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WC and Society Security. (Workers' Comp).

Americans are living longer, and many of those who reach normal retirement (currently age 65) continue to engage in some form of full or part-time employment. The U.S. Census Bureau reported for the year 1996 that 11.6 percent of the labor force was over age 65. The number of those age 65 and older who will continue to work following retirement is projected to increase during the coming decades.

It is recognized that workers' compensation and Social Security do not represent the only form of economic security available to retired workers. But the subject of benefit coordination between these two programs is sufficiently complex without consideration of other forms of income replacement a retired person receives.

The Society Security Old-Age, Survivors, and Disability Insurance (OASDI) program provides protection against the loss of earnings resulting from retirement, death, or disability. The OASDI program consists of two separate parts that pay monthly benefits to workers and their families. OASDI benefits are computed on the basis of prior earnings. Benefits payable for disability or retirement are designed to replace about 42 percent of earnings for the average wage-earner. A higher replacement is calculated for the low-wage earner and a lower replacement rate is computed for the high-wage earner.

For purposes of the federal law, "disability" is defined as the "inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months." Disability benefits are payable--following an initial five-month waiting period--for the duration of the disability or until the disabled worker reaches age 65. At age 65, Social Security disability benefits automatically convert to retirement benefits.

In contrast with Social Security entitlement, workers' comp benefits are generally payable to workers who sustain injury or death "arising out of and in the course of" their employment. Benefits payable through workers' compensation include wage loss, unlimited medical, and rehabilitation.

Prior to February 1981, a quarter of the states had enacted offset provisions whereby workers' compensation benefits were reduced when the worker was also receiving Social Security disability benefits. These offset provisions operated in a number of different fashions. For example, North Dakota and Montana permitted the workers' compensation benefits payable for temporary total and permanent total to be reduced by one half of the federal disability benefit. New Jersey elected to limit the application of the offset provision to the supplemental application permanent total disability benefits that the injured employee was entitled. Florida, Oregon, and Wisconsin enacted approaches so that the state workers' comp benefits were reduced to 80 percent of the employee's "average current earnings."

A few states adopted legislation that allowed for the offset of state workers' compensation benefits for both Social Security disability and retirement benefit. Alaska allowed for the reduction of the weekly benefit to the extent that the combined benefits with Social Security disability did not exceed 80 percent of the workers' average weekly wage. Ohio law provided that benefits for permanent total disability would be offset by Social Security disability with a benefit limitation of the statewide average weekly wage, and temporary total disability benefits would be reduced by Social Security retirement benefits so that combined entitlement would not exceed two-thirds of the statewide average weekly wage.

Three states provide for the reduction of certain compensation benefits by one-half of the federal retirement benefit. Pennsylvania confines the offset to total disability benefits, while Maine and Michigan apply the reduction to total or partial incapacity benefit.

A few jurisdictions have enacted legislation designed to terminate entitlement to workers' comp benefits following either the injured employee reaching retirement age or where the claim for Social Security retirement benefits were filed; they include Kentucky, Massachusetts, Minnesota, Montana, North Dakota, and Tennessee.

Donald T. DeCarlo is a partner in the law firm of Lord, Bissell & Brook in New York. He can be reached via e-mail at

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Author:DeCarlo, Donald T.
Publication:Risk & Insurance
Date:Nov 1, 2002
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