The issue is whether or not disfigurement payments made by the State of South Carolina pursuant to the South Carolina Workers' Compensation Act (SCWC Act), S.C. CODE ANN. § 42-9-30(23) (1976), are subject to the workers' compensation offset provision in Section 224 of the Social Security Act (Act), 42 U.S.C. § 424a. Based on the relevant provisions of South Carolina and federal law regarding treatment of disfigurement payments under the Act's offset provision, it is concluded that disfigurement payments under the SCWC Act are subject to the Act's offset provision.

QUESTION PRESENTED

You asked whether the Social Security Administration (SSA) may use workers' compensation benefits for disfigurement in South Carolina to offset Social Security disability insurance benefits.

Opinion

SSA may use disfigurement payments under South Carolina workers' compensation law to offset Social Security disability insurance benefits.

BACKGROUND

An Office of Disability Programs/Office of Process Policy (ODP/OPP) workgroup is redrafting the Program Operations Manual System (POMS) sections related to workers' compensation. While SSA generally must in some cases reduce disability benefits by an amount equal to a portion of the beneficiary's state workers' compensation payments, the workgroup identified some states where this offset is inappropriate when the workers' compensation payments are based on a worker's disfigurement. The current POMS indicates Hawaii's workers' compensation payments for disfigurement do not offset SSA disability benefits. POMS DI 52120.070. A Program Circular indicates a similar exception to the general offset rule for South Carolina disfigurement payments. See Gen. Series Program Circular No. 03-0042 (Feb. 4, 2003). The Program Circular states South Carolina disfigurement payments are "taken off the top" of a lump sum award before the amount is prorated and offset against Social Security disability insurance payments. We cannot verify the legal basis for the Program Circular conclusion that South Carolina disfigurement payments do not offset Social Security disability insurance payments. However, we strongly suspect the exception is based on a South Carolina statute that has been superseded.

Until 2002, SSA included Oklahoma among the states where offset for disfigurement payments should not occur. In 2002, the Office of the Regional Chief Counsel (ORCC), Region V, drafted an opinion indicating that Oklahoma disfigurement payments could offset SSA disability benefits. The ORCC said "any exceptions to the rule [need to] be specifically citable. In the absence of citable authority for the Hawaii exception, the POMS [for Oklahoma] might need to be adjusted to reflect Agency policy. . . ." SSA removed from the Oklahoma POMS section language indicating workers' compensation benefits for disfigurement in Oklahoma could not offset SSA benefits. See POMS DI 52120.200 (currently silent as to offset). The background we were provided indicates that the Office of Program Law concurred with Region V ORCC that disfigurement payments may offset disability insurance benefits unless a "specifically citable" legal authority indicates the contrary position. The ODP/OPP workgroup referred this matter to us to determine the legal authority for the current position for South Carolina.

DISCUSSION

The Social Security Act ("Act") provides certain individuals are eligible for federal disability benefits. See Act § 223(a), 42 U.S.C. § 423(a). Where an individual receives both Social Security disability insurance benefits and state payments for disability, however, the Act limits the amount of benefits the individual may collect. See Act § 224, 42 U.S.C. § 424a. Specifically, SSA must in some cases reduce the disability benefits otherwise due an individual who is entitled to "periodic benefits on account of his or her total or partial disability" under a state workers' compensation law. Act § 224(a)(2); see 20 C.F.R. §§ 404.401(a)(4), 404.408(a) (2007). SSA reduces the beneficiary's benefits to the extent the combined monthly benefits under the Act and the state workers' compensation program exceed eighty percent of the recipient's average pre-disability earnings. See 42 U.S.C. § 424a(a)(5); 20 C.F.R. § 404.408(c) (2007). Congress instituted this "offset" provision to ensure claimants did not receive income in excess of their pre-disability earnings, and thereby reduce their incentive to return to work. See Richardson v. Belcher, 404 U.S. 78, 83-84 (1971); Laurenco v. Bowen, 867 F.2d 609 (Table), No. 88-2170, 1989 WL 5430, at *1 (4th Cir. Jan. 21, 1989). The Act contemplates that periodic workers' compensation payments, as well as periodic payments that have been commuted to a lump sum award, are subject to the offset provision. See Act § 224(a), (b).

The only exception to offsetting workers' compensation specified in the Act or regulations applies where the involved state offsets disability insurance benefits paid under our program against its workers' compensation award. See Act § 224(d); 20 C.F.R. § 404.408(b) (2007). Workers' compensation disfigurement payments in South Carolina (and the other states mentioned) do not fall within this explicit exception. We surmise, therefore, that the disfigurement-payment exception derived from the Act's definition of workers' compensation payments subject to offset. See Act 224(a)(2). A review of the history of South Carolina's law regarding disfigurement suggests that such payments were originally not based on total or partial disability. One might have concluded, therefore, that they were not "periodic benefits on account of [a beneficiary's] total or partial disability" under a state workers' compensation law. See id.

South Carolina's current Compensation Act provides for three methods to obtain workers' compensation payments: 1) total disability, S.C. CODE ANN. § 42-9-10 (1976); 2) partial disability, S.C. CODE ANN. § 42-9-20 (1976); and 3) scheduled disability, S.C. CODE ANN. § 42-9-30 (1976). South Carolina reveals an evolution in its concept of disfigurement payments. See S.C. COMPENSATION ACT § 31(t), 39 S.C. STAT. AT LARGE, p. 1247 (1935); S.C. CODE § 7035-34(t) (1942); S.C. CODE § 72-153 (1952); S.C. CODE § 72-153 (1962). Originally, South Carolina law provided for compensation for "serious facial disfigurement." S.C. COMPENSATION ACT § 31(t), 39 S.C. STAT. AT LARGE, p. 1247 (1935). "Disfigurement" was defined as "that which impairs or injures the beauty, symmetry, or appearance of a person or thing; that which renders unsightly, misshapen, or imperfect, or deforms in some manner." Poole v. Saxon Mills, 6 S.E. 2d 761, 764 (S.C. 1940). The word "serious" was "[u]sed in the sense that the disfigurement should be much more than slight, and partaking of permanency." Id.

In 1941, the South Carolina legislature expanded disfigurement recovery in its Compensation Act to include "serious bodily disfigurement." S.C. COMPENSATION ACT § 31(t), 42 S.C. STAT. AT LARGE, p. 221, § 1 (1941), codified at S.C. CODE § 7035-34(t) (1942). Despite this extension, the Supreme Court of South Carolina found that "[t]he right to compensation for serious facial or head disfigurement was not dependant on diminution of earning capacity, as in serious bodily disfigurement. If the condition exists, compensation under the [South Carolina Compensation] Act is mandatory." Ferguson v. State Hwy. Dept., 15 S.E. 2d 775, 778 (S.C. 1941). Although less than fully clear, the Ferguson decision suggested that a claimant must show a loss of earnings capacity to recover for bodily disfigurement. See 15 S.E. 2d at 778.

South Carolina law remained relatively unchanged through subsequent revisions. See S.C. CODE § 72-153 (1952); S.C. CODE § 72-153 (1962). Through the years, the South Carolina Supreme Court held in 1949 that an award for body disfigurement, that is for loss of or serious or permanent injury to an organ or body member, need not impair the appearance of the claimant. See Cagle v. Clinton Cotton Mills, 56 S.E. 2d 747, 748 (S.C. 1949). However, the South Carolina Supreme Court reversed its holding in C~ by finding that disfigurement of the body connoted appearance. See Bowen v. Chiquola Mfg. Co., 120 S.E. 2d 99, 104 (S.C. 1961) (concurring with the result in C~ but finding that its basis should have been facial disfigurement rather than because of loss of a member or organ of the body); accord Smith v. Daniel Const. Co., 169 S.E.2d 767, 769 (S.C. 1969) (confirming that B~ "rejected and overruled" the holding in C~ while also holding that an award for loss of spleen and a second award for disfiguring scar at the surgical site was incorrect -- the award for disfigurement necessarily encompassed all disfigurement from the injury). Moreover, under the 1952 South Carolina Workers' Compensation Act, a claimant's recovery is limited to the scheduled amount, even if that injury results in his total and permanent incapacitation from labor. See Singleton v. Young Lumber Co., 114 S.E.2d 837, 846 (S.C. 1960) (holding that the Industrial Commission was incorrect in awarding compensation under section 72-151 for a total disability, when the claimant's injury affected only his leg). In such an instance, the correct award should have been under section 72-153, for a scheduled injury. See id. However, the Singleton court recognized that if a claimant's injury and recovery to one limb was compounded by another injury, he or she could recover under the permanent-total-disability section. See id. (citing Globe Indem. Co. v. Brooks, 67 S.E.2d 176, 178 (Ga. App. 1951) (holding that although the claimant suffered disability to a specific limb, which would have entitled him to compensation for a lesser maximum period, that injury was superadded so as to affect other portions of his body and entitle him to an award for total disability). In such a case, the S~ court noted with favor that a claimant may obtain an award for total disability, even though one or more of his or her injuries was ordinarily recoverable as a scheduled loss. See S~, 114 S.E.2d at 845-46.

Disfigurement is currently among the subsections of South Carolina's scheduled disability provisions. See S.C. CODE ANN. § 42-9-30(23) (1976). An individual claiming loss under South Carolina's "schedule of period of disability and compensation, [including disfigurement,] S.C. CODE ANN. § 42-9-30 (1976), did not need to show loss of earnings, as is required for loss under the general disability statutes." Bateman v. Town & Country Furniture Co., 336 S.E.2d 890, 891 (S.C. App. 1985) (citing cases). In such cases, a claimant need not "show" a loss of earnings when claiming a scheduled loss because the legislature presumed the claimant has a loss of earnings capacity corresponding to the scheduled amount and based on the degree of loss. See Lyles v. Quantum Chem. Co., 434 S.E.2d 292, 295 (S.C. App. 1993) (citing B~); see also W~, 580 S.E.2d at 102 (stating that loss of earnings is presumed for scheduled losses).

South Carolina's current law on disfigurement compensation states "[i]n cases included in the following schedule, the disability in each case is considered to continue for the period specified and the compensation paid for the injury as specified: . . ."

(23) proper and equitable benefits must be paid for serious permanent disfigurement of the face, head, neck, or other area normally exposed in employment, not to exceed fifty weeks. Where benefits are paid or payable for injury to or loss of a particular member or organ under other provisions of this title, additional payments must not be paid under this item, except that disfigurement also includes compensation for serious burn scar or keloid scars on the body resulting from injuries, in addition to any other compensation.

S.C. CODE ANN. § 42-9-30(23) (1976). The last sentence of this provision disallows, except in very limited circumstances, collecting both for disfigurement and another scheduled loss. See S.C. CODE ANN. § 42-9-30(23) (1976).

This history of South Carolina's law on disfigurement payments within its Compensation Act suggests the basis underlying the earlier SSA finding that such payments in South Carolina would not offset Social Security disability insurance benefits. Historically, disfigurement payments were distinct from payments for partial or total disability. However, because facial disfigurement payments are now combined with bodily disfigurement and organ loss into one of many provisions within South Carolina's scheduled losses for which loss of earnings capacity is presumed, these payments can result in an offset against SSA disability benefits. Indeed, dicta in the L~ and W~ decisions suggest that while a claimant need not prove a loss of earnings capacity for a scheduled loss, the legislature has presumed scheduled losses include a component for loss of earnings capacity. See W~, 580 S.E.2d at 102; L~, 434 S.E. 2d at 295. While a claimant is not required to "show" a loss of earnings when claiming a scheduled loss, the payment indicated on the schedule would include, at least in part, payment for lost earnings capacity. Furthermore, no distinction has been made after 1976 that this presumption of lost earnings capacity applies only to bodily disfigurement or other scheduled bodily loss. South Carolina appears to presume lost earnings capacity as a component of all scheduled losses, including disfigurement losses. The L~ and W~ decisions were subsequent to F~, which suggested that a claimant must show diminution of earning capacity when claiming serious bodily disfigurement. See 15 S.E.2d at 778. In light of these later decisions, it seems that this dicta in F~ is no longer indicative of South Carolina's law on this issue.

We conclude that South Carolina payments for disfigurement should be offset against SSA disability payments. The same should hold true for any compensation award in South Carolina under its scheduled loss provisions. This offset is consistent with the plain language of the Act requiring reduction of an individual's Social Security disability insurance benefits where he or she is entitled to "periodic benefits on account of his or her total or partial disability" under a state workers' compensation law. See Act 224(a)(2).

CONCLUSION

For the reasons stated above, we believe SSA should consider South Carolina among the majority of the states and should generally offset disfigurement and other scheduled loss workers' compensation payments.

Very truly yours,

Mary A. S~

Regional Chief Counsel

_______________________

Jerome M. A~

Assistant Regional Counsel

This opinion concludes that the South Carolina Workers' Compensation Commission erred in calculating the number holder's life expectancy and did not properly apply S. C. Code Ann. §19-1-150. Additionally, we believe that in determining the rate at which a beneficiary's social security disability benefit should be offset due to a lump sum settlement agreement, the Commissioner, absent explicit evidence that the lump sum rate represents a stream of payments over the individual's remaining lifetime, is not bound by the terms of the settlement. We believe the Agency should disregard the specified rate where, as here, it is illusory and has the effect of circumventing the workers' compensation offset provisions of section 224a of the Act, 42 U.S.C. § 424a.

QUESTION

You have asked whether the life expectancy determination in the workers' compensation case of Heyward S~, number holder (NH), was excessive.

ANSWER

For the reasons set forth below, we conclude that the determination of NH's life expectancy was incorrect under South Carolina law and also excessive and contrary to section 224 of the Social Security Act (Act), 42 U.S.C. § 424a.

BACKGROUND

The evidence provided indicates NH reached a compromise settlement with his employer through the South Carolina Workers' Compensation Commission (SCWCC) in his workers' compensation case. NH was rated as having a 28% impairment to his spine. As part of the settlement, NH's employer agreed to pay NH a sum of $140,000. The parties agreed the sum would include attorney's fees and costs and $93,055.34 over NH's life expectancy of 57 years at the rate of $31.40 per week commencing July 30, 2006, purportedly calculated pursuant to S.C. CODE ANN. §§ 19-1-150 and 42-9-10; the cases of Utica Mohawk Mills v. Orr, 87 S.E. 2d 589 (1955); S~ v. B~, 837 F.2d 135 (3d Cir. 1988); and Lemire v. Secretary of Heath and Human Services, 682 F. Supp. 1367 (N.D. Cal. 1986); and Program Operations Manual System (POMS) DI 52150.065(C)(4). In addition to the settlement amount, the parties agreed NH would receive $29,042 to release his employer from all liability for future medical care and attention. The evidence provided indicates NH was 57 years old at the time of the settlement; so the SCWCC's finding of a life expectancy of another 57 years would give NH a total life expectancy of 114 years.

DISCUSSION

1. Federal Statutory and Regulatory Standard for Reduction of Disability Insurance Benefits based on Receipt of Workers' Compensation Benefits.

The Act provides for benefit payments to otherwise eligible individuals who are "disabled" as defined in the Act. Act § 223(a), 42 U.S.C. § 423(a). The Act, however, imposes limits on the amount of benefits an individual may collect from the combination of both Social Security benefits and state workers' compensation benefits. Act § 224(a)(2)-(6), 42 U.S.C. § 424a(a)(2)-(6). According to the statutory formula, if the total of the Social Security and workers' compensation monthly benefits awarded exceeds eighty percent of an individual's "average current earnings," the Agency will reduce the claimant's Social Security benefits by the amount total benefits exceed the eighty percent limit. Act § 224(a)(5), 42 U.S.C. § 424(a)(5); see also 20 C.F.R. § 404.408(c)(i) (2006). As the Supreme Court has explained, "by limiting total state and federal benefits to eighty percent of the employee's average earnings prior to the disability, [section 224 of the Act] reduce[s] the duplication inherent in the programs and at the same time allow[s] a supplement to workmen's compensation where the state payments [are] inadequate." R~ v. B~, 404 U.S. 78, 83 (1971).

As a result of these offset provisions, when a disability beneficiary receives a lump-sum settlement that is a commutation of, or substitute for, periodic workers' compensation benefits, the Act requires the Agency to prorate that lump-sum payment. Act § 224(b), 42 U.S.C. § 424a(b), 20 C.F.R. § 404.408(g). The Act instructs the Agency to prorate the lump-sum payment in a manner that "will approximate as nearly as practicable the reduction" that would have been applied had the beneficiary received his or her workers' compensation payments on a weekly or monthly basis. Id.. To accomplish this, the Agency must determine the amount of workers' compensation payments the beneficiary would have received weekly or monthly had he not opted for a lump-sum payment, prorate the lump-sum award using the prorated amount, and impose the statutorily prescribed offset accordingly. To guide Agency adjudicators, the longstanding policy in the POMS sets forth a three-tiered set of priorities for prorating state lump-sum workers' compensation awards at an established rate. In priority order, the Agency is to prorate the award at:

1. The rate specified in the lump-sum award.

2. The latest periodic rate paid prior to the lump-sum, if no rate is specified in the lump-sum award.

3. The state's maximum workers' compensation in effect in the year of the injury/illness, if no rate is specified in the award and there was no preceding periodic benefit.

POMS DI 52150.065. However, the Agency has for some time been aware that attorneys have seized upon the opportunity offered by these POMS instructions to insert artificially low rates in settlement agreements to lessen or perhaps avoid entirely the reduction that otherwise would be required by section 224 of the Act. While the Agency's long-standing interpretation of section 224 has been that the Act requires it to look to state law to determine what rate would have been paid had the workers' compensation been made on a periodic basis, see § 224(a)(b) of the Act, 42 U.S.C. § 424a(a)(b); 20 C.F.R. § 404.408(g) (2006), the Act still places the ultimate responsibility for determining the offset rate in the hands of the Commissioner. See B~ v. A~, 150 F.3d 177, 181-182 (2nd Cir. 1998).

2. South Carolina Statutory Standards.

The South Carolina Worker's Compensation Act states:

When the incapacity for work resulting from an injury is total, the employer shall pay, or cause to be paid, as provided in this chapter, to the injured employee during the total disability a weekly compensation equal to sixty-six and two-thirds percent of his average weekly wages, but not less than seventy-five dollars a week so long as this amount does not exceed his average weekly salary; if this amount does exceed his average weekly salary, the injured employee may not be paid, each week, less than his average weekly salary. The injured employee may not be paid more each week than the average weekly wage in this State for the preceding fiscal year. In no case may the period covered by the compensation exceed five hundred weeks except as hereinafter provided.

Notwithstanding the five hundred week limitation prescribed in this section or elsewhere in this title, any person determined to be totally and permanently disabled who as a result of a compensable injury is a paraplegic, a quadriplegic, or who suffered physical brain damage is not subject to the five hundred week limitation and shall receive the benefits for life.

Notwithstanding the provisions § 42-9-301 no total lump sum payment may be ordered by the commission in any case under this section where the injured person is entitled to lifetime benefits.

S.C. CODE ANN. § 42-9-10 (1976). The South Carolina Code also includes life expectancy tables and provides that:

When necessary, in a civil action or other litigation, to establish the life expectancy of a person from any period in his life, whether he is living at the time or not, the table . . . must be received in all courts and by all persons having power to determine litigation as evidence, along with other evidence as to his health, constitution, and habits, of the life expectancy of the person.

S. C. CODE ANN. § 19-1-150 (1976).

3. Analysis

As previously noted, the SCWCC's settlement order awarded NH $31.40 per week for 2964 weeks (57 years). According to the POMS, the Agency would use this proration rate specified in NH's workers' compensation settlement. See POMS DI 52150.065. However, using the amount specified in NH's workers' compensation settlement in this case would produce results contrary to the Commissioner's responsibility under the Act. In the settlement, the parties state this weekly allocation rate is based on a life expectancy of 57 years which was determined pursuant to S.C. CODE ANN. § 19-1-150. However, in reviewing this statute, we find that the SCWCC erred in calculating NH's life expectancy. The proper application of S.C.CODE. ANN. § 19-1-150 reveals that a person of NH's age of 57 actually has a life expectancy of 23.10 years. See S. C. CODE ANN. § 19-1-150. Therefore, the SCWCC's life expectancy determination was incorrect in light of the South Carolina statute relied on by the parties. NH's workers' compensation settlement did not provide any explanation for the discrepancy. In addition, the award of workers' compensation benefits over NH's lifetime appears to be contrary to the South Carolina statute and case law relied on by SCWCC. As provided in S.C. CODE ANN. § 42-9-10 (1976), the weekly payments for total disability is limited to 500 weeks, except in certain circumstances which do not appear to be present here. See Utica Mohawk Mills v. Orr, 87 S.E. 2d 589. Once again, no explanation was provided for this discrepancy. Such actions by SCWCC appear to be an attempt to circumvent section 224 of the Act and the express intent of Congress. As previously noted, the Commissioner is required by Congress to determine the proper offset rate of lump-sum workers' compensation payments, and while state law may help one understand the nature of a state's workers' compensation lump-sum award, the "ultimate responsibility for determining the offset rate is in the hands of the Commissioner, not the states," and certainly not the beneficiary or his attorney. B~, 150 F.3d at 181-182; see S~, 837 F.2d at 141 n. 8. Accordingly, because the strict application of the POMS and the use of the amount specified in NH's workers' compensation settlement would produce results contrary to the Commissioner's responsibility under the Act, the Commissioner is not bound by the terms of NH's workers' compensation settlement. Therefore, the Commissioner is not required to accept a proration rate specified in a workers' compensation settlement award which circumvents the offset required by section 224 of the Act.

CONCLUSION

The life expectancy determination by the SCWCC was incorrect. The Agency is not bound to follow the weekly allocation rate set forth in NH's settlement agreement as would be customary under step one of POMS DI52001.555(C)(4)(a).

Very truly yours,

Mary Ann S~

Regional Chief Counsel

_______________________

Simone D. P~

Assistant Regional Counsel