Written by attorney Clifford Michael Farrell

How Social Security can affect your workers' compensation benefits

The great misconception in Social Security disability claims is that an individual who is receiving payment under any program of workers’ compensation benefits is automatically ineligible for receipt of Social Security disability benefits. The truth of the matter is the exact opposite.

Many, if not most, individuals who are receiving workers’ compensation benefits may receive at least some small amount of Social Security disability benefits and, in a large number of cases, may still receive full payment from Social Security. In some states, a claimant who is eligible for both Social Security and workers’ compensation benefits will have the Social Security benefits reduced, in other states it is the workers’ compensation benefits that are reduced.

In Ohio, if a claimant receives workers’ compensation, it is Social Security benefits that are reduced. Workers’ compensation claims include any “periodic benefits under a workers’ compensation law or plan of the United States or a State . . . . . for a total or partial disability (whether permanent or not)." This includes any workers’ compensation law or plan of the United States (i.e.Federal workers’ compensation, PERS), a state (i.e. BWC, SERS), a political subdivision, or a combination of two or more of these entities.

Calculating benefit rates

The reason for the potential eligibility under both workers’ compensation and Social Security disability programs is based primarily on the difference in how the two systems calculate benefit rates. Workers’ compensation benefits are, for the most part, calculated on earnings by the injured worker for the one year preceding the injury date.

For example, in evaluating eligibility for temporary total compensation under workers’ compensation laws, the injured worker’s benefits are based on the average weekly wage for the 52 weeks preceding the date of injury.

Social Security benefits are calculated in one of several different manners. For our discussion, there are three benefit rates of concern to the practitioner: The PIA, FMax and ACE.

The PIA is the “primary insurance amount" and represents the standard monthly benefit rate the claimant will receive if no workers’ compensation benefits are paid.

The FMax rate is the “family maximum" rate and represents the maximum monthly benefit a disabled Social Security claimant and his or her eligible dependents may receive from Social Security in a month, again assuming receipt of no workers’ compensation benefits.

The ACE is the “average current earnings" calculation, and represents the most a claimant may receive from Social Security and workers’ compensation combined. Social Security is supposed to use whichever figure works out to more benefit to the claimant.

Determining the offset

The most often used figure for determining offset is the average current earnings or ACE. The ACE may be calculated by looking to the average monthly earnings for the highest 5 year period in the claimant’s entire work history, or may be calculated by looking to the average monthly earnings based on the highest year of earnings for the 5 years immediately preceding the alleged onset date of disability, whichever is higher.

It is this difference in calculation manners between the two systems that allows a claimant to receive both workers’ compensation benefits and Social Security benefits. Many times a Social Security claimant’s highest year of earning is not the 12 months immediately preceding the injury but is some other year or combination of years, which then allows the claimant to be eligible for receipt of workers’ compensation benefits and Social Security disability benefits.

Between Social Security benefits and workers’ compensation benefits, a claimant is entitled to receive no more than 80% of his or her average monthly gross earnings.

For example, assume that the claimant’s accepted highest average monthly gross earnings was $3,000.00. This means that the claimant is entitled to receive up to $2,400.00 a month in combined benefits from workers’ compensation and social security without an offset.

Thus, if the claimant received $1,400.00 a month in workers’ compensation benefits, he will receive all his social security disability benefits if those benefits do not exceed $1,000.00 a month. Any amount over $1,000.00 will be offset. The regulations concerning the workers’ compensation offset are very detailed.

In trying to decide if there is any offset, or what the offset rate will be, there are several very important pieces of information needed:

  • The claimant’s date of birth,
  • The settlement amount or rate to be awarded
  • Whether the claimant has any children under 18
  • His or her earnings history.

The date of birth is needed to calculate claimant’s age and to then calculate either work life expectancy, between age 65 and 67 depending on birth, or to calculate overall life expectancy, which may help spread the settlement amount over a larger time frame. The existence of any eligible dependent beneficiaries is needed because, in some cases, the maximum family benefit rate (FMax) calculation may be higher than the average current earnings (ACE) calculation.

When a claimant receives a permanent partial award, a back due temporary total award, a settlement, or other lump sum payment, the Social Security Administration prorates the award and makes the offset accordingly. The award will be prorated at the rate listed in the award. If no amount is listed, the award should be prorated at the amount listed on the last Worker’s Compensation award.

For example, if the claimant received a lump sum of $2,268.00 for the period of 8/10/95 to 11/15/95 and the award states that the weekly rate is $162.00, the award will be prorated at $696.00 a month ($162.00 times 4.3 weeks in a month).

Getting the best deal

From a claimant’s perspective, it is always beneficial to provide a schedule of proration of the settlement amount over the worker’s work life or full life expectancy There are several ways to this effectively that provide at least a basic or minimum acceptable option to specifying the terms that “structure" a workers’ compensation settlement and also account for attorney fees. Some sort of addendum should be included with settlement documents filed with the Bureau of Workers’ compensation or the Industrial Commission.

The better practice is to actually include appropriate language in the settlement agreement signed by the parties and filed with the BWC, and to include specific detail about what part of the settlement compensation reflects payment for medical bills, attorney fees, settlement of workers’ compensation claims and for resignation and/or for settlement of other potential claims.

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