People can be devastated if they find themselves suddenly unable to work or draw disability benefits. Also, if you’ve worked for a company long enough, you’re likely entitled to a pension or other retirement income.
Most people can draw pensions without bearing on their Social Security disability payments. Only those who spent a significant portion of their careers working outside the Social Security system will generally have concerns about the amount of their monthly Social Security disability payouts.
Keep reading below for more information.
How Does A Lump Sum Pension Affect SSDI Benefits?
If you take a lump sum payment from a pension not covered by Social Security, the Social Security Administration (SSA) will usually use a different computation to determine how much you would have gotten, depending on your age and the date you took the lump sum. It will therefore be treated like you took a regular pension, even if you acquired it in a lump sum.
According to the SSA website, “when the entire pension is paid in a lump sum, the amount may represent a payment for a lifetime.” In most cases, the pension-paying organization will divide the lump sum into equal monthly payments for evaluation under the Windfall Elimination Provision (WEP).
If the agency doesn’t give this information, the lump sum should be divided by 12 to get the monthly pension amount.
● Specific Period: Divide the lump sum by the total number of months included in the time frame that the pension-paying agency has set.
● Lifetime or Unspecified Period: Subtract the pension lump sum amount from 100 and multiply it by the mathematical value in the table that reflects the worker’s age on the date of the lump sum award.
This language serves two purposes. It instructs the SSA when the WEP must no longer impact your benefit payment and instructs the Social Security technician how to handle your lump sum pension.
It’s crucial to remember that your WEP application will expire if you get a payout in place of a pension for a specific amount of time. For instance, if your lump sum payment was issued in lieu of a period of 10 years, the WEP will no longer apply to you after that time.
The SSA will consult a table on their website to assess how long the payments ought to have lasted if no timeframe was chosen. The WEP would cease to be implemented after that time frame.
For more information on pensions and Social Security Disability Insurance (SSDI), watch this video below:
Pensions and Social Security | The Good Law Group
Pensions and SSI
A pension is more likely to have an impact on Supplemental Security Income (SSI) because it is a need-based program with severe asset and income restrictions. To assess your eligibility, the SSA must examine your finances. Your eligibility may be impacted by how much money you get each month from different sources.
If you receive a pension and apply for SSI, the amount of your pension may reduce the amount of your SSI payments. This is referred to as an “offset” because the SSA reduces the number of disability payments based on income from other sources.
Pension and SSDI
Financial need is not a factor in SSDI compensation. But to be eligible, you must have previously worked and paid payroll taxes into the Social Security system. You and your employer may have received a Social Security tax exemption on some pension contributions.
This means that neither the pension contributions you made nor the earnings that served as the basis for those contributions were subject to Social Security taxes. Although it happens less frequently now than it did in the past, it can still impact SSDI.
Pension payments based on earnings that were not subject to Social Security taxes are treated differently by the SSA. Because of your pension, the disability payments you are eligible for may be reduced.
This does not preclude you from applying for disability. It means that your pension payments will be used to offset the monthly benefits you receive.
How Do Worker’s Compensation Settlements Impact Social Security Disability?
Suppose a work-related incident or sickness brought on a worker’s disability or condition. In that case, they might be entitled to both Workers’ Compensation benefits and Social Security Disability Insurance (SSDI) benefits. Those who are eligible for both benefits cannot get the full amount of both at the same time, according to the SSA.
In this case, the SSA typically demands a reduction in SSDI benefits so that the total monthly amount received is at most 80% of what the person earned when employed and earning.
Workers’ compensation claims commonly settle their cases before they reach the hearing or trial stage. They decide to forgo their right to receive monthly workers’ compensation benefits in favor of an upfront lump sum payment. Do not mistake this type of settlement for a lump sum payment of overdue workers’ compensation payments.
The SSA is aware that qualified SSDI beneficiaries would probably accept lump-sum payouts from workers’ compensation and will deduct that amount from their SSDI benefits. The most typical method they employ is dividing the settlement sum into equal monthly payments.
The SSDI offset is calculated by dividing the lump sum by the number of months the worker has been collecting workers’ compensation payments. SSA will carefully review the precise terms of the workers’ compensation settlement agreement in establishing offsets.
Workers’ compensation lawyers try to make settlement agreements, so SSDI benefits aren’t removed. They will expressly omit medical and legal fees from the entire lump sum so that SSA does not consider those expenses to be included in the overall settlement amount.
Nonetheless, if the wording is unclear, SSA may see the entire sum as being eligible for offsets.
If the settlement agreement’s language is unclear, SSA will probably request timely proof of the medical and legal costs related to the settlement. State law, not federal law, determines which requirements must be included in the settlement agreement; therefore, there is a great deal of variation across states regarding the specifics that must be included.
What is a Social Security Disability Offset?
It is against the law for a disabled employee to “double dip.” Instead, one of the benefit payers will cut the benefit payment so that it doesn’t exceed 80% of your typical income.
Remember that your SSD benefit is a government program that enables workers who have paid into the system to receive financial assistance when they have a disability that prohibits them from earning enough money to cover their basic needs.
The funds are meant to supplement your pay or compensation in some way. When you receive worker’s compensation payments, you also get money to make up for any missed wages.
The Social Security Administration must be informed if you get a lump sum worker’s compensation payment.
Conclusion
Generally, you don’t have much to worry about when it comes to pensions and SSDI since SSDI is not a needs-based program. If you are still concerned about whether or not your pension could affect your ability to collect SSDI or SSI payments, don’t hesitate to contact a professional.
