QUESTION PRESENTED
You have asked us whether the Social Security Administration (Agency) is bound by
the monthly allocation rate set forth in a lump-sum workers' compensation settlement
agreement between Earl D~ (D~) and the West Virginia Worker's Compensation Committee
(WVWCC). You have also asked what specific allocation terms should be used if the
Agency is not bound by the allocation rate set forth in the settlement agreement.
SUMMARY
For the reasons stated below, we believe that the Agency is not bound by the monthly
allocation rate set forth in D~'s lump-sum workers' compensation settlement agreement.
Further, because there is no evidence of a preceding periodic benefit, the Agency
should prorate the lump-sum award at West Virginia's Workers Compensation maximum
in effect on the date of D~'s injury.
BACKGROUND
The evidence you provided indicates that D~ reached a compromise and release agreement
with the WVWCC in his workers' compensation case. As part of this agreement, the WVWCC
agreed to pay D~ a lump-sum of $100,000. In this agreement, the parties noted that
D~'s life expectancy was approximately 25 years. In light of that life expectancy
figure, the parties proposed to prorate the lump-sum "for Social Security purposes
to a monthly benefit of $115.69 through November 2014, then $876.79 a month benefit
for the remaining life expectancy of the claimant." You indicated that the proposed
allocation rate was "unusual" and would result in no offset in D~'s Social Security
benefits.
DISCUSSION
The Act provides that any person who is "disabled" as defined in the Act is eligible
to receive Social Security benefits. 42 U.S.C. § 423(a). The Act, however, imposes
limits on the amount of benefits that an individual may collect from the combination
of both federal Social Security benefits and state workers' compensation benefits.
42 U.S.C. § 424a(a)(3) (6). Specifically, if an individual is receiving both Social
Security disability benefits and state workers' compensation benefits, the Commissioner
shall reduce the Social Security benefits by the amount necessary to ensure that the
sum of the state and federal benefits does not exceed eighty percent of the individual's
prior average earnings. 42 U.S.C. § 424a(a)(5); 20 C.F.R. § 404.408.
Congress instituted these "offset" provisions because in most states the combined
benefits claimants were receiving surpassed the claimant's pre injury earnings. Freeman v. Harris, 625 F.2d 1303, 1306 (5th Cir.1980). "This was thought to cause two evils: first,
it reduced a worker's incentive to return to the workplace and hence impeded rehabilitative
efforts; and second, it created fears that the duplication of benefits would lead
to an erosion of state workers' compensation programs." Id. (citing Hearings on H.R. 6675 Before the Senate Comm. on Finance, 89th Cong., 1st Sess. 151, 252, 259, 366,
540, 738 40, 892 97, 949, 990 (1965)). 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 workmens' compensation
where the state payments [are] inadequate." Richardson v. Belcher, 404 U.S. 78, 83 (1971).
As a result of these offset provisions, when a beneficiary receives a lump-sum payment
that is a commutation of, or a substitute for, periodic benefits, the Act requires
the Commissioner to prorate that lump-sum payment. 42 U.S.C. § 424a(b). Therefore,
the first question for the Agency to consider is whether D~'s lump-sum payment is
a substitute for periodic payments. Significantly, the claimant retains the burden
of showing what part of the lump-sum settlement, if any, is not a substitute for periodic
payments. Campbell v. Shalala, 14 F.3d 424, 428 (8th Cir. 1994) (citing Black v. Schweiker, 670 F.2d 108 (9th Cir. 1982)).
In this case, we believe that the entire lump-sum amount is a commutation of periodic
payments because there is no evidence to the contrary. Indeed, there is no evidence
in the settlement agreement that any portion of the lump-sum payment was based on
medical, legal or other related expenses. See 20 C.F.R. § 404.408(d). Moreover, D~'s desire to use a two-tiered allocation rate
over his life expectancy "for Social Security purposes" suggests that D~ was attempting
to avoid the Act's offset provision because the parties recognized that the lump-sum
settlement was a commutation of periodic payments. Accordingly, we believe that the
Act requires the Commissioner to prorate the entire lump-sum amount.
Because this is a lump-sum commutation case, the Act instructs the Commissioner to
offset the Social Security benefits at a rate that will "approximate as nearly as
practicable" the rate at which the award would have been paid on a monthly basis.
42 U.S.C. § 424a(b). Congress "has thus delegated to the Commissioner the task of
determining the proper offset rate for lump-sum or non-monthly periodic payments"
and, while state law may be helpful to 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[.]" Bubnis v. Apfel, 150 F.3d 177, 181-82 (2d Cir. 1998). See also Krysztoforski v. Chater, 55 F.3d 857, 859 (3d Cir. 1995) (holding that federal law, not state law, controlled
when determining workers' compensation offset amounts).
The Program Operation Manual System ("POMS") contains instructions on how to prorate
a lump-sum workers' compensation award. The POMS set forth a three step procedure
for prorating a state lump-sum award "at an established weekly rate." Under the POMS,
the Agency is to follow three steps in priority order:
1. The rate specified in the lump sum award ["Step 1"].
2. The periodic rate paid prior to the lump sum (if no rate is specified in the lump
sum award) ["Step 2"].
3. If [workers' compensation], the State's [workers' compensation] maximum in effect
in the year of injury. This figure can be used if no rate is specified in the award
or there was no preceding periodic benefit. It can also be used pending post adjudicative
development of the rates specified in 1 or 2 ["Step 3"].
POMS § DI 52150.065.
The Agency also addressed the issue of prorating lump-sum awards in SSR 97-3. Specifically,
the Agency stated that, based on offset provisions of the Act, case law, and Agency
policy, it was not necessarily bound by the terms of a second, or amended, stipulation
in determining whether and by what rate a disabled worker's Social Security disability
insurance benefits should be offset on account of a workers' compensation lump-sum
payment. SSR 97-3. Rather, the Agency will evaluate both the original and amended
stipulations and disregard any language which has the effect of altering the terms
in the original lump sum settlement where the terms in the amended document are "illusory"
or conflict with the terms of the first stipulation concerning the actual intent of
the parties, and where the terms in the amended document "would have the effect of
circumventing" the offset provisions of the Act. Id. The Agency reasoned that to give effect to such "illusory terms would frustrate Congress'
intent to avoid duplicate benefits." Id. The Agency did not address "the related issue of the validity of stipulated lump-sum
settlements where the original settlement contains a term purporting to prorate a
lump-sum over the life expectancy of the worker." Id.
In this case, the parties proposed to prorate the lump-sum "for Social Security purposes"
to a monthly benefit of $115.69 through November 2014, and then a monthly benefit
of $876.79 for the remaining life expectancy of D~. Based on the first step of the
prorating instructions set forth in the POMS, the Agency would appear to be bound
by the rate specified in D~'s workers' compensation lump-sum agreement. POMS § DI 52150.065.
However, applying step one of the instructions in this case, and enforcing the amount
specified in D~'s lump-sum agreement would produce results contrary to the Commissioner's
responsibility under the Act. Indeed, according to your memo, this type of allocation
rate is unusual and would result in no reduction of Social Security benefits. See also W. Va. Code Ann. § 23-4-6(d) (stating that benefits for permanent disability are
paid to the claimant at a rate of sixty-six and two-thirds percent of his average
weekly wage earnings at the time of injury, with minimum and maximum levels based
on the weekly average wage in West Virginia, until the claimant reaches the age necessary
to receive Social Security old age benefits); W. Va. Code Ann. § 23-4-18 ("Payments
may be made in the periodic installments determined by the commission in each case,
but in no event less frequently than semimonthly for any temporary award and monthly
for any permanent award"). Therefore, the two-tiered allocation rate based on the
life expectancy of D~ does not accurately represent the amount that D~ would have
received if his benefits were paid monthly. See 42 U.S.C. § 424a(b) (stating that in lump sum commutation cases, the Commissioner
must offset the Social Security disability benefits at a rate that will "approximate
as nearly as practicable" the rate at which the award would have been paid on a monthly
basis). Consequently, D~'s agreement runs counter to the expressed intent of Congress
to prevent claimants from receiving excessive benefits.
Moreover, although the settlement agreement between D~ and WVWCC does not appear to
be a second, or amended, agreement, it is reasonable to conclude that the terms regarding
the allocation rates in the settlement agreement were included for the purpose of
circumventing the offset of provisions the Act. Therefore, while SSR 97-3 does not
directly apply to this case, it appears that the terms of proration set forth in the
settlement agreement between D~ and WVWCC would violate the Agency's policy of disregarding
"illusory" terms that "would have the effect of circumventing" the offset provisions
the Act. SSR 97-3.
Accordingly, in this case, we do not believe that the Commissioner is bound by step
one of the instructions regarding proration set forth in the POMS. POMS § DI 52150.065. Therefore, the Agency should disregard the proration terms of D~'s workers' compensation
lump-sum settlement. Although the Agency relies upon the POMS for internal operating
procedures, we do not believe the POMS bind the Commissioner when following them would
be contrary to the intent of Congress. See Schweiker v. Hansen, 450 U.S. 785, 789 (1981) (holding that the POMS have "no legal force, and do []
not bind the [Commissioner]"); Parker v. Sullivan, 891 F.2d 185, 189 n. 4 (7th Cir. 1989) ("The POMS manual has no legal force and
therefore the standard cannot be controlling in this case.").
Because step one of POMS § DI 52150.065 does not apply to this case, the POMS direct the Agency to determine if the lump-sum
award could be prorated based on the periodic rate paid prior to the lump sum award.
DI 52150.065. Based on the evidence you provided, we do not believe that step two of the POMS
prorating instructions applies in this case because there is no evidence that D~ received
a periodic payment prior to the lump sum award. However, if there was evidence showing
that D~ received a periodic payment prior to the lump-sum award, we believe step two
would apply and D~'s lump-sum award should be prorated at that prior rate. POMS §
DI 52150.065.
Because we have concluded that steps one and two of POMS § DI 52150.065 do not apply in this case, we believe, based on the evidence you provided, that D~'s
lump-sum award should be prorated at West Virginia's workers' compensation maximum
in effect in the year of injury, pursuant to POMS § DI 52150.065. The maximum weekly benefits for West Virginia are set forth at POMS § DI 52150.045.
CONCLUSION
Accordingly, we believe that the Agency is not bound by the monthly allocation rate
set forth in D~'s lump-sum workers' compensation settlement agreement. Further, because
there is no evidence of a preceding periodic benefit, we believe the Agency should
prorate the lump-sum award at the rate of West Virginia's Workers Compensation maximum
in effect on the date of D~'s injury, pursuant to POMS § DI 52150.065.
Sincerely,
Donna L. C~
Regional Chief Counsel
By: __________________
Brian C. O'D~
Assistant Regional Counsel