Indiana Worker's Compensation: Avoiding Social Security Disability Offsets
In many Indiana Worker's Compensation Cases, an injured worker might receive a lump sum settlement after the injured worker has completed all necessary medical treatment and has been placed at maximum medical improvement by the treating doctor. This lump sum settlement could be based upon three components: 1) unpaid or future medical expenses; 2) unpaid or future wage loss benefits; and 3) compensation for any permanent injury the worker sustained.
The worker's compensation lump sum settlement is made under Indiana Code Section 22-3-2-15. It is referred to as a Section 15 Settlement. This lump sum settlement is tax free.
Prior to settling the worker's compensation case, it is important to determine whether the injured worker is thinking about or has applied for Social Security Disability Benefits because any lump sum worker's compensation settlement could potentially negatively impact the injured worker's receipt of Social Security Disability Benefits. In other words, the worker's compensation lump sum settlement could "offset" the injured worker's receipt of Social Security Disability Benefits.
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This mechanism requires the injured worker to retain an experienced worker's compensation attorney to guide them through the process and ensure the worker's compensation lump sum Section 15 settlement agreement includes the necessary provision(s) to avoid or reduce any potential "offset".
A Social Security offset provision is used anytime an injured has or is expected to pursue Social Security Disability Benefits. What the offset provision does is show on paper that the payment of a lump sum is being paid over the course injured worker's life when in all actuality, the injured worker is receiving a lump sum payment all at once.
A Social Security offset provision is used because in most situations, Social Security requires that Social Security Disability Benefits be reduced so that the total monthly amount that a disabled worker receives is no more than 80% of the amount he earned when he was fully employed.
To calculate the amount of the offset, Social Security first determines what it calls the “applicable limit,” or the maximum total monthly amount of combined benefits that the recipient is allowed to get under federal law.
When an injured worker receives more money than the applicable limit in any given month, then Social Security offsets the Social Security Disability benefits in the amount required to bring the total back down to the applicable limit.
These work comp offsets of Social Security Disability benefits occur more frequently to injured workers who earned lower incomes when they were working, because their applicable limits are lower and more easily exceeded once the worker starts to receive Social Security Disability benefits and work comp.
The applicable limit is the higher of either: 80% of the worker's pre-injury income, called “average current earnings,” or the total amount of Social Security Disability benefits received by all of the members of the recipient's family in the first month that work comp is received.
Social Security calculates the average current earnings by taking the highest one of: (1) the average monthly wage that the injured worker's benefit amount is based on; or (2) the “high five,” or the average monthly earnings from the highest five years in a row; or (3) the “high one,” or the average monthly earnings from a single calendar year, either the year the person’s disability began or any one of the five calendar years before that year.
Social Security calculates 80% of the average current earnings to come up with the applicable limit. Then it adds the monthly Social Security Disability benefit to the monthly work comp benefit. If the benefit total exceeds the applicable limit, Social Security will reduce Social Security Disability benefit until it reaches the applicable limit.
Social Security will offset Social Security Disability benefits in this manner until the recipient reaches full retirement age and begins collecting Social Security retirement benefits instead of Social Security Disability benefits.
To avoid this Social Security offset, the injured worker's attorney will want to include in the worker's compensation section 15 settlement agreement a provision or spread language which typically says something along the lines of:
"In order to avoid the uncertain results of trial, further litigation expenses, and the delay in the adjudication and disposition of this claim, the parties have agreed to a compromised settlement herein wherein the Defendant will pay Plaintiff in settlement of all claims for workers’ compensation benefits and Plaintiff agrees to accept a lump sum payment of $_____. This lump sum is compensation for the permanency of the Plaintiff’s injuries which will affect the plaintiff for the rest of her life. From this payment, $__________ will be paid to Plaintiff’s counsel in attorney’s fees and $__________ will be deducted in litigation expenses. This leaves a balance of $__ to be paid to Plaintiff. Plaintiff’s remaining life expectancy is ____ months. Plaintiff’s benefits shall be considered to be $____ per month for ____ months beginning as of ____, the last date TTD was paid. This calculation is made pursuant to the case of Sciarrotta v. Bowen, 837 Fed. 2d 135 (3rd Cir. 1988)."
If you have questions about your worker's compensation case, you should contact an experienced Fort Wayne Indiana worker's compensation lawyer for a free legal consultation.