EFFECTIVE/PUBLICATION DATE: 03/03/92
SSR 92-2a: SECTIONS 210(a)(7), 218(b), (c)(4), AND 224 OF THE SOCIAL SECURITY ACT (42 U.S.C. 410(a)(7), 418(b), (c)(4), AND 424a) DISABILITY INSURANCE BENEFITS -- REDUCTION TO ZERO DUE TO RECEIPT OF STATE DISABILITY PAYMENTS
20 CFR 404.211(b), 404.221(b), 404.408, 404.1020 and 404.1214
- The claimant applied for Social Security disability benefits and was found disabled beginning August 20, 1984. However, his Social Security disability benefits were offset and reduced to zero because he also received a public disability payment from the Colorado Public Employees' Retirement Association. The offset was made because the amount he received in Social Security disability benefits and payments from the Public Employees' Retirement Association exceeded 80 percent of his "average current earnings" as defined in the Social Security Act.
- The claimant appealed this reduction in his benefit and argued that noncovered wages from his employment with the State of Colorado should be used to calculate his "average current earnings." He also argued that his State disability payments were not subject to offset because Colorado law provided for a "reverse offset" (offset of the State payment due to the receipt of Social Security disability benefits that precludes offset of the Social Security benefit) and because his State disability payment was a private, not public, disability payment.
- The administrative law judge (ALJ) decided that the claimant's wages from the State of Colorado were not covered under Social Security and, therefore, could not be included in the calculation of his "average current earnings." The ALJ also held that Colorado law did not provide for a "reverse offset" for the Public Employees' Retirement Association disability payment because there was no reduction in the State disability payments due to the receipt of Social Security disability benefits. (The ALJ recognized that the State of Colorado does have a "reverse offset" plan for its workers' compensation payments, which are completely separate from the disability payment the plaintiff received.) And, finally, the ALJ decided that the State disability payment received by the claimant is paid pursuant to the laws of the State of Colorado and is, therefore, a public, not private, disability payment subject to offset.
The sole issue here is whether Social Security disability benefits were properly reduced or offset.
On August 31, 1984, the claimant applied for disability insurance benefits. On October 17, 1984, the claimant was found "disabled" with an onset date or August 21, 1984. The claimant's Social Security award letter stated that after a 5-month waiting period his monthly benefit was $568.60. His total family benefit amount was $852.90. Effective October 1984, the claimant began receiving $873.63 in disability payments from the State of Colorado because he had worked as a tax auditor for the State from March 1977 to August 21, 1984.
A hearing was held on August 20, 1985. The claimant testified that he was employed as a public employee in a political subdivision of the State of Colorado until August 20, 1984, and had stopped paying into Social Security around 1976-1977. He believed that 42 U.S.C. 424a(d) prohibited the Social Security Administration from making an offset from any benefits received from the State of Colorado. The claimant also argued that his "average current monthly earnings" were improperly calculated because his 1983 earnings from the State of Colorado should have been the basis on which to calculate his "average current earnings."
The 1981 Omnibus Budget Reconciliation Act, as incorporated in section 224 of the Social Security Act, provided for the reduction, but not below zero, of Social Security disability benefits payable after August 1981 to individuals who are also receiving disability benefits provided by Federal, State, or local governments (with certain exceptions). The reduction or offset is made in the Social Security disability benefit in the event the total benefits paid under the two disability programs exceed 80 percent of the worker's average monthly earnings (called "average current earnings") prior to the onset of disability. The purpose of this legislative change was to eliminate duplicate benefits that overcompensate some disabled workers, thereby discouraging them from attempting after-tax income as the result of public disability programs than they earned when they were working.
The claimant's average monthly earnings were calculated using the claimant's monthly earnings in his highest consecutive 5 years of earnings covered by Social Security (years 1972 through 1976). The result of this calculation, with the 80 percent limit imposed, was $852.00.
The claimant asserted that the calculation of his average monthly earnings was incorrect. He argued that his State of Colorado employment prior to his determination of disability should have been used. 20 CFR 404.408)c)(3) defines "average current earnings" and directs how the same will be derived for purposes of applying a reduction in benefits. More specifically, 20 CFR 404.211(b) provide that the methods to either determine average indexed monthly earnings or average monthly wages for purposes of computing a Social Security disability benefit will use earnings creditable to the claimant for Social Security purposes after 1950. Since the claimant's earnings while he was employed with the State of Colorado were not creditable to his Social Security earnings record, his earnings from his State employment could not be used.
Service in the employ of a State, or any political subdivision thereof, or any instrumentality that is wholly owned by one or more States or political subdivisions, is excluded from Social Security coverage. However, Section 218(a) of the Social Security Act (the Act) provides for voluntary agreements for coverage of most employees of State and a local governments. All the States have entered into agreements, some having provided coverage for most employees and some having provided coverage for most employees and some having provided coverage for only a few employees. The claimant's specific employment for the State of Colorado was not a part of a "coverage group" as provided in Sections 218(b) and (c)(4) of the Act.
In his second argument, the claimant cited 42 U.S.C. 424a(d) as authority that no offset would apply to the disability payments provided by the State of Colorado. That section provides that an offset shall not apply if a State law or plan provided on February 18, 1981, for a reduction in the amount of the State disability payment if the claimant also receives a Social Security disability benefit (called a "reverse offset" law or plan). Colorado does not have such a "reverse offset" law or plan applying to State disability payments. Therefore, the exception in 42 U.S.C. 424a(d) does not apply in this case. And, finally, since the State disability payment received by the claimant is paid pursuant to the laws of the State of Colorado, it is a public, not private, disability payment subject to offset.
In applying applicable law to the claimant's case, the maximum monthly limit for his combined Social Security disability benefit and State disability payment, for purposes of computing the reduction in his Social Security benefit, is 80 percent of his average monthly earnings under covered employment, or $852.00. Since the total of his State disability payment ($873.63) and unreduced Social Security disability benefit ($852.90) equals $1,726.53, his family Social Security disability benefit must be reduced by $852.90 to a benefit amount of zero. That leave the claimant with the receipt of $873.63 in State disability payments per month. The application of an offset or reduction fulfills the intent of the new law that the claimant not be overcompensated.
However, should the claimant's State disability payments ever stop, his Social Security disability benefit would resume. Moreover, if and when the claimant reached age 65, the calculation of his Social Security retirement benefit will take into account his period of disability granted since August 21, 1984, even though benefits actually received were reduced to zero. At that time, his retirement benefit will be substantially higher than if had not been found disabled and was able to continue in his noncovered employment with the State of Colorado.
Accordingly, the reduction or offset of benefits in this case is found to have been justified and correct.
 Section 224(a) of the Act, which 20 CFR 404.408(c)(3) implements, provides that "average current earnings" are computed by reference to average monthly wage under section 215(b) of the Act or to wage and self-employment income totals referencing sections 209(a)(1) and 211(b)(1) of the Act. These statutory provisions are concerned strictly with wages and self-employment income derived from employment and self-employment covered by Social Security.
 Effective for services performed after July 1, 1991, with a few exceptions, service in the employ of a State, any political subdivision thereof, or any instrumentality of the State or political subdivision wholly owned thereby, by an individual who is not a member of a retirement system of such State, political subdivision, or instrumentality is mandatorily covered for Social Security purposes under section 210(a)(7)(F) of the Act.
 The claimant subsequently sought review of the Secretary's final decision in the United States District Court for the District of Colorado,. On October 8, 1`986, that court upheld the Secretary's decision. The claimant appealed the district court's decision to the United States Court of Appeals for the Tenth Circuit which, on November 4, 1987, affirmed the district court's decision in favor of the Secretary.