A. PR 08-029 World Trade Center Volunteer Fund Benefits (WTCVF)

DATE: January 13, 2006

1. SYLLABUS

The case concerns an individual who worked as a volunteer for the American Red Cross during the 9/11 aftermath. Subsequently, the individual became disabled and was awarded benefits from the State of New York Workers' Compensation Board paid by the World Trade Center Volunteer Fund (WTCVF). The individual was also awarded Social Security Title II disability insurance benefits (DIB). The issue is whether or not the WTCVF payments should be considered workers' compensation benefits, thus causing offset of the DIB.

Article 8-A of the New York State Worker's Compensation Law provides that the Uninsured Employers' Fund is deemed the employer for purposes of administering and paying claims to volunteers who were injured or disabled during the World Trade Center rescue, recovery or clean-up between September 11, 2001 and September 12, 2002. Determinations for entitlement to these benefits are made by the N.Y.S. Workers' Compensation Board pursuant to the same laws and standards applied to "typical" workers' compensation adjudications and, therefore, WTCVF payments are considered workers' compensation benefits and are subject to offset.

2. OPINION

This office is responding to your inquiry regarding whether World Trade Center Volunteer Fund (WTCVF) benefits offset Social Security Title II disability benefits. We conclude that WTCVF are workers' compensation benefits subject to offset.

World Trade Center Volunteer Fund and New York State Workers' Compensation Law

The World Trade Center Volunteer Fund (WTCVF or Volunteer Fund) is the money appropriated by the federal government to the New York State Workers' Compensation Uninsured Employers' Fund for the claims of volunteers who were injured or disabled during the World Trade Center rescue, recovery or clean-up between September 11, 2001 and September 12, 2002. New York State Workers' Compensation Board, Office of the Chair, Subject Number 046-159 (August 21, 2006); see Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, Pub. L. No. 109-148, § 5011, 119 Stat. 2680, 2814 (2006).

New York Workers' Compensation Law was amended to extend the time for participants in the World Trace Center (WTC) rescue, recovery, or clean-up to file a claim for workers' compensation benefits for latent condition or illnesses. See Martin M~, Practice Commentaries, N.Y. W.C.L. Article 8-A, (M~ 2006). Article 8-A of the New York State Worker's Compensation Law provides that participants in the World Trade Center rescue, recovery or clean-up between September 11, 2001

and September 12, 2002-who became disabled as a result of their efforts-were eligible to file a claim for worker's compensation benefits even though the statutory time to file had passed. N.Y. W.C.L. § 162. Although volunteers are usually not "employees" for the purposes of workers' compensation benefits, Article 8-A provides that the Uninsured Employers' Fund would be deemed the employer for purposes of administering and paying claims to volunteers who were disabled as a result of the WTC rescue, recovery or clean-up efforts. N.Y. W.C.L. § 167 (2006). Claims for volunteer benefits would be paid out of funds appropriated to United States Department of Labor under Public Law 109-148 to reimburse the Uninsured Employer's Fund. Id.; New York State Workers' Compensation Board, Office of the Chair, Subject Number 046-159 (August 21, 2006).

Under Article 8-A, the Workers' Compensation Board determines whether the employee, or volunteer, was disabled under the same standards used to adjudicate compensation claims under N.Y. W.C.L. §§ 37 and 42 (2006). N.Y. W.C.L. § 161(4).

Workers' Compensation Offset Provisions under the Social Security Act

The Social Security Act provides that when individuals are eligible for both social security disability and workers' compensation benefits, SSA must offset their workers' compensation benefits against their social security benefits so that the total benefits received by these individuals does not exceed eighty percent of their pre-disability income. 42 U.S.C. § 424a(a); 20 C.F.R. § 404.408(a)(c); see Social Security Programs Operations Manual (POMS), DI 52101.001 (available at https://s044a90.ssa.gov/apps10/poms.nsf/aboutpoms ).

Individuals who are younger than sixty-five years of age, who first became entitled to disability insurance benefits after August 1981, and who are concurrently eligible to a periodic benefit-such as workers' compensation or any other payment based on a work relationship-are subject to a reduction of benefits. sability benefits will not be reduced when (1) the law under which the periodic public disability benefit is payable provides for the reduction of the benefit in the face of concurrent title II eligibility and (2) when the benefit is a Veterans' Administration benefit, a public disability benefit (except workers' compensation) payable to a public employee based on need, or a wholly private pension or private insurance benefit. Id.

We believe that benefits paid through the WTCVF are workers' compensation benefits and are, therefore, subject to offset. Authority to pay benefits from the Volunteer Fund is found in the New York State Workers' Compensation Laws. See N.Y. W.C.L. § 167 (M~'s 2006). Moreover, determinations for entitlement to these benefits are made by the N.Y.S. Workers' Compensation Board pursuant to the same laws and standards applied to "typical" workers' compensation adjudications. See N.Y. W.C.L. § 161(4) (M~'s 2006). Hence, the only distinction between Volunteer Fund benefits and typical workers' compensation fund benefits is the source of the payments. Benefits paid to volunteers are funded through the Uninsured Employer's Fund by the federal government. N.Y. W.C.L. § 167 (M~'s 2006). But, there is no indication in Public Law 109-148, or the related legislative history, that Congress intended to shield these appropriations from typical Social Security offset provisions.

SSA has found that similar public benefits were subject to offset even when its relationship to workers' compensation law was more tenuous. For example, SSA has found that benefits paid to volunteer firefighters under the New York State Volunteer Fireman's Benefit Law (VFBL) are workers' compensation. POMS DI 52120.175. Although the VFBL is a separate statute, SSA determined that its goal was to extend the coverage or benefits of workers' compensation. Social Security Ruling 82-4. The Volunteer Fund benefits provided for in Article 8-A of the Workers' Compensation law similarly provide for an extension of workers' compensation coverage for volunteers whose disabilities did not manifest until years after the WTC rescue, recovery and clean up. See N.Y. W.C.L. §§ 165 and 167 (M~'s 2006).

CONCLUSION

For the foregoing reasons, we believe that World Trade Center Volunteer Fund (WTCVF) benefits offset Social Security Title II disability benefits.

Barbara L. S~
Chief Counsel, Region II
By:_____________
Margaret A. D~
Assistant Regional Counsel

B. PR 06-045 New York State Law: Workers' Compensation Settlement (NH: Cisto O~)

DATE: January 13, 2006

1. SYLLABUS

Cisto O~ $68,000.00 lump-sum workers' compensation award should be properly prorated. Although Mr. O~ entered a settlement agreement indicating that his lump-sum workers' compensation award should be prorated at $60.00 per week, we conclude that the proffered allocation rate is not binding on the Commissioner with regard to the offset provisions of the Social Security Act, 42 U.S.C. § 424a. We believe that Mr. O~ lump-sum workers' compensation award should be prorated at the latest periodic rate paid prior to the settlement agreement, i.e. $248.00 per week.

Although we believe that the Agency is not bound by the proration amount in NH's settlement agreement, we advise that the Agency must take certain steps in calculating a claimant's proration amount for the Agency determination to withstand judicial scrutiny. In determining the proration amount of these lump-sum awards, it is essential that the Agency fully explain how it computed the proration amount and why it used that method.

2. OPINION

You asked us for our opinion on how Cisto O~ $68,000.00 lump-sum workers' compensation award should be properly prorated. Although Mr. O~ entered a settlement agreement indicating that his lump-sum workers' compensation award should be prorated at $60.00 per week, we conclude that the proffered allocation rate is not binding on the Commissioner with regard to the offset provisions of the Social Security Act, 42 U.S.C. § 424a. Rather, we believe that Mr. O~ lump-sum workers' compensation award should be prorated at the latest periodic rate paid prior to the settlement agreement, i.e. $248.00 per week.

FACTS

The number holder ("NH") (Cisto O~), born February 9, 1940, worked for J.N.B. Printing and Litho, Inc. ("employer"), earning $620.00 per week. He injured himself on the job on January 6, 1996, and received workers' compensation from his employer according to the following schedule:

01/06/96 to 03/14/96- held in abeyance

03/14/96 to 10/07/96- $400.00 per week

10/07/96 to 08/15/99- $103.33 temporary rate

08/15/99 to 01/18/00- held in abeyance

01/18/00 to 04/28/00- $400.00 per week

04/28/00 to 11/26/01- $248.00 per week.

On November 16, 2001, NH settled his workers' compensation claim with a Section 32 waiver agreement under New York State Workers' Compensation Law for a lump-sum payment of $68,000.00. The agreement indicated that "for the purposes of Social Security Disability offset calculations only, this settlement amount is based upon an allocation rate of sixty dollars and zero cents ($60.00) per week."

LAW

The Social Security Act ("Act") provides that any person who is "disabled" as defined in the Act is eligible to receive Social Security benefits. 42 U.S.C. § 423(a). The Act, however, imposes limits on the amount of benefits that an individual may collect from the combination of both federal Social Security benefits and state workers' compensation benefits. 42 U.S.C. § 424a(a)(2)-(6). According to the statutory formula, if the total of the Social Security and workers' compensation monthly benefits exceeds eighty percent of an individual's "average current earnings," the Agency will reduce the claimant's Social Security benefits to the extent that total benefits exceed the eighty percent limit. 42 U.S.C. § 424a(a)(5); 20 C.F.R. § 404.408(c)

The reason Congress instituted these "offset" provisions was because in most states the combined benefits claimants were receiving surpassed the claimants' pre-injury earnings. "This was thought to cause two evils: first, it reduced a worker's incentive to return to the workplace and hence impeded rehabilitative efforts; and second, it created fears that the duplication of benefits would lead to an erosion of state workers' compensation programs." Freeman v. Harris, 625 F.2d 1303, 1306 (5th Cir. 1980) (citing Hearings on H.R. 6675 Before the Senate Comm. on Finance, 89th Cong. 1st Sess. 151, 252, 259, 366, 540, 738-40, 892-97, 949, 990 (1965)). As the Supreme Court has explained, "by limiting total state and federal benefits to eighty percent 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 at 83 (1971).

As a result of these offset provisions, when a disability beneficiary receives a lump-sum settlement that is a commutation of, or substitute for, periodic workers' compensation benefits, the Act requires the Commissioner to prorate that lump-sum payment. 42 U.S.C. § 424a(b). The Act instructs the Commissioner to prorate the lump-sum payment in a manner which "will approximate as nearly as practicable the reduction" that would have been applied had the beneficiary received his or her workers' compensation payments on a weekly or monthly basis. Id. Accordingly, Congress has thus delegated to the Commissioner the task of determining the proper offset rate for lump-sum payments. See Bubnis v. Apfel, 150 F.3d 177, 181-82 (2d Cir. 1998). To accomplish this, the Commissioner must determine the amount of workers' compensation payments the beneficiary would have received weekly or monthly had he not opted for a lump-sum payment, prorate the lump-sum award using the prorated amount, and impose the statutorily prescribed offset accordingly.

To guide Agency adjudicators, longstanding policy in the Program Operation Manual System ("POMS") set forth a three-tiered set of priorities for prorating state lump-sum workers' compensation awards at an established rate. In priority order, the Agency is to prorate the award at:

1. The rate specified in the lump-sum award.

2. The periodic rate paid prior to the lump-sum, if no rate is specified in the lump-sum award.

3. The state's maximum workers' compensation in effect in the year of the injury, if no rate is specified in the award and there was no preceding periodic benefit.

POMS § DI 52150.060(C)(4)(a).

However, the Agency has for some time been aware that attorneys have seized upon the opportunity offered by these POMS instructions to insert artificially low rates in settlement agreements to lessen or perhaps avoid entirely the reduction that otherwise would be required by section 224 of the Act. We recognize the inconsistency between the first step of the POMS proration policy as applied to cases where the rate specified in the lump-sum settlement agreement is an artificially low rate designed to avoid offset, and the statutory requirement that the Agency prorate lump-sum settlements in a manner that will approximate the offset that would have applied had the individual received periodic workers' compensation payments. Social Security Ruling ("SSR") 97-3 is instructive on this point. SSR 97-3 instructs that where a document would have the effect of circumventing the workers' compensation offset provision of 42 U.S.C. § 424a, the Agency is not bound by the terms of the document in determining what rate a disabled worker's disability insurance benefits should be offset on account of a workers' compensation lump-sum payment. The courts have upheld the Agency's refusal under SSR 97-3 to accept rates specified in amended settlement agreements. See Sanfilippo v. Barnhart, 325 F.3d 391, 395-96 (3d Cir. 2003); Berger v. Apfel, 200 F.3d 1157, 1161 (8th Cir. 2000). Although Agency policy explicitly provides that the Agency is not bound by the terms of an amended agreement or order where the terms are illusory and the designed to circumvent the workers' compensation offset provisions of section 224 of the Act, see SSR 97-3, one district court upheld the Ruling by holding that "it might better serve that purpose [of section 224] to reject all lump-sum awards that purport to allocate the award" in order to avoid offset, rather than just to reject such allocations found in amended agreements. Rioux v. Massanari, No. 00-305-P-H, 2001 U.S. Dist. LEXIS 6907 * 29 (D. Me. 2001). Thus, based on SSR 97-3, in those cases where strict adherence to POMS § DI 52150.060(C)(4)(a) produces a result that is contrary to section 224(b) of the Act, the POMS should not be viewed as controlling. See Memorandum of Law to Terry D~, Acting Director, Office of Process Policy, Office of Disability Programs, entitled "Workers' Compensation Lump-Sum Proration- Reply," by James A. W~, Associate General Counsel for Program Law, July 21, 2005; see also Memorandum of Law to Joseph M~, Director, Division of Disability Process Policy, entitled "Amount at Which to Prorate a Lump-sum Workers' Compensation Award with Life Expectancy- Reply," by Robert G. M~, Jr., Attorney, Office of Program Law, October 20, 2000; Memorandum of Law to Joann F~, Program Analyst, Mid-Atlantic Program Service Center, entitled "Proration of a Lump-sum Workers' Compensation Award When the Proration Rate is Specified in the Workers' Compensation Award," by the Regional Chief Counsel, Office of the General Counsel, Region III.

ANALYSIS

In NH's settlement agreement, the parties specified that for the "purposes of Social Security Disability offset calculations only," the $68,000.00 lump-sum workers' compensation award was to be allocated at a rate of $60.00 per week. According to the POMS, the Agency would appear to be bound by the proration rate specified in NH's workers' compensation lump-sum agreement. See POMS § DI 52150.060(C)(4)(a). However, applying step one of the POMS in this case, and accordingly using the amount specified in NH's lump-sum agreement, would produce results contrary to the Commissioner's responsibility under the Act. Barring any reasonable explanation by NH's attorney as to how the parties arrived at the proration rate set forth in the settlement agreement, it appears as though the proration of the $68,000.00 lump-sum award to $60.00 per week was designed to allow NH to avoid the offset provisions of the Act. This artificially low proration rate results in no offset. It also stretches the proration time-frame for 21 years, well beyond age 65, the point at which workers' compensation offset can no longer apply. Consequently, we take the position that NH's agreement was crafted with the intention of circumventing section 224 and maintain that it runs counter to Congress' express intent to prevent claimants from receiving excessive benefits.

As discussed above, the Commissioner is required to carry out the Act and intent of Congress. Accordingly, because application of the POMS in this case and using the amount specified in NH's lump-sum agreement would produce results contrary to the Commissioner's responsibility under the Act, we believe that the Commissioner is not bound by the terms of NH's workers' compensation lump-sum settlement.

As demonstrated in B~, the Commissioner is required by Congress to determine the proper offset rate or lump-sum workers' compensation payments, and while state law may be helpful in order to understand the nature of a state's workers' compensation lump-sum award, the "ultimate responsibility for determining the offset rate is in the hands of the Commissioner, not the states," and certainly not the beneficiary or his attorney. B~, 150 F.3d at 181-82. We therefore do not believe that the Commissioner is legally compelled to accept a proration rate that is specified in a workers' compensation settlement award designed solely to limit or circumvent the offset required by section 224 of the Act. Unless a specified rate reasonably can be found to approximate the same rate at which the individual's workers' compensation payments would have been made had the individual not elected a lump-sum settlement, it should not be used.

In conclusion, we do not believe that the Agency is legally bound to follow the proration language included in NH's settlement agreement as would customarily be directed by step one of POMS § DI 52150.060(C)(4)(a). Rather, we conclude that step two of POMS § DI 52150.060(C)(4)(a) offers a more legally sound approach to proration in this case and suggest that the Agency resume prorating the lump-sum at the latest periodic rate paid to NH prior to the settlement agreement. We do not believe that NH has offered any reasonable proof or legal argument that had he not elected a lump-sum settlement, his workers' compensation periodic payments would have dropped to $60.00 per week (from the $248.00 per week he was receiving prior to the settlement). Indeed, there appears to be no other purpose behind NH's proposed allocation rate other than to avoid the Act's offset provisions.

Although we believe that the Agency is not bound by the proration amount in NH's settlement agreement, we advise that the Agency must take certain steps in calculating a claimant's proration amount for the Agency determination to withstand judicial scrutiny. In determining the proration amount of these lump-sum awards, it is essential that the Agency fully explain how it computed the proration amount and why it used that method. Courts have repeatedly remanded cases where the Agency has not provided such an explanation. See e.g., Sciarotta v. Bowen, 837 F.2d 135 (3d Cir. 1988); Halle v. Apfel, No. 99C3014, 2000 WL 1468759 (N.D. Ill. September 29, 2000) (remanding case because the Agency did not explain why it used step two of the POMS proration analysis). To be consistent with Congressional intent, any explanation by the Agency should detail how the Agency's computation accurately approximates what the claimant's monthly award of benefits would have been had they not been commuted. See 42 U.S.C. § 424a(b).

Based on the existing record, we believe the Agency should prorate the lump-sum award using the payment rate that NH had actually been receiving immediately prior to the settlement in order to more reasonably comply with the statutory standard.

Barbara L. S~
Chief Counsel, Region II
By:_____________
Karla J. G~
Assistant Regional Counsel

C. PR 01-008 Worker's Compensation Impact of Funds Paid Pursuant to a Waiver Agreement on Social Security Disability Benefits

DATE: February 19, 1999

1. SYLLABUS

Whether a payment of $50,000 to a worker's compensation recipient, in the context of a waiver agreement under New York State worker's compensation law, would be subject to offset under 42 U.S.C. §424a. We have concluded that the payment is not subject to offset.

We have learned from an attorney at the New York State Worker's Compensation Board that the Board has been routinely and liberally approving waiver agreements in a variety of forms. Thus, SSA may begin to see a number of waiver agreements. We believe that the issue of whether a workers' compensation waiver agreement will result in offset of an individual's social security benefits, depends primarily on the facts in each case.

2. OPINION

You have asked whether a payment of $50,000 to a worker's compensation recipient, in the context of a waiver agreement under New York State worker's compensation law, would be subject to offset under 42 U.S.C. §424a. We have concluded that the payment is not subject to offset.

Facts

We understand the relevant facts to be as follows: David W~, the wage earner ("WE") is receiving social security disability insurance benefits. Since October 2, 1995, he has been receiving $400 per week in New York State worker's compensation benefits. In light of the WE's receipt of worker's compensation benefits, his social security benefits have been reduced as required by the Social Security Act, 42 U.S.C. § 424a.

Although the WE has not been found to have a "permanent" disability under the Worker's Compensation law, his attorney and the worker's compensation insurance carrier believe that the WE's disability will be characterized as a "permanent total disability." In cases of permanent total disability, the Worker's Compensation law requires the insurance carrier to deposit a substantial sum into the Aggregate Trust. In light of the insurance company's apparent belief that the WE's disability will be classified as a permanent total one, the insurance carrier has offered the WE $50,000. In exchange for this sum, the WE would agree to have worker's compensation disability characterized as a "partial permanent" disability. Thus, the insurance carrier would not have to deposit a large sum into the aggregate trust fund.

The WE's attorney wishes to ascertain whether the $50,000, which he characterizes as a "nuisance payment," would require further offset of his clients social security disability benefits.

Federal Statutory and Regulatory Standard for Reduction of Disability Insurance Benefits Based on Receipt of Workers' Compensation Benefits. When an individual who is entitled to social security disability benefits is also entitled to workers' compensation benefits, the Social Security Act ("the Act") directs SSA to offset the workers' compensation benefits against the social security benefits, so that the total benefits received from both sources by the individual do not exceed eighty percent of his or her pre-disability income. 42 U.S.C. §424a(a).

The Act further provides that:

(b) Reduction where benefits payable on other than monthly basis

If any periodic benefit for a total or partial disability under . . . [a workmen's compensation law or plan of the United States or a state] is payable on other than a monthly basis (excluding a benefit payable as a lump sum except to the extent that it is a commutation of, or a substitute for, periodic payments), the reduction under this section shall be made at such time or times and in such amounts as the Commissioner finds will approximate as nearly as practicable the reduction prescribed by [42 U.S.C. § 424a(a)](emphasis added).

42 U.S.C. § 424a(b). Accord 20 C.F.R. § 404.408(g)urts have recognized that the scope of the Act's offset provision is extremely broad, and a lump sum which is a commutation of, or a substitute for, periodic workers' compensation payments, may result in reduction of an individual's social security disability benefits. Bubnis v. Apfel, 150 F.3d 177 (May 15, 1998); Hodge v. Shalala, 27 F.3d 430, 432 (9th Cir. 1994); Shabbaz v. Bowen, 912 F.2d 532, 533 (2d Cir. 1990). The burden of proof is on the recipient of worker's compensation benefits to show that the settlement is not a substitute for periodic benefits. Black v. Schweiker, 670 F.2d 108, 110 (9th Cir. 1982); Campbell v. Shalala, 14 F.3d 424, 428 (8th Cir. 1994).

When calculating such an offset, SSA prorates a lump sum award at an established weekly rate, using one of three alternative methodologies set forth in SSA's Programs Operation Manual System ("POMS"). These methodologies, in descending order of priority, are:

a. The rate specified in the lump sum award. If the LS [lump sum] award specifies a rate based on life expectancy, use that rate to prorate the lump sum and list under code 557.

b. The periodic rate paid prior to the LS (if no rate is specified in the LS award).

c. If WC [workers' compensation] the State's WC maximum in effect on the date of injury. This figure can be used if no rate is specified in the award and there was no preceding periodic benefit.

POMS DI 52150.060. The New York State Statutory Provisions

Generally, under New York State Worker's Compensation Law, compensation benefits “shall not be assigned, released or commuted except as provided . . . “ N.Y. Work. Comp. Law § 33 (M~ 1993)(emphasis added).

Section 15 5-b of the New York State Worker's Compensation Law articulates such an exception in that it provides for lump sum payments which commute a stream of payments. Bubnis v. Apfel, 150 F.3d 177 (May 15, 1998); Shabbaz v. Bowen, 912 F.2d 532, 533 (2d Cir. 1990). "Notwithstanding any other provision of this chapter," the Worker's Compensation Board ("the Board"), may approve a non-schedule adjustment in which it may order all future compensation to be paid in one or more lump sums or periodically. The Second Circuit has held that such a lump sum is an up-front payment commuting a stream of payments that is uncertain in duration or entitlement or both. Bubnis v. Apfel, 150 F.3d 177 (May 15, 1998); Shabbaz v. Bowen, 912 F.2d 532, 533 (2d Cir. 1990). Thus, a lump sum award may result in reduction of an individual's social security benefits.

Another exception to the worker's compensation statute's prohibition against commuting worker's compensation benefits may arguably be found in the current § 32 of the Worker's Compensation Law. Prior to 1996, an employee in New York could not waive his or her right to worker's compensation benefits. N.Y. Work. Comp. Law § 32(M~ 1993); accord Warden v. E.R. Squibb & Sons, Inc., 840 F.Supp. 203 (E.D.N.Y. 1993). However, in 1996, section 32 of the worker's compensation law was amended.

An employee may now enter into an agreement or release to waive his or her right to worker's compensation under certain circumstances, subject to approval of the Worker's Compensation Board. N.Y. Work. Comp. Law § 32 (M~ 1999).

Legal Analysis

Due to the fact that § 32 of the Worker's Compensation law has been recently amended, there has been no case law or commentary interpreting the provision. However, we have learned from an attorney at the New York State Worker's Compensation Board that the Board has been routinely and liberally approving waiver agreements in a variety of forms. Thus, SSA may begin to see a number of waiver agreements. We believe that the issue of whether a workers' compensation waiver agreement will result in offset of an individual's social security benefits, depends primarily on the facts in each case.

In certain situations, a § 32 waiver agreement may reasonably be viewed as analogous to a lump sum settlement under § 15 5-b of the Worker's Compensation law. For example, the Ninth Circuit has held that when a lump sum payment expressly relieves the employer from any further worker's compensation liability, then "the right to and liability for periodic workers' compensation payments are thus extinguished by a voluntary settlement . . . [and] the settlement can only be regarded as a 'substitute' for the payments." Black v. Schweiker, 670 F.2d 108, 110 (9th Cir. 1982). However, the court went on to hold that not every compromise of a worker's compensation claim is a substitute for periodic payments. The court then cited examples of cases when a compromise of a workers' compensation claim is not a substitute for periodic payments within the meaning of the Social Security Act, such as a provision for burial costs not exceeding $1,000 or a settlement of a final payment made to a surviving spouse. Id.

Although the scope of the Act's offset provision is extremely broad, under the facts presented in this case, we do not believe that the $50,000 offered by the insurance carrier is subject to offset. The insurance company's offer is in exchange for plaintiff's consent that his disability will be characterized as a "partial permanent disability." Although such an agreement would relieve the insurance carrier from paying into the aggregate trust fund, it is not a settlement in lieu of periodic payments in a case where the compensibility of the WE's injury is in question. Nor does the payment relieve the employer from worker's compensation liability, or extinguish the WE's right to periodic worker's compensation payments. Thus, it does not appear to be a substitute or commutation for periodic benefits. Therefore, we conclude that the $50,000 is not subject to offset under 42 U.S.C. § 424a.

For example, an employee receives worker's compensation payments for a temporary permanent disability (his case would therefore not come within § 15 5-b which applies only to a permanent partial disability and a temporary partial disability). The employee and the insurance carrier may agree to a compensation amount, after which the case is closed. It could reasonably be argued that like a lump sum settlement agreement under § 15 5-b, such a payment was a substitute for or commutation of further periodic payments.

We do not believe that this constitutes a substitution or commutation for a stream of payments.

D. PR 01-005 Workers' Compensation -- Impact of Section 32 Settlement on Social Security Disability Benefits

DATE: February 29, 2000

1. SYLLABUS

A § 32 waiver agreement may reasonably be viewed as analogous to a lump sum settlement under § 15 5-b of the Worker's Compensation law. In this case, we can argue that the $20,000 which the insurer has paid to Mr. ~ is a substitute or commutation for periodic benefits. The agreement between RMSCO and Mr. ~ (1) relieves the carrier or employer from worker's compensation benefits and (2) extinguishes Mr. ~ right to periodic workers' compensation payments. Accordingly, we believe that the $20,000 sum is a substitute or commutation for periodic benefits, and is therefore subject to offset under 42 U.S.C. § 424a.

2. OPINION

You have requested an opinion as to whether a payment of $20,000 to an individual in lieu of a workers' compensation award, would be subject to offset under the Social Security Act. We have concluded that in this case, the payment is subject to offset. Facts

We understand the relevant facts to be as follows:

Robert ~ , the wage earner WE has been receiving social security disability insurance benefits since March 1995. On October 29, 1998 the insurance carrier (RMSCO) stipulated that RMSCO agreed o award $20,000 to Mr. ~ . In return, Mr. ~ agreed to forfeit "any and all future rights to medical benefits and indemnity benefits." Mr. ~ further agreed that he would not make any further claim for future medical benefits or indemnity benefits. Thus, Mr. ~ would accept $20,000 in lieu of a worker's compensation award (see Report of Contact dated November 25, 1998). This agreement was approved by the New York Workers' Compensation Board on November 16, 1998.

Federal Statutory and Regulatory Standard for Reduction of Disability Insurance Benefits Based on Receipt of Workers' Compensation Benefits: When an individual who is entitled to social security disability benefits is also entitled to workers' compensation benefits, the Social Security Act ("the Act") directs SSA to offset the workers' compensation benefits against the social security benefits, so that the total benefits received from both sources by the individual do not exceed eighty percent of his or her pre-disability income. 42 U.S.C. §424a(a).

The Act further provides that:

(b) Reduction where benefits payable on other than monthly basis

If any periodic benefit for a total or partial disability under . . . [a workmen's compensation law or plan of the United States or a state] is payable on other than a monthly basis (excluding a benefit payable as a lump sum except to the extent that it is a commutation of, or a substitute for, periodic payments), the reduction under this section shall be made at such time or times and in such amounts as the Commissioner finds will approximate as nearly as practicable the reduction prescribed by [42 U.S.C. § 424a(a)](emphasis added).

42 U.S.C. § 424a(b). Accordingly, a lump sum payment which is a commutation of, or a substitute for periodic payments, reduces an individual's disability benefits. The burden of proof is on the recipient of worker's compensation benefits to show that the settlement is not a substitute for periodic benefits. Black v. Schweiker, 670 F.2d 108, 110 (9th Cir. 1982); Campbell v. Shalala, 14 F.3d 424, 428 (8th Cir. 1994).

The New York State Statutory Provisions

Prior to 1996, under New York State Workers' Compensation Law, an employee could not waive his or her right to Worker's Compensation benefits. N.Y. Work. Comp. Law § 32 (M~ 1993); accord Warden v. E.R. Squibb & Sons, Inc., 840 F.Supp. 203 (E.D.N.Y. 1993). However, the employer and the claimant could request that the Board approve a lump sum settlement of the claim which commutes a stream of payments. N.Y. Work. Comp. Law § 15 5-b. See Bubnis v. Apfel, 150 F.3d 177 (May 15, 1998)(a lump sum is an up-front payment commuting a stream of payments that is uncertain in duration or entitlement or both); Shabbaz v. Bowen, 912 F.2d 532, 533 (2d Cir. 1990).

In 1996, § 32 of the statute was amended to permit a claimant and an employer to enter into an agreement to settle a claim for workers' compensation benefits. An employee may now enter into an agreement or release to waive his or her right to workers' compensation, subject to approval of the Workers' Compensation Board. N.Y. Work. Comp. Law § 32 (M~ 1999).

Legal Analysis

We believe that the issue of whether a workers' compensation waiver agreement will result in offset of an individual's social security benefits, depends primarily on the facts in each case.

A § 32 waiver agreement may reasonably be viewed as analogous to a lump sum settlement under § 15 5-b of the Worker's Compensation law. For example, the Ninth Circuit has noted that when a lump sum payment expressly relieves the employer from any further worker's compensation liability, "the right to and liability for periodic workers' compensation payments are thus extinguished by a voluntary settlement . . ." The Court therefore held that the settlement "can only be regarded as a 'substitute' for the payments." Black v. Schweiker, 670 F.2d 108, 110 (9th Cir. 1982).

Court's have recognized that the scope of the Act's offset provision is extremely broad, and a lump sum which is a commutation of, or a substitute for, periodic workers' compensation payments, may result in reduction of an individual's social security disability benefits.

Bubnis v. Apfel, 150 F.3d 177 (May 15, 1998); Hodge v. Shalala, 27 F.3d 430, 432 (9th Cir. 1994); Shabbaz v. Bowen, 912 F.2d 532, 533 (2d Cir. 1990). In this case, we can argue that the $20,000 which the insurer has paid to Mr. ~ is a substitute or commutation for periodic benefits. The agreement between RMSCO and Mr. ~ (1) relieves the carrier or employer from worker's compensation benefits and (2) extinguishes Mr. S~'s right to periodic workers' compensation payments. Accordingly, we believe that the $20,000 sum is a substitute or commutation for periodic benefits, and is therefore subject to offset under 42 U.S.C. § 424a.