In this opinion, the Regional Chief Counsel (RCC) evaluates whether a class action settlement award received by an SSI recipient would be countable as income and as a resource for SSI purposes. The RCC examines several approaches to exclusion of the award and concludes that there is support for excluding the award from income based on the framework of the State of Minnesota to aid crime victims fund or as a form of tort compensation. The resource exclusion is supported based on the establishment of blocked account or conservatorship account, but a time-limited exclusion could also apply based on the framework of the State of Minnesota to aid crime victims fund.

QUESTION

You asked us to evaluate whether a class action settlement award received by SSI recipient NH (name redacted) would be countable as income and as a resource for SSI purposes.

 

SHORT ANSWER

Although the settlement award does not precisely meet the requirements for exclusion from being counted as income or a resource, we believe there is support for excluding the award. Specifically, the fund from which the award came is comparable to a fund established by the State of Minnesota to aid crime victims, which would make the award excludable under both the income and resource counting rules. We note, however, that the resource exclusion would only apply for the first nine months after receipt of the funds. Alternatively, we believe there is also legal support for finding the award is not income or a resource for SSI purposes. First, the award may be considered tort compensation and, as such, does not constitute income. Second, the award may be construed as a blocked account or conservatorship account that is not a resource under the facts of this case.

 

BACKGROUND

NH was a class member in a legal action filed in 2009 against the State of Minnesota Department of Human Services (DHS), the Minnesota Extended Treatment Options (METO) program, and certain individual named defendants in the U.S. District Court for the District of Minnesota (Court).^[1] The named plaintiffs filed on behalf of their sons, who were residents at METO, a residential facility for persons with developmental disabilities. See Ombudsman for Mental Health and Development Disabilities, “Just Plain Wrong”: Excessive Use of Restraints and Law Enforcement Style Devices on Developmentally Disabled Residents at the Minnesota Department of Human Services Minnesota Extended Treatment Program (METO) Cambridge, MN iii, 11 (Sept. 2008), https://mn.gov/omhdd/assets/Just%20Plain%20Wrong%20%20%20Use%20of%20Restraints%20at%20METO%20File_tcm23-82019.pdf [hereinafter Ombudsman Report]. In their complaint, the plaintiffs alleged that the State and DHS unlawfully and unconstitutionally permitted METO to routinely impose seclusion and mechanical restraints upon residents. See Stipulated Class Action Settlement Agreement 2, http://mn.gov/mnddc/meto_settlement/documents/METO_Settlement_Agreement_6-23-11.pdf [hereinafter SA]. The lawsuit was based in part on a report by the Office of the Ombudsman for Mental Health and Developmental Disabilities, which found that METO staff regularly subjected residents to abusive and improper seclusion, use of mechanical restraints including metal handcuffs and leg hobbles, and placement in a face-down prone position, as a means of behavior modification, convenience, and retaliation for behavior resulting from their disabilities. See Ombudsman Report at 15-18.

On December 5, 2011, the Court issued an Order granting final approval of a stipulated class action settlement agreement in the matter. See Final Approval Order for Stipulated Class Action Settlement Agreement, http://mn.gov/mnddc/meto_settlement/documents/METO_Final_Approval_Order.pdf [hereinafter Final Approval Order]; SA. The settlement amount per the agreement was $3,000,000.00, which the Court reduced to $2,976,400.00 and directed to be paid in its entirety by the defendants into the settlement class counsel”s trust account. Final Approval Order ¶ 4. The settlement agreement established a procedure by which apportionment of individual class member settlement amounts would be based in part on “the number of documented times a Class Member was ‘Restrained/Secluded.’”^[2] SA pp. 31-32. Additionally, the settlement agreement gave the Court the authority, when reviewing and approving the submitted claims, to consider other factors in the interest of justice, including but not limited to “‘demonstrated serious physical injury.’” “Id”. at p. 32. The agreement further provided that any apportioned award of $3,000.00 or more was to be deposited with the Court. SA p. 34. In turn, before releasing the funds, the Court would “ascertain whether the class member or legal guardian ha[d] taken appropriate steps to safeguard eligibility for government benefits satisfactory to the Court including consideration of financial accounting and estate or trust planning issues involved”. Id. The express purpose of this step was to “further ensure that class members [did] not lose eligibility for any government benefits to which they may be entitled[.]” Id.

In its Order, the Court

f[ound] and conclude[d] that, both legally and as a matter of equity and fairness, the individual settlement amount being awarded to each individual class member is not a resource for eligibility purposes and, consequently, an individual settlement amount will not affect, in any way, a Class Member’s eligibility for disability benefits or other related benefits, or otherwise jeopardize the Class Member’s benefits or programming.

Final Approval Order ¶ 7. The Court went on to state that if any agency, entity, or individual, private or public, were to dispute the Court’s jurisdiction to make the above finding, both as a matter of law and equity, or were to contend that a settlement award should affect a class member’s eligibility, the agency or entity was required to file a motion and come before the Court to address the claim. Id.

Likewise, in its January 30, 2012 Order approving the individual settlement claims, the Court stated that the apportioned settlement amounts “are not deemed income, a tax liability, or a resource to any Class Member” and that to treat the individual awards as such “would be contrary to the December 5[, 2011] Order and the intent of all parties to the Settlement Agreement.” January 30, 2012 Order ¶ 2 n.2. The Court reemphasized that “if any individuals, agencies, programs, or entities take a contrary position, they must proceed by motion to this Court[.]”Id. The Court further instructed each Class Member or his or her legal guardian to submit a letter to the Court describing the steps taken to safeguard the Class Member’s funds and eligibility for government benefits. Id. ¶ 3.

Subsequently, in response to letters received by various Class Members and concerns expressed therein about settlement funds possibly affecting eligibility for Social Security disability benefits, the Court issued an Order on February 14, 2012, in which it emphasized that the settlement funds were to used solely to improve Class Members’ quality of life and were not to be used for paying costs of care. See February 14, 2012 Order ¶ 1, http://mn.gov/mnddc/meto_settlement/documents/09cv1775-Doc141.pdf. In an accompanying memorandum, the Court reiterated that point and explained that the Class members were “being compensated for what they have been subjected to and the manner in which they have been treated or mistreated.”Id. at pp. 6-7.

According to a letter written by class counsel, in or about April 2012, the Court and class counsel received letters from the U.S. Attorney’s Office expressing SSA’s position that the Court’s orders notwithstanding, the issue of whether settlement awards were income or a countable resource would have to be determined on a case-by-case basis. The Court held a status conference on April 20, 2012, at which attorneys from SSA and the U.S. Attorney’s Office appeared via telephone.

Three days later, the Court issued another Order in which it stated:

Solely to the extent necessary to maintain Class Members’ eligibility for governmental benefits, including but not limited to Social Security benefits, the apportioned settlement funds to each Class Member shall be considered a “blocked account”or “conservatorship account” consistent with applicable Social Security regulations, applicable Social Security Administration guidance, including Program Operating Manual System (“POMS”) SI 01140.215 . . . and other applicable law[.]

April 23, 2012 Order ¶ 1, http://mn.gov/mnddc/meto_settlement/documents/09cv1775ord042312.pdf. The Court indicated that its prior Orders, which precluded the use of settlement funds for costs of care, unpaid bills or rent and noted that the funds were not a resource, were “consistent with the use of a conservatorship account or blocked account, and mean[t] that the Settlement Funds shall not be available or used for ‘support of maintenance,’ including expenditures for food, clothing, or shelter.” Id. The Court further stated that it had “apportioned the Settlement Funds to Class Members based on documented incidents of restraint or seclusion, including personal injuries sustained, and for the deprivation of Class Members’ civil and personal rights. As such, the settlement amounts are not income to Class Members.” Id. ¶ 3. In doing so, the Court relied on case law finding that tort compensation was excluded from income for SSI purposes. Id.

Subsequently, the Court issued an Order dated May 22, 2012, instructing the Minnesota DHS to furnish SSA with a list of Class Members receiving awards, their Social Security numbers, and the amounts received; the Court specified that SSA was to use that information to ensure that the settlement funds were not a resource. See May 22, 2012 Order ¶¶ 1-2.

NH enrolled as a class member and Trillium Services, Inc. ^[3](Trillium) assisted him with managing his settlement award. On March 13, 2012, NH was awarded $41,800.00 from the settlement agreement. His settlement check was given to Trillium, which deposited the funds in a checking account. It appears that SSA first became aware of NH’s settlement award during an SSI redetermination in December 2019.

 

DISCUSSION

1. A strict reading of the Social Security Act and regulations indicates the settlement award should be counted towards the SSI income and resource limitations.

To be eligible for SSI benefits, an individual’s (and spouse’s, if any) income and resources must not exceed the statutory limit. See 42 U.S.C. § 1382(a); see also 20 C.F.R. § 416.202(c), (d). Income is anything that an individual receives in cash or in kind that he can use to meet his needs for food and shelter. See 20 C.F.R. § 416.1102. A resource is cash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his support and maintenance. See 20 C.F.R. § 416.1201(a). Under the SSI program, all income and resources are generally countable unless excluded from consideration by statute. See 42 U.S.C. § 1382(a).

As relevant here, an award is a type of unearned income. See 42 U.S.C. § 1382a(a)(2)(C). The agency’s regulation set forth at 20 C.F.R. § 416.1121(f) defines an award as “usually something you receive as the result of a decision by a court, board of arbitration, or the like.” Items received in cash or in kind during a month are evaluated first under the income counting rules and, if retained until the following month, are subject to the resource counting rules. See 20 C.F.R. § 416.1207(d).

42 U.S.C. § 1382a(b) itemizes a list of specific exclusions to the statute’s SSI income counting requirements. The corresponding regulation at 20 C.F.R. § 416.1124 reflects the unearned income exclusions of section 1382a(b) and provides for exclusions mandated by other Federal laws. Similarly, 42 U.S.C. § 1382b(a) and its implementing regulation at 20 C.F.R. § 416.1210 provide for exclusions from the SSI resource counting requirements. In particular, the regulations include an exclusion from unearned income for “[p]ayments received by you from a fund established by a State to aid victims of crime.” 20 C.F.R. § 416.1124(c)(17). Likewise, the regulations provide an exclusion from resources for “[p]ayments received as compensation for expenses incurred or losses suffered as a result of a crime as provided in § 416.1229.” 20 C.F.R. § 416.1210(p). Under Section 416.1229, in determining the resources of an individual, any amount received from a fund established by a State to aid victims of crime is excluded from resources for a period of nine months beginning with the month following the month of receipt. See 20 C.F.R. § 416.1229(a). To be excluded from resources under this section, the individual “must demonstrate that any amount received was compensation for expenses incurred or losses suffered as the result of a crime.” 20 C.F.R. § 416.1229(b).

Here, the funds in question meet the above regulatory definition of an “award,” because they were approved and awarded to NH by the Court. Thus, the funds constitute unearned income for SSI purposes. Consequently, unless they are excluded, they would be counted as income in the month that he received them (March 2012), 20 C.F.R. § 416.1123(a), and any amount retained beyond that month would be counted as a resource as of the beginning of each subsequent month. 20 C.F.R. § 416.1207(a), (d).

NH’s settlement award does not fall squarely within any of the exclusions from income or resources authorized by Congress, including the exceptions under Sections 416.1124(c)(17) and 416.1210(p) quoted above. First, as discussed below, both the victims’ compensation income and resource exclusions apply only to payments from funds established to aid crime victims. See 20 C.F.R. §§ 416.1124(c)(17), 416.1210(p), 416.1229. Here, however, the fund was not established in response to a crime or crimes, but rather pursuant to a settlement in a civil class action. Second, the resource exclusion requires the individual to show that the amount received was compensation for “expenses incurred or losses suffered as the result of a crime.” Here, NH has not produced such evidence and the Court’s Orders do not directly link the award to compensation for expenses or financial losses. Therefore, a strict reading of the statute and regulations would seem to require counting the class action settlement awards as income and resources for SSI purposes.

 

2. There is support for excluding the settlement award under the victims’ compensation income and resource exclusions.

Notwithstanding the foregoing, we believe that there is legal support for excluding NH’s award from income and resource counting. We believe that a broader interpretation of the statute and regulations is appropriate here, because the settlement award is consistent with the policy and restitutionary nature of the victims’ compensation exclusions discussed above.

A. The “Victims of Crime” Requirement

Both the income and resource exclusions apply to payments received from a fund established by a State to aid victims of crime. See 20 C.F.R. §§ 416.1124(c)(17), 416.1210(p), 416.1229. As stated above, NH’s settlement award came from a fund established by the State of Minnesota. But the fund was not established specifically in response to a crime per se; rather, it was pursuant to a settlement in a civil class action. However, we believe it would be inequitable to count the settlement awards as income or resources based on that technicality alone.

We believe the objectives of the settlement award are analogous to those considered under the state victims’ compensation exclusions considered by sections 416.1124(c)(17) and 416.1210(p). For example, the Minnesota Crime Victims Reparations Board (Board), established under the Minnesota Crime Victims Reparations Act (codified at Minn. Stat. §§ 611A.51-611A.68), is a program established to “help victims with their financial losses and aid their recovery from a violent crime.” Minn. Dep’t of Public Safety, Minnesota Crime Victims Reparations Board,https://dps.mn.gov/divisions/ojp/help-for-crime-victims/Pages/crime-victims-reparations.aspx (last visited Apr. 23, 2020). The Board’s mission is to “help crime victims and their family members recover their health and economic stability by providing compensation for losses incurred as a direct result of a crime.” Minn. Legislative Reference Library, Crime Victims Reparations Board,https://www.leg.state.mn.us/lrl/agencies/detail?AgencyID=336 (last visited Apr. 23, 2020).

Similarly, the Court stated that the Class Members, in receiving portions of the class settlement, were “being compensated for what they have been subjected to and the manner in which they have been treated or mistreated.” April 23, 2012 Order ¶ 3. The Court additionally specified that it was apportioning the awards “based on documented incidents of restraint or seclusion, including personal injuries sustained, and for the deprivation of Class Members’ civil and personal rights.” Id. Thus, both funds — those awarded by the Board and those awarded by the Court — are intended to compensate recipients financially for harm suffered. In NH’s case, his settlement award was based on documented instances of seclusion and/or restraint he was subjected to by METO staff, and the amount he received ($41,800.00) suggests that he had been so subjected at least 200 times. See SA pp. 2, 32.

B. Additional Resource Exclusion Requirement

The resource exclusion for victims’ compensation payments under 20 C.F.R. § 416.1210(p) has an additional requirement. Specifically, it requires the individual to demonstrate that the amount received was compensation for expenses incurred or losses suffered as the result of a crime. See 20 C.F.R. § 416.1229(b). Here, NH has not offered evidence that the settlement award related to specific expenses or losses that he suffered, as required under the resource exclusion. However, as discussed above, METO staff allegedly subjected NH, a developmentally disabled individual, to hundreds of instances of seclusion and/or restraint. Such mistreatment could have reasonably resulted in the need for NH or his family to incur expenses for legal fees, medical bills, and/or mental health treatment. Thus, we believe that you could reasonably find that the settlement award meets the resource exclusion requirements.

C. Previous OGC opinions support excluding the settlement award even though it does not precisely match the requirements for exclusion.

Past OGC opinions provide support for excluding NH’s settlement funds from income and resource counting, despite the fact that the funds do not meet the precise statutory or regulatory requirements for exclusion. For example, OGC opined that there was support for excluding payments made by the City of Chicago from its Reparations Fund for Burge Torture Victims. See Memorandum from Reg’l Chief Counsel, Chicago, to Assistant Reg’l Comm’r-MOS, Chicago, Whether Payments from the Reparations Fund for Burge Torture Victims Should Be Excluded from Income or Resources (July 25, 2016). Although the fund in question was established by a city rather than by a State, it was intended to provide assistance to victims of crimes, which was in accordance with the purpose of the Illinois Crime Victims Compensation Act. See id. at 4. Additionally, although the recipient had not offered evidence that the payment he received was related to specific expenses or financial losses incurred, he reasonably could have incurred legal fees, lost wages, and costs for medical or mental health treatment as a result of the mistreatment he had suffered. See id.

Similarly, in another opinion OGC opined that there was some support for excluding payments made pursuant to the Redress Agreement between the Government of Canada and the National Association of Japanese Canadians. See Memorandum from Chief Attorney to Office of SSI Div. of Program Requirements Policy, Treatment of Canadian Reparations Payments to Individuals of Japanese Ancestry (July 12, 1991). At that time, SSA had no specific exclusion for such payments to Japanese Canadians, although analogous payments from the United States government to Japanese Americans were excludable. OGC noted that “Although Congress focused on the actions taken by the U.S. Government against these individuals , we believe it would be reasonable for the Agency to assume that Congress would have the same concern for individuals who suffered by similar Canadian actions.” Id .

Likewise, OGC opined that there was some support for a broader position of excluding various payments made by the Lower Manhattan Development Corporation after the September 11, 2001 terrorist attacks. See Memorandum from General Counsel to Deputy Comm’r for Disability and Income Security Programs, The Effects of Grants Made by the Lower Manhattan Development Corporation (“LMDC”) on the Supplemental Security Income (“SSI”) Program (February 12, 2003). Although not all of those payments met the precise exclusion requirements, we noted that a broader interpretation might be appropriate, considering the unusual circumstances surrounding the terrorist attacks. See id.

 

3. The settlement award may be considered tort compensation, which would not constitute income.

Alternatively, we believe the award would not constitute income because it serves to compensate injured parties for torts committed by METO staff. The Court highlighted the non-income nature of the settlement awards in explaining that it apportioned the settlement funds “based on documented incidents of restraint or seclusion, including personal injuries sustained, and for the deprivation of Class Members’ civil and personal rights” and that, “[a]s such, the settlement amounts [we]re not income to Class Members.” April 23, 2012 Order ¶ 3. The Court emphasized that the Class Members were “being compensated for what they ha[d] been subjected to and the manner in which they ha[d] been treated or mistreated.” Id. In doing so, the Court specifically relied on case law finding that tort compensation (including personal injury settlements and reparations payments for deprivation of personal rights) did not constitute income, either for SSI or federal tax purposes. Id.

The case law cited by the Court supports its position that the settlement awards are not income. For example, in Grunfeder v. Heckler, 748 F.2d 503, 509 (9th Cir. 1984) (en banc), the Ninth Circuit Court of Appeals held that reparations payments the German Federal Republic made to survivors of the Holocaust did not constitute countable income in determining eligibility for SSI, even though Congress had not addressed the question at that time. Noting that Congress had excluded the German government’s reparations payments from Federal income tax, the Grunfeder court found that “Congress’s reaction to the Holocaust and its recognition of the restitutionary nature of the reparations payments indicate an intent to exclude those payments from countable income for SSI purposes.” Id. at 507. Notably, in a concurring opinion, Judge Ferguson emphasized that the focus of the analysis was “on the status of the funds received. Tort compensation traditionally has been excluded from the definition of income and, unless Congress specifically states otherwise, the Social Security Act . . . should not be construed as modifying this longstanding definition. Because the reparations payments at issue here are in the nature of tort compensation . . . they neither constitute ‘income’ under the income tax laws . . . nor under the Act for purposes of determining eligibility for supplemental security income.” Id. at 510.

 

4. The settlement funds may be considered a blocked account or conservatorship account that is not a resource in NH’s case.

In addition, we believe that the checking account into which Trillium deposited NH’s settlement award could reasonably be construed as a blocked account or conservatorship account, which would not be a resource under the facts of this case. In its April 2012 order, the Court stated:

Solely to the extent necessary to maintain Class Members’ eligibility for governmental benefits, including but not limited to Social Security benefits, the apportioned settlement funds to each Class Member shall be considered a “blocked account” or “conservatorship account” consistent with applicable Social Security regulations, applicable Social Security Administration guidance, including Program Operating Manual System (“POMS”) SI 01140.215 . . . and other applicable law[.]

April 23, 2012 Order ¶ 1. A blocked account or conservatorship account is a financial account in which a person or institution has been appointed by a court to manage and preserve the assets of an individual which are held in the account. POMS SI 01140.215(A). Under agency policy, if State law requires that funds in a conservatorship account be made available for the care and maintenance of an individual, then SSA assumes, absent evidence to the contrary, that the funds are available for the individual’s support and maintenance and, therefore, are a resource. POMS SI 01140.215(B).

Here, the Regional Office informed us that NH does not have a legal guardian and that Trillium was not appointed as conservator. However, Trillium’s Director, Mr. L., wrote to the Court in February 2012 about the funds NH was to receive from the settlement, and the Court’s response to Mr. L. noted that he was “assisting NH A. Johnson in managing and protecting the funds he will be receiving from the METO Class Action settlement.” The Court stated it would honor Mr. L.’s apparent decision to place NH’s funds in a Master Pooled trust. This suggests that Trillium, although not appointed by a court, was acting in a capacity akin to a conservator. See Minn. Stat. §§ 524.5-102(3) (conservator is appointed by court to manage estate of protected person), 524.5-602(c) (conservator is appointed by court to administer property of an adult). As noted above, Trillium ultimately placed the funds awarded to NH in a checking account. Therefore, it appears that the checking account in which the funds are held may reasonably be considered a blocked account.

It does not appear that Minnesota law requires funds in a blocked account to be made available for the care and maintenance of an individual. Under Minnesota law, unless specified in the court’s order, the conservator of the estate is not required to use funds to pay expenses associated with the protected person’s support and maintenance. See Minn. Stat § 524.5-417(a) (conservator is subject to the complete control and direction of the court), (c)(1) (identifying duty to pay for “support, maintenance, and education of the protected person” as among the powers and duties of conservator that may be granted by the court); see also POMS SI CHI01140.215(B)(4). As such, any funds in a blocked account cannot be presumed to be a resource under POMS SI 01140.215(B)(1). Rather, a review of any court order related to the account is necessary to determine whether the expenditure of funds for support and maintenance is one of the conservator’s duties. POMS SI CHI01140.215(B)(4). If the court order so directs, then the funds in a blocked account should be considered accessible and countable as a resource. Id.

Here, the Court issued several orders about the use of the settlement funds, stressing repeatedly that the funds awarded to a Class Member: (a) were not to be used for any “residential costs of care” or “unidentified or unpaid bills”; (b) were instead to be used specifically to improve the Class Member’s “quality of life;” and (c) were not countable income or a resource. See Final Approval Order ¶ 7; January 30, 2012 Order ¶¶ 2 n.2, 3 n.4; February 14, 2012 Order ¶ 1; April 23, 2012 Order ¶¶ 1, 3. Indeed, the Court even specified that funds were to be considered blocked accounts or conservatorship accounts and, as such, “shall not be available or used for “support of maintenance,” including expenditures for food, clothing, or shelter.” April 23, 2012 Order ¶ 1 (emphasis added). Instead, class members were to “use their apportioned settlement amounts as a supplement to enhance the quality of their lives.” Id. Therefore, since the checking account in which NH’s settlement award was deposited may be considered a blocked account, and the funds cannot be used for support and maintenance, we believe you may reasonably find they are not a resource.^[4]

CONCLUSION

For the reasons discussed above, we believe that there is legal support for excluding NH’s settlement award from income and resource counting despite the fact that the award does not precisely match the victims’ compensation exclusion requirements. Alternatively, we believe the award reasonably may be considered tort compensation, which is not income. We also believe the account in which NH’s award is held reasonably may be considered a blocked account, and the funds in the account are not a resource because they cannot be used for support and maintenance.