Finding the Value of Lost Fringe Benefits
Posted June 1st, 2016.
Categories: Employment Law, The Calculating Lawyer.
A party who has been wrongfully terminated from employment may not only be claiming lost wages but also a loss of fringe benefits. While fringe benefits are not always delivered in the form of monetary compensation, they may include quantifiable values for lost health insurance, including hospital, medical and disability plans, life insurance, pension plans and other retirement programs.
They may also include the value of lost stock options, stock purchase plans and other profit-sharing programs, as well as lost sick leave, personal leave and other paid time off, maternity leave, vacation pay, holiday pay, travel pay, shift premiums, expense accounts, counseling programs, day care facilities, tuition reimbursement, credit union memberships, fitness and recreation programs and gym memberships, unemployment compensation, workers’ compensation insurance, housing subsidies, relocation assistance, company cars, company laptops, legal aid, and bonuses.
Assume, for example, that an employee would be required to expend $12,000 per year to replace his company-sponsored family health insurance plan, either through the payment of COBRA continuation benefits or by purchasing a private health plan for his family. Let’s also assume that the employee would lose $6,500 per year in employer contributions to his pension plan. The employee could argue that, in addition to his loss of salary, he lost a total of $18,500 per year in fringe benefits. If his annual salary loss were $85,000, then he would argue that his annual wage-and-benefit loss amounted to $103,500.
Another approach is to determine the fringe rate. This is a percentage of earnings attributable to the value of the fringe benefits. The fringe rate is calculated as the total dollar value of all fringe benefits (TFB) divided by gross earnings (GE).
Fringe Rate = TFB/GE
If the total of all fringe benefits was $17,000, then we could easily find the fringe rate:
Fringe rate = $17,000/$85,000 = 0.2
In this example, the fringe rate is 0.2 or 20%. Thus, 20% becomes the factor by which base wages must be enhanced to account for the loss of fringe benefits. A wage loss of $85,000, caused by a wrongful discharge from employment, and subject to a fringe rate of 20%, would then be enhanced to reflect an annual wage-and-benefit loss of $102,000. If the wage loss in the next year was found to be $90,000, and assuming a constant fringe rate, then the next year’s wage-and benefit loss would rise to $108,000.
While these calculations are quite simple, it may be necessary to consider other, more mathematically complex, calculations, for lost benefits such as stock options and Social Security benefits, and setoffs (if applicable and recognized) for severance pay, unemployment compensation, public welfare and health care assistance programs, and third party charitable donations of replacement benefits.
Itemized Present Value Approach
Returning to the first example above, an employee would only be entitled to $18,500 in fringe benefits if those benefits were immediately deliverable to the employee on the spot. In most cases, however, fringe benefits are delivered over time, and they are offered in the form of many different kinds of benefits which inherently have their own payout dates and methods.
So, for example, consider an employee who has been wrongfully terminated from employment. She enjoys a family health insurance plan that would cost her $8,000 per year to replace. At the time of her discharge, she has 10 more work years until retirement. Assume no increase in health insurance costs, and for purposes of this example, assume that the employee cannot find a suitable replacement job. The employee would need $80,000 to replace the value of this lost benefit.
Assume, too, that the employee lost the benefit of a company car, which saved her $2,000 per year in personal car expenses. Prior to the date of the termination of employment, the employer announced that it would be phasing out its company car program in three years. Therefore, the employee could claim a loss of this benefit for three more years, representing a loss of $6,000. The employee also enjoyed a defined benefit pension contributions by the employer valued at $4,800 per year and had every expectation of receiving such contributions for the remaining 10 years of her work life. Assuming no change in the value of the employer’s contributions, the employee would thus be entitled to another $48,000 in pension benefits.
Because the employee has made a claim for damages today, we must ascertain the present value of each of these future fringe benefits. Let’s assume a hypothetical 4% discount rate for each of the specified benefits:
| Benefit | Annual Value | Years Remaining | Total Value | Present Value |
| Health Ins. | $8,000 | 10 | $80,000 | $54,046.75 |
| Company Car | $2,000 | 3 | $6,000 | $5,333.98 |
| Pension Fund | $4,800 | 10 | $48,000 | $32,428.05 |
| TOTAL —> | $134,000 | $91,808.78 |
So, using the 4% discount rate, we arrive at a total present value of $91,808.78 in lost fringe benefits for the terminated employee. This is the amount that the Defendant-employer would be required to pay in damages today to compensate the employee for future fringe benefits alone, were she to prevail on her claim (or settle her claim for full value).
