QUESTION
You asked whether a payment pursuant to a “sidebar” agreement between a Title II beneficiary
and her former employer should be subject to offset under the Social Security Act.
ANSWER
The payment made pursuant to a “sidebar” agreement between a Title II beneficiary
and her former employer should be subject to offset under the Social Security Act..
SUMMARY OF EVIDENCE
Ms. A was awarded disability insurance benefits in April 2009, beginning in January
2005. Ms. A had a workers’ compensation claim for an injury that occurred in February
1995, against her employer (Employer), which was self-insured. “Insurer” is Employer’s
workers’ compensation insurer.
Ms. A’s worker’s compensation claim was closed on February 6, 2009, by order of the
Washington State Department of Labor and Industries. Pursuant to that order, Ms. A
was awarded permanent partial disability in the amount of $9,000. In addition to the
permanent partial disability award, Ms. A also received two lump sum payments. The
first payment, in the amount of $20,000, was received on April 14, 2008. The second
payment, also in the amount of $20,000, was received on February 24, 2009.
The February 24th payment was made pursuant to a “sidebar” agreement between Ms. A
and Employer/Insurer. The terms of the agreement were as follows: (1) the parties
would jointly request that the State Department of Labor and Industries issue a closure
order incorporating the terms of a previous closure order as to time loss and permanent
partial disability; (2) Ms. A’s workers’ compensation claim would be closed without
further award of time loss, loss of earning power, permanent partial disability, or
pension; (3) Ms. A would make no further claim for time loss or loss of earning power;
(4) Ms. A was not eligible for vocational assistance; (5) various medical impairments
would be segregated from Ms. A’s workers’ compensation claim; (6) if Ms. A’s workers’
compensation claim is ever reopened for benefits, Employer/Insurer is entitled to
offset any amounts paid under the agreement; and (7) Employer/Insurer would pay Ms.
A $20,000 within 20 days after their receipt of the closure order.
ANALSIS
Section 224 of the Social Security Act, 42 U.S.C. § 424a, limits the combined amount
of an individual’s federal Social Security disability insurance benefits and a state
workers’ compensation benefits. Pursuant to the Act, an individual receiving both
Social Security disability benefits and state workers’ compensation benefits on account
of a disability “shall” have his or her federal benefits reduced by the amount necessary
to ensure that the sum of the combined benefits does not exceed eighty percent of
the individual’s pre-disability earnings. 42 U.S.C. § 424a(a); 20 C.F.R. § 404.408.
This statutory provision is commonly known as the workers’ compensation offset provision.
However, not all workers’ compensation benefits are subject to offset. Rather, only
“periodic benefits” arising under a state workers’ compensation program based upon
the individual’s “total or partial disability (whether or not permanent)” are subject
to offset. 42 U.S.C. § 424a(a)(2). A lump sum settlement qualifies as a periodic benefit
when it is a “substitute” for a “periodic benefit.” 42 U.S.C. § 424a(b).
We have found no Washington state court interpretations of whether payments pursuant
to a “sidebar” agreement are considered payments pursuant to the Washington state
workers’ compensation laws. The Washington Board of Industrial Appeals refused to
enforce terms of a “sidebar” agreement, finding that it was a private agreement and
was not a benefit within the meaning of the Washington Industrial Insurance Act. In
re Alta D. Paterson, http://biia.wa.gov/significantdecisions/0515987.htm. The Board reasoned that workers’ compensation benefits were enumerated in the statute
and that payments under a “sidebar” agreement were not one of those enumerated benefits.
Because their enforcement powers were limited to those enumerated benefits, they could
not enforce the terms of a “sidebar” agreement.
However, the determination of whether the workers’ compensation offset provision under
the Social Security Act applies is an issue of federal law, not state law. Campbell v. Shalala, 14 F.3d 424, 427 (8th Cir. 1994); Krysztoforski v. Sec. of Health & Human Servs., 55 F.3d 857, 859 (3d Cir. 1994). Thus, while some deference may be paid to the Board’s
interpretation of Washington workers’ compensation laws, the ultimate determination
of whether a workers’ compensation offset is appropriate under the Social Security
Act is governed by federal law. Krysztoforski, 55 F.3d at 859. Accordingly, while the Washington Board of Industrial Appeals analysis
is instructive, it does not control the agency’s decision whether to apply the workers’
compensation offset provision in his matter.
Courts have upheld the application of the workers’ compensation offset provision to
funds received as part of a settlement agreement in a workers’ compensation claim.
In Black v. Schweiker, 670 F.2d 108, 109, (9th Cir. 1982), the employer agreed to pay the employee $20,000
to settle a workers’ compensation claim, despite the fact that it disputed any liability
for the employee’s injury. Id. at 109. In upholding SSA’s application of the workers’ compensation offset provision
to the $20,000, the court rejected the employee’s argument that under Oregon law,
because the employer disputed that it had any liability for his injury, a workers’
compensation claim had not been established. “Where the right to and liability for
periodic workers’ compensation benefits are thus extinguished by a voluntary settlement
agreement, the settlement can only be regarded as a ‘substitute’ for the payments”
under the Social Security Act. Id. at 110 (citations omitted).
Similarly, in Munsinger v. Schweiker, 709 F.2d 1212, 1217 (8th Cir. 1983), the court upheld the application of the workers’
compensation offset provision to a settlement of a workers’ compensation claim, despite
the fact that under state law, “the settlement of a disputed worker’s compensation
claim is not construed as a payment of weekly compensation.” The court noted that
the workers’ compensation laws were the only remedy the employee had against her employer
for her injury and that the settlement absolved the employer of liability. Id. The court found that to “deny the Secretary an offset of the settlement would frustrate
congressional intent” of barring receipt of duplicative benefits. Id.
In this matter, we believe that application of the workers’ compensation offset provision
is appropriate. By entering into the “sidebar” agreement, Ms. A and Employer/Insurer
agreed to “fully and completely resolve all pending issues relating to [Ms. A’s] workers’
compensation claim.” “Sidebar” Agreement at 1. In the event that Ms. A’s workers’
compensation claim is ever reopened, payments made pursuant to the “sidebar” agreement
will be offset against any future award of benefits. “Sidebar” Agreement at 2, ¶5.
Thus, the basis for the “sidebar” agreement between the parties is Ms. A’s workers’
compensation claim, which has been resolved by the terms of the “sidebar” agreement.
Because Ms. A’s workers’ compensation claim was settled in exchange for the receipt
of $20,000, that sum can properly be regarded as a “substitute” for periodic payments
under the Social Security Act. Medical, legal, or related expenses in connection with
the workers’ compensation claim are not considered to be part of a periodic payment.
20 C.F.R. § 404.408(d). However, Ms. A has the burden of establishing what part, if
any, of the $20,000 is not a substitute for periodic payments under the workers’ compensation
offset provision. Black, 670 F.2d at 110. Accordingly, unless Ms. A provides evidence that the $20,000 was
payment for medical, legal, or other related expenses in connection with her workers’
compensation claim, the $20,000 should be offset against her Social Security benefits.
CONCLUSION
The $20,000 paid to Ms. A pursuant to the “sidebar” agreement between her and her
former employer is subject to the worker’s compensation offset provision of the Social
Security Act.