Comments against the Social Security Administration's Proposed
Regulations Regarding Elimination of Lifetime Proration of Lump Sum
Settlement When Assessing Workers'Compensation Offset Upon Lump Sum
Settlement of an Injured Worker's Workers' Compensation Claim
The following is the letter I sent to the Social Security
Administration in opposition of the proposed regulations regarding
imposition of workers' compensation offset when an injured worker
settles his workers'compensation case for a lump sum. The proposed
regulations, if adopted, would have affected stand to affect every
worker who has been injured on the job and who is or may be
simultaneously eligible for receipt of Social Security Disability
Insurance Benefits and Workers' Compensation benefits. The SSA was
bombarded with comments opposing the proposed regulations, and as a
result the SSA eventually withdrew them. Thanks to everyone who took
the time to voice their opposition to these potentially disasterous
October 29, 1997
Commissioner of Social Security
Social Security Administration
P.O. Box 1585
Baltimore, MD 21235
RE: Proposed changes to the Administration's regulations
pertaining to calculation of workers' compensation offset in the
event of a lump sum settlement
Dear Mr. Apfel:
As a workers' compensation and social security attorney, I am
writing to voice my strong opposition to the proposed changes to
Social Security regulations, as published at 62 FR 171 (September
4, 1997), pertaining to the calculation of Social Security offset
when injured workers receive lump sum settlements of their
workers' compensation claims.
Under current regulations, when determining the amount of offset
of an injured workers' Social Security disability benefit when he
accepts a lump sum settlement of his workers' compensation claim,
the Administration looks first to the rate specified in the
agreement, second to the rate at which the worker was previously
paid if no rate is specified in the agreement, and lastly to the
state's maximum rate if there is no rate specified in the
agreement and the worker was not paid workers' compensation
benefits prior to the settlement. The current regulations also
allow the injured worker to accept deduction of excludable
expenses from benefits allocated for the beginning of the post-settlement period (front-ending), deduction of excludable
expenses from benefits allocated to the end of the post-settlement period (back-ending), or for deduction of excludable
expenses in equal increments over the post-settlement period.
The current regulations have allowed injured workers' to have
their compromise settlement reflect the fact that the settlement
is meant as compensation for a lifetime of disability by pro-rating the lump sum settlements out over their life expectancies.
Furthermore, the current regulations allow injured workers to
structure their settlements so that excludable expenses are
excluded from offset calculation in the manner that minimizes the
impact on their current receipt of Social Security disability
The proposed regulations would have the effect of denying workers
the ability to have their lump sum settlement prorated over their
lifetimes in order to accurately reflect that they are
compromises of their claims for permanent lifetime disability.
Many of my workers' compensation clients have low incomes, and
accordingly they have low ACE ceilings which oftentimes subject
them to total or near-total offset of their social security
disability benefits during periods of time that they are
concurrently eligible for Social Security and periodic workers'
compensation benefits. These low income earners, the persons
Social Security was intended to help the most, are the ones who
will be severely impacted if the proposed regulations are
adopted. Harder hit would be those claimants whose workers'
compensation claims are denied and who decide to accept
compromise lump sum settlement rather than face the risk of
losing a contested claim. In contrast, high wage earners who
have higher ACE ceilings and who accept compromise lump sum
settlements will not be affected as severely as lower income
The proposed regulations balance the burden of the impact on the
backs of lower income workers who cannot afford to bear that
burden. Additionally, the proposed regulations, if adopted, would not
result in any significant recoupment for the Social Security
Administration. The proposed regulations address only three
percent (3%) of all Social Security disability claims, and the
Administration has certified to OMB that the proposed regulations
would have a negligible impact on the federal budget. When
compared with the enormous impact the proposed regulations would
have on lower income workers, the lack of any significant cost
savings to the Social Security Administration hardly justifies
the imposition of such an enormous burden on injured workers.
The purposes of the workers' compensation offset provisions of
the Act are to prevent workers from being over compensated
through the receipt of duplicative benefits and to preserve pre-disability income by permitting workers' to receive up to 80% of
their pre-disability income. The current regulations work well
to effectuate these dual purposes when a worker is receiving
ongoing workers' compensation benefits. The regulations
authorize the Administration to make a dollar-for-dollar
reductions of an injured worker's social security disability
benefit for the amount of workers' compensation benefits that
exceed the workers' 80% ACE ceiling. If the injured worker
returns to work, both the workers' compensation and Social
Security disability benefit cease. If the injured worker does
not return to work, then offset continues until the worker
reaches age 65 if workers' compensation benefits are still
payable at that time (some states limit the number of weeks a
worker can receive workers' compensation benefits).
However, it is the rare case where a workers' compensation
carrier actually pays lifetime benefits, even when authorized by
State law, because most workers' compensation claims eventually
settle for one reason or another. Rarely will a workers'
compensation carrier concede that a worker is permanently and
totally disabled solely because of a work-related injury and is
entitled to lifetime benefits. Usually the workers' compensation
carrier will maintain that the seriously injured worker is
employable but for the non-work related disability and will seek
to have that worker be out looking for a job, even if there is no
reasonable likelihood that someone would hire the injured worker.
Even if the carrier concedes that the worker is permanently and
totally disabled, it will never settle for the full amount of its
exposure for benefits, as it has no incentive to do so. If the
worker's workers' compensation case settles, it will be for a
smaller sum of money than would ultimately be paid on the claim
absent discounting factors such as liability, causation, and
extent of disability.
The current regulations allow for lump sum settlements to
be pro-rated over the lifetime of the injured worker using accepted and
conservative mortality tables so that the settlements are treated
as what they actually are: compromises of the carriers' potential
liability for lifetime benefits that are less than the insurance
company's exposure for benefits assuming that the worker will
never be able to return to work. Lifetime proration thus
fulfills the dual purposes of the offset provision of the Act by
making sure the worker is not over compensated by receipt of
duplicative benefits and by preserving the worker's pre-disability
income to the greatest extent possible.
In stark contrast, the proposed regulations fulfill the first
purpose of the offset provision of the Act by preventing the
injured worker from being overcompensated. However, they do so
at the expense of the other goal of the Act of protecting pre-disability income by allowing the worker to receive up to 80% of
his pre-injury earnings. By requiring that the injured workers'
workers' compensation rate be used when determining the amount of
offset when the injured worker receives a lump sum, the proposed
regulations distort and recast a settlement intended by the
injured worker and the workers' compensation carrier to serve as
a substitute for lifetime benefits (if such benefits are allowed
under the State's workers' compensation act) into deemed income
stream equal to the workers' workers' compensation rate that
terminates after the proceeds of the settlement are effectively
exhausted. The proposed regulations take absolutely no account
of the fact that the settlement is a compromise between the
parties in which the permanently and totally disabled worker
receives substantially less that he would have had he not settled
his workers' compensation claim and elected to continue receiving
weekly workers' compensation benefits for the rest of his life.
Furthermore, by specifically referencing the term "average weekly
wage required by state law", the Administration is virtually
inviting litigation in the federal courts about what the workers'
average weekly wage actually is. The Administration would
essentially be asking federal judges to interpret and apply
concepts of state law with which they are not familiar. If
federal judges happen to misinterpret a particular state's
workers' compensation act with regard to an injured workers'
average weekly wage, there may be no recourse to state courts,
where the judges are familiar with the state's workers'
compensation act, to correct the mistake. Additionally, it is
not uncommon for there to be a dispute between the injured worker
and the workers' compensation carrier over what the average
weekly wages, which is often resolved as part of the compromise
settlement agreement. The proposed regulations imply that the
Administration could undo the parties' agreed upon average weekly
wage figure and impose its own interpretation of that state's
workers' compensation act with regard to average weekly wage, a
interpretation which the Administration is ill-suited to make.
The proposed regulations also would eliminate Methods A and B for
accounting for excludable expenses when prorating a lump-sum
settlement, leaving method C as the only authorized method for
accounting for these expenses. The only reason the
Administration gives for making this change is so "provide for
uniformity and consistency for all claimants." Elimination of
methods A and B, in particular Method B, would impose an even
heavier burden on injured workers than the proposed elimination
of lifetime proration of lump sum settlements.
Under Method A, excludable expenses are taken from the beginning
of the proration, and offset is not imposed until the excludable
expenses are effectively exhausted. Method A thus postpones the
imposition of offset, and is thus useful for claimants who are
approaching retirement age, after which time offset is not
imposed. Method B allows for the excludable expenses to be
distributed equally over the proration period. This method is
advantageous for younger workers for whom it will be some time
until they reach retirement age, and it allows for the least
disruption in the workers' social security disability benefit.
Under Method C, excludable expenses are immediately deducted from
the lump sum settlement before proration is applied. The only
benefit of this method is that exhausts offset faster than other
Under 42 U.S.C. 424a(b), the method used to calculate the
amount of offset in the event of a lump sum settlement must
"approximate as nearly as practicable the reduction prescribed by
subsection (a)." However, if lifetime proration and Methods A
and B are eliminated, the availability of only Method C will fail
to meet the mandate of the statute that the imposition of offset
approximate the amount of offset that would have been imposed in
the absence of a lump-sum settlement.
My point can be illustrated by the following example: Mr.
Hardworker is an injured employee who is receiving both workers'
compensation and Social Security disability benefits. His
workers' compensation rate is $455.00 per week, and his PIA is
$1,000.00 per month. Because Mr. Hardworker is receiving
workers' compensation benefits, the Administration reduces his
monthly Social Security check to $655.00 per month. Mr.
Hardworker retains an attorney to represent him, and the attorney
seeks and is awarded a fee of 25% of Mr. Hardworker's ongoing
temporary total disability benefits. The Administration
subsequently adjusts Mr. Hardworker's Social Security benefit up
to $1,000.00 to take account of the fact that an attorney fee is
being deducted from his workers' compensation check. Mr.
Hardworker eventually decides to settle his workers' compensation
case for a lump sum of $125,000.00.
Under the current regulations, even if his settlement is
not pro-rated over his lifetime, Mr. Hardworker will continue to receive
the same Social Security benefit after settlement pursuant to
Method B under which the attorney fee will be distributed evenly
over the period of proration:
LS - expenses = .XX 93750 = .75
If the proposed regulations are adopted and Method B is
eliminated, then Mr. Hardworker will suffer an immediate decrease
in his monthly income of about $450.00 as a result of his
workers' compensation settlement. Applying Method C to Mr.
Hardworker's settlement, the attorney's fee and other excludable
expenses are deducted immediately from the lump sum, and the
remaining portion of the lump sum is divided by the worker's full
workers' compensation benefit rate:
.XX times the TTD = new rate at which LS is prorated
.75 X $455.00 = $341.25
.XX is then calculated into the 80% of ACE calculation, where the
length of the proration is determined by the total LS/TTD.
$125,000.00/$455.00 = 274.73 weeks of proration.
$150,000.00 - $31,250.00 = 93750 = 206.04 weeks of
$455.00 455 offset using the
Under the current regulations, Mr. Hardworker will suffer an
offset of approximately $63.75 per month for 274.73 weeks or
63.89 months for a total offset amount of $4,073.00 compared to
an offset of $556.67 per month for 206.04 weeks or 47.92 months
The Act prescribes that the method of proration of a total offset
amount of a lump sum settlement approximate as closely as
possible the result that would have obtained had the settlement
not been commuted to a lump sum. However, Method C fails to meet
the mandate of the 424a(b) by requiring a substantial decrease
in the monthly Social Security benefit of Mr. Hardworker that was
calculated pursuant to 424a(a) when Mr. Hardworker was
receiving ongoing benefits.
In summary, the current regulations have worked well at
implementing to dual purposes of 424a by ensuring that injured
workers do not receive duplicative benefits and that they be
permitted to receive up to 80% of their average current earnings,
both when a worker is receiving periodic workers' compensation
benefits and when a worker accepts a lump sum compromise
settlement of his workers' compensation case.
The proposed regulations unfairly impose the weight of their
impact on low income workers who can ill afford to bear that
burden. The proposed regulation will stir up needless and
confusing litigation in the federal courts over the meaning of
state workers' compensation acts. Finally, the proposed
elimination of Method's A and B for accounting for excludable
expenses would impose an additional unwarranted reduction of the
monthly income of injured workers who settle their workers'
compensation cases. It would violate the mandate of 424a(b)
that the amount of offset imposed in the event of a lump sum
settlement approximate as nearly as practicable the amount of
offset that would have been imposed had the workers' compensation
case not been settled.
I urge that for these reasons that the proposed regulations not
be adopted or at the very least public hearings be held on the
impact of these proposed regulations before the final decision is
made regarding whether to adopt the new regulations.
J. William Snyder, Jr.
Attorney at Law