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SSDI and the Workers’ Compensation Offset in Michigan
An Overview of the SSDI and Workers’ Compensation Offset in Michigan
A Michigan worker may receive Social Security disability benefits and state workers’ compensation at the same time, but 42 U.S.C. § 424a caps the combined total and takes the reduction entirely out of the Social Security benefit.
- The ceiling: Combined benefits may not exceed the higher of 80 percent of average current earnings or the unreduced total of Social Security disability benefits.
- Which benefit is reduced: Social Security absorbs the whole adjustment, and the workers’ compensation payment is untouched.
- Average current earnings: The largest of three separate measures of prior earnings, which works in a claimant’s favor.
- Lump sum settlements: A redemption is prorated, with the reduction approximating as nearly as practicable what a monthly payment would have produced.
- Where the offset ends: It applies only to months before the claimant reaches retirement age.
- What is excluded: Veterans’ benefits under title 38 and needs-based assistance are not counted.
Claims involving both workers’ compensation and disability benefits are handled by Neumann Law Group’s attorneys in Detroit and throughout Michigan.
An injured Michigan worker who wins both claims often finds the second award smaller than expected, and our Social Security Disability attorneys spend a good deal of time at Neumann Law Group explaining why. The two systems were built independently, they measure disability by different standards, and a federal statute exists specifically to stop the combination from exceeding a fixed share of what the worker used to earn.
How Does the Federal Offset Work?
The governing provision applies where a person entitled to Social Security disability benefits is also entitled, for the same month, to periodic benefits on account of total or partial disability under a workers’ compensation law or plan of the United States or a state. Where that overlap exists, the total of the worker’s disability benefits and any auxiliary benefits paid on their record is reduced, though not below zero, by the amount by which the combination of those benefits and the workers’ compensation payment exceeds the higher of two figures: 80 percent of the worker’s average current earnings, or the total of the Social Security disability benefits before any reduction under the section. The second figure functions as a floor. It means the offset can never reduce the Social Security benefit below what it would have been standing alone, which is a protection claimants rarely realize they have.
What Is Average Current Earnings and Why Does It Matter?
Average current earnings sets the ceiling, so its computation determines the size of the reduction more than any other input. The statute defines it as the largest of three measures: the average monthly wage used to compute the disability benefit, one-sixtieth of the total wages and self-employment income for the five consecutive calendar years after 1950 in which those were highest, or one-twelfth of the total for the single calendar year with the highest such earnings within the period consisting of the year disability began and the five years preceding it. Two features of that definition are worth attention. The largest of the three governs, which is deliberately favorable. And the second and third measures are computed without regard to the annual earnings limits that cap what counts toward a benefit, so earnings above the contribution and benefit base do raise the ceiling here even though they never raise the benefit itself. A worker with one exceptional earnings year in the relevant window may have a materially higher ceiling than their benefit amount would suggest.
How Does a Michigan Redemption Affect the Offset?
Michigan workers’ compensation claims frequently resolve through a redemption, a lump sum settlement that closes the case. The offset statute anticipates this. Where a periodic benefit for total or partial disability is payable on other than a monthly basis, the reduction is made at such times and in such amounts as will approximate as nearly as practicable the reduction that a monthly benefit would have produced, and the statute reaches lump sums that are a commutation of or a substitute for periodic payments. The practical consequence is that a settlement does not escape the offset. It converts into a proration, and the terms of the settlement documents drive how that proration is calculated, including how the money is allocated among wage replacement, medical expenses, and attorney fees, and over what period the settlement is stated to compensate. Those provisions are drafted before the offset is ever computed, which is why the workers’ compensation settlement and the disability claim are best considered together rather than sequentially.
Settlement language written without the federal offset in view can cost a claimant far more than the drafting time it would have taken to address it, and the firm’s Social Security Disability attorneys will review proposed redemption terms at no cost.
Why MCL 418.354 Is Not the SSDI Offset
Michigan has its own coordination statute, and it is regularly mistaken for the federal offset. MCL 418.354 reduces a Michigan employer’s obligation to pay weekly workers’ compensation benefits by 50 percent of old-age insurance benefits received under the Social Security Act, by the after-tax amount of payments under an employer-provided self-insurance plan, wage continuation plan, or disability insurance policy, and by the after-tax or proportional amount of employer pension, retirement, and qualified profit sharing payments. Social Security disability benefits appear nowhere in that list. The phrase “disability insurance policy” in the statute refers to a policy provided by the employer, not to the federal disability insurance program.
The distinction has real consequences. The two statutes run in opposite directions, they apply to different benefit types, and mixing them up produces advice that is wrong on both sides.
| 42 U.S.C. § 424a | MCL 418.354 | |
|---|---|---|
| Which benefit is reduced | Social Security disability | Michigan workers’ compensation |
| What triggers it | Receipt of state workers’ compensation | Social Security old-age benefits, or employer-funded plans |
| Formula | Combined total capped at 80 percent of average current earnings | 50 percent of old-age benefits, or the after-tax or proportional amount of employer-funded payments |
| Who administers it | The Social Security Administration | The employer or its carrier |
What Evidence Drives an Offset Calculation?
Offset disputes are documentary rather than medical, and the records that resolve them sit in two different files. Certified earnings records establish every year available for the average current earnings computation, and because the largest of three measures governs, an incomplete earnings history can understate the ceiling and inflate the reduction. Award documents from the workers’ compensation matter establish the weekly rate, the period covered, and the classification of the benefit. Redemption agreements matter most of all where the case settled, since the allocation of proceeds and the stated period of compensation are what the proration is built from, along with any attorney fee and expense provisions.
Correspondence from Social Security computing the reduction should be read closely rather than filed, because the agency states the average current earnings figure it used and the arithmetic it applied, and an error in either is reviewable. Where a workers’ compensation award ends, is modified, or is reduced, documentation of that change matters immediately, since the offset is redetermined rather than fixed permanently and a stale record produces a continuing reduction that is no longer correct.
What to Do Now if You Have Both Claims in Michigan
Tell each set of representatives about the other claim, because a workers’ compensation attorney unaware of a pending disability claim cannot draft around the offset. Obtain your certified Social Security earnings record and check it for missing or understated years, since those years may be exactly the ones that would raise the ceiling. Before signing a redemption, ask how the proceeds are allocated and over what period the settlement is stated to compensate, and have those provisions reviewed against the offset rules rather than after the fact. Keep every notice Social Security sends about the reduction, including the one stating the average current earnings figure used. Report any change in the workers’ compensation award promptly so the offset can be recomputed rather than continuing at an outdated level.
Frequently Asked Questions About the Michigan SSDI and Workers’ Comp Offset
Can You Receive SSDI and Workers’ Compensation at the Same Time?
Yes, but the combined total is capped. Under 42 U.S.C. 424a, Social Security disability benefits are reduced so that the combination of SSDI and state workers’ compensation does not exceed the higher of 80 percent of average current earnings or the total of the disability benefits before any reduction. The workers’ compensation payment is never reduced. The Social Security benefit absorbs the entire adjustment.
How Is Average Current Earnings Calculated?
It is the largest of three measures, which is favorable to claimants. The agency uses the average monthly wage used to compute the benefit, or one-sixtieth of the total wages and self-employment income for the five consecutive years after 1950 in which they were highest, or one-twelfth of the single highest year within the period covering the year disability began and the five years before it. Because the largest figure governs, a strong earnings year can raise the ceiling substantially.
Does the Offset Apply to a Lump Sum Settlement?
Yes. Where a benefit is payable on other than a monthly basis, the statute directs that the reduction be made at such times and in such amounts as will approximate as nearly as practicable the monthly reduction. A lump sum redemption is therefore prorated rather than ignored, and how the settlement documents characterize and allocate the money can materially change how the proration is computed.
Is MCL 418.354 the SSDI Offset Statute?
No, and this is a common confusion. MCL 418.354 is Michigan’s coordination of benefits provision, and it reduces workers’ compensation by 50 percent of Social Security old-age benefits and by amounts received under employer-provided wage continuation plans, private disability policies, pensions, and profit sharing. Social Security disability benefits are not among the benefits it coordinates. The SSDI offset is federal.
When Does the Offset Stop Applying?
The reduction applies only to months before the individual attains retirement age as defined in the Social Security Act. It also does not reach every benefit type. Payments under title 38 for veterans and benefits under needs-based assistance programs are excluded by the statute, as are certain benefits based on employment already covered by Social Security.
Related Practice Areas
The benefit the offset reduces is computed under the formula described on the firm’s how much does SSDI pay page. Where the injury arose from a motor vehicle accident rather than at work, the subtraction runs in the opposite direction, as explained on the no-fault and SSDI page. Workers whose injuries involve the spine will find the relevant listing criteria on the back and spinal injuries page.
Redemption terms are far easier to draft correctly than to unwind afterward. Neumann Law Group reviews settlement language before it is signed, at no cost and with no fee unless the disability claim succeeds. Call (800) 525-6386 or contact Neumann Law Group.