
ANALYSIS I. Validity of Table C
Talaga asserts that Table C is not actuarially valid. He claims that Table C is based on outdated data, and that the 1990 U.S. males table is a more reasonable source on which to base an actuarial table. He also claims that Table C does not meet with RCW 51.44.070(1)'s requirements.
Our review is limited to whether substantial evidence supports the findings made after the superior court's de novo review, and whether the court's conclusions of law flow from the findings. Ruse v. Dep't of Labor Indus., 138 Wn.2d 1, 5, 977 P.2d 570 (1999). RCW 51.44.070(1) requires that annuity values "be based upon rates of mortality, disability, remarriage, and interest as determined by the department, taking into account the experience of the reserve fund in such respects."
Substantial evidence in the record supports the conclusion that Table C is based on statutory factors and is actuarially valid. Vasek testified that the Department's use of Table C comports with accepted actuarial practice. He testified that the annual experting, a process that determines whether the Department has put aside enough money to fund the pensions, demonstrates that Table C was reasonable. Vasek also testified that the 1980 data was a more accurate reflection of Washington injured worker mortality than the 1990 table or the 1997 table.
Vasek also testified that the 2001 proposed table came closer to describing the Department's experience than Table C. He said it had not been adopted because it did not distinguish between the genders, as many other states have done. Vasek testified that since the Department must use recognized insurance principles, he felt that gender-specific tables were a possibility that needed to be explored. However, the fact that the 2001 proposed table may have been a better fit does not make Table C unreasonable or actuarially invalid.
Substantial evidence also supports the conclusion that Table C complies with the valuation procedure delineated in RCW 51.44.070(1). In other words, Table C is based upon rates of mortality, disability, remarriage, and interest as determined by the department, and takes into account the experience of the reserve fund in such respects. See RCW 51.44.070(1). When creating Table C, the actuary looked at an aggregate mortality table of Washington workers between 1981 and 1985. The actuary compared that mortality experience with the 1980 U.S. males table. Because the difference between those tables was so small, and because the 1980 U.S. males table included so many more lives, the actuary adopted the 1980 U.S. males table as the Department's Table C. The actuary took into account the fund's experience with mortality because the actuary used that experience (i.e., the actual Washington mortality data) to determine what table to use and how to set up the annuity values. While the actuary chose to adopt the 1980 U.S. males table, this does not mean that the actuary did not take the fund's experience into account when making that decision.
This case focuses only on mortality rates. Interest and mortality rates have the largest impact on annuity factors, and the parties agree as to the appropriateness of the interest rate.
II. Purpose of RCW 51.44.070
Talaga claims that RCW 51.44.070 does not provide standards for the Department to follow in choosing and assessing an actuarial table. He asserts that the Department should instead rely on RCW 51.12.010 in creating actuarial tables. Because RCW 51.12.010 provides that Title 51 shall be liberally construed in favor of the claimant, Talaga argues, the Department should pick the reasonable actuarial table most favorable to the injured worker. That table, Talaga contends, is the 1990 U.S. males table. Talaga is correct that incorporation of the 1990 U.S. males table would benefit workers in his position. This is because the life expectancies in the 1990 data are longer. Thus, using the 1990 data as a basis for Table C, workers like Talaga would be assigned an initially larger pension reserve amount, and would accordingly get more compensation per month after the department subtracted their PPD award.
However, Vasek's testimony about the experting process and the purpose of RCW 51.44.070 reveals why Talaga's framing of the issue is incorrect. RCW 51.44.080 requires that the Department annually expert the reserve fund, which means that the Department determines the relation of the outstanding annuities at their then value to the cash on hand or at interest belonging to the fund. If there is a greater sum in the reserve fund than the annuity value of the outstanding pension obligations as determined by the experting, the surplus goes to the state fund; if there is a deficit, it is made up from the state fund. RCW 51.44.080. Vasek testified that this process helps determine whether the calculations of the pension reserve amounts are accurate. He also testified that mortality and the other non-interest assumptions have been off by less than one percent per year, telling him that Table C has been reasonable. Vasek testified that the purpose of creating a table is not to maximize the benefit for workers, but to most accurately reflect the life expectancies of the workers. He testified that the goal is to make sure there is enough money to fund the benefits, and that if the amount is either not enough or too much, it causes problems for the Department.
In addition, RCW 51.12.010's policy of liberal construction is only applicable to cases involving employee rights. See Seattle Sch. Dist. v. Labor Indus., 116 Wn.2d 352, 360, 804 P.2d 621 (1991). RCW 51.44.080's experting provisions indicate that the purpose of RCW 51.44.070 is not to create a right for a group of workers. Rather, the purpose is to determine as accurately as possible how much money the Department needs to put aside for each pensioner so that the Department can pay him or her benefits for the rest of his or her life. RCW 51.12.010 is thus inapplicable. Talaga's concern that RCW 51.44.070 provides no standards by which annuity values can be calculated or assessed is misplaced. The standards flow from the RCW 51.44.080 experting process.
Further, Talaga's concern that the Department has no incentive to change its annuity tables is not well-founded. First, if the Department used inaccurate and outdated data, the Department would likely be putting too little into the reserve fund, and the experting process would reveal this inadequacy. The Department has every incentive to keep its actuarial data accurate. As Vasek testified, either too much or too little in the reserve fund causes problems for the Department. Second, we do not hold that Table C is immune from successful challenge; rather, on the record before us, we hold that substantial evidence shows that it complies with statutory requirements. The Department has an incentive based on the risk of successful challenge to Table C to ensure that it complies with statutory requirements.
III. Messer v. Department of Labor and Industries
Talaga argues that Messer incorrectly interpreted RCW 51.44.070(1). He asserts that Messer created a statutory requirement that does not exist: that the Department must base its annuity values on its own actuarial experience. He claims instead that RCW 51.44.070(1) requires merely that the Department take its experience into account. While Talaga does not ask us to overturn Messer, he insists that its inaccurate analysis shows that it cannot be relied upon in determining the outcome of his case.
In Messer, the claimant also argued that the Department improperly relied on Table C because it contained outdated data. Messer, 118 Wn. App. at 637. The court found that RCW 51.44.070(1) requires the Department to use an annuity value based upon its actual experience. The court also found from the evidence before it that "Table C was the only annuity value table available at the hearing that met this requirement, and the Department presented testimony that Table C was actuarially valid." Messer, 118 Wn. App. at 639-40. The court concluded that substantial evidence supported the use of Table C. Messer, 118 Wn. App. at 640.
Talaga is incorrect that Messer misquoted the statute. The Messer court stated that "RCW 51.44.070(2) provides that the annuity value for every case `shall be determined by the department based upon the department's experience as to rates of mortality, disability, remarriage, and interest.'" Messer, 118 Wn. App. at 639. This is a correct direct quotation from RCW 51.44.070(2). Talaga, however, mistakes this for a misquotation of RCW 51.44.070(1). But Talaga is incorrect. The Messer court did not misquote any statutes.
The Messer slip opinion does credit this quotation to RCW 51.44.070(1). The Reporter of Decisions changed the attribution of the citation to RCW 51.44.070(2), believing the citation to be error because it tracked the language of RCW 51.44.070(2). However, even if this change had not been made, the opinion would not have misinterpreted the statute. The opinion, when read as a whole, correctly interprets the statute because it addresses both that the annuity values must be based on rates of mortality, disability, remarriage, and interest, and that they must be based on the Department's experience as to those rates. Messer, 118 Wn. App. at 639-40. Further, as discussed below, we see no reason for the legislature to have intended the subsections to be interpreted differently. A reading of the entire statute and of Messer leads to the conclusion that in this context, the legislature did not intend `taking into account' and `based upon' to mean substantively different things.
In fact, Talaga's mistake regarding the alleged misquotation exposes a fundamental flaw in his argument. RCW 51.44.070(1) states the factors which provide a basis for the Department and self-insured employers to determine the amount to put into the reserve fund. RCW 51.44.070(2) provides an alternative method for self-insured employers to set aside money: they can file a bond or purchase their own annuity in an amount the Department deems sufficient. By arguing that the correct quotation of RCW 51.44.070(2) is an incorrect analysis of RCW 51.44.070(1), Talaga is, in essence, arguing that the two subsections are intended to create different annuity tables. But we can see no evidence that the legislature intended to use different annuity values for the RCW 51.44.070(2) alternative, and Talaga has suggested none. RCW 51.44.070(2) is significant because of the process it delineates for funding the obligation, not because of the manner of calculation of the benefit or the amount of the obligation to be funded. We conclude, as the Messer court did, that the language in the two subsections, though slightly different, is not intended to create differing requirements or differing annuity tables.
Messer did not misinterpret the statute. Messer concluded that there was substantial evidence to support the conclusions that Table C was actuarially valid and reflected the Department's data as required by the statute. We have concluded the same here. We affirm the decision of the superior court.
COX and BAKER, JJ., Concur.