20 CFR 404.408
A question has been raised whether lump-sum settlements under section 86.44 of the Iowa Code are WC benefits subject to the offset provisions of section 244 of the Act.
Section 86.44 of the Iowa Code establishes a procedure for settlement of certain employer-employee disputes in WC cases. The settlement procedure may be used only in a limited number of situations. The Commissioner's approval makes the settlement binding on all parties to the dispute and constitutes a final bar to any further rights arising under the State's WC laws. Section 86.44 concludes with language that is the source of the interpretive difficulty in this case: "such payment shall not be construed as the payment of weekly compensation." This language raises the question of whether a settlement under section 86.44 is exempt from the offset provisions of section 224 of the Social Security Act.
Congress, through enactment of section 224, directed that disability and auxiliary benefits be reduced under a formula designed to limit the total payments of Social Security and WC benefits to eighty percent of the worker's "average current earnings." Section 224(b) of the Act provides:
Arthur Larson, in his treatise The Law of Workmen's Compensation, III § 97.34 (1973 ed.), analyzes a number of judicial decisions that have applied the Social Security offset provision to lump-sum payments under various State WC laws. Larson concludes that the great majority of decisions have construed lump-sum payments to be subject to the offset provision. According to Larson, judicial decisions have established that --
The reported decisions confirm Larson's conclusion. In Ladner v. Secretary of Health, Education & Welfare, 304 F.Supp. 474 (S.D. Miss. 1969), the court pointed out that lump-sum payments would escape the operation of the offset provision only when such payments reimbursed workers for medical, legal, and other related expenses incurred in connection with their WC claims. The court quoted from Senate Report No. 404, United States Code Congressional and Administrative News, 1965, page 2200-2201:
Thus, Congress intended that lump-sum payments be considered exempt from the offset provision only to the extent that they represent the "expenses" specified in the Senate Report. A lump-sum payment pursuant to a settlement under section 86.44 of the Iowa Code clearly would not be confined to reimbursement for legal, medical, or other related expenses connected with an employee's WC claim.
Although section 86.44 states that a settlement "shall not be construed as the payment of weekly compensation," it does not state that a settlement shall not be construed as a commutation of, or a substitute for periodic benefits. On the contrary, 86.44 settlements are to be construed as commutations of, or substitutions for, periodic benefits because they bind all parties to the dispute and preclude the possibility of further remedies under Iowa WC laws, remedies that would normally lead to periodic payments.
Similarly, the court in Walters v. Flemming, 185 F.Supp. 288 (Dist. of Mass. 1960) ruled that a lump-sum payment to an injured employee was subject to the WC offset provision when the employee accepted the payment in exchange for the surrender of his claim to future periodic payments. The court said:
Finally, the Supreme Court's decision in Richardson v. Belcher, 92 S.Ct. 254 (1971), which upheld the constitutionality of the offset provision of the Act, should be considered. In Belcher, the court examined the Congressional purpose behind the offset provision (at 258):
If settlements under section 86.44 of the Iowa Code were held to be exempt from the Act's offset provision, only those Iowa employees who received a lump-sum payment as a result of a settlement agreement would receive both a full WC benefit and a full disability benefit under the Act. Such a situation would certainly tend to impede the rehabilitative efforts of the Iowa WC program and result in the erosion of the program by encouraging employees to seek settlements rather than pursue their claims to the full extent provided by Iowa law. Moreover, workers with the least meritorious claims might be unduly rewarded if the offset provision did not apply to 86.44 settlements as well as to regular WC payments.
In conclusion, settlements under section 86.44 of the Iowa Code are subject to the offset provisions of section 224 of the Act.
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