EFFECTIVE/PUBLICATION DATE: 10/3/97
20 CFR 404.408
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.
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.
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).
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 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);  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);  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).
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.
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. 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.
Two years later, in 1996, after offset was imposed, the disabled worker obtained an amended stipulation which 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.
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.
 SSR 72-37c (C.E. 1971-1975, p. 466).
 SSR 85-6c (C.E. 1981-1985, p. 692).
 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.
 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. § 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.
 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.
 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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