Individuals who receive Social Security Disability Insurance (SSDI) receive a specific monthly benefit that is based upon their work history. The higher the individual’s earned income, the higher their Social Security Disability Insurance Benefit.
SSDI benefits may be reduced or "offset" if the individual receives workers' compensation for the same period he/she is paid SSDI. Offset occurs if the combined amount of the SSDI benefit and the workers compensation payment exceeds 80% of the individual’s average current earnings (ACE). Understanding Social Security guidelines may help an individual who receives a workers compensation lump sum award minimize the amount of the offset.
When an individual receives a lump sum award the entire amount of the lump sum (less excludable expenses) must be prorated based on the terms of the lump sum settlement. Offset is calculated for the entire period for which it is being paid and not just for the month it is received. The rate used to prorate the lump sum award will be the rate stated in the settlement, or if not stated, the periodic weekly rate used before the settlement. The lower the rate, the less the SSDI payment is offset. The higher the rate, the greater the offset amount.
A simple safeguard that minimizes the offset amount is to prorate the lump sum over the individual’s remaining life expectancy. Most workers’ compensation lump sum awards are for, or include, compensation for permanent impairment. By definition, permanent impairment benefits are intended to compensate individuals over their lifetime. The written agreement for the lump sum should take note of this fact and apportion the lump sum over the individual's lifetime.
An injured worker must sign a Form Settlement Agreement (either a Form 22, Form 14 or Form 15), before receiving a lump sum. It is advisable that the form agreement contain language similar to the following, addressing the “permanent” nature of the benefit and apportioning it over the individual’s lifetime:
“Although this benefit is paid in one lump sum, this represents compensation for an injury that will affect the employee for the rest of his/her life. The employee's life expectancy is _____ years, therefore the employee's benefit shall be considered to be $_____ per month"
Any SSDI recipient, or SSDI-eligible individual should take the time and effort to appropriately identify and protect the benefits to which they are entitled.