You were injured on the job, and you’ve just received a workers’ compensation settlement, payable in one big lump sum. Your thrilled – until a few weeks later, when you receive a letter from the Social Security Administration (SSA) informing you that your monthly social security disability benefits have been discontinued as a result of the settlement.
Or maybe a few months later, you become disabled following an accident that is completely unrelated to the worker’s compensation claim. The SSA eventually approves your application for Social Security Disability (SSD) benefits – only to immediately reduce your monthly benefits as an offset of the workers’ compensation award.
These situations could have been avoided if only the settlement agreement had included worker’s compensation spread language, which would have allowed the workers’ compensation payment to be amortized over your life expectancy.
How workers’ compensation affects social security disability benefits
The SSA will reduce or eliminate monthly disability benefits if the recipient also receives a workers’ compensation settlement. This offset occurs even if the medical condition that qualified the recipient for disability benefits is unrelated to the injury that resulted in the receipt of the workers’ compensation benefits.
When a person receives both workers’ compensation and SSD benefits, the combined amount of these benefits – including SSD benefits received by any member of the recipient’s household – cannot exceed 80% of the recipient’s average current earnings before he became disabled.
To understand how this works, take the case of a 35-year-old man who received a $50,000 workers’ compensation settlement after a construction site accident shattered his leg. Three months later, he is blinded as the result of a genetic eye disorder and is no longer able to work. Based on his disability, he is awarded $1,500 a month in SSD benefits. His average monthly earnings at the time were $1,700.
The total amount of the SSD and workers’ compensation benefits exceed 80% of his average current earnings prior to becoming disabled. As a result, the SSA will offset the entire workers’ compensation settlement against his $1,500 monthly disability benefit amount. The length of the offset is determined by dividing the workers’ compensation settlement amount by the value of the monthly benefits. So in this case, the recipient will be ineligible to receive disability payments for 34 months.
How the inclusion of worker’s compensation spread language minimizes the reduction of benefits
Now consider again the above example, but this time the workers’ compensation settlement agreement contained spread language amortizing the payments over the recipient’s life expectancy.
According to the SSA’s life table, a 35-year-old man has a life expectancy of 43.10 years. Spreading the workers’ compensation settlement over his life expectancy results in an award of approximately $97 per month.
The man’s average monthly earnings prior to becoming disabled was $1,600; 80% of that amount is $1,280. The combined value of his $1,500 per month SSD benefits and $97 workers’ compensation payment exceeds 80% of his average current earnings by $317 ($1,600 x .80 = $1,280, $1,597 – $1,280 = $317).
Disability benefits will therefore be reduced by $317, leaving him with a $1,183 monthly benefit payment – a much better outcome than the $0 in disability payments he would have received absent the inclusion of spread language.
Because the SSA will reduce a recipient’s monthly disability payment even if the medical condition that justifies receipt of SSD benefits is unrelated to the medical condition that resulted in receipt of the workers’ compensation award, spread language should be included in all workers’ compensation settlement agreements as a matter of course.
An example of spread language is as follows:
After payment of attorney’s fees and costs, petitioner will receive a net amount of $ ___. This payment is for a permanent impairment that will affect petitioner for the rest of his life. The Social Security Administration’s Actuarial Life Table indicates that petitioner, at age _____, has a life expectancy of _____ years, or ____ months. The amortized monthly net benefit is $ _____ per month. This represents future income replacement. This paragraph is intended for federal Social Security purposes only.
For a complimentary Social Security Disability evaluation consider the Law Offices of Neil H. Good. Call#(847) 577-4476 or contact our office online for a free case evaluation.