You asked us for our opinion on how Cisto O~ $68,000.00 lump-sum workers' compensation
award should be properly prorated. Although Mr. O~ entered a settlement agreement
indicating that his lump-sum workers' compensation award should be prorated at $60.00
per week, we conclude that the proffered allocation rate is not binding on the Commissioner
with regard to the offset provisions of the Social Security Act, 42 U.S.C. § 424a.
Rather, we believe that Mr. O~ lump-sum workers' compensation award should be prorated
at the latest periodic rate paid prior to the settlement agreement, i.e. $248.00 per
week.
FACTS
The number holder ("NH") (Cisto O~), born February 9, 1940, worked for J.N.B. Printing
and Litho, Inc. ("employer"), earning $620.00 per week. He injured himself on the
job on January 6, 1996, and received workers' compensation from his employer according
to the following schedule:
01/06/96 to 03/14/96- held in abeyance
03/14/96 to 10/07/96- $400.00 per week
10/07/96 to 08/15/99- $103.33 temporary rate
08/15/99 to 01/18/00- held in abeyance
01/18/00 to 04/28/00- $400.00 per week
04/28/00 to 11/26/01- $248.00 per week.
On November 16, 2001, NH settled his workers' compensation claim with a Section 32
waiver agreement under New York State Workers' Compensation Law for a lump-sum payment
of $68,000.00. The agreement indicated that "for the purposes of Social Security Disability
offset calculations only, this settlement amount is based upon an allocation rate
of sixty dollars and zero cents ($60.00) per week."
LAW
The Social Security Act ("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)(2)-(6). According to the statutory formula, if the total
of the Social Security and workers' compensation monthly benefits exceeds eighty percent
of an individual's "average current earnings," the Agency will reduce the claimant's
Social Security benefits to the extent that total benefits exceed the eighty percent
limit. 42 U.S.C. § 424a(a)(5); 20 C.F.R. § 404.408(c)
The reason Congress instituted these "offset" provisions was because in most states
the combined benefits claimants were receiving surpassed the claimants' pre-injury
earnings. "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." Freeman v. Harris, 625 F.2d 1303, 1306 (5th Cir. 1980) (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 workmen's compensation where the state payments
[are] inadequate." Richardson v. Belcher, 404 U.S. 78 at 83 (1971).
As a result of these offset provisions, when a disability beneficiary receives a lump-sum
settlement that is a commutation of, or substitute for, periodic workers' compensation
benefits, the Act requires the Commissioner to prorate that lump-sum payment. 42 U.S.C.
§ 424a(b). The Act instructs the Commissioner to prorate the lump-sum payment in a
manner which "will approximate as nearly as practicable the reduction" that would
have been applied had the beneficiary received his or her workers' compensation payments
on a weekly or monthly basis. Id. Accordingly, Congress has thus delegated to the Commissioner the task of determining
the proper offset rate for lump-sum payments. See Bubnis v. Apfel, 150 F.3d 177, 181-82 (2d Cir. 1998). To accomplish this, the Commissioner must determine
the amount of workers' compensation payments the beneficiary would have received weekly
or monthly had he not opted for a lump-sum payment, prorate the lump-sum award using
the prorated amount, and impose the statutorily prescribed offset accordingly.
To guide Agency adjudicators, longstanding policy in the Program Operation Manual
System ("POMS") set forth a three-tiered set of priorities for prorating state lump-sum
workers' compensation awards at an established rate. In priority order, the Agency
is to prorate the award at:
1. The rate specified in the lump-sum award.
2. The periodic rate paid prior to the lump-sum, if no rate is specified in the lump-sum
award.
3. The state's maximum workers' compensation in effect in the year of the injury,
if no rate is specified in the award and there was no preceding periodic benefit.
POMS § DI 52150.060(C)(4)(a).
However, the Agency has for some time been aware that attorneys have seized upon the
opportunity offered by these POMS instructions to insert artificially low rates in
settlement agreements to lessen or perhaps avoid entirely the reduction that otherwise
would be required by section 224 of the Act. We recognize the inconsistency between
the first step of the POMS proration policy as applied to cases where the rate specified
in the lump-sum settlement agreement is an artificially low rate designed to avoid
offset, and the statutory requirement that the Agency prorate lump-sum settlements
in a manner that will approximate the offset that would have applied had the individual
received periodic workers' compensation payments. Social Security Ruling ("SSR") 97-3
is instructive on this point. SSR 97-3 instructs that where a document would have
the effect of circumventing the workers' compensation offset provision of 42 U.S.C.
§ 424a, the Agency is not bound by the terms of the document in determining what rate
a disabled worker's disability insurance benefits should be offset on account of a
workers' compensation lump-sum payment. The courts have upheld the Agency's refusal
under SSR 97-3 to accept rates specified in amended settlement agreements. See Sanfilippo v. Barnhart, 325 F.3d 391, 395-96 (3d Cir. 2003); Berger v. Apfel, 200 F.3d 1157, 1161 (8th Cir. 2000). Although Agency policy explicitly provides that
the Agency is not bound by the terms of an amended agreement or order where the terms
are illusory and the designed to circumvent the workers' compensation offset provisions
of section 224 of the Act, see SSR 97-3, one district court upheld the Ruling by holding that "it might better serve
that purpose [of section 224] to reject all lump-sum awards that purport to allocate
the award" in order to avoid offset, rather than just to reject such allocations found
in amended agreements. Rioux v. Massanari, No. 00-305-P-H, 2001 U.S. Dist. LEXIS 6907 * 29 (D. Me. 2001). Thus, based on SSR
97-3, in those cases where strict adherence to POMS § DI 52150.060(C)(4)(a) produces a result that is contrary to section 224(b) of the Act, the POMS
should not be viewed as controlling. See Memorandum of Law to Terry D~, Acting Director,
Office of Process Policy, Office of Disability Programs, entitled "Workers' Compensation
Lump-Sum Proration- Reply," by James A. W~, Associate General Counsel for Program
Law, July 21, 2005; see also Memorandum of Law to Joseph M~, Director, Division of Disability Process Policy,
entitled "Amount at Which to Prorate a Lump-sum Workers' Compensation Award with Life
Expectancy- Reply," by Robert G. M~, Jr., Attorney, Office of Program Law, October
20, 2000; Memorandum of Law to Joann F~, Program Analyst, Mid-Atlantic Program Service
Center, entitled "Proration of a Lump-sum Workers' Compensation Award When the Proration
Rate is Specified in the Workers' Compensation Award," by the Regional Chief Counsel,
Office of the General Counsel, Region III.
ANALYSIS
In NH's settlement agreement, the parties specified that for the "purposes of Social
Security Disability offset calculations only," the $68,000.00 lump-sum workers' compensation
award was to be allocated at a rate of $60.00 per week. According to the POMS, the
Agency would appear to be bound by the proration rate specified in NH's workers' compensation
lump-sum agreement. See POMS § DI 52150.060(C)(4)(a). However, applying step one of the POMS in this case, and accordingly using
the amount specified in NH's lump-sum agreement, would produce results contrary to
the Commissioner's responsibility under the Act. Barring any reasonable explanation
by NH's attorney as to how the parties arrived at the proration rate set forth in
the settlement agreement, it appears as though the proration of the $68,000.00 lump-sum
award to $60.00 per week was designed to allow NH to avoid the offset provisions of
the Act. This artificially low proration rate results in no offset. It also stretches
the proration time-frame for 21 years, well beyond age 65, the point at which workers'
compensation offset can no longer apply. Consequently, we take the position that NH's
agreement was crafted with the intention of circumventing section 224 and maintain
that it runs counter to Congress' express intent to prevent claimants from receiving
excessive benefits.
As discussed above, the Commissioner is required to carry out the Act and intent of
Congress. Accordingly, because application of the POMS in this case and using the
amount specified in NH's lump-sum agreement would produce results contrary to the
Commissioner's responsibility under the Act, we believe that the Commissioner is not
bound by the terms of NH's workers' compensation lump-sum settlement.
As demonstrated in B~, the Commissioner is required by Congress to determine the proper offset rate or
lump-sum workers' compensation payments, and while state law may be helpful in order
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," and certainly not the beneficiary or his attorney. B~, 150 F.3d at 181-82. We therefore do not believe that the Commissioner is legally
compelled to accept a proration rate that is specified in a workers' compensation
settlement award designed solely to limit or circumvent the offset required by section
224 of the Act. Unless a specified rate reasonably can be found to approximate the
same rate at which the individual's workers' compensation payments would have been
made had the individual not elected a lump-sum settlement, it should not be used.
In conclusion, we do not believe that the Agency is legally bound to follow the proration
language included in NH's settlement agreement as would customarily be directed by
step one of POMS § DI 52150.060(C)(4)(a). Rather, we conclude that step two of POMS § DI 52150.060(C)(4)(a) offers a more legally sound approach to proration in this case and suggest
that the Agency resume prorating the lump-sum at the latest periodic rate paid to
NH prior to the settlement agreement. We do not believe that NH has offered any reasonable
proof or legal argument that had he not elected a lump-sum settlement, his workers'
compensation periodic payments would have dropped to $60.00 per week (from the $248.00
per week he was receiving prior to the settlement). Indeed, there appears to be no
other purpose behind NH's proposed allocation rate other than to avoid the Act's offset
provisions.
Although we believe that the Agency is not bound by the proration amount in NH's settlement
agreement, we advise that the Agency must take certain steps in calculating a claimant's
proration amount for the Agency determination to withstand judicial scrutiny. In determining
the proration amount of these lump-sum awards, it is essential that the Agency fully
explain how it computed the proration amount and why it used that method. Courts have
repeatedly remanded cases where the Agency has not provided such an explanation. See e.g., Sciarotta v. Bowen, 837 F.2d 135 (3d Cir. 1988); Halle v. Apfel, No. 99C3014, 2000 WL 1468759 (N.D. Ill. September 29, 2000) (remanding case because
the Agency did not explain why it used step two of the POMS proration analysis). To
be consistent with Congressional intent, any explanation by the Agency should detail
how the Agency's computation accurately approximates what the claimant's monthly award
of benefits would have been had they not been commuted. See 42 U.S.C. § 424a(b).
Based on the existing record, we believe the Agency should prorate the lump-sum award
using the payment rate that NH had actually been receiving immediately prior to the
settlement in order to more reasonably comply with the statutory standard.
Barbara L. S~
Chief Counsel, Region II
By:_____________
Karla J. G~
Assistant Regional Counsel