[Federal Register Volume 62, Number 192 (Friday, October 3, 1997)]
[Notices]
[Pages 51923-51926]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-26258]


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SOCIAL SECURITY ADMINISTRATION

[Social Security Ruling, SSR 97-3]


Disability Insurance Benefits; Reduction Due to Receipt of State 
Workers' Compensation; Validity of an Amended Stipulation on a Prior 
Workers' Compensation Settlement Award; Minnesota

AGENCY: Social Security Administration (SSA).

ACTION: Notice of Social Security Ruling.

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SUMMARY: In accordance with 20 CFR 402.35(b)(1), the Acting 
Commissioner of Social Security gives notice of Social Security Ruling, 
SSR 97-3. This Ruling, based on an SSA Regional Chief Counsel opinion, 
concerns whether the Social Security Administration should give effect 
to an amended stipulation on a prior lump-sum workers' compensation 
settlement and whether workers' compensation offset was properly 
computed on the basis of the amended stipulation. Although this case

[[Page 51924]]

involves a Minnesota workers' compensation stipulation, this Ruling 
addresses an issue that is becoming a problem nationwide, i.e., the 
practice of obtaining an addendum to a workers' compensation settlement 
merely to state that the workers' compensation settlement was based on 
a low weekly rate using life expectancy, thus attempting to avoid the 
offset provisions of section 224 of the Social Security Act. This 
Ruling clearly illustrates the Social Security Administration's policy 
of not being bound by the terms of a second, or amended, stipulation 
that would circumvent the workers' compensation offset provisions of 
section 224 of the Social Security Act.

EFFECTIVE DATE: October 3, 1997.

FOR FURTHER INFORMATION CONTACT: Joanne K. Castello, Division of 
Regulations and Rulings, Social Security Administration, 6401 Security 
Boulevard, Baltimore, MD 21235, (410) 965-1711.

SUPPLEMENTARY INFORMATION: Although we are not required to do so 
pursuant to 5 U.S.C. 552 (a)(1) and (a)(2), we are publishing this 
Social Security Ruling in accordance with 20 CFR 402.35(b)(1).
    Social Security Rulings make available to the public precedential 
decisions relating to the Federal old-age, survivors, disability, 
supplemental security income, and black lung benefits programs. Social 
Security Rulings may be based on case decisions made at all 
administrative levels of adjudication, Federal court decisions, 
Commissioner's decisions, opinions of the Office of the General 
Counsel, and other interpretations of the law and regulations.
    Although Social Security Rulings do not have the same force and 
effect as the statute or regulations, they are binding on all 
components of the Social Security Administration, in accordance with 20 
CFR 402.35(b)(1), and are to be relied upon as precedents in 
adjudicating cases.
    If this Social Security Ruling is later superseded, modified, or 
rescinded, we will publish a notice in the Federal Register to that 
effect.

(Catalog of Federal Domestic Assistance, Programs 96.001 Social 
Security--Disability Insurance; 96.005 Special Benefits for Disabled 
Coal Miners)

    Dated: September 22, 1997.
John J. Callahan,
Acting Commissioner of Social Security.

Section 224(a)-(b) of the Social Security Act (42 U.S.C. 424a (a)-(b)) 
Disability Insurance Benefits--Reduction Due to Receipt of State 
Workers' Compensation--Validity of an Amended Stipulation on a Prior 
Workers' Compensation Settlement Award--Minnesota

20 CFR 404.408

    Under section 224 of the Social Security Act (the Act), title II 
disability insurance benefits may be offset if the disabled worker 
receives workers' compensation (WC) benefits. The issue here is 
whether WC offset was properly computed on the basis of an amended 
stipulation to a prior WC settlement award.
    The disabled worker became entitled to Social Security 
disability insurance benefits in September 1993. Periodic WC 
payments were paid to the disabled worker January 31, 1993 through 
July 11, 1994. The disabled worker subsequently received a lump-sum 
payment on August 19, 1994. The lump sum was prorated at the weekly 
rate at which the disabled worker had been receiving benefits before 
the lump-sum settlement. The lump-sum proration ended December 1997.
    After offset was imposed, and nearly 2 years after the date of 
the original lump-sum settlement agreement, the disabled worker 
obtained an amended lump-sum award in which an attempt was made to 
subject the lump-sum award to proration over the disabled worker's 
life expectancy to remove the offset.
    Based on section 224 of the Act, case law, and Social Security 
Administration (SSA) policy, SSA is not necessarily bound by the 
terms of a second, or amended, stipulation. Instead, SSA will 
evaluate both the original and amended stipulations and will 
disregard any language which has the effect of altering the terms in 
the original lump-sum settlement where, as here, the terms in the 
amended document are illusory or conflict with the terms of the 
first stipulation concerning the actual intent of the parties, and 
would have the effect of circumventing the WC offset provisions of 
section 224 of the Act.

    A question was raised concerning whether SSA should give effect to 
a Minnesota amended stipulation on a prior lump-sum WC settlement award 
which originally resulted in offset of the disabled worker's claim. For 
the reasons stated below, effect need not be given to an amended 
stipulation to a WC award if it was amended solely to circumvent the WC 
offset provisions of section 224 of the Act.

Background

    The disabled worker became entitled to Social Security disability 
insurance benefits in September 1993. He received WC periodic payments 
of $458.99 weekly from January 31, 1993 through January 30, 1994, and 
$477.35 weekly from January 31, 1994 through July 11, 1994. The 
disabled worker subsequently received a lump-sum payment of $85,000 
less $10,000 withheld for attorney fees based on a stipulation dated 
August 19, 1994. This lump sum was prorated at the weekly rate of 
$477.35, the rate at which the disabled worker had been receiving 
benefits just before the lump-sum award. The lump-sum proration ended 
December 8, 1997, with a remainder of $31.70 for December 1997.
    After offset was imposed, and nearly 2 years after the date of the 
original lump-sum settlement agreement, the disabled worker obtained an 
amended lump-sum award in which an attempt was made to prorate the 
lump-sum award over the disabled worker's life expectancy, which would 
result in a weekly benefit of $64.97 and thereby trigger removal of the 
offset.

Discussion

    Section 224 of the Act, 42 U.S.C. 424a, places a ceiling on an 
individual's combined Social Security disability insurance benefits and 
State WC benefits. The statute provides that where an individual is 
receiving both Social Security disability insurance benefits and State 
WC benefits on account of a disability, his or her Social Security 
benefits ``shall be reduced'' by the amount necessary to ensure that 
the sum of the State and Federal benefits does not exceed 80 percent of 
the individual's average pre-disability earnings. 42 U.S.C. 424a(a); 
see also 20 CFR 404.408. As the Supreme Court has explained, ``by 
limiting total state and federal benefits to 80% 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, 83 
(1971).<SUP>1</SUP>
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    \1\ SSR 72-37c (C.E. 1971-1975, p. 466).
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    The Act refers only to ``periodic benefits'' arising under a State 
worker's 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, the statute encompasses virtually every conceivable 
form of WC benefits. The Act also requires that lump-sum settlements, 
if they substitute for periodic benefits, be offset, at a rate that 
will ``approximate as nearly as practicable'' the rate at which the 
award would have been paid on a monthly

[[Page 51925]]

basis and explicitly delegates to the Commissioner the authority to 
determine the appropriate method of prorating such a lump-sum benefit. 
42 U.S.C. 424a(b). As a result, receipt of WC compensation benefits, 
whether or not in a lump sum, may subject Social Security benefits to 
reduction.
    The issue of whether SSA correctly reduced or offset Social 
Security benefits due to the settlement of a WC claim is governed by 
Federal, not State, law. The Eighth Circuit, which is controlling for 
Minnesota cases, has expressly concluded that the resolution of these 
issues is entirely a ``federal question'' to be answered by ``the 
federal statute and its underlying policy, notwithstanding conflicting 
state law.'' Munsinger v. Schweiker, 709 F.2d 1212, 1217 (8th Cir. 
1983); <SUP>2</SUP> see also Campbell v. Shalala, 14 F.3d 424, 427 (8th 
Cir. 1994) (holding that Federal, not State, law governs whether WC 
payments could be offset against Social Security disability insurance 
benefits); <SUP>3</SUP> Krysztoforski v. Secretary of Health and Human 
Services, 55 F.3d 857, 859 (3rd Cir. 1994) (noting that section 224 of 
the Act does not refer to or defer to State law for the determination 
of whether a person's periodic benefits are subject to offset, the 
Third Circuit held that Federal law governs in determining whether a WC 
award should be offset against disability benefits).
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    \2\ SSR 85-6c (C.E. 1981-1985, p. 692).
    \3\ In addition, it is the disabled worker's burden to prove 
that a lump-sum payment paid by a WC carrier is not subject to 
offset against the claimant's Social Security disability insurance 
benefits. Campbell, 14 F.3d at 427-28.
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    In Munsinger, the Eighth Circuit held that the terms of the lump-
sum settlement represented periodic payments which, without an offset, 
would result in duplicate benefits and that ``to deny [the 
Commissioner] an offset of the settlement would frustrate congressional 
intent.'' This same reasoning applies to amendments or addenda to lump-
sum settlements--that is, the terms of both the original stipulations 
and the amendments to stipulations for settlements should be evaluated 
in light of the Federal statute and its underlying policy to avoid 
duplication in benefits. If the original language of the settlement 
establishes receipt of benefits, establishes the classification of 
benefits, triggers an offset, and/or establishes an appropriate offset 
rate, SSA is not bound by any language in a subsequent amendment or 
addendum which conflicts with, or alters, those terms. If the amended 
terms have no factual basis or were made solely to circumvent the 
offset provisions of section 224 of the Act, the use by SSA of such 
amended terms would frustrate congressional intent to avoid duplicate 
benefits and will be disregarded.
    This is the approach followed in Fox v. Chater, No. 4-95-235 (D. 
Minn. Feb. 20, 1996), in which the District Court agreed that SSA was 
not bound by the terms of an amended stipulation. In Fox, after 
plaintiff received partial disability, temporary partial disability and 
permanent partial WC benefits, he entered into a stipulation for 
settlement which was approved by a WC judge, and he was awarded a lump-
sum settlement as full and final settlement of any claims for WC 
benefits. The parties disputed, and left unresolved, whether plaintiff 
was permanently and totally disabled. In the meantime, the plaintiff 
applied for, and was awarded, Social Security disability insurance 
benefits. SSA subsequently determined that the lump-sum payment was 
subject to offset and reduced the plaintiff's disability benefits. 
After offset was imposed, the parties entered into a second stipulation 
which added a provision indicating that the parties agreed that the 
plaintiff had been permanently and totally disabled as a result of his 
personal injuries and that the WC benefits he received prior to the 
stipulation were subject to Minnesota's Social Security offset 
provisions and that the lump-sum payment agreed upon included a 5 
percent reduction in the benefits payable for the Social Security 
offset. The plaintiff argued that the two stipulations established that 
the payments made before the stipulation were subject to SSA offset and 
that the subsequent lump-sum settlement was, therefore, subject to the 
reverse offset provisions of the Minnesota WC statute.<SUP>4</SUP>
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    \4\ Under Minnesota law, after permanent total disability 
benefits of $25,000 have been paid, WC will reduce permanent total 
disability benefits in order to reflect the disability insurance 
benefits that an individual is receiving from SSA. Minn. Stat. Ann. 
Sec. 176.101, Subd. 4; McClish v. Pan-O-Gold Baking Co., 336 N.W.2d 
538 (Minn. 1983). Acknowledging this ``reverse offset,'' SSA stops 
its own offset. POMS DI 52001.226.
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    In Fox, the District Court rejected the plaintiff's arguments and 
affirmed the administrative law judge's (ALJ) determination not to 
apply reverse offset on the basis of the ``illusory'' terms of the 
amended stipulation. The Court concluded that Mr. Fox's belated claim 
that the Social Security offset had been considered in the first 
stipulation was illusory. Noting that the parties did not recognize an 
offset in the first stipulation and never provided for additional WC 
benefits if the Social Security disability insurance benefit claim were 
denied, the Court found that, despite his belated claim in his second 
stipulation, the plaintiff failed to make a sufficient showing that he 
had made a settlement which accounted for future Social Security 
benefits. The Court also rejected plaintiff's argument that both 
stipulations showed that the parties intended the lump-sum payment to 
be a permanent total disability benefit because, despite the language 
in the second stipulation that both parties agreed that Mr. Fox was 
permanently and totally disabled, the first stipulation was ``very 
clear that the parties do not agree that Fox was permanently and 
totally disabled.'' Thus, the Court found that the ALJ was not bound to 
accept the illusory terms of the second stipulation.
    Although unpublished, the holding of Fox is directly applicable to 
this case. Like Mr. Fox, the disabled worker's belated claim that the 
original award was to be prorated over his life expectancy appears 
illusory.<SUP>5</SUP> The original award did not state that the lump-
sum settlement was subject to proration over the disabled worker's life 
expectancy. A lump sum of $85,000, less attorney's fees, was awarded 
pursuant to the 1994 lump-sum stipulated settlement. Although the 
original stipulation did not specify the rate at which the lump sum 
would be prorated, it noted that a prior weekly rate had been paid. The 
original stipulation contained no other reference to the proration rate 
of the lump-sum award, much less any reference to the life expectancy 
of the disabled worker. The lump sum was prorated, then, at the prior 
weekly rate of $477.35.<SUP>6</SUP>
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    \5\ This Ruling does not address the related issue of the 
validity of stipulated lump-sum settlements where the original 
settlement contains a term purporting to prorate a lump sum over the 
life expectancy of the worker. This Ruling only addresses later-
added amendments, addenda, etc. whose terms conflict with or change 
the original terms and where the purpose of these amendments is to 
circumvent the offset provisions of the Act.
    \6\ As noted above, Federal law requires that lump-sum awards be 
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. 
42 U.S.C. 424a(b); 20 CFR 404.408(g). The Commissioner has issued 
guidelines for calculating the rate at which lump-sum awards should 
be prorated based on an established weekly rate. See POMS DI 
52001.555C.4. The guidelines provide a 3-step priority for 
establishing weekly rates: first, the rate specified in the award; 
second, if no rate is specified in the award, the periodic rate paid 
prior to the lump sum; and third, if no rate was established in the 
award and there was no preceding periodic benefit, the State's WC 
maximum weekly rate in effect at the time of the WC injury. POMS DI 
52001.555C.4.a-DI 52001.555C.4.c.
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    Two years later, in 1996, after offset was imposed, the disabled 
worker obtained an amended stipulation which

[[Page 51926]]

expressly confirmed the 1994 Stipulation for Settlement. Nevertheless, 
the amendment purports to ``clarify'' the terms of the settlement by 
attempting to characterize the lump-sum award as prorated over the 
disabled worker's life expectancy. The amended stipulation, however, 
did not change the dollar amounts of the award, did not involve any 
appeal of the award sought or change in the actual amount of WC 
benefits, and did not affect in any way the rights, liabilities or 
obligations of the parties with respect to the actual WC award. Its 
terms modify the original document which did not specify that the lump 
sum should be prorated over the disabled worker's life expectancy. It 
contained no supporting factual information that the original 
stipulation had, in fact, been based on life expectancy.

Conclusion

    Based on section 224 of the Act, case law, and SSA policy, SSA is 
not necessarily bound by the terms of a second, or amended, stipulation 
in determining whether and by what rate a disabled worker's Social 
Security disability insurance benefits should be offset on account of a 
WC lump-sum payment. SSA will evaluate both the original and amended 
stipulations and disregard any language which has the effect of 
altering the terms in the original lump-sum settlement where the terms 
in the amended document are illusory or conflict with the terms of the 
first stipulation concerning the actual intent of the parties, and 
where, as here, the terms in the amended document would have the effect 
of circumventing the WC offset provisions of section 224 of the Act. To 
give effect to such illusory terms would frustrate Congress' intent to 
avoid duplicate benefits.

[FR Doc. 97-26258 Filed 10-2-97; 8:45 am]
BILLING CODE 4190-29-P