3-27-12; Workers’ Comp 101—What is “Social Security Spread Language?”

We keep getting asked and wanted to let WC newbies across the U.S. know what this concept might be. In most situations, we tell WC claims adjusters to allow the other side to provide spread language for your consideration and use.

The main concept is a lump sum workers’ compensation settlement in all states may reduce dollar-for-dollar any ongoing Social Security disability benefit payments being paid to the injured worker. Basically, if the injured worker gets a whopping settlement, they are going to lose part or all of their right to ongoing Social Security payments.

For reasons we aren’t sure of, the Federal Government allows injured workers and their attorneys to magically “spread” the lump sum over their lifetimes to avoid the setoff or reduction in benefits owed. To minimize or legally “circumvent” offset of Social Security disability benefits, a workers’ comp settlement agreement must contain language that spreads out payments over time. Absent this “spread language” in the workers’ comp agreement, the lump sum payment is certain reduce Social Security benefits to which the claimant is otherwise entitled.

For example, let’s say a 50-year-old worker injures their rotator cuff. At age 52, the worker suffers a disabling heart attack that keeps them from working. Two years later, the worker obtains a Social Security disability award of $1,000 per month. The worker then settles the shoulder claim for $50,000.

Assume further the disabled worker’s lump sum workers’ comp settlement agreement did not contain spread language. If that occurs, the Social Security Administration will set off the entire lump sum settlement of $50,000 against the $1,000 monthly Social Security benefits. As a result, the disabled worker is precluded from obtaining Social Security disability benefits for the 50 months he was entitled to receive those benefits. This would be true despite the fact the two medical issues are completely unrelated.

To avoid the offset, the workers’ compensation settlement agreement has to include language spreading out the $50,000 payment over the worker’s life expectancy. For example, at age 52, the worker has 34-year life expectancy. The workers’ comp settlement of $50,000 could have been spread out over that entire lifespan in monthly payments of approximately $122.00. Accordingly, subsequent Social Security monthly benefits of $1,000 would only have been reduced to $878.00.

Below is sample language to include in a workers’ compensation settlement agreement that spreads out the one-time payment of lump sum WC benefits over time:

After payment of attorney’s fees and costs, Petitioner will receive a net amount of $__________. This is for a permanent impairment that will affect the claimant for the rest of their life. The mortality table indicates Petitioner at age _______ has a life expectancy of _______ years or _________ months. The amortized monthly net benefit is _________ per month. This represents future income replacement. This paragraph is intended for federal Social Security purposes only.

More information can be found on the Social Security Administration’s website including http://www.socialsecurity.gov/OP_Home/handbook/handbook.05/handbook-0504.html. We are happy to assist if you have questions or concerns about these and related issues. We appreciate your thoughts and comments. Please do not hesitate to post them on our award-winning blog.