Opinion ID: 1429594
Heading Depth: 1
Heading Rank: 3

Heading: offset of retirement benefits

Text: K.S.A. 44-501(h), enacted in 1993, created offsets against the workers compensation benefits to which an injured worker would otherwise be entitled when the worker receives social security retirement benefits or selected private pension retirement benefits. The new subsection provides: (h) If the employee is receiving retirement benefits under the federal social security act or retirement benefits from any other retirement system, program or plan which is provided by the employer against which the claim is being made, any compensation benefit payments which the employee is eligible to receive under the workers compensation act for such claim shall be reduced by the weekly equivalent amount of the total amount of all such retirement benefits, less any portion of any such retirement benefit, other than retirement benefits under the federal social security act, that is attributable to payments or contributions made by the employee, but in no event shall the workers compensation benefit be less than the workers compensation benefit payable for the employee's percentage of functional impairment. The plaintiffs claim that the offsets against workers compensation benefits allowed for social security benefits and for private pension benefits are in violation of equal protection.
Subsection (h) allows an offset against workers compensation benefits to which an injured worker would otherwise be entitled for each dollar of social security retirement benefits received by the injured worker, as long as the workers compensation benefits do not dip below the workers compensation benefits payable for the employee's percentage of functional impairment. The plaintiffs point out that this offset is allowed regardless of whether the employer made any contribution to social security on behalf of the injured worker and regardless of the proportion of contributions to social security made by the injured worker or by other employers. The plaintiffs contend that this social security offset provision violates equal protection because it classifies those workers compensation beneficiaries who are receiving social security benefits differently than it classifies those workers compensation beneficiaries who are not receiving social security benefits. Because the statute treats these two classes of people with disparity, by reducing the workers compensation benefits of those who are receiving social security benefits, the plaintiffs claim that the social security offset provision violates equal protection. The Kansas workers compensation law previously had retirement benefit offset provisions. Those provisions were all held to be constitutional. In Baker v. List and Clark Construction Co., 222 Kan. 127, 563 P.2d 431 (1977), a worker was killed on the job. His dependents filed a workers compensation claim for death benefits against the employer. The dependents were also eligible for social security death benefits based on the death of their father. As such, the Workers Compensation Director reduced the claimants' workers compensation benefits in relation to the social security benefits received. This reduction in workers compensation benefits was based on K.S.A. 1975 Supp. 44-510b(j) (since repealed), which provided: When any benefits are being paid under the federal social security act because of the death of an employee whose dependents are entitled to compensation under this section, the amount of compensation due under this section shall be reduced by an amount equal to one-half ½ of the amount of such social security payments during the time such social security payments are being made to the workman's dependents. The employer shall receive credit on the payment of future compensation otherwise due under the workmen's compensation act for an amount equal to one-half ½ of the total amount of social security payments made subsequent to a period during which compensation payments were made by the employer, but which are attributable to such period. The claimants challenged K.S.A. 1975 Supp. 44-510b(j) and its required reduction of their workers compensation benefits as an unconstitutional violation of equal protection. The claimants contended the offset provision discriminated between classes of claimants by reducing workers compensation death benefits of those who were eligible for social security benefits, widows with minors, but not reducing workers compensation death benefits of those claimants who were not eligible for social security benefits, widows without minors. Applying the rational basis standard, this court held that the offset statute was constitutional. In so holding, this court stated that the offset provision exists to prevent duplication of benefits under the Workmen's Compensation Act and the Social Security Act.... This statutory scheme appears to be consistent with a leading treatise on workmen's compensation: `Once it is recognized that workmen's compensation is one unit in an overall system of wage-loss protection, rather than something resembling a recovery in tort or on a private accident policy, the conclusion follows that duplication of benefits from different parts of the system should not ordinarily be allowed. Since most social legislation in the United States has appeared in unrelated fragments, lack of coordination resulting in cumulation of benefits is quite common; but newer legislation, including the Social Security compensation offset provision, is more carefully drawn to prevent this result.' 4 A. Larson, The Law of Workmen's Compensation, Sec. 97.00 (1976). The treatise goes on to state: `Wage-loss legislation is designed to restore to the worker a portion, such as one-half to two-thirds, of wages lost due to the three major causes of wage-loss: physical disability, economic unemployment, and old age. The crucial operative fact is that of wage loss; the cause of the wage loss merely dictates the category of legislation applicable. Now if a workman undergoes a period of wage loss due to all three conditions, it does not follow that he should receive three sets of benefits simultaneously and thereby recover more than his actual wage. He is experiencing only one wage loss and, in any logical system, should receive only one wage-loss benefit. This conclusion is inevitable, once it is recognized that workmen's compensation, unemployment compensation, nonoccupational sickness and disability insurance, and old age and survivors' insurance are all parts of a system based upon a common principle. If this is denied, then all coordination becomes impossible and social legislation becomes a grab-bag of assorted unrelated benefits.' Id. at Sec. 97.10. .... Based on the foregoing, we conclude K.S.A. 1975 Supp. 44-510b(j) does not offend the equal protection guarantee. When the system of wage-loss protection is viewed as a whole, avoiding duplication or overlapping of benefits appears to be a reasonable legislative objective. It may be said that the classification created by the statute has a rational basis, is not arbitrary, and affords like treatment to persons similarly situated. 222 Kan. at 130-32. (Emphasis added.) Justice Schroeder, joined by Justice Owsley, dissented in this opinion. Justice Schroeder was of the opinion that the statute unconstitutionally violated equal protection because it only reduced the workers compensation death benefits of those claimants who also received social security benefits and did not also reduce the workers compensation death benefits of those claimants who received private insurance monies, veteran's administration death benefits, or Kansas Public Employees Retirement System death benefits. Further, Justice Schroeder noted that the offset against workers compensation benefits for social security benefits reduces an employer's workers compensation payments and premiums, thereby discouraging an employer from adopting a safety program to prevent employee deaths in the future. Thus, Justice Schroeder was of the opinion that the offset statute singled out a class of persons for distinctive treatment without a rational basis, thereby violating equal protection. 222 Kan. at 137-38. In Boyd v. Barton Transfer & Storage, Inc., 2 Kan. App.2d 425, 580 P.2d 1366, rev. denied 225 Kan. 843 (1978), the plaintiff, who was 62 years old and receiving social security benefits, was injured while working at his part-time job. The plaintiff worked at the part-time job to supplement his social security benefits. He was aware of how much money he could earn before becoming ineligible for social security, and he did not intend to exceed that amount. The plaintiff filed a workers compensation claim for his work-related injury, but he was denied benefits based on K.S.A. 1976 Supp. 44-510f(c) (since repealed), which provided: An employee shall not be entitled to compensation benefits for permanent total disability, temporary total disability or partial disability, under the workmen's compensation act, from and after the date when he shall be entitled to and during such period as he shall receive federal old age social security benefits, reduced or unreduced. The Workers Compensation Director affirmed the denial of the benefits, and the plaintiff appealed to the district court, claiming that K.S.A. 1976 Supp. 44-510f(c) was unconstitutional. The district court held that the statute was constitutional and affirmed the denial of the benefits. The Court of Appeals did not rule on the constitutionality of the statute. Instead, the court interpreted the offset statute and found that it did not apply to the plaintiff's workers compensation benefits. In so holding, the court stated: As we read K.S.A. 1976 Supp. 44-510f(c), an ambiguity exists as to whether it applies to those who like plaintiff are injured while employed in a part-time job after normal retirement and after they have started to receive social security old age benefits. We conclude that the legislature did not intend the statute to so apply and, therefore, reverse the denial of compensation. .... ... As long as workmen's compensation is not viewed as a substitute for tort recovery but as wage-loss protection only, the cutoff of workmen's compensation at the time of retirement and initial receipt of old age social security benefits would be reasonable. The worker would suffer only one wage loss, but continued workmen's compensation after retirement would duplicate the wage-loss replacement of the old age social security benefits which begin at that time. On the other hand, workers such as the plaintiff here, who are already retired and receiving social security old age benefits before starting work on a part-time job to supplement those benefits, suffer a second wage loss when they are injured in the course of their employment. Should K.S.A. 1976 Supp. 44-510f(c) be applicable to such workers, it would totally preclude any replacement of the wages which they are entitled to earn over and above old age social security benefits. As such, it would not prevent `duplication' but would operate to preclude the wage replacement which it was the intent of the legislature to provide through the Workmen's Compensation Act. It is a fundamental rule of statutory construction that the legislative intent behind a statute be ascertained wherever possible, and the legislative intent governs its construction even though the literal meaning of the words used therein is not followed. State, ex rel., v. City of Overland Park, 215 Kan. 700, 527 P.2d 1340 (1974). In determining legislative intent, courts are not limited to a mere consideration of the language used, but look to the historical background of the enactment, the circumstances attending its passage, the purpose to be accomplished, and the effect the statute may have under the various constructions suggested. Brown v. Keill, 224 Kan. 195, 580 P.2d 867 (1978). When the interpretation of a section of an act according to the exact and literal import of its words would contravene the manifest purpose of the legislature, the entire act should be read according to its spirit and reason, disregarding so far as may be necessary the strict letter of the law. State, ex rel., v. Kalb, 218 Kan. 459, 543 P.2d 872 (1975), modified on other grounds, 219 Kan. 231, 546 P.2d 1406 (1976). From what has been said, we conclude that the legislature did not intend K.S.A. 1976 Supp. 44-510f(c) to apply to plaintiff and those similarly situated, even though the literal wording of that provision might seem to include them. It follows that plaintiff should not have been denied compensation under the act. 2 Kan. App.2d at 426-29. In Brown v. Goodyear Tire & Rubber Co., 3 Kan. App.2d 648, 599 P.2d 1031 (1979), aff'd 227 Kan. 645, 608 P.2d 1356 (1980), the claimant filed for and received an award for workers compensation from the Kansas Workers Compensation Fund. Sixteen months later, the claimant turned 65 years old and began receiving social security benefits. One month later, the Fund filed a motion for modification and termination of the claimant's workers compensation disability benefits, based on K.S.A. 1974 Supp. 44-510f(c) (since repealed), which provided: An employee shall not be entitled to compensation benefits for permanent total disability, temporary total disability or partial disability, under the workmen's compensation act, from and after the date when he shall be entitled to and during such period as he shall receive federal old age social security benefits, reduced or unreduced. The workers compensation examiner granted the Fund's motion and terminated the claimant's disability benefits, stating that the Workers Compensation Fund would not be liable for further benefits to the claimant so long as he received social security benefits. The Workers Compensation Director sustained the termination order, and the district court affirmed the termination order. The plaintiff appealed the order to the Court of Appeals, alleging, inter alia, that K.S.A. 1974 Supp. 44-510f(c) unconstitutionally violated equal protection by creating a classification based on age and receipt of social security benefits. Relying on Baker, 222 Kan. 127, the Court of Appeals upheld the constitutionality of K.S.A. 1974 Supp. 44-510f(c). In so holding, the court stated: The setoff provision challenged in this action withstands allegations of unconstitutionality on grounds similar to those described in Baker. When viewed as part of a wage-loss compensation program, the termination of benefits under 44-510f(c), like 44-510b(j), does not really penalize the injured worker. By preventing a duplication of benefits under the Workmen's Compensation Act and the Social Security Act, the provision places the worker in the same position as fellow workers who have retired and are drawing old age social security benefits. At that point he is no longer subject to wage loss. It is only his disability benefits that are affected. After retirement the wage loss experienced by a worker is not caused by injury, but by retirement. A worker could retain workmen's compensation benefits by staying in the labor market and not retiring. The setoff provision of 44-510f(c) does not apply to any medical compensation that might be owed under an award of compensation. The claimant argues that the purpose of the Workmen's Compensation Act `is to burden the industry with the economic loss to a workman, or his dependents, resulting from accidental injury sustained by the workman arising out of and in the course of his employment,' Hilyard v. Lohmann-Johnson Drilling Co., 168 Kan. 177, 180, 211 P.2d 89 (1949), and that the arbitrary classification under 44-510f(c) frustrates this statutory purpose by shifting the economic loss to the employee. However, as already discussed above, this contention is without merit. .... ... The wage-loss theory provides a reasonable basis for the offset, even if the social security benefits are lower than the workmen's compensation benefits, since the former amount is the same the worker would have received even if he had retired without having been injured. We therefore find that 44-510f(c) is constitutional. 3 Kan. App.2d at 654-55. This court affirmed the Court of Appeals' decision. The plaintiffs acknowledge the case law which holds that similar pension offsets are constitutional. However, the plaintiffs ask this court to reconsider its decision in Baker and Brown and find the offset for social security retirement benefits in K.S.A. 44-501(h) to be an unconstitutional denial of equal protection for the reasons set out in the dissent by Justice Schroeder in Baker. The analysis relied upon in Baker and Brown is still valid. Thus, based on Baker and Brown, the social security offset in K.S.A. 44-501(h) is rationally related to the valid state interest of preventing the duplication of wage loss replacement benefits. The pension offset does not unconstitutionally violate equal protection. In the alternative, the plaintiffs ask this court to judicially limit the offset and find that it does not apply to employees who are injured while they are working on a job to supplement the social security benefits they were currently receiving, just as the Court of Appeals did in Boyd, 2 Kan. App.2d 425. Moreover, the plaintiffs ask this court to find that the offset should not apply to employees injured before they received social security retirement benefits but who would have continued to work to supplement their social security benefits, once the time came, had it not been for their injuries. According to the plaintiffs, these workers are similarly situated to workers who were injured after receiving their first pension check and no rational basis exists for treating them differently. Finally, the plaintiffs point out that in both situations the social security retirement benefits do not replace the same wage loss replaced by the workers compensation benefits; thus, social security benefits should not be used to offset the workers compensation benefits. To do so, the plaintiffs claim, results in a violation of equal protection. As in Boyd, all of these questions deal more with the interpretation and application of the offset statute than with the constitutionality of the statute. The plaintiffs have only appealed the constitutionality of the statute; they have not appealed its specific interpretation or application. Thus, an analysis of these questions is best saved until a more appropriate time.
K.S.A. 44-501(h) also allows an offset against workers compensation benefits, which an injured worker would otherwise be entitled to, for selected private pension retirement benefits, but only if the employer has contributed to the private pension, and even then no offset against the workers compensation benefits is allowed for the pension benefits attributable to an employee's contribution. The plaintiffs claim that the private pension offset provision violates equal protection because it treats pension plans in which an employer has directly contributed funds different from all other retirement plans, without a rational basis. According to the plaintiffs, all private pension plans are actually paid for by employees through years of labor. Thus, retired injured workers who receive private pensions are all similarly situated. Yet, they receive different amounts of workers compensation benefits depending on how much money, if any, their employer directly contributed to a private pension fund. The plaintiffs claim that no legitimate purpose is served by this disparate treatment of similarly situated injured employees which K.S.A. 44-501(h) requires. Thus, the plaintiffs assert that K.S.A. 44-501(h) violates equal protection. See Stephenson v. Sugar Creek Packing, 250 Kan. 768, 830 P.2d 41 (1992). We hold the legislature intended to prevent duplication of wage loss replacement with the offset provision. The legislature concluded that it did not make sense to prevent duplication of replacement wages from social security benefits that were partially employer funded and not prevent such duplication of wages from employer-funded private pensions. Thus, the legislature allowed employer contributions in private pension plans, paid to retired injured workers, to offset employer-funded workers compensation benefits paid to the same injured workers, so as to prevent duplication of wage loss replacement. This is a public policy issue. The legislature believes such an offset will encourage employers to furnish retirement plans for employees because the employer will not be required to duplicate wage replacement should an injured worker retire. The prevention of wage loss duplication is a legitimate State goal, and the offset provisions for employer-funded retirement plans (social security or private pensions) are rationally related to this goal. K.S.A. 44-501(h) does not violate equal protection.