Supreme Court Concludes that Employer's Contributions to 401(k) are Not a Part of Gross Wages for Rate Purposes
In Evenson v. Winnebago Industries, No. 14-2097 (Iowa June 3, 2016), the Supreme Court concluded that an employer's matching contributions to a 401(k) plan are not weekly earnings for rate purposes. The Court also concluded that the district court erred in affirming the date on which the healing period commenced and ended and the date on which PPD benefits commenced.
On the rate issue, the court noted that "gross earnings" was defined in section 85.61(9) as recurring payment by the employer before deductions and excluding irregular bonuses, overtime pay, reimbursement of expenses and the employer's contribution for welfare benefits. The Court notes that although an employee's 401(k) plan is related tangentially to his or her wage or salary, an employer's 401(k) plan matching contributions are based on the employee's choice and contribution. Although the portion the employee chooses to contribute to the plan comes from his wages, the added contribution from the employer's match does not. The Court concludes that "our legislature intended to exclude employer contributions to 401k plans from the definition of gross earnings," citing the exclusionary provisions of section 85.61(9). The Court concludes that 401(k) contributions are "welfare benefits" as described in the statute and are thus excluded from consideration. The Court also cites to the U.S. Supreme Court decision in Morrison-Knudsen Contstruction v. Director, Office of Workers' Compensation Programs, 461 US 624 (1983) in which the Court held that an employer's contribution to a union trust fund for health and welfare, pensions and employee training were not considered wages. Finally, the Court notes that other states routinely hold that fringe benefits are not wages for purposes of determining a workers' compensation rate. Although a few states, such as Nebraska, have changed this by statute, Iowa has not.
Claimant also argued that the district court erred in affirming the commissioner's determination of the extent of his impairment, the commencement dates of healing period benefits and the amount of penalty awarded. On the extent question, the 20% permanent impairment finding for claimant's arm injury was affirmed on substantial evidence grounds. The commissioner was found to have considered lay testimony.
The Court concludes that healing period benefits began on September 3 rather than September 7 and that claimant if claimant received holiday pay for the Labor Day holiday, this could be credited against healing period benefits. Claimant argued that PPD benefits should have been awarded beginning on September 20 (when claimant returned to work) and then suspended when claimant had surgery and was on another healing period. The Court noted that under Waldinger v. Mettler, 817 N.W.2d 1 (Iowa 2012), there may be more than one healing period for a single injury. The court finds that "the statute clearly states the healing period lasts until whichever situation [ending the healing period] occurs first." Thus, in Mr Evenson's case, his return to work ended his healing period and PPD benefits were payable commencing on that date. The Court further concludes that this commencement date for PPD benefits is not precluded by the fact that he was entitled to TPD benefits for subsequent weeks when he was medically restricted from working his regular hours. The Court overrules the decision in Presthus v. Barco, 531 N.W.2d 476, 480 (Iowa App. 1995), which had barred payment during the same period for TPD benefits and PPD benefits. The Court concludes the TPD benefits and PPD benefits compensate for completely different categories of losses and because of that the employee is not paid twice for the same injury or loss.
The Court affirmed the agency's 25% penalty finding, but remanded on this issue because of the new healing period and PPD dates established in the Court's opinion.
Justices Mansfield and Waterman dissented on the issue of payment of TPD and PPD benefits simultaneously. They would affirm the decision of the agency that PPD began after TPD benefits had been concluded, in November of 2011. The dissenters argue that the Court's opinion "dramatically expands" the Court's prior opinion in Mettler. The dissenters would include the TPD period as a part of the healing period and indicate that is why TPD benefits are "in lieu of HP benefits. The majority's decision, according to the dissenters, means that a claimant has a temporary disability and a permanent disability based on the same injury at the same time, a finding which the dissenters find "incongruous." The dissenters are that although not mentioned in the majority opinion, "the court also discards the analytical framework we set forth in considerable detail in . . . Bell Brothers Heating & Air Conditioning v. Gwinn." 779 N.W.2d 193 (Iowa 2010). Gwinn had indicated that a claim for permanent benefits was not ripe until MMI had been achieved.
On the rate issue, the court noted that "gross earnings" was defined in section 85.61(9) as recurring payment by the employer before deductions and excluding irregular bonuses, overtime pay, reimbursement of expenses and the employer's contribution for welfare benefits. The Court notes that although an employee's 401(k) plan is related tangentially to his or her wage or salary, an employer's 401(k) plan matching contributions are based on the employee's choice and contribution. Although the portion the employee chooses to contribute to the plan comes from his wages, the added contribution from the employer's match does not. The Court concludes that "our legislature intended to exclude employer contributions to 401k plans from the definition of gross earnings," citing the exclusionary provisions of section 85.61(9). The Court concludes that 401(k) contributions are "welfare benefits" as described in the statute and are thus excluded from consideration. The Court also cites to the U.S. Supreme Court decision in Morrison-Knudsen Contstruction v. Director, Office of Workers' Compensation Programs, 461 US 624 (1983) in which the Court held that an employer's contribution to a union trust fund for health and welfare, pensions and employee training were not considered wages. Finally, the Court notes that other states routinely hold that fringe benefits are not wages for purposes of determining a workers' compensation rate. Although a few states, such as Nebraska, have changed this by statute, Iowa has not.
Claimant also argued that the district court erred in affirming the commissioner's determination of the extent of his impairment, the commencement dates of healing period benefits and the amount of penalty awarded. On the extent question, the 20% permanent impairment finding for claimant's arm injury was affirmed on substantial evidence grounds. The commissioner was found to have considered lay testimony.
The Court concludes that healing period benefits began on September 3 rather than September 7 and that claimant if claimant received holiday pay for the Labor Day holiday, this could be credited against healing period benefits. Claimant argued that PPD benefits should have been awarded beginning on September 20 (when claimant returned to work) and then suspended when claimant had surgery and was on another healing period. The Court noted that under Waldinger v. Mettler, 817 N.W.2d 1 (Iowa 2012), there may be more than one healing period for a single injury. The court finds that "the statute clearly states the healing period lasts until whichever situation [ending the healing period] occurs first." Thus, in Mr Evenson's case, his return to work ended his healing period and PPD benefits were payable commencing on that date. The Court further concludes that this commencement date for PPD benefits is not precluded by the fact that he was entitled to TPD benefits for subsequent weeks when he was medically restricted from working his regular hours. The Court overrules the decision in Presthus v. Barco, 531 N.W.2d 476, 480 (Iowa App. 1995), which had barred payment during the same period for TPD benefits and PPD benefits. The Court concludes the TPD benefits and PPD benefits compensate for completely different categories of losses and because of that the employee is not paid twice for the same injury or loss.
The Court affirmed the agency's 25% penalty finding, but remanded on this issue because of the new healing period and PPD dates established in the Court's opinion.
Justices Mansfield and Waterman dissented on the issue of payment of TPD and PPD benefits simultaneously. They would affirm the decision of the agency that PPD began after TPD benefits had been concluded, in November of 2011. The dissenters argue that the Court's opinion "dramatically expands" the Court's prior opinion in Mettler. The dissenters would include the TPD period as a part of the healing period and indicate that is why TPD benefits are "in lieu of HP benefits. The majority's decision, according to the dissenters, means that a claimant has a temporary disability and a permanent disability based on the same injury at the same time, a finding which the dissenters find "incongruous." The dissenters are that although not mentioned in the majority opinion, "the court also discards the analytical framework we set forth in considerable detail in . . . Bell Brothers Heating & Air Conditioning v. Gwinn." 779 N.W.2d 193 (Iowa 2010). Gwinn had indicated that a claim for permanent benefits was not ripe until MMI had been achieved.
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