[Federal Register Volume 60, Number 133 (Wednesday, July 12, 1995)]
[Notices]
[Pages 35987-35989]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-17038]



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SOCIAL SECURITY ADMINISTRATION

[Social Security Acquiescence Ruling 95-2(9)]


Hodge v. Shalala; Workers' Compensation--Proration of a Lump-Sum 
Award for Permanent Disability Over the Remainder of an Individual's 
Working Life Under Oregon Workers' Compensation Law

AGENCY: Social Security Administration.

ACTION: Notice of Social Security Acquiescence Ruling.

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SUMMARY: In accordance with 20 CFR 422.406(b)(2), the Commissioner of 
Social Security gives notice of Social Security Acquiescence Ruling 95-
2(9).

EFFECTIVE DATE: July 12, 1995.

FOR FURTHER INFORMATION CONTACT:
Gary Sargent, Litigation Staff, Social Security Administration, 6401 
Security Blvd., Baltimore, MD 21235, (410) 965-1695.

SUPPLEMENTARY INFORMATION: Although not required to do so pursuant to 5 
U.S.C. 552(a)(1) and (a)(2), we are publishing this Social Security 
Acquiescence Ruling in accordance with 20 CFR 422.406(b)(2).
    A Social Security Acquiescence Ruling explains how we will apply a 
holding in a decision of a United States Court of Appeals that we 
determine conflicts with our interpretation of a provision of the 
Social Security Act (the Act) or regulations when the Government has 
decided not to seek further review of that decision or is unsuccessful 
on further review.
    We will apply the holding of the Court of Appeals decision as 
explained in this Social Security Acquiescence Ruling to claims at all 
levels of administrative adjudication within the Ninth Circuit. This 
Social Security Acquiescence Ruling will apply to all determinations 
and decisions made on or after July 12, 1995. If we made a 
determination or decision on your application for benefits between June 
21, 1994, the date of the Court of Appeals decision, and July 12, 1995, 
the effective date of this Social Security Acquiescence Ruling, you may 
request application of the Ruling to your claim if you first 
demonstrate, pursuant to 20 CFR 404.985(b), that application of the 
Ruling could change our prior determination or decision.
    If this Social Security Acquiescence Ruling is later rescinded as 
obsolete, we will publish a notice in the Federal Register to that 
effect as provided for in 20 CFR 404.985(e). If we decide to relitigate 
the issue covered by this Social Security Acquiescence Ruling as 
provided for by 20 CFR 404.985(c), we will publish a notice in the 
Federal Register stating that we will apply our interpretation of the 
Act or regulations involved and explaining why we have decided to 
relitigate the issue.

(Catalog of Federal Domestic Assistance Programs Nos. 96.001 Social 
Security - Disability Insurance; 96.005 Special Benefits for 
Disabled Coal Miners.)


[[Page 35988]]

    Dated: June 5, 1995.
Lawrence H. Thompson,
Principal Deputy Commissioner of Social Security.

Acquiescence Ruling 95-2(9)

    Hodge v. Shalala, 27 F.3d 430 (9th Cir. 1994)--Workers' 
Compensation--Proration of a Lump-Sum Award for Permanent Disability 
Over the Remainder of an Individual's Working Life Under Oregon 
Workers' Compensation Law--Title II of the Social Security Act.
    Issue: Whether, when offsetting workers' compensation benefits 
awarded for permanent disability under Oregon workers' compensation law 
against Social Security disability benefits, section 224(b) of the 
Social Security Act (the Act) requires the Social Security 
Administration (SSA)1 to prorate a lump-sum award or settlement 
over the remainder of an individual's working life which the court 
concluded ends at age 65.

    \1\ Under the Social Security Independence and Program 
Improvements Act of 1994, Pub. L. No. 103-296, effective March 31, 
1995, the Social Security Administration (SSA) became an independent 
Agency in the Executive Branch of the United States Government and 
was provided ultimate responsibility for administering the Social 
Security programs under title II of the Act. Prior to March 31, 
1995, the Secretary of Health and Human Services had such 
responsibility.
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    Statute/Regulation/Ruling Citation: Sections 224(a)(2) and (b) of 
the Social Security Act (42 U.S.C. 424a(a)(2) and (b)); 20 CFR 404.408; 
Social Security Rulings (SSRs) 76-34c, 81-33, 85-6c and 87-21c.
    Circuit: Ninth (Alaska, Arizona, California, Guam, Hawaii 
(including American Samoa), Idaho, Montana, Nevada, Northern Mariana 
Islands, Oregon, Washington)
    Hodge v. Shalala, 27 F.3d 430 (9th Cir. 1994).
    Applicability of Ruling: This Ruling applies to determinations or 
decisions at all administrative levels (i.e., initial, reconsideration, 
Administrative Law Judge (ALJ) hearing and Appeals Council).
    Description of Case: On October 23, 1986, the plaintiff, Gerald 
Hodge, injured his right wrist while working as a boilermaker. For a 
period of seven months, from October 24, 1986 through May 20, 1987, he 
received $344.77 per week in temporary disability benefits under Oregon 
workers' compensation law. Eventually, it was determined that Mr. Hodge 
had lost the use of 40 percent of his right forearm and he was deemed 
permanently injured as of May 20, 1987. After payment of court costs, 
attorneys' fees and the recoupment of a prior overpayment, Mr. Hodge 
received a net lump-sum award of $4,068.75 under Oregon workers' 
compensation law.
    Mr. Hodge also became entitled to Social Security disability 
benefits for a closed period between October 22, 1986 through February 
29, 1988. In accordance with section 224(b) of the Act, SSA offset Mr. 
Hodge's lump-sum workers' compensation award against his disability 
benefits at the rate of $344.77 per week, the same rate at which he had 
received temporary disability benefits under Oregon law. The plaintiff 
challenged the offset and the offset rate at a hearing, but an ALJ 
affirmed the prior determination and calculation of the offset. 
Regarding the offset rate issue, the plaintiff alleged that the offset 
amount should equal the lump-sum divided by the number of months 
remaining in his natural life. The ALJ found that because the lump-sum 
award did not specify an offset rate the proration should be based on 
the prior periodic rate, i.e., the temporary disability payments of 
$344.77 per week. The Appeals Council denied Mr. Hodge's request for 
review of the ALJ's decision.
    The plaintiff sought judicial review and the district court 
reversed SSA's decision to offset the plaintiff's Social Security 
disability benefits, holding that ``scheduled'' loss awards2 were 
not substitutes for periodic benefits and thus were not offsettable. 
The district court accordingly did not address the offset rate issue. 
SSA appealed and the United States Court of Appeals for the Ninth 
Circuit reversed the judgment of the district court and found that an 
offset should be applied. However, the Ninth Circuit held that the 
proper offset rate, based on Oregon workers' compensation law, is 
calculated by prorating the lump-sum award over the working life of the 
plaintiff.

    \2\ Under Oregon law, a permanently partially disabled worker 
receives either a scheduled or unscheduled award. Scheduled awards 
are fixed-sum awards for injuries to specified limbs or body parts. 
Unscheduled awards cover all other injuries (Or. Rev. Stat. 
Sec. 656.214(2)-(5) (1993)).
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    Holding: The Court of Appeals held that, under Oregon workers' 
compensation law, both ``scheduled'' and ``unscheduled'' awards 
substitute for periodic benefits and ``represent a stream of lost 
future wages'' intended to provide wage replacement for a worker's loss 
of earning capacity. Accordingly, both types of benefits, including Mr. 
Hodge's scheduled award, ``must be offset to the extent that they 
overlap with federal benefits in a given month.''
    Regarding the calculation of the offset, the Ninth Circuit held 
that ``the monthly offset amount should be equal to Hodge's lump-sum 
award divided by the number of months between the date of the award and 
the date Hodge reaches the age of 65.'' The court presumed that under 
section 224(a) of the Act, age 65 marks the end of an individual's 
working life. Under section 224(b) of the Act, SSA must ``approximate 
as nearly as practicable'' the rate at which the lump-sum award would 
have been paid on a monthly basis. Because Oregon workers' compensation 
law provided for payment of Mr. Hodge's lump-sum award as ``a 
substitute for a stream of payments for the remainder of his working 
life,'' the Court of Appeals found that the monthly offset rate could 
be determined from the application of State law without referring to 
SSA's policy guidelines for assistance in determining the offset.
    The court noted that SSA has established policy guidelines for 
determining the monthly offset rates for various types of lump-sum 
awards.3 Because these guidelines must be consistent with the 
clear requirement of section 224(b) of the Act, the court interpreted 
the proration method most favored by SSA, the one that calculates the 
offset according to the rate specified in the lump-sum award, as 
referring not only to the rate expressly stated in the award, ``but 
also to a rate specified by operation of [State] law.'' The court 
concluded that SSA should apply the prior periodic rate paid under a 
workers' compensation law only in cases where the monthly offset rate 
is not established by State law.

    \3\ SSR 87-21c and Program Operations Manual System (POMS) DI 
52001.555 C.4.
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Statement As To How Hodge Differs From Social Security Policy

    Under section 224(a) of the Act, a claimant's Social Security 
disability benefits are reduced because of the receipt of workers' 
compensation so that the total worker's compensation and Social 
Security disability benefits that a disabled worker receives will not 
exceed 80 percent of the worker's ``average current earnings'' at the 
onset of disability. In calculating this reduction when a claimant 
receives a workers' compensation lump-sum award or settlement, section 
224(b) of the Act gives SSA authority to prorate the lump-sum in a way 
that ``approximate[s] as nearly as practicable the reduction'' that 
would have been made if the claimant had received benefits at a monthly 
periodic rate. According to SSA's regulation implementing section 
224(b) of the Act (20 CFR 404.408(g)), the lump-sum is treated as a 
substitute for periodic 

[[Page 35989]]
payments and must be prorated. Under POMS DI 52001.555 C.4. the 
proration is accomplished using one of three methods in the following 
order of priority:
    (1) the rate specified in the award;
    (2) the periodic rate paid prior to the lump-sum award (if no rate 
was specified in the lump-sum award); or
    (3) the State workers' compensation maximum weekly rate in effect 
at the time of the workers' compensation injury (if no rate was 
specified in the lump-sum award and if no prior periodic payments were 
made).4

    \4\ See also SSR 87-21c
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    The Hodge court found that Oregon workers' compensation law 
establishes that a lump-sum award for a permanent disability is a 
substitute for a stream of payments for the remainder of an 
individual's working life which the court presumed to end at age 65. 
Because the amount of the payment and the period of time covered are 
known, the court concluded that by the operation of Oregon law the 
monthly offset amount equals the lump-sum award divided by the number 
of months between the date of the award and the date the worker reaches 
age 65.

Explanation of How SSA Will Apply The Hodge Decision Within The Circuit

    This Ruling applies only to cases in which the worker receives a 
lump-sum award or settlement under Oregon workers' compensation law for 
a permanent disability and the applicant resides in Alaska, Arizona, 
California, Guam, Hawaii (including American Samoa), Idaho, Montana, 
Nevada, Northern Mariana Islands, Oregon or Washington at the time of 
the determination or decision at any administrative level, i.e., 
initial, reconsideration, ALJ hearing or Appeals Council.
    When prorating a lump-sum award or settlement made under Oregon 
workers' compensation law for a permanent disability, SSA will treat 
the lump-sum as a substitute for periodic payments and will calculate 
the offset rate on a monthly basis by dividing the lump-sum by the 
number of months between the date of the award and the date the worker 
reaches age 65. However, if a workers' compensation award expressly 
establishes an offset rate under the Oregon statutory scheme (not 
merely a recital of the weekly or monthly benefit rate), SSA will 
prorate the lump-sum award according to that expressly stated offset 
rate.
[FR Doc. 95-17038 Filed 7-11-95; 8:45 am]
BILLING CODE 4190-29-F