BASIC (09-08)

Citations:

Social Security Ruling 87-21 c, 85-6 c, 87-20 c, 97-3

A lump sum (LS) is a final settlement, award, compromise and release, or other approved agreement that represents a final WC/PDB payment due the worker based on the injury or illness. LS settlements use a variety of methods for payment.

NOTE: Do not reopen prior determinations involving Lump Sum (LS) Settlements that were correct based on POMS instructions in effect prior to the September 2008 POMS issuance.

This section defines certain types of LS WC awards and provides offset computation instructions. There is a subsection for each of the following types of LS awards:

NOTE: Voluntary settlement agreements negotiated directly between the employee/attorney and the employer/insurance carrier, sometimes known as “sidebar agreements,” are subject to offset in the same manner as a WC lump sum settlement approved by the State WC Board. For a complete definition of voluntary settlement (sidebar) agreements, see the WC Glossary in DI 52120.001I.

A. Life expectancy (LE) awards

A lump sum award may specify a payment amount based on the number holder’s (NH) life expectancy determined by insurance life expectancy tables. The life expectancy of the NH is often given in weeks, months, or years. These awards usually specify a life expectancy (LE) rate.

If the award does not stipulate a specific length of time for the life expectancy, develop for clarification, as necessary. List all life expectancy lump sum proration cases under listing code 557.

NOTE: The mention of a monthly LE rate in a LS award does not bind SSA to allocate expenses in a specific manner.

1. Determining the LE rate

If the LS award specifies a rate based on LE, determine whether excludable expenses were deducted in deriving the LE rate specified in the award:

NOTE: The requirement to consider all three proration methods in a LE case represents a change of position (COP). Implementation of the change is effective 06/29/2006. Do not reopen determinations processed before that date.

EXAMPLE 1:

A LS award of $100,000 is approved with a valid excludable attorney fee of $20,000 and a valid excludable medical expense of $10,000.00. The LS settlement states the NH’s LE is 2,000 weeks and a life expectancy rate of $40 per week.

• The $20,000 attorney fee was taken into consideration to compute the life expectancy rate ($100,000 - $20,000 = $80,000 divided by 2,000 weeks = $40.00 week.)

• The correct LE rate for proration purposes is determined by dividing the gross LS by the NH’s life expectancy: $100,000 divided by 2,000 weeks = $50.

• To prorate the LS, the correct weekly WC rate to use is $50 (i.e., the amount to enter in the Modernized Claims System (MCS) or the Interactive Computation Facility (ICF).

• Medical expenses of $10,000 and attorney expenses of $20,000 are then deducted from the gross LS (i.e., enter expenses in the appropriate data fields in MCS or ICF). MCS and ICF use all three proration methods to determine the method most advantageous.

EXAMPLE 2:

A NH receives a LS award of $45,000 with valid attorney expenses of $11,250 and valid medical expenses of $1,730.77. The award contains language indicating the settlement represents $57.63 per month for 46.3 years. To determine whether excludable expenses were deducted in deriving the $57.63 LE rate in the LS award:

• Multiply $57.63 x 12 (months) x 46.3 (years) = $32,019.23.

• $32,019.23 + $11,250.00 + $1,730.77 = $45,000.00 (total award amount)

This example illustrates that all attorney and medical expenses were deducted. Therefore, we must determine the correct LE rate for proration purposes.

• Consider all three proration methods and determine which is most advantageous. Compute the monthly rate before deduction of the expenses.

• Multiply 46.3 x 12 = 555.6 (total months represented in award)

• Divide $45,000 by 555.6 = $80.99 (rounded to the next lower dime) = $80.90 (LE monthly rate before expenses).

To input into the MCS and ICF programs, enter the gross LS amount of $45000, the LE monthly proration rate of $80.90, excludable attorney expenses of $11,250.00, and excludable medical expenses of $1,730.77.  MCS and ICF use all three proration methods to determine the most advantageous method.

2. LS award language

If the wording in an LS award appears to be unreasonable and existing Regional Office of the General Counsel (OGC) precedents, fail to provide guidance:

• Prepare the case for policy submittal per DI 52140.015.

• Continue to offset at the previous weekly rate to prevent overpayment but do not make any determination on the lump sum until receiving a submittal response.

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

Examples of unreasonable language in a LS award include:

• A proration period that greatly exceeds life expectancy

  EXAMPLE: The LE period ends when the worker attains age 200.

• Stipulation of a proration start date that precludes offset

  EXAMPLE: The terms of the settlement specify that the lump sum settlement is “for WC benefits payable beginning at age 65. (See PR 02505.046 South Dakota)

• Settlement language cites a small monthly rate up to age 65 with a significantly larger rate beginning at age 65 and continuing

  EXAMPLE: The plaintiff’s average weekly wage is determined to be $350.00. Based on this, the rate for temporary total WC payments is determined to be $250.00 weekly and permanent total payments to be $175.00.

  The NH is found permanently and totally disabled as a result of an injury occurring on 05/08/2001 and is awarded benefits from the date of maximum medical improvement, 07/12/2001 and continuing.

  The award states the settlement represents weekly WC payments of $100 beginning the date of maximum medical improvement (07/12/2001) up to age 65 (09/02/2012) and weekly payments of $250.00 effective age 65.

NOTE: Contradictory language in a lump sum settlement requires further development for clarification.

B. LS Awards involving a commuted value of future periodic payments

1. Definition of commuted periodic payments

Commutation awards are typically an order by a WC judge for a LS payment paid in lieu of future periodic payments to compensate the individual for a work-related injury or illness. The commuted amount is merely a change in payment of part or all of a worker’s future WC benefits from that designated in the original WC award. The commuted amount can be a lower total WC amount than designated in the original settlement, and/or may hasten the timeframe for payment of future WC payments due. A commutation award can specify payment in a variety of ways.

2. Processing a commutation order

Apply the following to any award involving a commuted value of future periodic payments:

1. Impose offset based on the commuted WC amount.

2. If the award involves an LS, use all three proration methods described in DI 52150.060 to compute offset and select the most advantageous method.

3. If the award does not specify a proration rate based on the commuted value of the award but specifies an exact timeframe that the commuted amount will be paid, prorate the commuted value of the award over the entire specified period as described in the example in DI 52150.065B.3. in this section.

4. If the award does not provide an exact timeframe, but does provide the specific commuted amounts to be paid; offset at the specified amount as described in the example in DI 52150.065B.4. in this section.

3. Processing a commutation order involving a specified period

In the following example, the commutation order does not provide a specified rate based on the commuted value. Therefore, the proration rate is derived using the remaining timeframe and commutation amount. The commuted WC amount (and offset computation) are spread out over the entire period specified.

EXAMPLE:

The NH receives a letter dated 09/25/2005 and it shows the following:

• Date of Maximum Medical Improvement: 04/24/2005

• Period of Award: 04/24/2005 to 04/14/2009

• Number of Weeks of Compensation: 207.36

• Weekly Compensation Rate = $282.28

• Effective Date of Pay Rate: 11/01/2003

• After cost of living adjustments (COLAs), weekly compensation: $289.00

• First payment and the period covered: $5,614.86 for the period 04/24/2005 through 09/06/2005

• Continuing Payment every four weeks: $1156

The letter also states the NH has the option to an LS of $49,995.67 in payment of compensation representing a commuted value of future payments due for the remainder of the award payable from 10/05/2005 to 04/14/2009. If the NH did not opt for the commuted value, the remaining value of his original WC award is $53,156.18, as follows:

           $59,927.04 = $289.00 x 207.36 weeks

          -     5,614.86 (paid 04/24/05 through 09/06/2005)

         - $1,156.00 (paid 09/07/05 through 10/04/2005)

              $53,156.18 (balance to be paid by 04/14/2009)

The difference between the $53,156.18 remaining balance of the original WC settlement amount and the commuted value of $49,995.67 for future payments is $3,160.51.

This commutation award specifies a total commuted amount and the timeframe it represents, but there is no rate specified in the commutation order. Therefore, we must prorate the commuted value ($49,995.67) over the entire period remaining in the award (10/05/05 to 04/14/09) to determine the appropriate periodic rate.

NOTE: The alternative of using the previous weekly periodic rate of $289.00 against the commuted figure would cause the proration to end approximately 11 weeks earlier than the 04/14/2009 end date specified and, therefore, would not conform to the specified period of the award.

The following calculations are required to determine the weekly rate of the commuted $49,995.67 amount:

• Determine the number of days from 10/05/2005 through 04/14/2009 (1288)

• Divide the commuted value of $49,995.67 by the number of days remaining in the specified period (compute to 3 decimal places and round to the nearest penny):

  • $49,995.67 divided by 1288 = $38.817 daily rate

• Multiply the resulting figure by 7 to determine the weekly rate: $38.817 X 7 = $271.719 rounded to the nearest penny = $271.72

• $271.72 is the weekly rate used to compute offset for $49995.67 over the 10/05/2005-04/14/2009 timeframe specified in the commutation award.

4. Processing a commutation order that does not specify a timeframe

In the following example, the commutation agreement does not specify a particular timeframe the commuted award represents. It does provide the specific amounts to be paid (i.e., a WC lump sum, then the remaining commuted amount to be paid via specific monthly amounts).

EXAMPLE:

• The NH receives weekly WC of $170.00 and subsequently requests a lump sum (LS) commutation of $85,000.00.

• The commutation is approved, but the claimant elects to receive the benefits in accordance with an agreement for payment of proceeds. This agreement provides an initial LS payment of $25,000 less $17,000 for the attorney. It also states the NH will receive $1,000 per month for 60 months with payments beginning the month after the approval of the commutation petition.

In order to best reflect the actual payment amounts and how they will be paid, offset will be based on the $25,000 LS prorated at $170 per week with excludable attorney expenses of $17,000, and periodic payments of $1,000 a month for 60 months. This example does not specify a particular timeframe the WC payments represent, and since the first payment under the commutation order is the lump sum, the start date for the LS is the day after the previous weekly WC of $170.00 stop (per the order of priority in establishing the LS start date in DI 52150.060D.2.). The subsequent $1,000 periodic payment start date is the month after the approval of the commutation petition. If the lump sum proration and subsequent $1,000 periodic payments overlap, a manual computation is necessary. ICF cannot accurately compute offset when periodic WC/PDB payments and lump sum prorations overlap, or when one lump sum proration period overlaps another lump sum proration period.

C. LS awards involving advance payments

In several States, the WC carrier may make “advances” to the worker pending a settlement agreement that will dispose of the LS claim. Advance payments may be issued on a set periodic basis, or may be issued sporadically. These advances are then subtracted from the gross lump sum settlement when the LS settlement is finally awarded.  When prorating the lump sum, the amount to prorate is the gross amount, not the amount after subtraction of the advances.  The start date for the proration is determined in the normal manner.

EXAMPLE:

• The NH was receiving California weekly temporary total WC payments of $275.00 ending 05/23/2007. 

• The carrier makes advance permanent partial payments of $250.00 weekly from 06/01/07 to 08/09/07 (a total of ten weeks of advance payments) totaling $2,500.00. 

• On 10/10/07 a $40,000 settlement is approved, less any advances paid, with $4,500 authorized for attorney fees.  The net check received by the worker is $33,000. The amount to prorate is $40,000. The start date for the proration is 05/24/07 (the day after regular periodic payments ended). The only excludable expense is the $4,500 attorney fee.

NOTE: Not all payments are advances against a LS and it can be difficult to distinguish regular continuing WC payments from LS advances. Refer to State-specific procedures in DI 52120.001 and DI 52135.001 for specific information about advances.

D. Structured settlements

WC settlements may involve an initial LS payment and subsequent installments paid at specified intervals. These are generally referred to as structured settlements.

Review State procedures in DI 52120.001 for structured settlements (e.g., LS settlements in the State of Maine frequently end in structured settlements, see DI 52120.110).

To compute offset, prorate the initial LS payment using regular LS proration procedure and treat each subsequent yearly installment as a separate LS using the beginning date specified.

1. Allocating installment payments

• Allocate installment payments to the period specified in the award.

• Do not allocate payments to a period other than what is specified in the award.

• Disallow award language that deems payments or expenses to be allocated to periods that are different than the periods for which the payments are actually made or expenses incurred.

2. Rate for proration

• If a rate is specified for the initial LS payment only, use that specified rate to prorate both the initial LS payment and the subsequent installment payments.

• If the award does not stipulate any rate, use the prior periodic payment rate for proration of both the initial LS payment and the subsequent installment payments.

• If the award does not stipulate any rate and no previous periodic payments were paid, see DI 52150.060D.3.e. and DI 52150.060D.3.f., Determine the LS proration rate.

Example:

• DOB: 02/04/1958

• DOI: 01/19/1998

• DOED: 07/1998

• Periodic payments issued 01/20/1998-02/15/2003 at $262.56 weekly.

Structured settlement approved 07/19/2003, paid in installments as follows:

• $20,000.00 at time of approval, $2,000.00 allotted for future medical

• $30,000.00 payable 07/01/2004, $3,000.00 allotted for future medical

• $50,000.00 payable 07/01/2006, $5,000.00 allotted for future medical

• $50,000.00 payable 01/01/2010, $5,000.00 allotted for future medical

No stipulation found in the award for prorating the various LS payments.

• When making MCS or ICF inputs - enter the periodic payments as indicated above

• Enter the initial LS amount of $20,000, the proration rate of $262.56 weekly, a start date of 02/16/2003, and $2,000 excludable medical expenses. Select the most advantageous proration method.

• Enter the second LS as a second claim (e.g., assign a different WC claim number on the WPMU screen in MCS and the WCCL screen in ICF, such as #WC 634JB-1 for the initial $20,000 LS installment amount and #WC 634JB-2, for the $30,000 second LS installment, etc).

• Enter the LS amount of $30,000.00, the proration rate of $262.56 weekly, a start date of 07/01/2004, and excludable medical expenses of $3,000.00. Select whichever proration method is most advantageous.

• Enter the third LS as a third claim (e.g., assign a different WC claim number on the WCCL screen in ICF: #WC 634JB-1, #WC 634JB-2, #WC 634JB-3, etc). Key the LS amount of $50,000.00, the proration rate of $262.56 weekly, a start date of 07/01/2006, and excludable medical expenses of $5,000.00. Select the most advantageous proration method.

• PC prepares a PCACS diary for the fourth LS to be paid 01/2010 at the time the final installment will be added to the current computation as a fourth LS claim. The LS amount to key at that time is $50,000.00, the proration rate remains $262.56 weekly, the start date is 01/01/2010, and excludable medical expenses are $5,000.00. Select the most advantageous proration method.

NOTE: If gaps result in the offset computation due to one proration ending before issuance of the next payment, consider all payments are based on the same injury/illness award. Therefore, there is no break in WC entitlement and all COLA increases are protected.

Regarding breaks in WC/PDB offset, payment, and entitlement, review DI 52150.055.

Be alert to potential systems limitations when processing a structured settlement. MCS cannot process an offset computation when there are breaks in the offset between each LS.

NOTE: Some cases may require a combination of workarounds in ICF WC/PDB or manual computations. See Interactive Computations Facility (ICF) Resource Page for WC/PDB Offset Computations ) to process:

1. Multiple WC/PDB claims (more than one injury or illness)

   Make the following selections when no ongoing periodic payments are involved:

   • ICF FUNCTIONS 31 (WC/PDB: PRE-ADJUDICATE CLAIM) AND 32 (WC/PDB: ADJUDICATE CLAIM)

   • Other Program Limitations (Not Documented in MSOM)

   • Gap Between Two Different WC/PDB Claims

2. One WC/PDB claim (one injury/illness)

   Make the following selections when periodic payments are involved:

   • ICF FUNCTIONS 31 (WC/PDB: PRE-ADJUDICATE CLAIM) AND 32 (WC/PDB: ADJUDICATE CLAIM)

   • Known Program Problems (With Workarounds, if Any)

   • Problems Relating to Lump Sum Prorations

   • Overlapping LS and Periodic Payments for Same WC Claim

E. Subsequent addendums to LS settlements

Some States allow an injured worker to obtain a subsequent addendum (i.e., something that has been added) to the terms or stipulations of the original WC lump sum settlement award and allow a certain time limit to make changes in the settlement or the settlement can be amended with court permission.

Also, there are instances when the original award is “vacated” (i.e., the original award is voided or annulled), and a new settlement document is issued. A new LS award which vacates the original award, but which does not change the dollar amount of the award or make other substantive changes as indicated in DI 52150.065E.3. below, should be treated as a LS addendum. Consider language similar to “vacating a prior settlement” to be equivalent to a LS addendum regardless of what state is involved.

SSA is not bound by the terms of a second or amended stipulation in determining whether and by what rate a disabled worker's DIB should be offset on account of a WC lump sum.

When an award includes an addendum to a settlement:

1. Evaluate both the original and amended stipulations.

2. Check the date of any addendum. In some States, it is usual practice to include addendums as part of the original award, so review the State WC procedures in DI 52120.001 for State-specific instructions regarding addendums. Generally, if the addendum is completed on the same day as the settlement, consider it a valid part of the original settlement. Where you cannot determine that the judge or authorizing official reviewed and approved the addendum at the same time as the award, initiate development.

3. If the addendum is not part of the original award, disregard any language that has the effect of altering the terms of the original stipulation concerning the actual intent of the parties and has the effect of avoiding the WC offset provisions. An example is an amended stipulation that does not change the dollar amount of the award, does not involve any appeal of the award, does not change the actual payment of WC benefits, or in any way affect the rights, liabilities, or obligations of the parties with respect to the actual WC award, but merely includes additional language which, if applied, results in reduction or removal of offset. Check for changes in dates and the signature of the WC judge or approving official.

4. Do not recompute or remove offset if the intent of the amended stipulation is to avoid SSA's offset. Send a notice to the NH and include language similar to the following:

   • “The Social Security Administration received your amended workers’ compensation lump sum settlement. However, we consider the original settlement as final. Therefore, the amended workers’ compensation lump sum settlement you submitted has no effect on your Social Security disability benefits.”

F. References:

• GN 04001.100 - Reopenings - Change in Ruling or Legal Interpretation — Change of Position

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

• DI 52140.015 - Field Office/Program Service Center Request for Policy Decision Regarding Workers’ Compensation/Public Disability Benefit (WC/PDB)

• DI 52150.060 - Prorating a Workers’ Compensation/Public Disability Benefit (WC/PDB) Lump Sum Settlement