An injured worker can get both workers compensation and Social Security Disability benefits. But, in Kentucky the Social Security Administration (SSA) may reduce (offset) any benefits it pays. It uses a complicated formula to offset benefits so that the injured worker can only receive a certain amount each month in both workers compensation and Social Security Disability benefits.
The injured employee can only receive 80% of his Average Current Earnings (ACE). The ACE is figure determined by the SSA, and is based on money the injured worker has paid into the Social Security system over his lifetime.
This offset is important for claimants that have a potential high value total disability claim that would cause an offset of their Social Security benefits. For these claimants, any additional money in workers compensation benefits they receive will be washed out by the Social Security offset. If that point can be determined, there is a very good chance to settle the claim for a lump sum. This is because the insurance carrier can avoid the possibility of a costly award of total disability by settling.
The offset does not apply to private insurance benefits, like short term disability, long term disability, or sickness and accident insurance.
The SSA looks at the language of the settlement agreement to determine how to compute the offset. Therefore, by drafting a settlement agreement that has the right language, the offset can be greatly reduced, or eliminated. Without the right language, in some situations, the SSA may offset all benefits it pays, leaving the injured worker with no monetary Social Security benefits.
The primary way to minimize the impact of the SSA offset is to decrease the rate of periodic payments used to compute the lump sum settlement. This is usually done by lengthening the period of time for which they were intended to be made. For instance, stating the lump sum is based on Plaintiff’s life expectancy, rather than a 425 week period. Accordingly, it will lessen the impact of the offset. Also, the SSA will deduct expenses, such as attorney’s fee and litigation expenses from the settlement before the primary offset calculations are made,
Therefore, by drafting a settlement agreement that includes the right language, the Social Security offset can be minimized or eliminated, even for a lump sum settlement.