20 CFR 404.408
A question has been raised regarding the applicability of the offset provisions of section 224 of the Act to annuities awarded in WC settlements.
A worker's WC award consisted of a lump sum of $10,000, and an annuity to be purchased by the employer and insurer to provide the worker a lifetime income of $500 per month for the first year with an increase in the monthly amount after that under a five percent compound interest escalator schedule.
The question concerns the effect of the annuity. The insurer advised that the lump-sum settlement and the annuity are completely separate; the worker did not have the option to receive the lump-sum settlement only; the worker did not determine the amount of the monthly payment from the annuity; and the monthly payment from the annuity was payable immediately. Although the annuity was part of the WC settlement award agreed to by the worker, he did not have the option of converting the purchase price of the annuity into a lump sum.
Section 224 of the Act provides for the reduction of benefits based on disability on account of the receipt of WC.
In general, an annuity constitutes WC when it is granted on account of a work related injury as an integral part of an award authorized by the administrator of the State Workmen's Compensation Act in settlement of the employer's or insurer's liability under that Act.
Section 224(a) of the Act requires that offset be based upon WC benefits which are "actually paid". It is the position of the Social Security Administration (SSA) that where the WC award gives the worker an option of receiving a cash lump-sum payment or having the employer or insurer purchase an annuity, the worker's exercise of that option constitutes his or her receipt of the lump-sum or purchase price. Thus, a worker who chooses to receive a lump-sum amount is considered to have been paid that amount regardless of whether he or she uses it to purchase an annuity. Where the worker exercises an option to have the employer or insurer purchase an annuity, it is the purchase price of the annuity which he or she is considered to have been "paid" within the meaning of section 224(a) of the Act.
A worker's mere agreement to a WC settlement in itself is not an exercise of his or her option. Therefore, if a worker agrees to a WC award which does not give him or her an option to receive a lump sum in place of an annuity, it is the annuity payments which are the proper amounts to be used in computing the offset; and where the worker does not have control over the manner or timing of the annuity payments, they are cause for offset only as of the time that they are actually paid to the worker.
In the case in question, the annuity is payable in lieu of periodic benefits. The WC award does not give the worker an option of taking a lump sum in place of the annuity, and the worker does not have dominion and control over the time and manner of the annuity payments. Therefore, offset should be computed on the basis of the annuity payments as of the time that they are actually paid to the worker.
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