Federal social security disability offset for state worker’s compensation awards and settlements

A victory for disabled workers in the south carolina supreme court.  

When a person is injured during the course and within the scope of their employment, he or she is entitled to statutory South Carolina Workers Compensation benefits; and at the same time, may be entitled to federal Social Security Disability benefits, including Medicare.  Federal law states that when a worker is receiving benefits from both the state and federal disability programs, that there is an offset on social security benefits to achieve the statutory limitation that says a worker cannot receive more than 80 percent of his or her pre-injury earnings, through the combination of both systems.

This is a federal rule that applies to the relationship between all state workers compensation schemes and the federal social security disability system administered by the Social Security Administration.      The federal statute prevents “double dipping” and keeps people from earning more through the two disability systems, than they would earn while working.   It’s complicated, because people receive lump sum state worker’s compensation awards and settlements; and therefore, there must be some method for reconciling lump sum payments on the state side, with weekly payments on the federal side, to abide by the 80 percent rule on a monthly payout basis, as it pertains to social security monthly benefits.

Without getting into complicated details, the offset calculation following a person receiving a state workers compensation lump sum settlement or award can result in a complete offset of social security disability payments for up to 4 years.   This is a problem for people  who are living on the edge, and whose state workers compensation settlement or awards will not last them the full period of the offset.    Therefore, considering the legislative intent underlying the Social Security Act, the Social Security Administration devised a life expectancy-based system to spread the federally mandated offset over the life expectancy of the worker, eliminating any long  periods of total offset of social security benefits.     That system is called “life expectancy proration.” 

When a state workers compensation case is settled, or an award is granted by a commissioner following a hearing on the merits, the life expectancy proration language is inserted into the workers compensation settlement agreement or award.   When the disabled worker applies for social security disability benefits, the agreement or award is presented to the Social Security Administration (SSA) office, and the SSA uses the “proration rate” that is set forth in the agreement or award, to calculate the prorated offset of federal social security benefits.   It spreads the federally mandated offset over the life expectancy of a worker, as calculated by the actuarial based South Carolina Life Expectancy statute (S.C. Code Ann 19-1-150).

For decades, lawyers for disabled workers made the granting of a life expectancy proration rate part of settlement negotiations.  In return for a disabled worker agreeing to sign a complete release of all claims related to a work injury, including claims for sometimes life-long future medical expenses, employers and their insurance companies would agree to allow the life expectancy proration language to be placed in the South Carolina workers compensation award, or settlement agreement, so that when the disabled worker applied for Social Security Disability benefits, he or she would not be offset for up to 4 years.  

This extra-judicial negotiation model within the South Carolina Workers Compensation system assumed that the worker needed employers and their insurance carriers to agree to the language being placed in the settlement agreement or award; it assumed that a commissioner could not order that the language be placed in the award over the objection of an employer and carrier.  

Attorney Jody McKnight of the McKnight Law Firm challenged this assumption in one of the most significant workers compensation judicial battles heard by the South Carolina Supreme Court in decades, in the case of Allie James vs. Anne’s Inc., 701 S.E.2d 730, 390 S.C. 188 (S.C. 2010).   In James, the South Carolina Supreme Court ultimately decided on re-hearing, that the workers compensation commission had authority to place life expectancy proration language in South Carolina disabled workers’ awards, and that it was improper for employers and their insurance carriers to use proration language as a “bargaining chip” to avoid future medical expense obligations set forth in the South Carolina Workers Compensation Act. 

After an initial, controversial losing 3-2 decision, attorney Jody McKnight filed a Petition for re-hearing, with supporting Amicus briefs filed by the South Carolina Association for Justice, South Carolina Injured Workers Advocates Association and Appleseed Legal Foundation.    The Supreme Court granted the Petition for Rehearing, and following oral argument, a unanimous 5-0 panel sided in favor of disabled workers.

The James v. Anne’s decision is now cited in all worker’s compensation settlement agreements, and all South Carolina Workers Compensation Commission awards.    Chief Justice Donald Beatty wrote the dissenting opinion in the first 3-2 decision; then later penned the unanimous 5-0 decision.    This was a huge victory for disabled workers, ensuring that they are entitled to lifetime medical benefits required by South Carolina statute, while at the same time, ensuring that they benefit from the life expectancy proration offsets scheme in place for federal social security disability payments.