In August 1977, the Office of the General Counsel, Region X issued a legal opinion which recommended that the Agency should not recognize Alaska's reverse offset provision. The Regional Attorney's office based its opinion upon the Alaska statute's purportedly-ambiguous language and inconsistencies with the federal offset provision. Because the Regional Attorney's office believed that these inconsistencies would make the state provision incompatible with the federal statute, they recommended ignoring the Alaska law. Based on this opinion, Program Operations Manual System (POMS) instructions were published stating Alaska WC was subject to offset.

On December 28, 2008, the Office of the General Counsel, Region X, issued an opinion which overruled the 1977 opinion, stating the previous August 9, 1977 opinion and our POMS instructions incorrectly ignore Alaska's reverse offset provision. The 2008 opinion states that, because the Alaska legislature enacted its reverse offset provision in 1977, it clearly meets the federal exemption pursuant to 42 U.S.C. § 424a(d). Based on the relevant provisions of Alaska, and federal law regarding State's reverse offset provision, it is concluded that Alaska WC is not subject to offset. However, the Office of Disability Programs requested further clarification from Region X OGC to indicate which types of Alaska WC were payable prior to February 18, 1981, since SSA recognizes only reverse offset plans in effect on or before 02/18/1981.

QUESTION

Our office received a letter from Ms. H~, an attorney, claiming that "[f]or many years, SSA deferred to Alaska's [reverse] offset provision. However, in recent years, for reasons unknown, SSA has begun taking the offset." Because Ms. H~ alleges that Alaska's reverse offset provision meets the federal requirements for exemption, she asks that we update the POMS accordingly.

Currently, section DI 52120.010(A) in the Program Operations Manual System (POMS) does not recognize the Alaska statute as a valid reverse offset provision. We address whether to update the POMS in order to recognize Alaska's reverse offset provision.

ANSWER

It is our opinion that the current POMS guidance incorrectly ignores Alaska's reverse offset provision and should be amended.

ANALYSIS

1. Applicable Federal Law

The Agency shall reduce, or "offset," a number holder's (NH) Title II disability benefits if he or she receives state workers compensation (WC) benefits. See 42 U.S.C. § 424a(a). The United States Congress enacted the Title II offset provision to create a benefits "ceiling" that prevents individuals from obtaining more than 80% of their average current earnings. See Siaperas v. Montana State Compensation Insurance Fund, 480 F.3d 1001, 1004 (9th Cir. 2007). Congress implemented the 80% limit "out of concern that workers might be discouraged from returning to work if their combined federal and state benefits exceeded 80% of their [earnings]." Id., citing Richardson v. Belcher, 404 U.S. 78, 82-83 (1971).

The Agency shall not offset Title II disability benefits if a state has already adopted a reverse offset provision enacted on or before February 18, 1981. See 42 U.S.C. § 424a(d). This exemption prevents a NH from being subject to a simultaneous federal offset and state reverse offset of his or her benefits. See S~, 480 F.3d at 1003-04. If a state has amended or expanded its reverse offset provision after February 18, 1981, then the Agency shall not recognize that methodology for purposes of calculating offsets. See 20 C.F.R. § 404.408(b)(2)(i); POMS DI § 52105.001(F)(1). In such cases, the Agency would generally recognize the original provision and ignore only the additional provision(s). See 20 C.F.R. § 404.408(b)(2)(i).

Ordinarily, the state WC reverse offset should presumptively prevail against the Act's offset unless otherwise specified. See S~, 480 F.3d at 1004-05, citing R~, 404 U.S. at 82 (explaining that a state workers' compensation program should take precedence over a federal disability insurance program if any overlap exists). There is no presumption that the Agency must adopt the calculation more favorable to the NH. A state's reverse offset may result in less total benefits to the NH when compared to the Agency's offset. See S~, 480 F.3d at 1004-05; see also Underwater Construction, Inc. v. Shirley, 884 P.2d 150, 154-55 (Alaska 1994) (recognizing that the Alaska legislature actually intended to make WC benefits more affordable to employers in Alaska by adopting a reverse offset that exceeded the federal offset). Congress did not create a minimum level of benefits that a NH must receive. See S~, 480 F.3d at 1004-05.

2. Alaska's Reverse Offset Provision

Alaska originally enacted its reverse offset provision in 1977. See AS § 23.30.225./ The relevant provision stated:

When it is determined that, in accordance with 42 U.S.C. 401 - 433, periodic disability benefits are payable to an employee or the employee's dependents for an injury for which a claim has been filed under this chapter, weekly [WC benefits] shall be offset by an amount by which the sum of (1) weekly benefits to which the employee is entitled under 42 U.S.C. 401 - 433, and (2) [WC benefits], exceeds 80 percent of the employee's average weekly wages at the time of injury.

AS § 23.30.225(b).

In August 1977, the Office of the General Counsel, Region X, Department of Health and Human Services (HHS), issued a legal opinion which recommended that the Agency - then part of HHS - should not recognize Alaska's reverse offset provision. See attached. The Regional Attorney's office based its opinion upon the Alaska statute's purportedly-ambiguous language and inconsistencies with the federal offset provision. Because the Regional Attorney's office believed that these inconsistencies would make the state provision incompatible with the federal statute, they recommended ignoring the Alaska law.

Accordingly, past POMS entries have instructed the Agency to ignore Alaska's reverse offset provision. See POMS DI 52001.202(A) ("Alaska reduces its WC due to Social Security disability insurance benefits. However, the regional attorney ruled that this is not [a recognized] reverse offset."). Additionally, the relevant POMS guidance currently states:

Alaska reduces its WC due to Social Security disability insurance benefits.

"This is not a recognized reverse offset plan.

"Offset the reduced WC rate payable [per federal guidelines].

POMS § DI 52120.010(A).

We believe that this POMS instruction incorrectly ignores Alaska's reverse offset provision. Because the Alaska legislature enacted its reverse offset provision in 1977, it clearly meets the federal exemption pursuant to 42 U.S.C. § 424a(d). Contrary to the previous Regional Attorney's opinion, the federal statute does not direct the Agency to ignore a state's reverse offset provision based on any supposed inconsistencies or ambiguities. See 42 U.S.C. § 424a(d). Rather, the federal statute explicitly exempts, without qualification, any state plan that provides for a reverse offset on or before February 18, 1981. See id.

Moreover, Congress intended to allow state reverse offset provisions to take precedence over the federal offset. See S~, 480 F.3d at 1004-05. The United States Ninth Circuit Court of Appeals has held that Congress did not intend to preempt state reverse offset provisions via section 424a. See id. The Court found no express preemption, no intent to “occupy the field” of disability benefits, and - addressing the concerns outlined in the 1977 legal opinion, above - no conflict that prevents compliance with section 424a and state law. See id. (addressing Montana's reverse offset provision).

In 1988, the Alaska legislature adopted an additional subsection to its reverse offset plan, which included further reverse offsets of WC benefits based upon a NH's receipt of pension or profit sharing plan payments:

If employer contributions to a qualified pension or profit sharing plan have been included in the determination of gross earnings and the employee is receiving pension or profit sharing payments, [WC benefits] shall be reduced by the amount paid or payable to the injured worker under the plan for any week or weeks during which compensation benefits are also payable. The amount of the reduction may not in any week exceed the increase in weekly compensation benefits brought about by the inclusion of employer contributions to a qualified pension or profit sharing plan in the determination of gross earnings.

AS § 23.30.225(c). Because this provision did not exist on or before February 18, 1981, the Agency should ignore this provision when calculating the reverse offset. See 42 U.S.C. § 424a(d); 20 C.F.R. § 404.408(b)(2)(i).

CONCLUSION

It is our opinion that the Agency should recognize Alaska's reverse offset provision that was enacted in 1977. See AS § 23.30.225(b). However, the Agency should ignore the additional provision that the Alaska legislature enacted in 1988. See AS § 23.30.225(c). The Agency should disregard the August 1977 Regional Attorney opinion, and should no longer implement the federal offset computation under 42 U.S.C. § 424a(a). Therefore, the Agency should change the current POMS guidance as Ms. H~. has requested. See POMS DI § 52120.010(A).

In August 1977, the Office of the General Counsel, Region X issued a legal opinion which recommended the Agency should not recognize Alaska's reverse offset provision. The Regional Attorney's office based its opinion upon the Alaska statute's purportedly-ambiguous language and inconsistencies with the federal offset provision. Because the Regional Attorney's office believed that these inconsistencies would make the state provision incompatible with the federal statute, they recommended ignoring the Alaska law. Based on this opinion, Program Operations Manual System (POMS) instructions were published stating Alaska WC was subject to offset.

On December 28, 2008, the Office of the General Counsel, Region X, issued an opinion which overruled the August 9, 1977 opinion. The 2008 opinion concludes that Alaska WC is not subject to offset. The Office of Disability Programs requested further clarification from Region X OGC to indicate which types of Alaska WC were payable prior to February 18, 1981, since SSA recognizes only reverse offset plans in effect on or before the aforementioned 1981 date. On April 13, 2009, Region X issued a subsequent opinion stating the State's reverse offset provision includes temporary total, temporary partial, and permanent total WC payments only, and the Agency should ignore Alaska's reverse offset provision with respect to permanent partial impairment benefits and reemployment/vocational rehabilitation benefits.

QUESTION

Our office previously determined that the agency should recognize Alaska's reverse offset provision. We now address how to implement Alaska's reverse offset provision to each of the various Workers Compensation (WC) payment types as specified both in Alaskan law and the agency's Program Operations Manual System (POMS), i.e., temporary total, temporary partial, permanent partial impairment, permanent total, and reemployment/vocational rehabilitation benefits.

ANSWER

It is our opinion that the agency should recognize Alaska's reverse offset provision when processing temporary total, temporary partial, and permanent total WC payments. However, the agency should ignore Alaska's reverse offset provision when processing permanent partial impairment and reemployment/vocational rehabilitation benefits, and use the federal offset instead.

ANALYSIS

1. Applicable Federal Law

As discussed in our previous memorandum, the agency shall ordinarily reduce, or "offset," a number holder's (NH) Title II disability benefits if he or she also receives state WC benefits. See 42 U.S.C. § 424a(a). WC benefits subject to federal offset include total or partial disability benefits, "whether or not permanent." See id. The United States Congress enacted the Title II offset provision to create a benefits "ceiling" that would prevent individuals from obtaining more than 80% of their average current earnings. See Siaperas v. Montana State Compensation Insurance Fund, 480 F.3d 1001, 1004 (9th Cir. 2007). Congress implemented the 80% limit "out of concern that workers might be discouraged from returning to work if their combined federal and state benefits exceeded 80% of their [earnings]." Id., citing Richardson v. Belcher, 404 U.S. 78, 82-83 (1971).

However, the Agency shall not offset Title II disability benefits if a state has already adopted a reverse offset provision enacted on or before February 18, 1981. See 42 U.S.C. § 424a(d). This exemption prevents a NH from being subject to a simultaneous federal offset and state reverse offset of his or her benefits. See S~, 480 F.3d at 1003-04./ If a state has not enacted a reverse offset provision by February 18, 1981, then the federal offset applies. With respect to Alaska's reverse offset provision, we previously determined that Alaska's provision met the federal criteria for offset exemption. See AS § 23.30.225(b).

The Sixth Circuit noted Congress's reason for enacting the February 18, 1981 deadline. See Merz v. Sec'y of HHS, 969 F.2d 201, 206 (6th Cir. 1992). After Congress enacted the federal offset exemption in 1965, approximately one-third of all states had shifted part of their WC burden to the agency. See M~, 969 F.2d at 206, citing Arthur L~, 4 The Law of Workmen's Compensation § 97.35(a) (1990). In 1981, the Senate Budget Committee "expressed concern in reducing federal spending in order to effectively combat high inflation and unemployment." M~, 969 F.2d at 206, citing S.Rep. No. 97-139, 97th Cong., 1st Sess. 3-4 (1981). Accordingly, Congress provided "that all states which did not then [in 1981] have in effect a reverse offset provision were forever foreclosed" from taking advantage of the federal offset exemption. See M~, 969 F.2d at 206.

Section 424a(d) states that the Agency shall not take its federal offset "if the [WC provision] under which a periodic benefit is payable provides for the [reverse offset reduction] . . . and such law or plan so provided on February 18, 1981." 42 U.S.C. § 424a(d). The section does not specify whether the various WC payment provisions in any given state must individually provide for a reverse offset, or if a general reverse offset may apply. We believe given the legislative history of section 424a(d) that the agency can properly analyze the federal offset exemption with respect to Alaska's WC payment provisions, below.

2. Alaska's Five WC Payment Types

The POMS currently recognizes five different types of Alaska WC payments: (1) temporary total, (2) temporary partial, (3) permanent partial impairment, (4) permanent total, and (5) reemployment/vocational rehabilitation benefits. See POMS DI § 52120.010(B). Again, we previously determined that Alaska's reverse offset provision met the federal criteria for offset exemption. See 42 U.S.C. § 424a(d); AS § 23.30.225(b). However, if a state has amended or expanded its reverse offset provision after February 18, 1981, then the agency shall not recognize the amended or expanded methodology for purposes of calculating offsets. See 20 C.F.R. § 404.408(b)(2)(i); POMS DI § 52105.001(F)(1). In such cases, the agency would generally recognize the original provision and ignore the additional provision(s). See 20 C.F.R. § 404.408(b)(2)(i).

The Alaska legislature has not substantively amended or expanded its reverse offset provision since 1981. However, the Alaska legislature has made several changes to each of the five WC payment types described above. Thus, we examined the legislative history regarding each of Alaska's WC payment types to determine how Alaska's reverse offset provision would apply.

a. Alaska WC Payment Types That Meet the Federal Offset Exemption: Temporary Total, Temporary Partial, and Permanent Total

The Alaska legislature enacted its provisions for temporary total, temporary partial, and permanent total WC payments in 1959. See AS §§ 23.30.180, 23.30.185, 23.30.200; and SLA 1959, ch. 193, §§ 7(1-2), 7(5). The Alaska legislature amended these provisions twice after February 1981, namely, in 1983 and 1988. See SLA 1983, ch. 70, §§ 5-6, 8; SLA 1988, ch. 79, §§ 31-33, 35-36. However, these amendments did not affect the reverse offset provision already enacted in 1977. See AS § 23.30.225(b); and SLA 1977, ch. 75, § 9./ Accordingly, we believe that these WC payment types meet the federal offset exemption, and the agency should implement Alaska's reverse offset when processing disability cases involving these WC payments.

b. Alaska WC Payment Types That Post-Date the Federal Offset Exemption: Reemployment/Vocational Rehabilitation Benefits

Alaska did not enact its provision for reemployment/vocational rehabilitation benefits until 1982. See AS § 23.30.041 (rehabilitation of injured workers); SLA 1982, ch. 93, § 3 (enacting AS § 23.30.041 on June 14, 1982, effective July 1, 1982). Accordingly, Alaska could not have provided for any reverse offset of this WC payment type on February 18, 1981, because this particular WC plan did not exist. Thus, we believe that Alaska's reverse offset provision does not apply to reemployment/vocational rehabilitation benefits, and the agency should take the federal offset against such benefits.

The legislative history to 42 U.S.C. § 424a(d) supports our position. Congress intended "that all states which did not then have in effect a reverse offset provision were forever foreclosed" from taking advantage of the federal offset exemption. See M~, 969 F.2d at 206. However, Congress did not intend to confer exclusive authority to determine benefits levels to the states that met the exemption. See, e.g., S~, 837 F.2d at 138-40 (finding that Congress did not intend to preclude any federal offset as long as a state took any reverse offset, however minimal); and Swain v. Schweiker, 676 F.2d 543, 545-46 (11th Cir. 1982) (holding that even if an offset exemption applied, the agency may deduct the federal offset until the state began to take its reverse offset). Thus, we believe that even if a state had an existing reverse offset provision, that state could not later introduce additional WC provisions subject to the reverse offset.

A literal interpretation of section 424a(d) also supports our position. The federal offset exemption only recognizes WC plans in "which a periodic benefit is payable" that also provided for a reverse offset on or before February 18, 1981. See 42 U.S.C. § 424a(d). In other words, both the reverse offset provision as well as the particular WC payment provision must have existed on or before February 18, 1981. Otherwise, a state that had a valid reverse offset provision could exploit an unintended loophole in the exemption whereby the state could establish future WC payment types not subject to federal offset. Again, federal courts have rejected interpretations of section 424a(d) that would lead to "implausible results," such as the situation described here. See S~, 837 F.2d at 138-39. Congress clearly invoked the February 18, 1981 deadline to protect the agency against states' subsequent attempts to reclaim larger shares of their compensation obligations. Accordingly, we believe that a state WC plan that did not exist before February 18, 1981 - in this case, Alaska's reemployment/vocational rehabilitation benefits - does not qualify for the federal offset exemption.

c. Alaska WC Payment Type That Was "Repealed and Reenacted" After the Federal Offset Exemption Deadline: Permanent Partial Impairment

The Alaska legislature enacted its WC provision for permanent partial impairment in 1959. See AS § 23.30.190; and SLA 1959, ch. 193, § 7(3). The legislature subsequently amended the provision in 1983, and then "repealed and reenacted" the provision in 1988. See SLA 1983, ch. 70, § 7; SLA 1988, ch. 79, § 34. Substantively, the 1983 amendment increased benefits payments to the various impairments identified in the provision. See SLA 1983, ch. 70, § 7. In 1988, the Alaska legislature removed the list of identified impairments and instituted a new compensation formula based on the individual's percentage of whole-person impairment according to the American Medical Association's guidelines. See SLA 1988, ch. 79, § 34 (". . . the compensation is $135,000 multiplied by the employee's percentage of permanent impairment of the whole person."). Subsequent amendments clarified how the WC program would implement updated American Medical Association guidelines, and also increased the base compensation rate. See SLA 1997, ch. 4, § 1; SLA 2000, ch. 105, § 17 (". . . the compensation is $177,000 multiplied by the employee's percentage of permanent impairment of the whole person.").

Admittedly, this situation presents little material distinction between amending a statute versus repealing and reenacting a new statute. As discussed above, the Alaska legislature amended its WC provisions for temporary total, temporary partial, and permanent total disability payments. These amendments merely adjusted the total compensation which individuals would receive and, in fact, increased their WC payments. See SLA 1983, ch. 70, §§ 5-6, 8; SLA 1988, ch. 79, §§ 31-33, 35-36. Similarly, the Alaska legislature essentially instituted only compensation-related changes to its permanent partial impairment provision after 1981. See SLA 1983, ch. 70, § 7; SLA 1988, ch. 79, § 34.

Presumably, the agency would have no objection to a state's intention to increase its own WC payments, even if those payments were subject to reverse offset. The agency only ignores amendments to the reverse offset provision after February 18, 1981, and not necessarily the specific WC payment plans to which the reverse offset applies. See 20 C.F.R. § 404.408(b)(2)(i); POMS DI § 52105.001(F)(1). Thus, if the Alaska legislature had simply amended the provision instead of repealing and reenacting the provision, we may have recommended that the agency utilize Alaska's reverse offset when computing permanent partial impairment benefits.

Nevertheless, we believe that repealing and reenacting its permanent partial impairment provision after 1981 disqualified Alaska from taking a reverse offset. Again, the federal offset exemption only recognizes WC plans in "which a periodic benefit is payable" that also provided for a reverse offset on or before February 18, 1981. See 42 U.S.C. § 424a(d). Thus, a state legislature's decision to repeal and reenact a statute in 1988 means that statute did not exist on February 18, 1981. Consequently, a periodic benefit that did not exist until 1988 was not payable on or before the applicable deadline.

As previously discussed, the legislative history behind the February 18, 1981 deadline showed that Congress intended to prevent states from enacting additional reverse offset provisions if they had not already taken advantage of the federal exemption. See M~, 969 F.2d at 206. We believe that Congress also intended to prevent states that already had existing reverse offset provisions from adding further WC payment types subject to reverse offset. Thus, a WC provision enacted after February 18, 1981, fails to meet section 424a(d)'s deadline.

CONCLUSION

It is our opinion that the agency should implement Alaska's reverse offset when computing temporary total, temporary partial, and permanent total WC payments. However, the agency should ignore Alaska's reverse offset when computing permanent partial impairment and reemployment/vocational rehabilitation benefits.