Social Security Disability Insurance (SSDI or SSD) exists to provide financial support to eligible disabled workers and former workers who paid into the program through payroll contributions or self-employment taxes for many years. While the SSD benefit payments don’t fully replace the wages you would have earned if you continued to work, the benefit is intended to provide enough money to permit you to pay necessary living expenses.
The problem with relying on Social Security Disability alone when you suffer a serious illness or injury is the months-long wait that you must endure while you wait to hear if your SSD application was approved.
Workers Comp as Interim Financial Support
SSD claims are often based on long-term work-related injuries or illnesses. And like SSD benefit payments, worker’s compensation payments are intended to replace enough of a worker’s income to allow them to keep up with their daily living expenses. However, many worker’s comp claims are contested by the employer’s insurer, especially regarding the value of the long-term or life-long injury.
In these cases, the injured or ill worker can be receiving SSD benefit payments for many months or even several years before their worker’s compensation claim is finally settled.
Settling a Worker’s Comp Claim While Receiving SSD Benefits
The amount of your monthly SSD benefit payment is determined by a formula which is based on your 35 highest earning years during your life. The exact same formula is used by the Social Security Administration to determine the amount of your Social Security full retirement benefit
The Social Security Administration (SSA) will continue to pay monthly SSD benefits for as long as the recipient’s disabling impairment continues. If the impairment is permanent, the payments will continue until you reach you full retirement age, at which time they will simply come from the Social Security retirement account instead of SSD.
However, the SSA does not want you to “double dip” by receiving SSD payments as a substitute for your wages and then also receive worker’s compensation payments as a substitute for the same wages. Therefore, when an SSD benefit recipient finally settles their worker’s compensation claim and receives a lump sum payment, the SSA will “offset” an amount of your SSD benefits.
How Much Will Your SSD Benefits Be Offset Due to Your Worker’s Comp Settlement?
Unless your worker’s comp lawyer takes steps to limit amount of SSD benefits offset by your worker’s comp settlement, the Social Security Administration can offset your SSD benefits for the full value of the settlement. In theory, since the settlement represents the worker being “compensated” for the wages they lost and for their future lost wages, the SSD program views the SSD benefits as a double payment for the same lost wages.
For example, if an SSD recipient’s monthly benefit is $1,100, and they settle a worker’s compensation case for $21,000, the SSD benefits would be stopped for 19 months (19 x 1,100 = 21,000). But there are alternative ways for a properly drafted settlement agreement to reduce the amount of the SSD offset and to spread it out over the remainder of the person’s life, thereby shrinking the amount of offset applied each month and permitting you to continue to receive regular SSD benefit payments.
How to Reduce Your SSD Offset When Settling a Worker’s Comp Claim
The problem with a dollar for dollar offset of SSD benefits for a worker’s comp settlement is that the money included in the worker’s compensation settlement is not all wage replacement. Only the amount of money received as “lost wages” is validly offset by withholding SSD benefits.
To reduce any inappropriate or unjust benefit offset, the worker’s compensation settlement agreement must be drafted with specific terms identifying what sums are being awarded for wages as opposed to other injury related costs and expenses.
Any money included in the settlement that is intended for the following costs should not be part of any benefit offset:
By clearly identifying any part of the settlement funds that do not compensate for wages, the Social Security Administration will usually recognize those exemptions and will not offset benefits for those amounts.
Another method skilled worker’s comp and disability lawyers may use is a term specifying that the settlement sum is intended to provide a particular amount of compensation per week/month for the rest of the worker’s life. If we use the earlier example of $21,000 as worker’s comp lump sum settlement amount, and the settlement agreement specified that the money is intended to provide the injured worker with $100 per month for 210 months, then a 50-year-old SSD recipient might succeed in having their monthly SSD benefit offset by only $100 each month for 17.5 years.
The Social Security Administration may be less welcoming to lump-sum settlements that spread the settlement over the recipient’s life expectancy, but they are accepted in some circumstances.