Fringe Benefits Valuation

By Christopher Skerritt, M.Ed., MBA, Chief of Economic Services · Published

Fringe benefits are the part of compensation paid in something other than wages: employer contributions to health insurance and retirement plans, legally required payroll contributions, paid leave, and similar items. The economist values the benefits the person actually received or would have received and adds them to the earnings projection, so that lost compensation is measured as a whole.

When it is used

Fringe benefits are part of every lost earnings and wrongful death analysis where the person was employed, and of employment damages where a termination ended benefit coverage. They matter most where the employer's contribution to health and retirement plans was large relative to wages, as in public-sector, union, and long-tenure private employment.

Step-by-step

  1. Identify the benefits the person received from employer benefit statements, plan documents, collective bargaining agreements, and pay records, and separate them from benefits paid by the employee
  2. Value each benefit at the employer's cost or, for a defined benefit pension, at the value of the accrued and projected benefit, rather than at a generic percentage where records exist
  3. Where records are unavailable, apply published employer cost data for the industry, occupation, and region, and state that a published rate was used
  4. Determine which benefits continue post-event, such as coverage under a spouse's plan or a replacement employer's plan, and net them against the but-for benefits
  5. Carry the benefit stream forward with the earnings projection over the same horizon and reduce it to present value with the rest of the loss

Data sources

Limitations

A published average benefit rate is a fallback, not a substitute for the person's own plan documents, and applying it to a person who received few benefits overstates the loss. Health insurance is valued at the employer's cost, which is not the same as the cost of replacing coverage individually; the report should say which measure was used and why. Pension losses depend on plan terms and vesting, and a defined benefit plan requires a separate calculation rather than a percentage add-on.

Admissibility

Inclusion of fringe benefits in lost compensation is well established. Challenges typically argue that a benefit was double counted, for example a retirement contribution added to wages that already included it, or that a published rate was applied where plan documents were available. A report that lists each benefit, its source, and its value item by item is positioned to meet those arguments, and the lost earnings guide shows where benefits sit in the calculation.

Frequently Asked Questions

Are legally required benefits such as the employer's Social Security contribution included?

Practice varies and the report states the approach. Many economists include the employer share of Social Security and Medicare taxes because it funds a benefit the person would have received; others treat it separately. Either way the treatment is disclosed so it can be tested.

What if the person's employer did not offer benefits?

Then the but-for benefit stream is small or zero and the report says so. Benefits are valued as the person actually received them, not as an average worker might have.

How are lost pension benefits valued?

For a defined contribution plan, as the employer contributions that would have been made plus their expected growth. For a defined benefit plan, as the difference between the pension the person would have received under the but-for career and the pension now expected, discounted to present value from the date each payment would have begun.

Services that use this method

References

Request a consultation on Fringe Benefits Valuation or call (201) 343-0700. Plaintiff and defense counsel.