Tuesday, July 8, 2014
Social Security & Workers compensation Benefit Calculation: How Do They Do That? (Part 2 of 2)
Back in the day, a person could live on $1,100 per month which is the current national average for disability beneficiaries. If you have minor or disabled children, the benefit goes up by about half. So, say, about $1,650 for a disabled adult with one or more children under 18.
Now, of course, that’s not enough to live on, unless you are fortunate enough to have other assets.
Offset means the number of dollars that will be subtracted during any period you are receiving other government benefits designed to replace wages while you are disabled. Those include Worker’s Compensation (WC) and in some states, certainly California, State Disability (SDI)
Veteran’s Benefits and Unemployment Benefits are not offset. VA benefits are special benefits because a person became disabled while in the military, serving the Country.
Unemployment Benefits are designed to replace wages for people who lost their jobs but can work.
Private Long Term Disability Insurance (LTDI) is not a government program and is not offset.
How do you figure out the offset?
For some people who get WC and SDI and Social Security Disability benefits, there will be no Offset.
You: But, wait – you just said you can’t get it all. . .
Me: Ah no, not total wages, grasshopper, “the same wages from two or more funds”
You: Wages are wages are wages
Me: Some wages are different than others. 80% of your ACE is what counts.
You: Of course, I knew that. (Eye-roll)
ACE: “Average Accumulated Earnings” are essentially the highest gross income you had in the 5 years prior to the time you stopped full time work. Obviously, or not, there is far more to the calculation – but it’s a good guide.
Social Security Benefits were not designed to replace your entire annual earnings. They exist as a “safety net” for those of us who, for whatever reason, do not have much when it comes time to retire or we can’t work due to disability.
The rule is you cannot get more than 80% of your ACE from two or more government sources. To see how that works in dollars and cents, let’s look at three examples of people from California.
Mr. Jones and Sam, his neighbor, went fishing. On the way home, the car was hit by a bus. Neither could work again.
Mr. Jones’ ACE was $21,000. He can get up to, but not more than 80% of his ACE wages, which in his case equals $16,800 . Divided over 12 months, that results in a cap of $1,400 per month that Mr. Jones can receive from all government wage replacement programs which here means SDI and WC.
Mr. Jones’ ACE (the most he can get) was $1,400. His PIA (what Social Security will pay him per month) is the national average, about $1,000 – for easy math.
He got $1,000 in State Disability each month for 12 months. For that 12 months, he will get $1,000 per month from State Disability but only get $400 from Social Security (instead of the full $1,000 PIA) so that he does not go over ACE and get a windfall. After that 12 months, he will get the full PIA of $1,400 per month because State Disability only lasts 12 months.
Mr. Jones’ neighbor, Sam, had an ACE of $1,000 per month and a PIA of $1,000. He also got $1,000 from State Disability. For the 12 months he got SDI he will not get any Social Security benefit. But will get $1,000 from Social Security when SDI stops.
Wanda was the bus driver. She, too, could not go back to work. But, she had been a bus driver for 35 years and made big sacks of money. Her ACE was $8,000 per month. Her PIA was $2,000 per month. She got $3,500 per month from State Disability.
When added together ($2,000 PIA + $3,500 State Disability) she would get $5,500 per month. Because her ACE was $8,000 per month, she could still get $2,500 per month from Workers Comp without exceeding the ACE cap.
Wanda was also a paranoid person as she had seen stupid drivers for 35 years. She bought a very good Long Term Disability Benefit (LTDB) policy for herself. Additionally, the bus company got LTDB for their employees. Her policy paid $7,000 per month. The company policy paid $3,000 per month. She got $2,500 from Work Comp. She got $3,500 from the State for 12 months and $2,000 from Social Security. Her total payment is $18,000 for the first year and $15,500 until the WC amount changes.
The moral is: always drive the bus or never go fishing.
For those who get Workers Compensation, the calculation of benefits is fraught with peril. Why? Because unlike State Disability the Work Comp benefits paid to the injured worker changes in 104 weeks, which triggers when and how much State Disability pays.
As I am no longer an employee, but am an employer, I could not get Work Comp benefits; and, based on what I have seen, I even if I could, I would want to be in and out of the Work Comp process as quickly as possible – not because I am such a jolly person that I would scoff at the money but because the system in California itself is a giant machine that grinds already disabled people into pulp – people think Social Security is bad (I don’t, but others sure do). In my mind Workers Comp gives a whole new meaning to soullessness.
But say you’re stuck in Work Comp and your proceeding in Social Security at the same time, what do you do?
First, be aware that the Offset issue is out there. I have seen many people’s back benefits – almost the full $24,000 - be offset due to Workers Compensation benefits. It isn’t pretty. Mr. Jones and Sam both would probably end up with little left unless great care was taken to prevent it before the Work Comp case was settled.
“But I didn’t know that.” “They didn’t tell me that.” “What! Fix it.” Are all statements I hear way more often than I’d like.
Second, tell whoever it is who’s helping you with Work Comp that you already have filed, or expect to file, for Social Security and put it in writing to them.
Third, ask them to tell you what the settlement will do to your Social Security benefits. Ask, preferably in writing and at least with another person with you. You want to be absolutely clear on this point.
Fourth, ask them how to minimize the offset. If they don’t know, find someone who does.
It can be done and it isn’t hard to do. But you must ask.
1. What is up with that word “windfall” anyway? It certainly sounds like a bad thing – the wind knocked over your house or something. I’m from Tornado Country where we’re serious about wind issues. Maybe the good stuff flew out of the house to the neighbor’s and the neighbor kept it? Sounds reasonable, kind of.
2. See the article called Short Term vs. Long Term Disability Benefits in California for more information about State Disability (SDI)
3. Disabled Veterans are eligible for Social Security benefits. I bet you didn’t know that.
4. It is inconsistent to say, “I am disabled and can’t work” to get SDI and “I am ready, willing and able to work” for Unemployment. However, if you apply for Unemployment, and you think you could work part time, or at a job that would accommodate your disabilities, it could be possible to receive all or part of both at the same time. HOWEVER, it is fraud to fail to disclose you are disabled when you apply for Unemployment benefits.
5. To avoid the problem of keeping the number of S’s, D’s and I’s straight, the Social Security Agency refers to these as DIB (Disability Insurance Benefits) as opposed to SSI benefits (Supplemental Security Income benefits vs. Social Security Disability Insurance). Easy – your tax dollars at work.
6. ($21,000 x .8 = $16,800)
7. LTDB is private and so there is no Offset.
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