BASIC (09-08)

Citations:

Social Security Ruling 76-34 c, 87-21 c, 97-3

A lump sum (LS) WC/PDB settlement is prorated and excludable expenses deducted before offset is applied. All three proration methods must always be considered when prorating a lump sum settlement award. This section explains how to prorate a lump sum (LS) and how to determine the rate at which to offset.

For WC State-specific LS procedures, see DI 52120.001.

For PDB State-specific procedures, see DI 52135.001.

NOTE: Individual States may have specific procedures involving LS awards. For example, Puerto Rico WC LS differ greatly from general lump sum instructions.

For cases involving complex lump sum provisions (life expectancy, LS awards involving commuted value, advanced payments, structured settlements and subsequent addendums), see DI 52150.065.

A. Definition - Lump sum (LS)

For proration consideration, a LS is a final settlement, award, compromise and release, or other approved agreement that represents a final WC/PDB payment due the number holder (NH). A check or other payment representing past-due periodic WC/PDB payments that simply bring payments up to date is not a LS for this purpose. See NOTE in DI 52140.001G to exercise caution when attorneys or claimants seek assistance in preparing a WC settlement and asking the affect, if any, such a settlement would have on the NH's benefits or specific questions regarding proration terms to be used in possibly avoiding offset.

B. LS amounts not subject to offset

LS amounts not subject to offset (i.e., those amounts that do not qualify as excludable expenses, but instead are deducted off the top from the gross LS amount) are rare, and include:

• LS discounts

• Amounts to a spouse for inchoate rights (Massachusetts)

• Assessed penalties

• Accrued interest

Annotate these amounts in ICF as a SPECIAL AMOUNT DEDUCTED FROM THE GROSS on the WCLS screen in ICF. ICF deducts these amounts before the LS award is prorated.

C. Offsettable LS amounts involving private loan repayments

Amounts deducted from the LS to repay private loans are not excludable expenses. Include the repayments in the LS gross amount for proration and offset purposes.

D. Facts needed to prorate a LS

Verify the following before prorating an LS:

• Gross amount of the LS

• LS start date or periodic payment ending date

• Weekly rate at which to prorate

• Excludable expenses included in the gross amount of the LS

To verify and document the evidence, see instructions in DI 52145.001.

1. Determine the gross amount of the LS

The gross amount of the LS is the total settlement minus any amounts that are not subject to offset (e.g., inchoate amounts), but prior to any adjustment for excludable expenses.

Liens (a legal device for securing payment of an underlying debt or financial obligation) against a WC/PDB award settlement rarely affect the gross lump sum amount. Liens for unpaid medical bills or payment of attorney fees incurred by the worker to obtain the WC/PDB benefits are not deducted from the gross LS amount prior to proration, but are instead treated as excludable expenses. Liens for back taxes owed, unpaid child support, or unpaid alimony have no relevance to the offset calculation. Taxes, child support, alimony payments, or other personal obligations of the worker do not reduce the gross WC/PDB settlement amount.

Example: An entity other than a WC carrier, i.e., the Department of Public Aid, agrees to assist the family and pays $20,000 pending a WC award. The disabled worker is subsequently awarded a WC lump sum settlement of $100,000. The settlement stipulates that a lien amount of $20,000 is due the Department of Public Aid. It is irrelevant whether the settlement stipulates the claimant receives the entire $100,000 and then reimburses the Department of Public Aid, or the claimant receives $80,000 and the remaining $20,000 is paid directly to the Department of Public Aid. In either situation, offset is imposed based on the entire $100,000 WC settlement awarded the claimant.

2. Determine the LS start date

The following order of priority determines the LS start date:

1. Allocate the LS to the period specified in the award.

2. If the LS award does not specify a start date and the worker previously received periodic payments, the LS proration begins the day after the day the periodic payments ended. Do not use the date of the settlement as the LS start date.

3. If the LS award does not specify a beginning date, and the worker did not receive periodic payments, allocate the LS to:

   • The period beginning with the date of the illness/injury for WC,

   • The date the worker's employment terminated for occupational disease,

   • The date the illness/injury began for PDB.

NOTE: Disfigurement benefits are offsettable, and can be paid as a lump sum in addition to other WC benefits. The WC award may not specify the start date for the disfigurement lump sum. Refer to State Specific Workers’ Compensation (WC) Procedures in DI 52120.001 and Federal Employees’ Compensation Act (FECA) in DI 52115.010 for possible specific state/federal instructions regarding disfigurement. If no specific state/federal instructions apply, and the start date for the disfigurement LS is not specified in the award, use the following order of priority to determine the proration start date for a lump sum disfigurement payment:

• The day after the day periodic payments end;

• If periodic payments are not ending, or the worker did not receive periodic payments, use the date of the award as the proration start date.

3. Determine the LS proration rate

SSA prorates LS awards at an established weekly rate. See State specific WC procedures in DI 52120.001 for possible unique state lump sum payment and processing instructions before prorating an LS.

The priority for establishing weekly rates is as follows:

1. The rate specified in the LS award.

2. If the LS award specifies a rate based on life expectancy (LE), follow instructions and examples in DI 52150.065A (Complex Lump Sum Awards and Settlements) to determine whether excludable expenses have already been deducted to derive the LE rate stated in the settlement. If excludable expenses were deducted to derive the LE rate, recalculate the LE rate without considering the excludable expenses. Use this LE rate to compute offset to determine which of the three proration methods is most advantageous to the NH. NOTE: The requirement to consider all three proration methods when a life expectancy rate is involved represents a Change of Position (COP) effective 06/29/2006. Do not reopen determinations processed before that date.

   If a life expectancy award appears unreasonable, for example, if the LE period ends when the beneficiary attains age 200, prepare the case for policy submittal per DI 52140.015. (DI 52150.065A.2 contains examples of unreasonable language in a LS award.)

3. For awards involving subsequent addendums, see instructions in DI 52150.065E. of this section.

4. If the award does not specify a rate and the NH received periodic payments, use the latest periodic rate paid prior to the LS award.

5. If the LS award does not specify a rate and the NH received no prior periodic payments, but the language of the LS award implies a compensation rate, use the implied rate and develop for any needed clarification. For example, if the settlement says the NH had an average weekly wage of $450 entitling him to weekly compensation of $300, use the $300 rate to prorate even though this rate is not specified in the award.

6. If the award does not specify a rate and the worker received no prior periodic payments, use the State's WC maximum in effect on the date of the injury or illness. See the chart of State WC maximums in DI 52150.045.

CAUTION: Be alert to a payment that appears to be a LS, but is actually a single retroactive accumulated or past-due periodic payment. A check representing past-due periodic WC/PDB payments to simply bring payments up to date is not an LS for this purpose.

4. Determine the excludable expenses

Review the award to determine the qualifying expenses incurred by the worker. To determine if the expense is excludable from the offset, follow instructions in DI 52150.050 – Excludable Expenses.

5. Subsequent allegation of expenses

For purposes of this section, a subsequent allegation of expenses refers to expenses not mentioned in the award or expenses that are in excess of the amount specified and proven at the time of the initial proration of the award.

If the expenses are verified, recalculate the LS proration, combining the new expenses with the previous expenses if the evidence relates to a prior determination and represents new and material evidence. Compare the methods of proration.

E. Methods of prorating a LS with excludable expenses

There are three methods of prorating a LS with excludable expenses. If expenses are involved, consider all three proration methods described in this subsection to determine the method that is most advantageous.

1. Method A

Method A excludes the expenses from the beginning of the proration period thereby delaying the imposition of offset.

Method A is more likely to be advantageous if, for example,

• the worker is nearly age 62/65 before December 19, 2015,

• the worker is near attaining full retirement age (FRA)(see NOTE),

• a closed period of disability insurance benefits (DIB) exists; or

• reverse offset is involved (e.g., Florida).

NOTE: Effective December 19, 2015 or later, WC offset termination now extends from age 65 to FRA. See 2015 Amendment in DI 52101.005.

To prorate using Method A:

• Divide the excludable expenses by the weekly rate, resulting in a number of weeks.

• Delay imposing offset for this number of weeks beginning with the date DIB would have been offset (the offset first considered date or the day after periodic payments end, whichever is later).

• Impose offset when the resulting number of weeks expire.

2. Method B

This method of proration spreads the expenses out over the life of the award.

To prorate using Method B:

• Subtract the expenses from the LS.

• Divide the result by the total LS.

• Multiply this percentage by the weekly rate, resulting in a reduced weekly rate.

• Use the new weekly rate determined above to offset the LS.

3. Method C

This method excludes the expenses from the end of the proration period, thereby shortening the offset period. This removes offset at the earliest possible time. The proration could potentially expire prior to the first possible month of offset.

To prorate using Method C:

• Subtract the expenses from the LS.

• Prorate only the balance determined above.

CAUTION: Never rely exclusively on the most advantageous method selected by ICF on the WCWE screen, particularly if the Total Benefits Payable results for all three proration methods are nearly equal. ICF does not consider future events, such as future COLAs, triennial redeterminations of the ACE, age 62 attainment and possible RIB election, or future changes to the family composition.

Check to see if any of these factors are involved. If all offset will end when an auxiliary terminates, Method A may be most advantageous, depending on the effective month of termination. If the NH is almost age 62, Method A with a reduced RIB election may be the best choice. Method B may be optimal when triennial redeterminations are considered.

If you select a proration method other than the proration method automatically selected by ICF, you must annotate the basis for your decision to the remarks screen.

F. Systems proration of the LS

1. MCS earnings computation (EC)

Follow instructions in DI 52155.010 to process WC/PDB LS actions involving an MCS claim.

2. ICF

Prorate the LS through the ICF unless a program limitation applies. Follow instructions in DI 52165.001 - Interactive Computations Facility (ICF) for Workers’ Compensation/Public Disability Benefit (WC/PDB) Computations.

NOTE: Future proration end dates computed via MCS or ICF WC/PDB are propagated to the MBR. When the future date matures, RETAP selections and alerts enable the T2 process to adjust the WC/PDB automatically or alert the PC to complete the adjustment action.

G. Manually prorating the LS

Prorate the LS manually on the reverse side of the form SSA-2455 if the ICF #31 or #32 cannot process the computation. Verify all of the following:

• Gross amount of the LS

• Start Date

• Weekly rate at which to prorate

• Excludable expenses

For manual processing, follow instructions outlined in DI 52170.030. After completing the manual proration, enter the results in ICF WC/PDB Function #34 (OREO) and forward to the BA/BTE for input into MACADE and MBR update.

H. LS case situations requiring special ICF considerations

There is a continually evolving area of identified system limitations and program problems. These cases require special consideration when processing. For a list of program limitations and case specific processing instructions, see Interactive Computations Facility (ICF) Resource Page for WC/PDB Offset Computations .

1. Multiple injury or disability cases

Prorate LS awards for different injuries or disabilities separately. The total amount of WC for offset purpose can exceed the State maximum in this situation.

a. Manual computations

For offset purposes, add together monthly amounts for any concurrent period. See DI 52170.030 - Manual Proration of a Lump Sum Award.

b. ICF

Enter any concurrent injury or disability into ICF as separate claims. The system has the capability of processing a maximum of four separate WC/PDB claims at one time.

I. References:

• DI 52101.005 - Social Security Amendments with Workers’ Compensation/Public Disability Benefits (WC/PDB) Offset Provisions

• DI 52145.001 - Obtaining Verification/Proof of Workers’ Compensation/Public Disability Benefit (WC/PDB) Information

• DI 52150.045 - Chart of States’ Maximum Workers’ Compensation (WC) Benefits

• DI 52155 - Initial Claims with Workers’ Compensation/Public Disability Benefit (WC/PDB)

• DI 52150.065 - Complex LS Settlement Provisions