PR 02505.008 Connecticut
A. PR 01-006 Proration of Workers' Compensation Lump-Sum Award in Connecticut Your Reference: TAEG3
DATE: September 3, 1999
We believe that in determining the rate at which a beneficiary's social security disability benefit should be offset due to a LSA, the Commissioner, absent explicit evidence that the LSA 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.
You have asked us whether the Social Security Administration is bound by a monthly allocation rate as set forth in a lump-sum settlement agreement (hereinafter, LSA) under Connecticut's Workers' Compensation Act, C.G.S.A. §§ 310275 et seq. For the reasons stated below, we believe that while an allocation rate may be established by the agreement of the parties under the governing state statutory provisions, the resulting rate is not binding on the Commissioner vis-…-vis the offset provisions of the Social Security Act, 42 U.S.C. § 424a.
The information provided indicates that the number holder, Alan J. G~, has had his disability benefits offset since April 1992 based on his receipt of a periodic workers' compensation benefit of $3,801.60 per month. Mr. G~ has now submitted a Settlement Agreement, executed October 6, 1998, under which he has received a final payment of $235,000.00. The Agreement stipulates that $47,000.00 of the payment is for attorney fees, and that the entire amount of the LSA is be allocated at $95.00 per month. This proration rate, if given effect by the Commissioner, would effectively eliminate the imposed offset.
Section 224 of the Social Security Act, 42 U.S.C. § 424a, places a ceiling on an individual's combined social security disability insurance benefit and state workers' compensation benefit. The statute provides that where an individual is receiving both social security disability and state workers' compensation benefits on account of a disability, his federal benefit shall be reduced by the amount necessary to ensure that the sum of the state and federal benefits does not exceed eighty percent of the individual's pre-disability earnings. 42 U.S.C. § 424a(a); see also 20 C.F.R. § 404.408. 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).
The Act refers only to "periodic benefits" arising under a state workers' compensation program based upon the claimant's "total or partial disability (whether or not permanent)." 42 U.S.C. § 424a(a)(2). By its own terms, however, the statute encompasses virtually every conceivable form of workers' compensation benefits. The Act also requires that lump sum settlements, if they substitute for periodic benefits, are also subject to offset at a rate that will "approximate as nearly as practicable" the rate at which the award would have been paid on a monthly basis. The statute explicitly delegates to the Commissioner the authority to determine the appropriate method of prorating such a lump sum payment. 42 U.S.C. § 424a(b). Accordingly, receipt of any workers' compensation payments, whether or not in a lump sum, may subject a number holder's social security disability benefits to an offset reduction.
Although the Agency's long-standing interpretation of section 424a 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 42 U.S.C. § 424a(b); 20 C.F.R. § 404.408(g); see also POMS DI 52150.065, the Second Circuit Court of Appeals has held that the determination of the offset rate is clearly one of federal law. Bubnis v. Apfel, 150 F.3d 177, 182 (2nd Cir. 1998). Thus, under the governing statutory provision, as recognized in the case law for the circuit, the Social Security Act places the ultimate responsibility for determining the offset rate in the hands of the Commissioner. Under Congress's delegation of authority, section 205(a) of the Act, 42 U.S.C. § 405(a), the Commissioner has promulgated regulations concerning the evidentiary requirements to be met by an individual seeking to establish the specific amounts for the offset calculus. 20 C.F.R. § 404.408(d). Such amounts may be evidenced by a public disability award, a compromise agreement, a court order, or by other evidence as the Administration may require. 20 .C.F.R. § 404.408(d)(emphasis added). Indeed, it is the burden of the disability beneficiary to show that a specific amount should be utilized for purposes of section 421a. See Worley v. Harris, 666 F.2d 417, 421 (9th Cir. 1982). While the submission of a LSA approved by the appropriate state official may constitute probative evidence of amounts to be excluded from the section 424a offset, the mere designation of a sum in such a settlement agreement is not necessarily dispositive, and it is for the Commissioner to establish the closest approximation to the reduction prescribed. 42 U.S.C. § 424a(b); Bubnis v. Apfel, 150 F.3d at 182. Cf. Matta v. Secretary of Health and Human Services, 806 F.2d 287, 290 (1st Cir. 1986)(statute clearly permits the Secretary to conduct an investigation behind submitted self-employment tax returns to determine income actually realized).
There is no question that the parties to the underlying workers' compensation claim may agree to the commutation, in whole or in part, of the weekly compensation payments. C.G.S.A. § 31-302. However, such commutations should be calculated on a sound annuity basis in accordance with any statutory rules provided. See L~'s Workers' Compensation Law, at § 82.71. Here, nothing in the LSA presents a legal basis for assuming that the settlement was based upon the number holder's life expectancy. Similarly, the governing provision of the Connecticut law that authorizes the commutation does not support an assumption that the lump-sum should be construed as lifetime annuity. Indeed, as correctly noted by the analyst in the Mid-Atlantic Program Service Center, prorating the LSA at the rate of $95.00 would take over 206 years of periodic payments to exhaust the settlement amount to Mr. G~, who at age 62 has a remaining life expectancy of 17.8 years. See U.S. Department of Commerce, Statistical Abstract of the United States, 118th ed. at p. 95, Table No. 130 (1998). Thus, the proration rate as set out in the LSA does appear to be unreasonable and since the entire amount was apparently paid to Mr. G~ thirty days after the agreement was approved by the state commissioner, it would not be unreasonable to conclude that the proration rate as established in the LSA was designed solely to circumvent the offset provision of the Act.
The acceptance of such a proration rate by the Connecticut Compensation Commissioner notwithstanding, it is well settled that Congress does not intend the meaning of terms in a federal statute to determined by state law. See Taylor v. United States, 110 S.Ct. 2143, 2154 (1990). An equally settled corollary rule is that, absent any plain indication to the contrary, the application of a federal statute is not dependent upon state law.
Dickerson v. New Banner Inst., Inc., 460 U.S. 103, 119 (1982); Popkin v. New York State Health Mental Hygiene, etc., 547 F.2d 18, 19 (2nd Cir. 1976), cert. Denied, 432 U.S. 906 (1977). Here, the present question is governed by the general rule that "federal law governs questions involving the rights of the United States arising under nation[al] federal programs." United States v. Kimbell Foods, Inc., 440 U.S. 715, 726 (1979). The underlying rationale behind the rule that federal law controls in the absence of clear congressional intent to the contrary is simple: a nation-wide federal program, such as Social Security, could not function in an equitable, uniform manner if it were "subject to the vagaries of the laws of the several states." Clearfield Trust Co. v. United States, 318 U.S. 363, 367 (1943). Where, as here, the LSA and the controlling state statute do not provide for a lifetime presumption, the determination of the proration rate is a matter committed to the exercise of the Commissioner's administrative discretion. To otherwise construe the Commissioner's implementation of the offset provision would be inconsistent with the purpose of the provision to eliminate the receipt of excessive combined benefits, and would, if private arrangements between claimants and their employers' insurers were allowed to control the offset computations, encourage sham allocations which would ultimately defeat congressional intent.
In light of the foregoing, we believe that in determining the rate at which a beneficiary's social security disability benefit should be offset due to a LSA, the Commissioner, absent explicit evidence that the LSA 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.