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What the SSDI Offset Excludes From a Michigan Redemption
A Michigan workers’ compensation case that ends in a redemption produces one check, and Social Security treats that check as if it were still being paid out week by week. The offset that reduces disability benefits does not stop at the settlement, and the size of the reduction turns on parts of the agreement most people never read again after the magistrate signs it.
The federal rule, 42 U.S.C. § 424a, caps combined Social Security disability and workers’ compensation at the higher of 80 percent of average current earnings or the unreduced Social Security benefit, and 20 C.F.R. § 404.408 supplies the mechanics.
Two of those mechanics run in the claimant’s favor. Under § 404.408(d), amounts paid or to be paid for medical, legal, or related expenses connected with the workers’ compensation claim or the injury are excluded before the reduction is computed. Under § 404.408(l), the earnings figure that sets the ceiling is redetermined on a fixed schedule, and the redetermination can only raise what is payable.
Neumann Law Group reads redemption paperwork with the federal reduction in view for Michigan Social Security Disability clients from Wayne County to Grand Traverse County, because the same three pages settle the workers’ compensation case and set the disability benefit for years afterward. The offset itself is explained on the pages linked below, and this is about the three provisions that decide how much of a settlement it reaches.
Why a Lump Sum Does Not Escape the Reduction
Under MCL 418.835, once six months have passed from the date of a personal injury, any liability resulting from it may be redeemed by payment of a lump sum by agreement of the parties, subject to approval by a workers’ compensation magistrate. The magistrate may also, where special circumstances require it, direct that deferred payments be commuted to a lump sum at their present worth at 10 percent per year. The carrier must notify the employer of a proposed redemption at least 10 business days before the hearing on it.
The federal regulation anticipates exactly that document. Section 404.408(g) provides that where public disability benefits are paid in a lump sum as a commutation of or a substitute for periodic benefits, “such as a compromise and release settlement,” the reduction is made at the times and in the amounts the agency determines will approximate as nearly as practicable the monthly reduction. A redemption is therefore spread back out over a period and offset month by month, and the agreement’s own terms are what the agency spreads.
The Expenses the Offset Never Counts
Section 404.408(d) excludes from the computation the amounts paid, incurred, or to be incurred by the worker for medical, legal, or related expenses in connection with the claim or with the injury the settlement is based on. The exclusion holds to the extent those amounts are consistent with the applicable law and reflect either expenses already incurred or a reasonable estimate of future ones. The same paragraph then states the limit. Expenses not established by the evidence the agency requires, or not reflecting a reasonable estimate of actual future expenses, “will not be excluded.”
The regulation names the proof it will accept. The expenses may be shown by the award or compromise agreement itself, by a court order, by a detailed statement from the worker’s attorney, physician, or the employer’s insurance carrier, by bills, receipts, or canceled checks, or by other clear and convincing evidence, in any combination. A redemption that states one gross figure with no allocation gives the agency nothing to exclude. One that states the attorney fee, the medical costs the worker has already paid, and a documented estimate of future treatment gives it three figures to subtract before the offset is run.
Because MCL 418.835 allows any liability from the injury to be redeemed, a Michigan redemption often closes the employer’s medical liability along with wage loss, and the worker’s estimated future medical cost is the excludable item most often left unstated. It is also the one a treating physician’s written estimate can establish.
Whether an agreement already signed says enough to support an exclusion is a question the agreement answers in about a page, and we read one against § 404.408(d) before the disability claim is filed. We are glad to look at it with you before anything is filed. Call us at (800) 525-6386.
Whose Benefit Absorbs the Reduction First
The reduction lands on the family before it lands on the worker. Section 404.408(h)(2) provides that where a reduction is made in the total benefits payable on a worker’s earnings record, each benefit except the disability insurance benefit is first proportionately decreased, and only the excess is applied to the worker’s own benefit. The regulation’s own example shows a spouse’s and two children’s benefits reduced to zero while the worker’s benefit is reduced by the remainder.
A change in the family changes the arithmetic. Under § 404.408(i), the addition or subtraction of a beneficiary can cause the total family benefit to become, or cease to be, the applicable limit, and the reduction is recalculated as though the new number of beneficiaries had been entitled from the first month it was imposed. The benefit the family is dividing is computed under the formula on our how much SSDI pays page, and the floor described on the workers’ compensation offset page still holds, so the worker’s own benefit is never reduced below what it would have been standing alone.
The Ceiling Is Redetermined, and Only Upward
Average current earnings is not fixed for the life of the offset. Under § 404.408(l), in the second calendar year after the year the reduction was first required, and in every third year after that, the benefits still subject to reduction are redetermined, and the regulation conditions the redetermination on its not decreasing the total payable. The recalculation multiplies the original average current earnings by the ratio of the national average of total wages for the year before the redetermination to the same average for the year before the reduction was first computed, rounded down to the dollar, and the result takes effect the following January.
The regulation’s worked example applies a ratio of 1.174 and produces a higher family payment than the cost-of-living increases alone had. A Michigan worker whose offset began in 2023 is due a redetermination in 2025 and again in 2028, and each one arrives as a notice from the agency stating the figure it used. Those notices are worth checking against the original computation rather than filing.
Three Provisions Worth Checking in a Signed Redemption
Three provisions of one regulation decide how much of a redemption the offset reaches, and all three depend on what the agreement says and what the file proves. At Neumann Law Group, we handle Social Security Disability claims alongside workers’ compensation matters for injured workers across Michigan, and a first review of a proposed or signed redemption is part of that work. We are happy to talk it through with you. Call (800) 525-6386 or contact our office.