Basic (09-08)

DI 52170.030 Manual Proration of Lump Sum Awards

Most workers’ compensation and public disability benefit (WC/PDB) cases are processed through the Modernized Claims System (MCS) and/or the Interactive Computations Facility (ICF) program. However, both systems have certain limitations.

The older ICF function 9 (WC lump sum proration) and ICF function 28 (WC/PDB offset) can sometimes be used to manually compute the offset, but these have limitations as well. Therefore, it may necessary to manually compute offset and enter the results of the computations into ICF function 34 (WC/PDB Online Record Entry (OREO).

A. Potential problem cases

The following types of cases may require manual proration of the lump sum (LS) award:

• Dual entitlement cases;

• Combined family maximum (CMAX) cases;

• Pre-1978 cases;

• Cases that involve more than four WC claims; or

• Cases the ICF program cannot process correctly. For WC/PDB ICF processing and limitations, see DI 52165.020.

B. How to manually prorate a Lump Sum (LS) Award

If a LS award cannot be prorated through ICF or MCS:

1. 1.

Manually prorate the LS on the back of a Form SSA-2455 (Offset Worksheet – Disability Insurance Benefits).

2. 2.

Verify all of the following information:

1. Gross amount of the LS.

2. Start date.

3. Weekly rate at which to prorate.

4. Excludable expenses.

C. How to manually prorate a LS with no excludable expenses

If a periodic WC/PDB benefit paid through the day before the LS award had the same weekly rate as that determined for the LS, there will be no mid-month adjustment; otherwise, you must compute a mid-month adjustment for the start date month. See DI 52150.040 – Changes in Workers’ Compensation/Public Disability Benefits (WC/PDB) Paid.

Step 1: Divide the gross amount of the LS by the weekly rate. The quotient will be the number of weeks the proration will last. There is usually a decimal remainder. Do not round, just drop the decimal remainder and multiply the integer (number of whole weeks) by the weekly rate. Subtract the result from the gross amount of the LS. The result is the LS remainder.

Step 2: Divide the whole number of weeks by 52. The quotient will be the number of years the proration will last. The remainder will represent additional weeks.

Apply the following rules to count years:

• Drop 2 days for the first year. If the first year is a leap year and the beginning date is prior to February 29, drop 3 days.

• Drop 1 day for each succeeding year. If the year is a leap year and you pass February 28, drop 2 days.

EXAMPLE:

 Beginning date (Sunday) 01/11/1976 First year (drop 3 days-leap year) 01/08/1977 Second year (drop 1 day) 01/07/1978 Third year (drop 1 day) 01/06/1979

After you determine the ending date for the full years of proration, add the number of weeks for any partial year remaining. The result will be the lump sum ending date.

Step 3: Determine the LS end date by counting these years and weeks beginning with the start date. NOTE: Begin counting with the start date – not the day after.

Step 4: Add the LS remainder from step 2 to the amount of WC computed for the last month of the proration. If the partial monthly payment is higher than the previously determined monthly WC/PDB rate, use the previously determined rate and carry the excess over to the following month.

EXAMPLE: On March 17, 2006, the worker received a LS of \$49,000. There is no proration rate specified in the settlement. The prior periodic rate was \$275 per week, which comes to \$1191.60 per month. Development showed there were no excludable expenses.

Step 1: Compute the number of weeks of proration and the LS remainder.

 Formula Result Description \$49,000 LS \$275.00 weekly rate 178.18 178 weeks of proration, plus a remainder 178 weeks x \$275.00 weekly rate 48,950.00 Total amount of full weekly proration \$49,000 LS -48,950.00 charged off in full wks. 50.00 LS remainder

Step 2: Determine ending date of proration

 Formula Result Description 178 weeks of proration 52 weeks/year 3.42 years (3 yrs. 22 weeks) Proration length 03/17/2006 + 1 year 03/15/2007 Drop 2 days 03/15/2007 + 1 year 03/13/2008 Drop 2 days (2008 is a leap year) 03/13/2008 + 1 year 03/12/2009 Drop 1 day 03/12/2009 + 22 weeks 08/13/2009 LS end date

Step 3: Compute the WC amount for the last month of proration (August 2009) including the LS remainder.

 Formula Result Description \$275.00 weekly rate 7 \$39.29 Daily rate \$39.29 daily rate x 13 days (08/01 – 08/13) \$510.77 First part of the computation \$510.77 + \$50.00 LS remainder \$560.70 August 2009 WC (round to next lower dime)

Since \$560.70 is less than the monthly proration rate of \$1,191.90, there is no need to carry the proration into September 2009.

D. Three methods to prorate LS with excludable expenses

There are three methods of proration for a LS with expenses. Unless the award specifically states how the expenses are to be deducted from the gross, use the method that is most advantageous to the entire family.

Each method has distinct advantages and disadvantages depending on the situation. Therefore, judgment is needed in determining the most advantageous method. The most advantageous method is not necessarily the one that pays the most benefits. When making the determination, disregard protected increases since those are common to all three methods, but be sure to consider the following questions:

• Is the worker nearing age 62 (RIB) or 65 (WC Offset Termination) prior to December 19, 2015; or full retirement age (FRA)? NOTE: Effective December 19, 2015 or later, WC offset termination now extends from age 65 to FRA. See 2015 Amendment in DI 52101.005.

• Does the worker have a terminal illness?

• Was the worker awarded a closed period of DIB?

• Is delayed imposition of reverse offset involved (i.e., Florida)?

• Are you imposing offset retroactively? (possible overpayment involved)?

• Would a triennial redetermination adjust or remove offset?

• Is the ACE or the TFB the applicable limit?

• Is there any other circumstance in this case affecting the determination?

While there are certain situations where one method is usually more advantageous than the others, all three methods must be evaluated for every case.

1. Method A

Method A computes the ending date of proration by dividing the gross amount of the lump sum by the weekly proration rate. Total excludable expenses are then divided by the weekly proration rate and charged off beginning with the date DIB would have been offset (the offset first considered date or the day after periodic payments end, whichever is later). (For Method A Example, see DI 52170.030E.1. in this section.)

This method delays the imposition of offset for a set period of time due to the charging off of expenses at the beginning of the proration. This method is more likely to be the most advantageous one to use when the worker would benefit from receiving a period of full benefits at the beginning of the proration period.

After the expenses, this method prorates at the full monthly rate, so in most cases offset will apply again when the expenses end. Since there is a break in offset during the expense proration period, no triennial redeterminations will apply unless the proration causes offset for three continuous years after the expenses end.

2. Method B

Method B computes the ending date of proration by dividing the gross amount of the lump sum by the weekly proration rate. A reduced weekly rate is then determined by dividing the net LS (after subtracting the excludable expenses) by the gross LS amount, and multiplying that figure (percentage) times the full weekly proration rate. For Method B Example, see DI 52170.030E.2. in this section.

Under this method, the reduced weekly proration rate sometimes will not cause offset at all, especially if there is a high average current earnings (ACE) or total family benefit (TFB) as the applicable limit. If offset continues, this method allows for the possibility of a triennial redetermination which may have the effect of removing offset. Consider also that if the TFB is the applicable limit, the ACE may become the applicable limit if a triennial redetermination applies.

A weekly proration rate continues for the entire LS proration period. This will reduce the benefits payable to those workers with a low applicable limit.

3. Method C

Method C subtracts excludable expenses from the gross lump sum, resulting in a net LS. The net LS is then divided by the weekly proration rate to determine the ending date of the proration. This has the effect of shortening the proration period significantly. For Method C Example, see DI 52170.030E.3. in this section.

This method ends the LS proration much earlier that the other two methods. Depending on the LS start date, the proration may even end prior to the DIB MOE. This method should be most advantageous if excludable expenses make up a large part of the lump sum and the lump sum is being prorated in a timely manner.

As with method A, the full monthly rate is used for proration. Therefore, full offset may apply during the months of proration. If offset is not applied timely, this method will almost always result in an overpayment.

E. Examples of LS proration methods

For the following example the same lump sum will be prorated using each of the three methods. Here are the details of the lump sum settlement:

Gross Lump Sum \$49,000

Excludable Attorney Fees: \$5,000.00

Excludable Future Medical Expenses: \$4500.00

Lump Sum Start Date: March 17, 2006.

Prior Periodic Payment Rate: \$275.00/wk (1191.90 monthly)

No proration rate is specified in the award.

1. Method A

Step 1: Divide the excludable expenses by the weekly rate, resulting in a number of weeks. Do not offset for this number of weeks beginning with the LS start date.

 Formula Result Description \$5,000.00 attorney fee + 4,500.00 future medical \$9,500.00 Total excludable expenses \$9,500.00 expenses \$ 275.00 weekly rate 34.55 Weeks of expenses plus remainder 03/17/2006 plus 34 weeks 11/09/2006 Do not offset from 03/17/2006 through 11/09/2006

Step 2: Use the expense remainder to reduce WC/PDB for the first week offset is resumed.

 Formula Result Description 34 weeks x \$275.00 \$9,350.00 Total amount of full weekly proration \$9,500.00 total expenses - 9,350.00 charged off in full weeks \$150.00 Expense remainder to be charged off week of 11/10-11/16/2006

Step 3: To compute the monthly WC amount for November 2006, we would take the regular monthly rate of \$1191.60 and subtract out the expenses we are excluding for that month.

 Formula Result Description \$275.00 weekly rate 7 \$39.29 Daily rate \$39.29 daily x 9 days (11/01-11/09) \$353.61 First part of the computation \$353.61 + \$150.00 expense remainder \$503.60 November 2006 expenses (round to next lower dime) \$1191.60 monthly WC - 503.60 expenses \$688.00 November 2006 WC

Step 4: Divide the LS by the weekly proration rate to arrive at the total number of weeks to prorate the lump sum.

 Formula Result Description \$49,000 LS \$275.00 weekly rate 178.18 178 weeks of proration, plus a remainder 03/17/2006 plus 178 weeks 08/13/2009 Ending date of last full week of proration 178 weeks x \$275.00 weekly rate \$48,950.00 Total amount of full weekly proration \$49,000.00 LS - 48,950.00 charged off in full wks. \$50.00 LS remainder

Step 5: To figure the WC for the last month of proration, compute the daily rate times the number of days of offset and add the LS remainder. August 2009 would look as follows:

 Formula Result Description \$39.29 daily rate x 13 days (08/01-08/13) \$510.77 First part of the computation \$510.77 + \$50.00 LS remainder \$560.70 August 2009 WC (round to next lower dime)

2. Method B

Step 1: To figure the WC for the last month of proration, compute the daily rate times the number of days of offset and add the LS remainder. August 2009 would look as follows:

 Formula Result Description \$49,000.00 lump sum \$ 275.00 weekly rate 178.18 178 weeks of proration, plus a remainder 03/17/2006 plus 178 weeks 08/13/2009 Ending date of last full week of proration

Step 2: Divide the LS, less excludable expenses, by the total LS. Round to three decimal places. NOTE: Always round down to three decimal places despite the number in the fourth decimal place.

 Formula Result Description \$49,000.00 lump sum - 9,500.00 expenses \$39,500.00 Net lump sum \$39,500.00 net lump sum 49,000.00 lump sum .8061 -- rounds to 80.6% Reduced weekly rate

Step 3: Multiply this percentage by the weekly rate, resulting in a reduced weekly rate.

 Formula Result Description \$275.00 full weekly rate x 80.6% \$221.65 Reduced weekly rate

Step 4: There will usually be a remainder to be applied to the final week of proration.

 Formula Result Description \$221.65 reduced weekly rate x 178 weeks \$39,453.70 Total amount of full weekly proration \$39,500.00 lump sum - 39,453.70 charged off in full weeks \$46.30 LS remainder

Step 5: To figure the WC for the last month of proration, compute the daily rate times the number of days of offset and add the LS remainder. (If the LS remainder raises the monthly WC/PDB amount higher than the previously established monthly rate, use the previously established rate and carry the remainder into the following month.) August 2009 would look as follows:

 Formula Result Description \$221.65 reduced monthly rate 7 \$31.66 Reduced daily rate \$31.66 x 13 days (08/01-08/13) \$411.58 First part of the computation \$411.58 + \$46.30 LS remainder \$457.80 August 2009 WC

The established monthly rate (221.65 x 13/3) is \$960.40 so there is no need to carry the LS remainder into September 2009.

3. Method C

Step 1: Reduce the LS by the amount of excludable expenses prior to the proration.

 Formula Result Description \$49,000.00 LS - 9,500.00 excludable expenses \$39,500 Net lump sum

Step 2: Divide the net lump sum amount by the weekly proration rate to determine the number of weeks to prorate the LS.

 Formula Result Description \$39,500.00 LS \$275.00 weekly rate 143.64 Number of weeks to prorate LS plus remainder 03/17/2006 plus 143 weeks 12/11/2008 Ending date for full weeks of LS

Step 3: Figure the LS remainder by multiplying the number of weeks times the weekly rate and subtracting that number from the net LS.

 Formula Result Description 143 weeks x \$275.00 weekly rate \$39,325.00 Amount charged off with all the full weeks of WC \$39,500.00 Net LS - 39,325.00 charged off in full wks. \$175.00 LS Remainder

Step 4: To figure the WC for the last month of proration, compute the daily rate times the number of days of offset and add the LS remainder. December 2008 would look as follows:

 Formula Result Description \$39.29 daily rate x 11 days (12/01 – 12/11) \$432.19 First part of the computation \$432.19 + \$175.00 LS remainder \$607.10 December 2008 WC (round to next lower dime)

F. References

DI 52101.005 — Social Security Amendments with Workers’ Compensation/Public Disability Benefits (WC/PDB) Offset Provision

DI 52150.040 — Changes in Workers’ Compensation/Public Disability Benefits (WC/PDB) Paid

DI 52165.020 — Use Interactive Computation Facility (ICF) Function 34 Online Record Entry (OREO) to Process ICF Problems and Limitations

 To Link to this section - Use this URL: http://policy.ssa.gov/poms.nsf/lnx/0452170030 DI 52170.030 - Manual Proration of Lump Sum Awards - 12/17/2015 Batch run: 11/21/2016 Rev:12/17/2015