How does a workers' compensation settlement in California affect my eligibility for SSDI benefits?

A California workers' compensation settlement can reduce your Social Security Disability Insurance (SSDI) benefits, but you can take specific steps to minimize or eliminate this reduction. The key is to structure your settlement agreement correctly before it is finalized. Here is how to manage the process: Step 1: Notify the Social Security Administration (SSA) You must promptly report your workers' compensation settlement to the SSA. Call or visit your local SSA office as soon as the settlement is approved. Failure to report it can result in an overpayment that you will have to pay back. Step 2: Provide Your Settlement Documents The SSA will need a copy of your final, judge-approved workers' compensation settlement agreement. This is typically a "Compromise and Release" (C&R) or "Stipulations with Request for Award." This document is essential for their calculations. Step 3: Ensure Your Settlement Includes "Offset Language" This is the most critical step. Before you sign, work with your attorney to include specific language in the settlement document that spreads the lump-sum payment over your lifetime. For example, the agreement can state the lump sum is to be paid at a small weekly or monthly rate based on life expectancy tables. This prevents the SSA from viewing it as a large, short-term payment. Step 4: Exclude Allowable Expenses from the Total Your settlement agreement should clearly itemize and subtract certain costs from the gross settlement amount. These include attorneys' fees, past and future medical expenses, and vocational rehabilitation costs. By reducing the "net" amount of the settlement, you reduce the portion the SSA uses to calculate any potential offset to your SSDI. Important details and nuances: The SSA reduces SSDI benefits if your combined monthly payments from SSDI and workers' compensation exceed 80% of your "average current earnings" before you became disabled. This reduction is called an "offset." By including the proper language described in Step 3 and 4, you can legally lower the monthly workers' compensation amount used in this calculation, thereby protecting your SSDI benefits. Warnings and limitations: If your settlement agreement does not contain the specific prorating and expense language, the SSA may use its own formula, which can result in a much larger, and sometimes total, reduction of your SSDI benefits for many months or years. These changes must be made before a workers' compensation judge approves your settlement. This is general information and does not constitute legal advice. For complex situations, consult with a qualified California attorney who specializes in both workers' compensation and Social Security disability law.