Monday marked the deadline for victims of the Sept. 11 attacks to apply for government compensation. So far, the September 11th Victim Compensation Fund has doled out around $1.5 billion to the families of decedents and those injured in the attacks. Though the average award is $1.8 million, the payments have ranged from a low of $500 to a high of $7.9 million. How does the fund tailor each award?
For the majority of claims, which have come from the families of deceased victims, the computation process starts with the fund's "presumed economic loss" formula. Since the payments are meant to make up for the loss of the decedent's earning power, the first factor to consider is the victim's salary, generally based on the three years leading up to the attacks. (The rationale being that, given the economic boom, salaries were unusually high during the year preceding Sept. 11.) After-tax income is then calculated by applying the relevant federal and state brackets. To that sum is added the value of company-supplied benefits, like health insurance. Once it's arrived at an annual figure, the fund estimates how many years the victim would have remained in the workforce, according to a methodology outlined in a celebrated Journal of Legal Economics paper called "A Markov Process Model of Work-Life Expectancies Based on Labor Market Activity in 1997-1998." (A rough synopsis can be found here; since women have shorter work-life expectancies, the fund chose to apply the male estimates for both genders.) Finally, the fund tweaks these figures in accordance with estimates of how future earnings will be affected by inflation, cost-of-living adjustments, and salary increases due to promotions.
Then the fund sets about reducing the award, starting with an adjustment for the fact that many workers will spend at least part of their lives unemployed; this "reduction factor," based on historic unemployment rates, is 3 percent. The fund's accountants must also adjust for the percentage of the victim's earning that would have been spent on themselves, rather than other, surviving members of their households. The Bureau of Labor Statistics Consumer Expenditure Survey from 1999 is used for this purpose. Lastly, the award sum is "offset" by the amount the family may already have received from other compensation sources, such as life-insurance payouts.
The fund offers a handy set of tables outlining the rough awards each family can expect, based on the size of household and the victim's income. But the fund's special master, Kenneth Feinberg, can adjust each award based on a multitude of unique factors, ranging from burial costs to the special needs of ill dependents. Feinberg's decisions cannot be appealed.
There is also the matter of noneconomic losses—that is, an amount that can provide some small salve for the psychic pain caused by the tragedy. The fund has fixed this amount at a base of $250,000, plus an additional $100,000 each for the victim's spouse and children.
For the families of deceased victims, the awards have ranged from $250,000 to approximately $7 million. There's been a much wider range of awards (including that $500 sum) for those claiming Sept. 11-related injuries, and it's these sums that are the hardest for Feinberg and his staff to figure. There is no set-in-stone economic loss formula for the injured; rather, the special master "will consider loss of earnings or other benefits related to employment, medical expense loss, replacement service loss, and loss of business or employment opportunity." There is also the option to award some measure of noneconomic losses if the wounds are particularly horrific.
Bonus Explainer: The presumed economic loss formula isn't designed to handle incomes in excess of $231,000, as the fund figured that calculating lifetime incomes for the wealthiest 2 percent of Americans would "be a highly speculative exercise." Anyone with an income greater than $231,000, then, will be assumed to have been earning that amount when they died. However, their families can ask the special master for additional money on top of whatever the formula determines. "The special master," the fund's literature states, "will strive to deliver a fair and equitable sum to each eligible claimant."