The Social Security Offset Nightmare – it only gets worse.
This post is Washington workers’ compensation specific and will not likely apply to anyone receiving social security benefits plus other sources of workers’ compensation benefits or other public disability benefits. As applied in Washington State, the Department of Labor and Industries (“DLI”), or self-insured employer where applicable, is allowed to take the offset (see prior posts to describe how the offset is calculated) until the injured worker reaches the age of 62. Because of quirk in the law, the Social Security Administration (“SSA”) gets to take the offset between the ages of 62-65. Thereafter because SSA does not offset retirement benefits, the offset reverts back to the DLI or a self-insured employer.
The problem arises in how SSA calculates the average current earnings (“ACE”) for the 62-65 offset period. When one is initially found eligible for social security disability benefits AND workers’ compensation benefits, the offset is calculated, typically using the ACE (there are other methods to calculate the maximum benefit, this post only applies to those whose maximum combined benefit is set by using 80% of the ACE) to set the maximum amount one can receive through a combination of both workers’ compensation and social security disability benefits (80% of the ACE). Then over time, one is entitled to cost of living adjustments (some are entitled to yearly increases, some are entitled to triennial increases of workers’ compensation benefits – the difference being the subject of a different posting). If one is disabled and entitled to both benefits at an early age, by the time one reaches 62 the increases to the combined benefits can be pretty significant. The effect of the increases is to increase the ACE so the 80% figure is higher and higher over time allowing for higher and higher payments from the combined systems.
This is all well and good, but then along comes the age 62 reverse of the offset by the SSA. Instead of using the higher ACE calculated by utilizing increases in wages over time to avoid the benefits being eroded by inflation (i.e. that higher figure being used by the DLI), SSA goes all the way back to the original ACE to calculate the offset. This can result in a DECREASE in the combined payments by 100s of dollars per month. In those cases where there is a delay in Social Security implementing the offset (as is not unusual given the volume of cases they must address) there is not uncommonly a substantial overpayment assessed by SA by retroactively applying the offset. IF both SSA and DLI used the same ACE, then when DLI retroactively reversed its offset in response to SSA retroactively applying its offset the underpayment from DLI would match the overpayment from SSA and it would be a wash – the underpayment received from DLI could be sent to SSA to pay the overpayment. However, because DLI is using a higher ACE, there is a much smaller underpayment from DLI than the overpayment from SSA and many disabled workers are left owing SSA thousands of dollars with no source of monies to pay it. It is possible to request waiver and where the overpayment is not the disabled worker’s fault (as is always the case in this circumstance) and where repayment would be a substantial hardship on the disabled worker. However SSA will look at all the disabled workers’ income and assets and where there are assets or where the spouse has a good job, waiver may be denied.
Whether any overpayment is waived or not, that does not solve the problem that is created by using the old ACE which ignores inflation and increased cost of living since the disabled worker was first entitled to both disability income and workers’ compensation benefits. Again, the result is a reduction of combined payments which can run into 100s of dollars per month (each case is slightly different based on the individual disabled worker’s income history is and the amount of the social security and DLI benefits).
Unfortunately, the use of the original ACE, rather than an updated ACE, appears to be consistent with federal law. There is no provision in federal law to ever use an updated ACE unless the ACE is adjusted by SSA over time by application of the triennial adjustment process. There is no provision, where social security benefits have been paid at the full rate (as is the case where the workers’ compensation payer is taking the offset) to apply an adjusted ACE during the 62-65 reverse offset process.
Is there a solution?
On a case by case basis it might be advantageous for a disabled worker to switch to early retirement at age 62 (SSA does not offset retirement benefits). That may or not be advantageous to a disable worker. Each case is individual based on earnings history the size of the family benefit (i.e. the number of others claiming on the account, etc.).
The only real solution, in addition to seeking waiver for any overpayment created by retroactive application of the offset, is to seek to change the law. That is problematic. In seeking Congressional support to modify the law we would be faced with the fact of the huge federal deficits (fixing this would cost social security money) plus this anomaly only appears to apply to Washington State disabled workers. There is a chance that some of the other states that are allowed to take the offset may face similar situations, but we are unusual in that we are allowed to take the offset only up to ager 62 and then lose it until age 65.
Injured workers need to be aware of this issue, plan and prepare for the switch of the offset at age 62 (knowing if there is a delay in SSA applying the offset that it most likely be done retroactively with assessment of an overpayment) and to try to plan of potential reduction of the total combined benefit when the worker has been disabled for, and on both benefit systems, for an extended period. Further reading can be found at: https://secure.ssa.gov/poms.nsf/lnx/0452120265.
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