To minimize Social Security benefits offset:

Spread out workers’ comp settlement over time

A lump sum workers’ compensation settlement will reduce dollar for dollar any subsequent Social Security disability benefit payments received by the injured worker.

To minimize or even avoid this offset of Social Security disability benefits, a workers’ comp settlement agreement should always contain language that spreads out payments over time. Absent this “spread language” in the workers’ comp agreement, the lump sum payment will reduce the Social Security disability benefits to which the claimant is otherwise entitled.

For example, let’s say a 47-year-old man receives a $70,000 workers’ compensation settlement for a torn rotator cuff. At age 48, the man suffers a disabling heart attack that keeps him from working. Two years later, he obtains a Social Security disability award of $1,000 per month.

The disabled man’s workers’ comp settlement agreement did not contain spread language. Unfortunately, this means the Social Security Administration will set off the entire lump sum settlement of $70,000 against his $1,000 monthly Social Security benefits. As a result, the disabled man is precluded from obtaining Social Security benefits for the first 70 months he was entitled to receive those benefits. This is true despite the fact the two injuries are unrelated.

To avoid this, the workers’ compensation settlement agreement should have included language spreading out payments over his life expectancy. For example, at age 47 the man has 31.5 years life expectancy. The workers’ comp settlement of $70,000 could have been spread out over that span of time in monthly payments of approximately $185. Accordingly, his subsequent Social Security monthly benefits of $1,000 would only have been reduced to $815.

Another situation to keep in mind is when an injured worker declines to apply for Social Security disability benefits after obtaining a workers’ compensation lump sum settlement. Let’s say an injured worker returns to work for three months following receipt of his workers’ compensation settlement benefits, but his job is terminated. He applies for and is eventually awarded Social Security disability benefits.

If the workers’ compensation settlement does not include spread language, his Social Security benefits are reduced immediately by the amount of the workers’ comp settlement. Contracts settling workers’ comp claims should always include spread language even if an injured worker at the time of settlement has no specific intention of subsequently filing for Social Security disability benefits.

Below is sample language to include in a workers’ compensation settlement agreement that spreads out payment of benefits over time:

After payment of attorney’s fees and costs, the petitioner will receive a net amount of $__________.   This is for a permanent impairment that will affect the claimant for the rest of his/ her life.  The mortality table indicates that a petitioner at age _______ has a life expectancy of _______ 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.