20 CFR 404.408
A question has been raised regarding the treatment of a lump-sum workmen's compensation award paid into an irrevocable trust under a "Compromise and Release" agreement for purposes of the reduction provision under section 224 of the Act.
On April 6, 1971, a Workmen's Compensation Appeals Board approved a "Compromise and Release" of the claim filed by A against his employer. The amount of the settlement, $23,548.58, was paid "in lieu of" periodic payments. Pursuant to this approval, the Board awarded A $1,000, paid certain medical-legal costs and attorney's fees, and provided that the remainder of the award ($19,178.21) would be payable to a bank as trustee under the errs of an irrevocable trust entered into by A and the bank. The trust was to terminate on January 1, 1980, unless terminated earlier by A's death. This trust was created pursuant to an order of the Workmen's Compensation Appeals Board. Thus, the workmen's compensation benefits are not being paid directly to A but are deposited under the terms of the trust agreement which provides that no income from the trust will be allocated to the claimant until July 1, 1972, and $50.00 a month will, commencing December 1, 1971, be allocated to A from the principal. The issue presented is the extent to which SSA should consider the effect of the trust agreement in determining the amount of offset required by section 224 of the Act.
Section 224 of the Act provides for the reduction of benefits based on disability on account of the receipt of workmen's compensation, and paragraph (a) of that section explains how the amount of the reduction is determined.
Section 224(b) of the Act provides: "If any periodic benefit under a workmen's compensation law or plan is payable on other than a monthly basis (excluding a benefit payable as a lump sum except to the extent that it is a commutation of, or a substitute for, periodic payments), the reduction under this section shall be made at such time or times and in such amounts as the Secretary finds will approximate as nearly as practicable the reduction prescribed by subsection (a)."
Section 404.408(d) of Regulations No. 4 provides: "Amounts paid or incurred, or to be incurred, by the individual for medical, legal, or related expenses in connection with his workmen's compensation claim, or the injury or occupational disease on which his workmen's compensation award or settlement agreement is based, are excluded in computing the reduction under paragraph (a) of this section to the extent that they are consonant with State law. . ."
The $1,000 paid directly to A on May 1, 1971 and the $19,178.21 paid into the trust were workmen's compensation benefits payable in a lump sum as a commutation of, or a substitute for, periodic payments. Because the subject payments are made "in lieu of" periodic payments within the meaning of section 224 of the Act, it is necessary to determine the amount of the periodic payments payable (and actually paid) for the month fo A before applying the formula provided in section 224(a) of the Act for determining the amount of the reduction, if any, required from A's DIB. To determine this amount, the workmen's compensation award and the terms of the trust agreement must be examined.
SSA has held that interest payments are not cognizable for purposes of reducing DIB when the payments are made in connection with a workmen's compensation award or compromise agreement. SSA believes that these income payments beginning July 1972 based on the earnings of the trust should similarly not be cognizable for purposes of reducing A's DIB under sectin 224 of the Act.
Thus, the issue becomes whether the $19,178.21 paid into the trust should be prorated under the terms of the trust i.d., $50.00 a month beginning December 1, 1971 or whether the lump sum should be prorated without regard to the trust agreement i.e., by prorating the lump sum on the basis of the number of weeks to which the lump sun is referable or, if that is not determinable, on the basis of the weekly compensation rate.
SSA believes that the method to be used depends upon whether A had the option of being paid he lump sum wihtout restriction or of establishing the trust. The question as to whether establishment of the trust was mandatory or optional with A should be answered by reference to the "Compromise and Release" Agreement entered into by A and the pertinent provisions of applicable State Workmen's Compensation law.
If establishment of the trust was wholly optional with A, then SSA believes that the entire lump sum should be prorated without regard to the terms of the trust agreement in making the required reduction under section 224 of the Act.
If establishment of the trust was mandatory (i.e., if A had no option in the matter), then SSA believes that the only amounts which may be considered in determining the applicability of an offset against A's DIB are the $1,000 he received on May 1, 1971 and the $50.00 monthly payments he began receiving on December 1, 1971, assuming no part of the $1,000 or monthly payments are otherwise excludable in determining the amount of workmen's compensation e.g., medical expenses. Any amount referable to the original lump-sum award which is paid to A after termination of the trust, if any amount remains, would have to be considered separately at that time for purposes of determining whether A's disability benefits (if he was still entitled to them) were subject to offset under section 224 of the Act.
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