Worker's Compensation Offset

Eric Buchanan, Attorney at Law

Social Security published a proposed rule on September 4, 1997, at 62 FR 46682 that would have applied the maximum worker's compensation offset to a claimant's Social Security benefits, despite any specific language in the worker's comp Order to the contrary. Fortunately, this proposed regulation has been recently withdrawn. 64 FR 6824, February 11, 1999. Unfortunately, SSA has begun another policy of ignoring the Social Security language if it is found only in an amended order, so it can still be very important to include this language in the original settlement order, or ask the judge to put it in a disputed case's final order. (We are currently challenging this new policy, because we believe it is a violation of Federalism for an executive agency to informally decide what state court decisions and laws it is free to ignore. Our challenge is currently at the administrative level.)

Explanation of the worker's compensation offset:

If a claimant is awarded worker's compensation benefits, it is very important that the worker's compensation Order contains the Social Security life expectancy language. This language has no effect on the amount of the worker's compensation settlement itself; all it does is preserve Social Security benefits to the greatest extent possible. The obligations of the employer and insurance company are not changed at all by the inclusion of the language.

The appropriate language is as follows:

After payment of the attorney's fees and costs, the claimant will receive the net amount of $____________. The mortality tables set forth in Table VI of the Tennessee Code Annotated indicates that because the Plaintiff is age ______, Plaintiff has a life expectancy of ________ years and ______ months. The amortized monthly benefit received by the Claimant is $_____________ divided by _________ months or $_____________ per month and represents a future income replacement. This paragraph is intended for Federal Social Security purposes only and not for any other purpose, including but not limited to, disability retirement benefits from the Tennessee Consolidated Retirement System, pursuant to Tennessee Code Annotated Section 50-6-207, as amended by Public Chapter 919, effective July 1, 1996.

This language is necessary because federal law requires that individuals who receive both workers' compensation and Social Security disability benefits cannot receive a total amount of benefits greater than 80% of the worker's pre-injury income.[1] The Social Security Administration uses a formula to determine the maximum total benefits, from both programs, that a claimant can receive, then they reduce the Social Security disability benefits to stay below that figure.

In order to calculate the total amount of benefits that can be received from both programs, the Social Security Administration will first determine the 80% maximum allowance and convert it to a maximum total monthly benefit.[2] The Social Security Administration will then calculate the amount of workers' compensation benefits received in temporary checks and determine the amount received each month.[3] Social Security will then subtract the worker's compensation monthly amount from the 80% maximum monthly amount; the difference is the maximum that Social Security will pay each month, even if the disabled individual's normal Social Security disability benefit would be much higher.

In the case of large monthly workers' compensation benefits, or low past wages, the reduction may be total, thus the individual may not be entitled to Social Security benefits at all during the time the individual gets periodic workers' compensation benefits.

When a lump sum is awarded in a worker's compensation case, the Social Security Administration does not have a "monthly" amount to use to calculate the offset, but that does not mean that the offset will end. Instead, unless there is specific language to the contrary, they treat the lump sum as if the temporary checks have continued. See POMS instruction DI 52001.555.

Social Security takes the amount of the settlement, exclusive of attorney's fees and medical expenses, and divides by the monthly amount of worker's compensation benefits that the disabled worker has been receiving in temporary periodic payments. The result of this calculation is the number of months the full offset will continue; thus, the offset will remain the same even though the individual is no longer getting temporary checks from workers' compensation.

For example, if your client were to receive $400.00 per month in temporary workers' compensation checks, then were to get a lump sum settlement of $40,000.00 (after attorney's fees and medical expenses), then the offset would continue for 100 months after the settlement.

In order to keep the Social Security Administration from continuing the same offset, the law allows the workers' compensation settlement to contain a "life expectancy" clause. This clause indicates that the lump sum is not just a continuation of the temporary checks commuted to one payment, but is instead a settlement of a disputed case. The clause states that the settlement is the equivalent of much smaller monthly payments over the lifetime of the worker. This language is permitted in the settlement by TCA 50-6-207 (6)

The calculation over the lifetime of the worker will usually result in an equivalent monthly rate of workers' compensation payments that is much smaller than the temporary checks received by the worker. This allows the Social Security Administration to subtract a much lower amount of monthly workers' compensation benefits from the 80% maximum, thus allowing for greater Social Security disability benefits. This method of calculation was first approved in Sciarotta v. Bowen , 837 F.2d 135 (3d Cir.1989).

The importance of the life expectancy language in the workers' compensation order is to give the Social Security Administration a basis to calculate how the lump sum is to be received. By giving the Social Security Administration a new monthly figure with the life expectancy language, they will not use the default, which is to treat the lump sum as if temporary periodic workers' compensation benefits had continued.

[1] 20 C.F.R. 404.408 [return to text]
[2] Social Security uses several formulas to determine the past wage. The most common, called the "high five" approach, uses the last five years before the year of injury, plus the year of injury itself; whichever year is the highest will be used in the formula (the maximum benefit will be 80% of the highest year). The highest year's income, divided by 12 and multiplied by .8, is the maximum monthly benefit. The alternative method used by Social Security is to look for the highest five consecutive years, add them together and divide by 60 to determine the monthly income amount (this amount times .8 is the maximum allowable combined benefit). [return to text]
[3] i.e. if the injured worker received weekly checks, that amount is multiplied by 52 and divided by 12, bi-weekly checks are multiplied by 26 and divided by 12. Since Social security Benefits are paid monthly, all worker's compensation benefits are converted into an equivalent monthly rate. [return to text]