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 proposed regulations.
October 29, 1997

Kenneth Apfel
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 benefits.

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 workers.

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 methods.

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
	       LS		125,000

.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.

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:

	$150,000.00 - $31,250.00   =   93750   =	206.04 weeks of
	        $455.00			455		offset using the
							FULL workers'
							compensation rate

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 or $26,673.00.

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