Workers' Compensation Offsets in Social Security Disability Claims (2020CLC‐WP03)

The (Usually) Avoidable Catastrophe: Workers' Compensation Offsets

in Social Security Disability Claims

September 14, 2020

10:00 a.m. – 11:00 a.m.

CT Bar Association

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Page 1 of 29 Lawyers’ Principles of Professionalism

As a lawyer I must strive to make our system of justice work fairly and Where consistent with my client's interests, I will communicate with efficiently. In order to carry out that responsibility, not only will I comply opposing counsel in an effort to avoid litigation and to resolve litigation with the letter and spirit of the disciplinary standards applicable to all that has actually commenced; lawyers, but I will also conduct myself in accordance with the following Principles of Professionalism when dealing with my client, opposing I will withdraw voluntarily claims or defense when it becomes apparent parties, their counsel, the courts and the general public. that they do not have merit or are superfluous;

Civility and courtesy are the hallmarks of professionalism and should not I will not file frivolous motions; be equated with weakness;

I will endeavor to be courteous and civil, both in oral and in written I will make every effort to agree with other counsel, as early as possible, on communications; a voluntary exchange of information and on a plan for discovery;

I will not knowingly make statements of fact or of law that are untrue; I will attempt to resolve, by agreement, my objections to matters contained in my opponent's pleadings and discovery requests; I will agree to reasonable requests for extensions of time or for waiver of procedural formalities when the legitimate interests of my client will not be In civil matters, I will stipulate to facts as to which there is no genuine adversely affected; dispute;

I will refrain from causing unreasonable delays; I will endeavor to be punctual in attending court hearings, conferences, meetings and depositions; I will endeavor to consult with opposing counsel before scheduling depositions and meetings and before rescheduling hearings, and I will I will at all times be candid with the court and its personnel; cooperate with opposing counsel when scheduling changes are requested; I will remember that, in addition to commitment to my client's cause, my When scheduled hearings or depositions have to be canceled, I will notify responsibilities as a lawyer include a devotion to the public good; opposing counsel, and if appropriate, the court (or other tribunal) as early as possible; I will endeavor to keep myself current in the areas in which I practice and when necessary, will associate with, or refer my client to, counsel Before dates for hearings or trials are set, or if that is not feasible, knowledgeable in another field of practice; immediately after such dates have been set, I will attempt to verify the availability of key participants and witnesses so that I can promptly notify I will be mindful of the fact that, as a member of a self-regulating the court (or other tribunal) and opposing counsel of any likely problem in profession, it is incumbent on me to report violations by fellow lawyers as that regard; required by the Rules of Professional Conduct;

I will refrain from utilizing litigation or any other course of conduct to I will be mindful of the need to protect the image of the legal profession in harass the opposing party; the eyes of the public and will be so guided when considering methods and content of advertising; I will refrain from engaging in excessive and abusive discovery, and I will comply with all reasonable discovery requests; I will be mindful that the law is a learned profession and that among its desirable goals are devotion to public service, improvement of In depositions and other proceedings, and in negotiations, I will conduct administration of justice, and the contribution of uncompensated time and myself with dignity, avoid making groundless objections and refrain from civic influence on behalf of those persons who cannot afford adequate legal engaging I acts of rudeness or disrespect; assistance;

I will not serve motions and pleadings on the other party or counsel at such I will endeavor to ensure that all persons, regardless of race, age, gender, time or in such manner as will unfairly limit the other party’s opportunity disability, national origin, religion, sexual orientation, color, or creed to respond; receive fair and equal treatment under the law, and will always conduct myself in such a way as to promote equality and justice for all. In business transactions I will not quarrel over matters of form or style, but will concentrate on matters of substance and content; It is understood that nothing in these Principles shall be deemed to supersede, supplement or in any way amend the Rules of Professional Conduct, alter existing standards of conduct against which lawyer conduct I will be a vigorous and zealous advocate on behalf of my client, while might be judged or become a basis for the imposition of civil liability of recognizing, as an officer of the court, that excessive zeal may be any kind. detrimental to my client’s interests as well as to the proper functioning of our system of justice; --Adopted by the Connecticut Bar Association House of Delegates on June 6, 1994 While I must consider my client’s decision concerning the objectives of the representation, I nevertheless will counsel my client that a willingness to initiate or engage in settlement discussions is consistent with zealous and effective representation;

Page 2 of 29 Table of Contents Agenda ...... 4 Faculty Biography ...... 6 Materials ...... 7

Page 3 of 29 The (Usually) Avoidable Catastrophe: Workers' Compensation Offsets in Social Security Disability Claims (2020CLC‐WP03)

Agenda

0:00 – 10:00 Introduction

* What I do for a living and how it qualifies me to speak on this topic. * An overview of the problem. * How we got to this point * The catastrophic impact of doing nothing * Small, easy-to-learn steps can make an enormous difference.

10:01 – 15:00 Basic Considerations

* When offsets apply and when they don’t * Title II versus Title XVI. * Cash is cash if it is paid periodically. * Cash does not have to be cash if it is a lump sum. * The absolute necessity of an unambiguous writing.

15:01 – 25:00 The Myth of Detailed Knowledge

* Alphabet Soup as a soporific * The Primary Insurance Amount (PIA), Average Current Earnings (ACE) and the like as enemies of understanding. * Avoiding being overwhelmed in an ocean of data and acronym. * The myth that the PIA must be clearly defined to the last cent. * In many sub-areas, a rudimentary knowledge is more than enough * The different tasks of the Workers’ Compensation lawyer and the Social Security lawyer. * The Bright Shining Rule that dispels the fog.

Page 4 of 29 25:01 – 50:00 Drafting Considerations

* The need for deeming language. * Age Specific Considerations. * The means to achieve the goal of keeping the deemed amount as low as possible. * Dealing with unknown factors, many of which are highly important. * The avoidance of unsupportable assumptions.

50:00 – End

Questions and Answers

Page 5 of 29 Faculty Biography

Ivan M. Katz, Law Office of Ivan M. Katz Ivan Katz is a graduate of the Georgetown University College of Arts & Sciences and the Georgetown University Law Center. He has been practicing law since 1978. In recent years his practice has been exclusively in representing clients with Social Security disability-related claims, before both the Social Security Administration and the U.S. District Court for the District of Connecticut. He has presented at National Organization of Social Security Claimants’ Representatives (NOSSCR) conferences.

Page 6 of 29 The (Usually) Avoidable Catastrophe: Workers’ Compensation Offsets in Social Security Disability Claims

[Section 1 is of importance for all attendees. Sections 2 through 4 are intended to be of interest primarily to those who practice before the Social Security Administration or the Social Security Administration and the Workers’ Compensation Commission. Workers’ Compensation practitioners will find Sections 5 et seq. to be of interest.]

Section One Art or Mathematics

In the event that your Claimant is presently receiving actual periodic Workers’ Compensation benefits – temporary total, temporary partial, or specific indemnity paid pursuant to a Voluntary Agreement – there is absolutely no art involved in an offset calculation. It is a simple matter of mathematics. The basic rule can be phased this way: Although it is quite possible to “spread” a lump sum payment out over time, periodic payments actually received periodically are what they are and cannot be “deemed” to be something else. If the Claimant is, for example, receiving $500.00 per week ($2,150.00 per month) in Workers’ Compensation payments, Social Security will do the math and offset $2,150.00 per month, full stop. On the other hand, if the Claimant is about to settle his or her Workers’ Compensation claim by entering into a Stipulation for full, final and complete settlement, there is a good deal of art involved. And because of that we confront …

Rule #1: Do not ever draft a Stipulation in a Workers’ Compensation case that does not include “deeming language.”

Yes, there are exceptions to this Rule. They are, however, so rarely encountered as to be of interest only to academics with a cruel streak.

Page 7 of 29 Social Security at POMS PR 01-006 states: “We believe that in determining the rate at which a beneficiary's social security disability benefit should be offset due to a LSA [Lump Sum Award], the Commissioner [of Social Security], absent explicit evidence that the LSA rate represents a stream of payments over the individual's remaining lifetime, is not bound by the terms of the settlement.”

So there’s the “measuring stick.” Providing that “explicit evidence” is your job.

Section Two The Fundamental Things Apply

The basic rule is easy to state but hellishly difficult to apply. In its simplest form, the rule is that:

“The total of Worker’s Compensation and Social Security Disability Insurance Benefits may not exceed 80% of the Claimant’s ‘average current earnings’ or the ‘total family maximum.’”

This is based on Congress’s determination, embodied in 42 USC §424a(a), that an injured worker who collects both Worker’s Compensation benefits and Social Security Benefits is likely to have a financial inducement to stay out of work. Congress will not tolerate any worker earning more by doing nothing than he or she could earn by working, and as a result the offset was mandated. The relevant regulation is 20 C.F.R. § 404.408. It is not light reading, nor is it for the faint of heart.

Before getting into the First Important Question (“80% of what?!”) two things need to be made very clear:

 The offset rules do NOT apply to a Title XVI (Supplemental Security Income) claim since SSI is premised on the proposition that “cash is cash” and Social Security will offset the net received by the Claimant under an asset offset, not a Workers’ Compensation Offset.  The offset rules do NOT apply to personal injury payments outside the Workers’ Compensation setting.

There are ways to reduce the impact of Workers’ Compensation payments to an SSI recipient, but that is a topic for an entirely different session. My

Page 8 of 29 suggestion, however, is not to try any of those ways on your own. The pitfalls are many, and a significant number of them are not obvious. Highly specialized, competent advice is essential, and it is well above my pay grade.

Section THREE Into The Weeds…

When approaching the question of “80% of what?” you will in the main be looking at the Average Current Earnings. Not surprisingly, this is known as the “ACE.”

Although the “Total Family Benefit” is offset, the chances are extremely good that you will have at best a vague idea of what that is. And in the case of a claimant who has not yet filed for Title II benefits, you are not even going to have a vague idea.1 To figure the Total Family Benefit you must refer to POMS § DI-52150.005. For practical purposes, you need to know that the Total Family Benefit exists. What it is, either generally or precisely, is unlikely to govern the way you proceed.

As I have indicated, what you do need to know is that the total of Social Security Disability (Title II) and Workers’ Compensation benefit a claimant can receive without incurring an offset is 80% of the Average Current Earnings (ACE).

The subsidiary rule is that if the offset applies and results in a reduction, Social Security benefits will be reduced dollar for dollar until the 80% cap is no longer exceeded.

Now, all of that would be relatively simple if there was One True Method of calculating Average Current Earnings. But there isn’t. The ACE may be determined by using one of three different methods: The High-1 ACE, The High-5 ACE, and Average Monthly Wage. Social Security is required to calculate all three methods and use the one that produces the highest Average Current Earnings. But you have to make sure that they have done exactly that.

1 You could tell your client to go to the local Social Security Field Office and ask “If I were to file for Title II benefits today, what would my Total Family Benefit be?” I am not sure I know what you’d do with that information, but if you have a fear of the unknown, it is a way to find out.

Page 9 of 29 Obviously, there are three calculations that must be made here:

The Claimant’s Worker’s Compensation payment; The Claimant’s Social Security payment before offset; and The Claimant’s Average Current Earnings.

About the only thing that can be said with certainty is that Social Security is likely to get the calculation of the Claimant’s unadjusted, pre-offset benefit right (maybe not immediately, but eventually). Aside from that, verify, verify, verify.

Section FOUR Calculating the Average Current Earnings

Social Security will calculate the Average Current Earnings by use of three formulae: “High-1 Average Current Earnings”, “High-5 Average Current Earnings” and “Average Monthly Wage.” Just to make sure you are quickly confused, the POMS refers to these as “High-1 ACE” “High-5 ACE” and “AMW”.

“Fuzzy Math?”

In POMS Section DI-52150.010, Social Security has provided a useful chart:

A. Beginning With Benefits Payable 01/73, The ACE Is The Highest Of Three Methods: Average Monthly Wage “High-1” ACE “High-5” ACE (AMW)

Based on the one calendar year in Based on the five consecutive Based on the which the worker's unindexed years after 1950 with the highest unindexed covered earnings were highest unindexed covered earnings covered earnings used to determine the DIB PIA.

Page 10 of 29 Average Monthly Wage “High-1” ACE “High-5” ACE (AMW)

Selected from the period Computed without regard to the consisting of the year of current statutory maximum. (i.e., we can DIB onset and the five years use years of over-maximum immediately preceding the year of earnings in the ACE onset (regardless of whether or not computation. See RS any of these years is within a prior 01401.015 and RS 01404.300 for period of DIB) over-maximum earnings).

Computed without regard to the statutory maximum. (i.e., we can use years of over-maximum earnings in the ACE computation. See RS 01401.015 and RS 01404.300 for over-maximum earnings).

NOTE: The ACE, as used in computing WC/PDB offset, cannot be indexed nor can it be based on indexed earnings.

For a definition of over-maximum earnings, see RS 01401.015 and the chart of maximum earnings in RS 01404.300. See RS 00605.018 regarding indexed earnings.

To compute the ACE, Social Security uses the following formula:

“High-1” “High-5” AMW

Select the highest Take the sum of the 5 Divide the total unindexed yearly earnings from consecutive years after earnings for the computation the year of current 1950 with the highest years (dividend) by number of onset and the 5 unindexed earnings and months in the computation previous years and years (divisor)

Page 11 of 29 “High-1” “High-5” AMW

Divide the yearly Divide by 60 months total by 12 months

Round to the next- Round to the next- Round to the next-lower dollar lower dollar amount lower dollar amount amount

Now, doesn’t that clarify things?

In order to calculate the High-1 ACE, Social Security must:

 Find the one calendar year in which the worker's covered earnings were highest.  Perform the first step (immediately above) by selecting a year “from the period consisting of the year of current DIB onset and 5 immediately preceding years (regardless of whether or not any of these years is within a prior period of DIB)”.  And to then make the computation “without regard to the statutory maximum (include years of over-maximum earnings).”

So if the “High-1 Average Current Earnings” is involved, it is the highest income out of the five years immediately prior to the year of disability plus the year of disability itself, for a total of six. If your client became disabled in 2016 and she had a wind-fall year in 2007 it is of no help since Social Security will not look back further than 1/1/2010 to figure the High-1 ACE.

The High-1 ACE is the method most commonly used to determine the ACE. It is Social Security’s “default option.”2

There are special rules applicable in the case in which the “one calendar year in which the worker’s covered earnings were highest” occurs in what is known

2 Because the High-1 ACE is the default option, you will need to make certain that the other two methods were actually used and that the High-1 ACE is in fact the one that gives the Claimant the greatest benefit. If in doubt, ask.

Page 12 of 29 as “the lag year.” The “lag year” (or “lag period”) is a result of Social Security’s inability to post earnings in real-time. For example, if you were to review your own Earnings Statement you would likely find that 2018 is the last year for which earnings have been posted to your Earnings Record. This is not because you lived off the fat of the land and earned nothing in 2019, it is because Social Security has simply not posted your 2019 earnings on your Earnings Record. The result is a “lag year.” POMS § RS-01404.005 defined the “Lag Period” and requires that it be developed. In recent years Social Security has gotten much better at this, so the “lag period” issue is arising with less frequency.

In order to calculate the High-5 ACE, Social Security must:

 Find the five consecutive years after 1950 with the highest covered earnings.  Having done so, Social Security must then do its computation “without regard to the statutory maximum (include years of over- maximum earnings).”

You may or may not have a situation in which one of the five consecutive years (the last of them) will be a “lag year.” The chances of it happening are lessened when dealing with a repetitive injury; the chances are increased when dealing with an acute injury.3

Do note that the High-5 calculation is likely to come into play if you have a Claimant who earned a considerable amount of money over an extended period of time and then dropped out of the workforce. The usual example is of a high- earning woman who marries a higher-earning man and who leaves the workforce to raise a family, but who then re-enters the workforce for more than five years and leaves permanently due to disability. Another example would be someone who had an unusually productive spurt of economic activity and who then found him/herself a victim of changed market circumstances. A hula- hoop manufacturer, for example, or a savant with expertise in FORTRAN or COBAL and who then just could not make the transition to a Windows-based world.

Let me provide a better example: A man is born in 1965 to a well-connected family in the Heartland of America. Graduates college in 1987 and goes on to a

3 This is based on the general idea that a worker’s earnings increase over the years. Someone with a repetitive injury is likely to have a drop-off in wages as the condition worsens, before the year in which it becomes intolerable and, thus, disabling.

Page 13 of 29 career on Wall Street, where from 1999 to 2004 he earns $1,500,000-plus each year. On January 2, 2005 he is arrested by the FBI and charged with several counts of securities fraud. The Federal Government believes that a period of incarceration is called for and the sentencing judge agrees. He is incarcerated from July 1, 2005 to his release in July of 2010. Clearly his career in the securities industry is over, and upon his release he takes employment with Friedman’s Dancing School and Cyclotron Corp. as a dance instructor. He works that company until December of 2016 when he is injured on the job trying to teach the Electric Slide Hop and cannot work anymore.

In that scenario, looking to his earnings from 1999 to 2004 will yield a “High-5” number that is astronomically higher than his 2010-2016 earnings with Friedman’s. So in that situation, use of the “High-5” is critical.

It is crucial to remember: In both the High-1 and High-5 situations, don’t ignore that language about “computation without regard to the statutory maximum (include years of over-maximum earnings)”, especially if you are dealing with a years-ago period when the Social Security maximum was low or the Claimant had a few stupendous years that he or she never came close to again.

Calculating the Average Monthly Wage ought to be simple: Just look. But, of course, it isn’t. The Average Monthly Wage is calculated by finding the number “Upon which the unindexed DIB PIA [Disability Insurance Benefit Primary Insurance Amount] is based.” You would need to have a very unusual earnings record for this to result in any practical benefit to the Claimant. If you actually have a claim in which that number is relevant, it is recommended that you call upon your Spiritual Advisor, since no earthly power will be of any assistance to you whatsoever in determining whether Social Security’s calculation of the unindexed Disability Insurance Benefit Primary Insurance Amount is right, close to right, or total fiction. The Primary Insurance Amount is calculated in accordance with 20 CFR §404.201 et seq.

It is also crucial to remember that your job is to make certain that the highest possible Average Current Earnings number is calculated and used. The higher you can make the number that Social Security is going to look at 80% of, the more cash you can put into your client’s pocket.

* * * * * * * * * * * * * * * * * * * *

Page 14 of 29 Earlier, I had noted that three calculations that must be made:

 The Claimant’s Worker’s Compensation payment;  The Claimant’s Social Security payment before offset; and  The Claimant’s Average Current Earnings.

The whole point of this exercise is to figure out the answer to the first point in the context of a Stipulation.

In the most commonly encountered situation, you will know the Claimant’s actual Title II Social Security monthly payment, since most commonly the Stipulation in Workers’ Compensation occurs after the Claimant has been awarded Title II benefits. But if that is not your situation do not despair: You can aid your client enormously by keeping the “deemed monthly benefit amount” in the Stipulation as low as possible.

I will be candid in stating that in the run-of-the-mill case, the ACE is not a significant factor in opting for deeming language if you use the “ordinary” method But this is NOT a rule of universal applicability. If you confront a situation in which the ACE is an issue, it makes sense for you to seek the advice of a competent professional. Consider his or her fee to be the price of certainty.

* * * * * * * * * * * * * * *

Before getting into drafting considerations, there is a potentially very important (and almost always overlooked) provision found in POMS § DI-52150.060(E) involving “Methods of Prorating a Lump Sum With Excludable Expenses.” This provides for using “Method A,” “Method B,” or “Method C.” Social Security is supposed to review each lump sum by applying each of these methods and figuring out which results in the greatest benefit to the Claimant. Whether Social Security will actually do the work involved is an open question, so when a “Method A,” “Method B,” or “Method C” question arises, best to point Social Security in the right direction.

“Method B” is the one that is most commonly going to be used, and it will be discussed at length in the section below. Since I am incapable of concocting a

Page 15 of 29 reasonable scenario in which “Method C” would yield a benefit to a claimant, I do not propose to discuss it.4

There are actually a few scenarios in which “Method A” makes sense. “Method A” frontloads the excludable expenses, delaying the start of the offset. This is potentially beneficial if there’s a closed period of disability or (more likely) the claimant is approaching full retirement age and the delay in the start of the offset will mean that the offset never gets applied (or is applied for only a short period). If you are using “Method A,” it would be wise to include in the Stipulation itself wording to the effect of “It is the intention of the parties hereto that the excludable expenses be excluded from the beginning of the proration period in accordance with what is now denominated POMS § DI- 52150.060(E)(1).”

Section FIVE Stipulation Drafting Considerations

Before getting into the question of drafting considerations, it is necessary to consider what happens if you do nothing, and omit either the “deeming language” (Method B) or you do not explicitly front-load the expenses (Method A).

4 “Method C” backloads the excludable expenses. Although I am unable to craft a reasonable scenario where “Method C” would benefit a claimant, I can assuredly concoct a scenario for academic purposes. So, assume a claimant who has a $100,000 gross settlement, with a $70,000 net (attorney’s fees and payment of medical bills amounting to $30,000). Now assume that at his base compensation rate of $750.00 per week ($3,225 per month), he is going to have a 100% offset (no Title II monthly payment) for 22 months if he backloads the excludable expenses. Claimant tells you “my rich uncle Fred will support me for two years – but no longer than two years. If Social Security pays me nothing for two years, Fred will support me. But I need that check after Fred’s support stops.” In that factually implausible scenario, use of “Method C” by the claimant shortens the period of the offset by about nine months, so he will not be left homeless once uncle Fred’s support stops. There is another, perhaps more plausible scenario in which “Method C” benefits the Claimant. Again assume a claimant who has a $100,000 gross settlement, with a $70,000 net. Again assume that at his base compensation rate of $750.00 per week ($3,225 per month), he is going to have a 100% offset (no Title II monthly payment) for 22 months if he backloads the excludable expenses. But here, assume that the Claimant has a second Worker’s Compensation case unrelated to the first, for which he is getting paid, and will continue to be paid, regardless of the Stipulation in the first case. Social Security will offset the periodic payments he is receiving from claim #2 (cash is cash). In that scenario, it would make sense to shorten the offset period on claim #1. It would remove any on-going offset and would allow claim #2 to be resolved without stacking the deemed numbers.

Page 16 of 29 Social Security is going to use a lock-step procedure and a hierarchy in making its calculations.

At the first step, it will determine the gross amount of the lump sum.

At the second step, it will determine the lump sum start date using the following hierarchy: 1) “Allocate the Lump Sum to the period specified in the award;” 2) “If the lump sum award does not specify a start date and the worker previously received periodic payments, the Lump Sum proration begins the day after the periodic payments ended; 3) If the Lump Sum award does not specify a beginning date and the worker did not receive periodic payments, allocate the Lump Sum to: The period beginning with the date of the illness/injury for Workers’ Compensation; the date the worker’s employment terminated for occupational disease; the date after the illness/injury began for PDB; The day after the 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.”

At the third step Social Security will determine the proration rate, again using a hierarchy: the rate specified in the Lump Sum award; If no rate is specified in the award, the latest periodic rate paid prior to the Lump Sum award; If no rate is specified in the award and no periodic payments were received, but the award implies a rate, the implied rate; if no rate is specified in the award, no periodic payments were received, and no rate is implied in the award, use the State’s maximum Workers’ Compensation rate as at the date of injury.

Social Security will then calculate (and deduct) the excludable expenses and start calculating. Using the “do nothing” option is likely to result in far greater financial detriment to the Claimant than use of “deeming language.”

* * * * * * * * * * * *

The previous section has been designed to help you answer the question “80% of what?” As the goal was to find and compute the highest possible Average Current Earnings, the goal here is to find the lowest amount of the Claimant’s Workers’ Compensation payment subject to offset.

As has been indicated, if your client is getting a periodic Workers’ Compensation check that is in the nature of “wage replacement”, there is

Page 17 of 29 nothing you can do to lower the number involved. As John Rowland was fond of saying, “it is what it is.”

And although there is no reason on God’s green earth why a payment for specific indemnity (a percentage of loss of use of a body part) should be deemed “wage replacement,” that’s what Social Security calls it and the Courts have agreed with it uniformly. So that train has left the station.

When it comes to drafting considerations, you must bear in mind that according to POMS §DI-52150.050(A): “When the worker paid expenses, incurred expenses, or has pending incurred expenses in connection with the WC/PDB claim they are excludable from offset within the limits of the law. These expenses include documented medical, legal, or related expenses.”

Although you could, in theory, establish a fund for future medical expenses that is NOT a Medicare Set-Aside (and there are some very detailed POMS requirements for the reasonableness of such funds) don’t do it without consulting an expert. Ever. The complications insofar as the Medicare set aside issues are concerned are vast and thorny. However, if you do establish a Self- Administered Medicare Set Aside, the amount used to fund it is deductible.

Finally, it is noted that Workers’ Compensation Commission Memorandum No. 2019-13 stated in § D (1) that “Where the claimant is eligible for or likely to be eligible for Social Security Disability Insurance Benefits, the parties to a stipulation must consider the impact of the stipulation on such benefits. A stipulation shall contain provisions allocating indemnity benefits in order to rationalize and clarify coordination of workers’ compensation benefits with Social Security Disability Insurance benefits and other contractual or governmental support systems.” This is very nice. It also does not go far enough. In my view, a stipulation “must consider the impact of the stipulation on [Title II] benefits” regardless of the claimant’s current or “likely” eligibility for Title II benefits.

This begs the question “Why?” If the claimant still has a documented and provable work capacity at the time of approval of a stipulation, why is “deeming language” necessary? The answer is “because the workers’ compensation offset is going to apply regardless of the relationship of the work-related injury to the claimant’s disability.

An example may clarify the point: Claimant settles his Workers’ Compensation claim on February 28, 2020 for a net of $70,000. As in the examples above, further assume a base compensation rate of $750.00 per week ($3,225.00 per month). As of February 28, 2020 the claimant is indisputably capable of

Page 18 of 29 performing sedentary work. This is going to result in a roughly 22 month offset.

Fast forward to March 31, 2020, when the claimant is minding his own business when he is struck on the head by a two-by-four wielded by a lunatic who believes that the claimant is a Martian. The claimant sustains a severe brain injury, indisputably disabling him. A Title II claim is filed on his behalf in mid-April of 2020, and he is found immediately to be eligible for benefits with a first payment date of August 1, 2020 (the five month waiting period). Social Security is going to apply the offset from February 28, 2020 for 22 months, meaning no Social Security check until January of 2021. All of which could have been avoided by including deeming language from the get-go.

Get It Right The First Time

A Stipulation for settlement in a Workers’ Compensation claim, like a Last Will and Testament, needs to be done right the first time since you will find out it is wrong only after it is too late to do anything about it.

There was at one time a common (and erroneous) belief that you could amend a Stipulation and Social Security would follow the amendment. This was half right: You could always amend the Stipulation, but Social Security would not honor it. And it still won’t.

Social Security is quite emphatic about this. POMS §DI-52150.065(E) is as blunt as can be:

“SSA [The Social Security Administration] is not bound by the terms of a second or amended stipulation in determining whether and by what rate a disabled worker's Social Security DIB should be offset on account of a WC [Worker’s Compensation] lump sum.”

That does not leave a whole lot of room for argument. If you realize you goofed and you try to file an Amended Stipulation, do not be surprised if Social Security refuses to follow it, mandating instead that you are bound by the first (error-laden) Stipulation. The POMS does not tell you, in that case, to contact your carrier. But you knew that.

An Example

For purposes of the following, I shall assume that:  the Claimant has a valid Workers’ Compensation claim;  the carrier has, since January 1, 2015, refused to pay him a dime of temporary total benefit for no discernable reason; and

Page 19 of 29  the Claimant’s base compensation rate is $500.00 per week.

Additionally, I will assume that:  there is solid, irrefutable evidence that the Claimant’s medical condition is not going to require additional medical treatment (so as to avoid the dreaded Self-Administered Medicare Set Aside issue); and  the Claimant has filed a Disability Insurance Benefit claim, with an Alleged Onset Date of February 1, 2015.

Despite the fact that the Workers’ Compensation carrier has paid no temporary total benefits to the Claimant since 1/1/15, it has merrily been paying his medical bills. There have been no “advances against specific.” I assume further that the Claimant and the Insurer have agreed to resolve the claim for a lump sum payment of $60,000.00.

In this example there are no “medical expenses” to be dealt with; there is a “legal expense” consisting of the money well-earned by the Claimant’s attorney. Assume a 20% fee, or $12,000, and reimbursement of $1,000 in costs advanced (which must be documented). This results in a net settlement of $47,000.

If you do nothing in terms of drafting the Stipulation, Social Security is going to apply the offset as follows: It will go back to 2/1/15 (the Alleged Onset Date) and offset at the established periodic rate ($500.00 per week) until the $47,000 is “used up.” In other words, it will offset at the rate of $500.00 per week for 94 weeks, and it is likely that this is going to result in a 100% offset, leaving the Claimant with no Social Security cash benefit until approximately 12/31/17. Bad lawyering!

This can be avoided quite simply by using something akin to this formula. In order to do this, you will need to ascertain the Claimant’s age (which had jolly well better be in your file) and the remainder of the Claimant’s actuarial life expectancy.

If you use Social Security’s Life Expectancy Calculator you are likely to get no arguments. It can be found at https://www.ssa.gov/OACT/population/longevity.html. There are other sources of this information available, and I have never known Social Security to question any of them so long as they are reasonably up to date. Variations between mortality tables will, however, be minor.5

5 The United States Life Tables for 2017 were reported on June 24, 2019. https://www.cdc.gov/nchs/data/nvsr/nvsr68/nvsr68_07-508.pdf They can be used instead of Social Security’s Life Expectancy Calculator.

Page 20 of 29 So you take the gross sum ($60,000.00) and deduct the allowable expense, which in this case is the attorney’s fee ($12.000.00) and the reimbursement for costs advanced ($1,000.00). You thus arrive at the net settlement of $47,000.00. If the Claimant has, pursuant to the tables, another 27.6 years to go before his presumed date of death, you divide $47,000 by 27.6 to arrive at $1,703.00. This is a yearly total, so you need to divide it by 12 in order to come up with a monthly amount ($142.00).

This can be expressed in any number of ways, all of which get you to the same place. You can do it in a narrative paragraph, or you can do it graphically. Two graphic examples and one narrative example may illustrate the point (using the above numbers). It is assumed that in previous paragraphs of the Stipulation you have outlined the claims of the parties, the defenses, and the doubtful and contingent nature of the claim, and so forth.

First example (Graphic #1):

This net sum represents monthly payments at the Workers’ Compensation benefit rate of $142.00 per month, calculated in the following manner:

Gross Stipulation Amount: $60,000.00 Expenses: Attorney’s Fee <$12,000.00> Reimbursed costs per Schedule <$ 1,000.00> Less Total Expenses $13,000.00

Net Settlement $47,000.00

Divided by Claimant’s life expectancy per Period Life Table (updated 1/1/17) 27.6 years [$47,000 ÷ 27.6] = $ 1,703.00 per year

Divided by 12 = $ 142.00 per month

****************

Second Example (Graphic #2):

Page 21 of 29 This net sum represents monthly payments at the Workers’ Compensation benefit rate of $142.00 per month, calculated in the following manner:

Gross Stipulation Amount: $60,000.00 Expenses: Attorney’s Fee <$12,000.00> Reimbursed costs per Schedule <$ 1,000.00> Total Expenses <$13,000.00>

Expenses as a percentage of settlement: 21.66%

Gross Settlement multiplied by reciprocal of expense percentage ($60,000.00 x 78.34) = $47,000.00

Divided by Claimant’s life expectancy per Period Life Table (updated 1/1/17) 27.6 years [$47,000 ÷ 27.6] = $ 1,703.00 per year

Divided by 12 = $ 142.00 per month

Third Example (Narrative):

In light of the fact that this claim was settled for less than full value, and in light of the respective claims of the parties and the problems of proof set forth above, there is as a result of these considerations and this settlement agreement, a compromised monthly benefit rate of $142.00 using the Claimant’s life expectancy of 27.6 years as of January 1, 2017. This net sum represents monthly payments at the Workers’ Compensation benefit rate of $142.00 per month, calculated in the following manner: These considerations and settlement agreement involve the payment by the respondent to the Claimant of $60,000.00 and in further light of the fact that the Claimant has incurred expenses for attorney’s fees ($12.000.00) and costs of the prosecution of this claim ($1,000.00 per the Statement annexed to the Claimant’s Attorney’s Application for Approval of Fee and made a part thereof), the net due to the Claimant after said deductions is $47,000.00. Pursuant to the United States Life Tables for 2017 [or the Social Security Administration’s Life Expectancy Calculator], the Claimant’s remaining actuarial life span is 27.6 years as of January 1, 2017. Dividing the net due to the Claimant by 27.6 years results in a deemed annual payment of $1,703.00. Further dividing said sum by 12 results in a deemed monthly total of $142.00, commencing as of January 1, 2017, which said sum the Claimant is deemed to receive pursuant to this Stipulation for Settlement. This net sum represents monthly payments at the Workers’ Compensation benefit rate of $142.00 per month, calculated as aforesaid.

Page 22 of 29

********* The second example has the advantage of impenetrability and uses the word “reciprocal,” which always impresses people. It is unlikely that any formula using the word “reciprocal” will be questioned. The person looking at it did not understand the meaning of “reciprocal” when he/she was supposed to have learned it in high school, he/she never understood it at any time thereafter, and rather than admit this fact the formula will sail through. Do not, however, rely on this as legal advice.

********** I cannot overemphasize the importance of using this sort of “deeming language.” The formulae are not hard to master and, to be blunt about it, it is pretty basic. The critical thing to remember is that Social Security will accept deeming language if it is based on accurate math, proper documentation, and a current (or close to current) life expectancy table.

Additional Considerations:

There are a few additional points that merit consideration.

Start Date and Interruptions: It is accepted that neither the course of true love nor a Workers’ Compensation case will proceed smoothly. It often happens that the Claimant’s date of injury (in Workers’ Compensation) and the Claimant’s Alleged Onset Date in his/her Social Security application are going to be different. It is also quite likely that during the claim’s course through the Workers’ Compensation Commission, the Claimant will have his payments stopped, reduced, or adjusted. In terms of drafting the Stipulation, the Date of Injury is unlikely to serve as a point of dispute. HOWEVER, if the Claimant’s periodic payments (temporary total or temporary partial) have been stopped, the “stop date” will often serve as the “start date” for the offset calculation. What is important to remember is that Social Security is going to use a time- consuming process to document the Workers’ Compensation payments that were made from the Claimant’s alleged onset date (in the Social Security application) forward. It will often happen that the Claimant’s counsel will request information from Respondent’s counsel, in order to provide Social Security with the information it claims it needs. The cooperation (and understanding) of Respondent’s counsel is extremely helpful.

Page 23 of 29 In the appropriate circumstances, you can allocate payments to a period or periods in which the carrier stopped (or reduced) payments.

Using Example #1 above, this can be shown as follows:

This net sum represents monthly payments at the Workers’ Compensation benefit rate of $112.00 per month, calculated in the following manner:

Gross Stipulation Amount: $60,000.00 Expenses: Attorney’s Fee <$12,000.00> Reimbursed costs per Schedule <$ 1,000.00> Less Total Expenses $13,000.00

Net Settlement $47,000.00

The sum of weekly benefits due but Not paid for the period 9/3/15 to 11/5/15 (10 weeks) at the weekly Compensation rate as of 9/2/15: $10,000.00

Adjusted Net Settlement: $37,000.00

Divided by Claimant’s life expectancy per Period Life Table (updated 1/1/17) 27.6 years [$37,000 ÷ 27.6] = $ 1,341.00 per year

Divided by 12 = $ 112.00 per month

Excludable Expenses:  Legal expenses paid by the Claimant are excludable from the Lump Sum.  Medical expenses that the Claimant paid or incurred in connection with the Workers’ Compensation claim are excludable from the Lump Sum.  Medical expenses paid out of the compensation due to the Claimant are excludable from the Lump Sum.  Money put into a Medicare Set-Aside Arrangement is excludable from the Lump Sum.  “Home Health Care Benefits Expenses” are excludable from the Lump Sum if the Claimant paid for them “if the benefits provide equipment,

Page 24 of 29 furniture, house adaptations, skilled nursing care, or physical or speech therapy” but ONLY if the Claimant paid for them.6

There is one additional point I would make in this regard. It is often the case that the claimant’s Social Security lawyer finished his or her work many months (or years) before the Workers’ Compensation stipulation is approved. It is not uncommon for the Social Security lawyer to receive a communication from claimant’s Workers’ Compensation attorney saying, in effect, “Here’s the approved Stip, please follow up with Social Security to make sure it gets adjusted correctly.” In that circumstance, it is right and proper for the claimant’s Workers’ Compensation lawyer to call the Social Security lawyer before the Stipulation is finalized and inquire as to his or her fee for this post- entitlement work, and to build that number in as a legal fee in the Stipulation. It is only fair, folks.

Section 5 Subsection A Special Situations

As should be obvious by this point, counsel’s “default option” should be to include “deeming language” in the Stipulation unless there is some clear and compelling reason to exclude it (such as the “Method A” scenario).

As much as some of us would like it to be otherwise, reality is not a fluid concept. Unreasonable assumptions made in a Stipulation will be rejected by Social Security, which you must accept as a given. For example, assume a 57- year-old Claimant. Trying to prorate a net settlement over the Claimant’s ‘remaining life expectancy of 57 years” is going to be rejected as unreasonable. Trying to “deem” the start date of payment to the date the Claimant turns 66.67 (her normal retirement age) is not going to be accepted. Trying to stagger the proration rate (lower deemed number early, higher deemed number once the Claimant reached normal retirement age) will not fly either. Deeming a settlement prorated at $95.00 per month without mentioning life expectancy

6 Such expenses MUST be detailed in the Stipulation and the Claimant must be prepared to document them on demand by SSA (and the burden of proof is the Claimant’s). For example, Claimant paid $12,500 for the construction of an elevator in his/her multi-story home given his/her confinement to a wheelchair. This is excludable from the Lump Sum so long as it is specifically detailed in the Stipulation. Hiring someone to bathe the Claimant or clean the Claimant’s house are not excludable. See POMS § DI-52150.050.

Page 25 of 29 (resulting in a 204-year payout, or some equally absurd result) is going to be rejected.

Services provided by the Workers’ Rehabilitation Services play no role in any of this. I can fathom no ethical way that they would.7

Annuities: Workers’ Compensation settlements that are funded by annuities are subject to special rules that are, truth to tell, quite complicated. You have three ways to deal with this: First, have the annuity vendor draft the language (carrier’s expense); second, hire counsel with expertise to draft it for you (your expense); third, become an expert yourself (at the likely expense of your sanity.)

The Taxman Cometh. In addition to all of the foregoing, there is an excellent – and usually quite unexpected – reason to avoid a Workers’ Compensation offset whenever and wherever possible:

An offset of Social Security benefits by Workers’ Compensation payments (i.e., the usual offset scenario) converts non-taxable Workers’ Compensation income into taxable income to the extent that the Social Security benefits would have been taxed if they were not offset. See 26 U.S.C. § 86 (d)(3).

Read that again, and read it a third time, this time with your mouth closed.

The Claimant must be warned and for your protection the warning should be in writing. Regardless of how well warned the Claimant might be, the 1099 will come as a shock (“They’re going to tax me on money I never got? How did you let this happen?”)

Let me give you an example of what this means: The Social Security claim is adjudicated and paid in 2017. Pursuant to the Administrative Law Judge’s decision, your client would be entitled to retroactive benefit of:

$12,000 in 2013 $12,600 in 2014

7 The issue is pretty much non-existent in Connecticut, where access to the Workers’ Rehabilitation Services remains the Claimant’s right even after the Workers’ Compensation case is concluded. Were ingenious counsel to endeavor to cook up the idea of allocating a portion of the settlement to a “buy out of the right to access Workers’ Rehabilitation Services” the Commissioner would never allow it. And besides, such a buy-out is not excludable from the lump sum in any event. So not only would it be unethical, it would be pointless.

Page 26 of 29 $13,200 in 2015 $13,800 in 2016.

Due to the size of his Worker’s Compensation benefit (which counsel did not think to adjust by means of “deeming language”), however, Social Security pays him net of the offset:

$300 in 2013 $330 in 2014 $360 in 2015 $390 in 2016.

Social Security is going to issue a tax form (1099) to the Claimant, with a copy to the Internal Revenue Service, showing income of:

$12,000 in 2013 $12,600 in 2014 $13,200 in 2015 $13,800 in 2016.

Unless you accept the proposition that “The Internal Revenue Service always wins,” this is absurd. It is also the law.

The dire effects of this can be minimized (or even avoided all together) by making the offset amount as small as possible or zero.

A View From The Trenches: Although this is about fifteen years old, it is still dead-on-the-mark accurate in my view:

The following comments, from a lawyer in St. Louis, might aid you in understanding that the post-decisional nonsense that Claimants’ lawyers put up with is hardly our fault:

Fully 50% of our favorable decisions have post-decision errors. Of these, about 75% are harmlessly confusing. The most common are: 1) Wrong form letter that contains incorrect boilerplate 2) Typo in amount 3) Putting wrong amount in wrong field 4) Failing to explain ongoing benefits properly Another 20% are harmless to the client but have to be fixed by us. The most common include double paying the attorney, failing to offset Titles II and XVI before making attorney payments, incorrect user fee calculations (I just love explaining that they failed to keep the user fee that we pay to reward all the

Page 27 of 29 work they put in to cutting us a check properly). Another 4% are easily corrected but harmful errors, such as failing to effectuate benefits at all, failing to adjust onset dates properly with decisions, Medicare entitlement errors, improper calculations of entitlement amount, etc. The final 1% of the 50% represents complicated errors, some of which are inexplicable, but which must be fixed. Several times I have had to file writs of mandamus. In addition, approximately 90% of concurrent cases fail to have all requisite letters sent, most egregiously the post-offset explanation letter. Some people don't believe me - but I literally fix or explain post-favorable decision problems and errors every single day.

The Medicare Set-Aside Arrangement: Medicare Set-Asides are a sub-specialty of their own and are properly the subject of a separate session, given by someone or some group of someones who know far more than I do.

For purposes of this session, the point to bear in mind is that any proceeds from a Lump Sum that are used to fund a Medicare Set-Aside are “excludable expenses.”

Although not discussed at this session, Medicare Set-Asides are stupendously important, if for no other reason that messing it up could have dire financial consequences for you. The so-called “Medicare Super-Lien” is self-executing and it applies to everyone throughout the chain who at any point touches the Workers’ Compensation settlement money. It applies to the Workers’ Compensation Insurance Carrier, to the carrier’s attorney, to the Claimant, and to the Claimant’s attorney. You are potentially on the hook, so you need to be aware of it. The lien is self-executing, so Medicare does not need to send you notice of it. The last thing you want to do is to collect a fee of 20% of X and be responsible for paying the government 100% of X. Trust me, your client will have already spent the 80% of X he/she received.

It has been a very long time since I had to deal with, let alone negotiate, a Medicare Set-Aside. But I will tell you that way back when, I operated on one clear principle: I would not permit a Medicare Set-Aside to be established without first procuring a document from someone (usually the carrier or a third-party vendor hired by the carrier) telling me that the Set-Aside met all requirements of law. Because if turns out it didn’t, I then had a perfectly good claim against their carrier – not mine.

Page 28 of 29 Parting Advice

Few if any of us went to law school to figure out how to snatch defeat from the jaws of victory, but in all too many cases when Workers’ Compensation and Social Security Disability intersect, ultimate defeat is the result.

As the foregoing has shown, it need not be this way, and in fact it should not be this way. There are easy, basic steps that practitioners can take to protect claimants to the greatest degree the law allows. And quite honestly, there is little reason not to take those easy, basic steps.

It is understood that if given a choice between doing something the easy way and the hard way, most busy practitioners are going to opt for the easy way. But when a Claimant has both a Workers’ Compensation claim and a Title II Social Security Disability claim, you do not have the option of doing it the easy way since there is no easy way. We all need to understand that when the client has both a Workers’ Compensation and a Title II claim, the Claimant is in a position of peril if the lawyers fail to take the time to draft Stipulations that protect the Claimant to the greatest allowable degree.

To those who do Workers’ Compensation cases but would not come within fifty feet of a Social Security claim, I urge you – no, I beg you – to protect your client by routinely including “deeming language” in your Stipulations. If you have any question at all about the best way to do it, pick up the phone and call an experienced Social Security Disability practitioner for guidance. For you, including “deeming language” in your Stipulations as a matter of routine is not merely the “best practice,” it should be the only practice.

You have powerful tools to protect your client. Use them!

Prepared by: Attorney Ivan M. Katz 57 Trumbull Street New Haven, CT 06510-1004 Phone: [203] 777-5737 Fax: [203] 777-2791 E-Mail: [email protected]

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