Due to the serious nature of their work injuries, many workers’ compensation claimants are also found eligible for Social Security Disability Insurance (SSDI) benefits. Social Security Disability Insurance benefits are paid only to workers who are unable to engage in any substantial gainful activity by reason of a physical or mental impairment that is expected to last at least a year or until death. This means that a physical or mental impairment prevents a person from doing any type of job, not just from returning to his or her former job.
Many injured workers find themselves receiving both workers’ compensation benefits and SSDI benefits. According to the United States Social Security Administration, as of December 2003, 7.6 million beneficiaries received SSDI benefits and of those beneficiaries, 1.3 million, or about 17%, had some connection to workers’ compensation.
Unless certain steps are taken, persons who receive both workers’ compensation and SSDI benefits, may find that the amount of their SSDI benefits is offset, resulting in less money in their pocket. This is because Federal law limits the amount of SSDI benefits a person can receive while also receiving state workers’ compensation benefits. Generally, SSDI benefits are reduced so that the combined social security and workers’ compensation benefits do not exceed 80% of the claimant’s average current earnings. (ACE) The reduction of benefits can have a huge impact on a claimant’s bottom line and greatly reduce his or her income. There is no offset against Social Security retirement benefits.
There is good news for recipients of workers’ compensation and Social Security Disability Insurance benefits. A workers’ compensation attorney can structure a workers’ compensation settlement in a manner which will reduce, or in some cases, even eliminate the offset of SSDI benefits. A simplified explanation of how this is often accomplished is that the workers’ compensation claim is settled on a lump-sum basis, claimant’s attorneys’ fees and expenses are subtracted and the remainder of the lump-sum award is prorated over the injured worker’s life expectancy. If a workers’ compensation settlement is appropriately structured, the injured worker, rather than the Social Security Administration, will receive the maximum benefit of the settlement.
Here’s how it works: Let’s say the parties to a workers’ compensation case agree to settle the claim for a lump-sum payment of $100,000. Let’s assume the claimant’s attorneys’ fees are $33,333.00 and expenses are $200.00. When you subtract these amounts from the $100,000 lump sum settlement, you have a net settlement of $66,467.00. Let’s now assume the injured worker is male and is 50 years old. According to the life expectancy charts, his life expectancy is 29.2 years or 350 months. The net settlement amount ($66,647.00) is then divided by claimant’s life expectancy in months (350 months) which leaves you with a monthly allocation of $189.90. This is added to the claimant’s monthly Social Security benefit which we will assume is $1,000 for the purposes of this example for a total of $1,189.90. This is then compared against 80% of the ACE, which we will assume is $2,000 for the purposes of this example. There is no offset because $1,189.90 is less than $1,600. (80% x $2,000 = $1,600.)
Individuals who receive SSDI benefits should carefully consider the Social Security offset when settling their workers’ compensation claims because failure to do so may result in a significant loss of benefits.
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