Subchapter A. OFFSET OF UNEMPLOYMENT COMPENSATION, SOCIAL SECURITY (OLD AGE), SEVERANCE AND PENSION BENEFITS

§ 123.1. Purpose.

 This subchapter interprets the provisions of the act which authorize the offset of workers’ compensation benefits by amounts received in unemployment compensation, Social Security (old age), severance and pension benefits, subsequent to the work-related injury. Offsets shall be dollar-for-dollar and calculated as set forth in § §  123.4—123.11. Offsets in excess of the weekly workers’ compensation rate shall accumulate as a credit toward the future payment of workers’ compensation benefits.

   Severance Benefits

 The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise:

   ADR—Alternative Dispute Resolution.

   Act—The Workers’ Compensation Act (77 P. S. § §  1—2626).

   Actuarial equivalent—The value of lump-sum pension payout in terms of a monthly benefit if the funds had been used to purchase an annuity (either qualified joint and survivor or life annuity) available on the market, considering interest and mortality, at the time of the employe’s receipt of the lump-sum benefit.

   CBA—Collective Bargaining Agreements.

   Defined-benefit plan—A pension plan in which the benefit level is established at the commencement of the plan and actuarial calculations determine the varying contributions necessary to fund the benefit at an employe’s retirement.

   Defined-contribution plan—A pension plan which provides for an individual account for each participant and for benefits based solely upon the amount of accumulated contributions and earnings in the participant’s account. At the time of retirement the accumulated contributions and earnings determine the amount of the participant’s benefit either in the form of a lump-sum distribution or annuity.

   IRA—An individual retirement account as that term is utilized in 26 U.S.C.A. § §  219 and 408(a).

   IRE—Impairment Rating Evaluation.

   Multi-employer pension plan—A plan to which more than one employer is required to contribute and is maintained under one or more collective bargaining agreements between one or more employe organizations and more than one employer.

   Net—The amount of unemployment compensation, Social Security (old age), severance or pension benefits received by the employe after required deductions for local, State and Federal taxes and amounts deducted under the Federal Insurance Contributions Act (FICA) (26 U.S.C.A. § §  3101—3126).

   Pension—A plan or fund established or maintained by an employer, an employe organization, or both, which provides retirement income, in the form of retirement or disability benefits to employes or which results in deferral of income by employes extending to termination of employment and beyond.

   Severance benefit—A benefit which is taxable to the employe and paid as a result of the employe’s separation from employment by the employer liable for the payment of workers’ compensation, including benefits in the form of tangible property. The term does not include payments received by the employee based on unused vacation or sick leave or otherwise earned income.

   Social Security (old age) benefits—Benefits received by an employee under the Social Security Act (42 U.S.C.A. § §  301—1397(e)) relating to Social Security retirement income.

   Furlough Benefit

   Employer was not entitled to a credit against claimant’s workers’ compensation award for furlough benefits paid to claimant who was expected to and did, in fact, return to work; furlough benefits are statutorily not considered a severance benefit which is awarded to claimant who separates from employment thus ending the employment relationship with employer. Kelly v. Workers’ Compensation Appeal Board (U. S. Airways Group), 935 A.2d 68, 71 (Pa. Cmwlth. 2007)

   Severance Benefits

 (a)  Employees shall report to the insurer amounts received in unemployment compensation, Social Security (old age), severance and pension benefits on form LIBC-756, ‘‘Employee’s Report of Benefits.’’ This includes amounts withdrawn or otherwise utilized from pension benefits which are rolled over into an IRA or other similarly restricted account while at the same time the employee is receiving workers’ compensation benefits.

 (b)  Form LIBC-756 shall be completed and forwarded to the insurer within 30 days of the employee’s receipt of any of the benefits specified in subsection (a) or within 30 days of any change in the receipt of the benefits specified in subsection (a), but at least every 6 months.

 (a)  After receipt of Form LIBC-756, the insurer may offset workers’ compensation benefits by amounts received by the employee from any of the sources in §  123.3 (relating to employee report of benefits subject to offset). The offset of workers’ compensation benefits only applies with respect to amounts of unemployment compensation, Social Security (old age), severance and pension benefits received subsequent to the work-related injury.

   (1)  The offset applies only to wage-loss benefits (as opposed to medical benefits, specific loss or survivor benefits).

   (2)  The offset for amounts received in Social Security (old age), severance and pension benefits only applies to individuals with claims for injuries suffered on or after June 24, 1996.

   (3)  The offset for amounts received in unemployment compensation benefits applies to all claims regardless of the date of injury.

 (b)  At least 20 days prior to taking the offset, the insurer shall notify the employee, on Form LIBC-761, ‘‘Notice of Workers’ Compensation Benefit Offset,’’ that the workers’ compensation benefits will be offset. The notice shall indicate:

   (1)  The amount of the offset.

   (2)  The type of offset (that is—unemployment compensation, Social Security (old age), severance or pension).

   (3)  How the offset was calculated, with supporting documentation, which may include information provided by the employee.

   (4)  When the offset commences.

   (5)  The amount of any recoupment, if applicable.

 (c)  Whenever the insurer’s entitlement to the offset changes, the insurer shall notify the employee of the change at least 20 days prior to the adjustment on Form LIBC-761.

 (d)  The insurer shall provide a copy of Form LIBC-761, to the employee, the employee’s counsel, if known, and the Department. The form shall be provided to the employee consistent with section 406 of the act (77 P. S. §  717).

 (e)  The employee may challenge the offset by filing a petition to review offset with the Department.

 (f)  When Federal, State or local taxes are paid with respect to amounts an employee receives in unemployment compensation, Social Security (old age), severance or pension benefits, the insurer shall repay the employee for amounts previously offset, and paid in taxes, from workers’ compensation benefits, when the offset was calculated on the pretax amount of the benefit received. To request repayment for amounts previously offset and paid in taxes, the employee shall notify the insurer in writing of the amounts paid in taxes previously included in the offset.

 (a)  If the insurer receives information that the employee has received benefits from one or more of the sources in §  123.3 (relating to employee report of benefits subject to offset) subsequent to the date of injury, the insurer may be entitled to an offset to the workers’ compensation benefit.

 (b)  The net amount received by the employee shall be calculated consistent with § §  123.6—123.11. The amount received by the employee shall be divided by the weekly workers’ compensation rate. The result shall be the number of weeks, and fraction thereof, the insurer is entitled to offset against future payments of workers’ compensation benefits.

 (c)  The insurer shall notify the employee, the employee’s counsel, if known, and the Department of the offset as specified in §  123.4(b) (relating to application of the offset generally).

 (d)  The employee may challenge the offset by filing a petition to review offset with the Department.

 (a)  Workers’ compensation benefits otherwise payable shall be offset by the net amount an employe receives in UC benefits subsequent to the work-related injury. This offset applies only to UC benefits which an employe receives and which are attributable to the same time period in which an employe also receives workers’ compensation benefits.

 (b)  The offset may not apply to benefits for which an employe may be eligible, but is not receiving.

 (c)  The offset to workers’ compensation benefits for amounts received in UC benefits is triggered when an employe becomes eligible for and begins receiving the UC benefits.

   (1)  When an employe receives UC benefits which the employe is later required to repay based upon a determination of ineligibility, the insurer may not offset the workers’ compensation benefits.

   (2)  When an employe’s workers’ compensation benefits have been offset by the amount received in UC benefits, and the employe is required to repay UC benefits based upon a determination of ineligibility, the insurer shall repay the employe for the amounts previously offset from the workers’ compensation benefits. The employe may request that the insurer remit repayment directly to the Bureau of Unemployment Compensation Benefits and Allowances (BUCBA).

 (d)  When an employe receives a lump-sum award from BUCBA, the insurer may offset the amount received by the employe against future payments of workers’ compensation benefits. The amount received by the employe shall be divided by the weekly workers’ compensation rate. The result shall be the number of weeks, and fraction thereof, the insurer is entitled to offset against future payments of workers’ compensation benefits.

 (a)  Workers’ compensation benefits otherwise payable shall be offset by 50% of the net amount received in Social Security (old age) benefits. The offset shall only apply to amounts which an employe receives subsequent to the work-related injury. The offset may not apply to Social Security (old age) benefits which commenced prior to the work-related injury and which the employe continues to receive subsequent to the work-related injury.

 (b)  The offset may not apply to benefits to which an employe may be entitled, but is not receiving.

 (c)  The offset shall be applied on a weekly basis. To calculate the weekly offset, 50% of the net monthly Social Security (old age) benefit received by the employe shall be divided by 4.34.

 (a)  Workers’ compensation benefits otherwise payable shall be offset by the net amount an employe receives in pension benefits to the extent funded by the employer directly liable for the payment of workers’ compensation.

 (b)  The pension offset shall apply to amounts received from defined-benefit and defined-contribution plans.

 (c)  The offset may not apply to pension benefits to which an employe may be entitled, but is not receiving.

 (d)  In calculating the offset amount for pension benefits, investment income attributable to the employer’s contribution to the pension plan shall be included on a prorata basis.

   Defined Benefit Pension

   Employer who petitioned for modification of claimant’s workers’ compensation benefits by offset against its workers’ compensation obligation due to claimant’s receipt of disability pension was entitled to present expert actuarial testimony to establish extent employer funded claimant’s defined benefit pension; claimant’s disability benefit was not based on contributions by either the employer or employee but by factors known only at retirement including length of employment, final average salary, and retirement age, and employer’s contribution could only be determined by an actuarial formula. Pennsylvania State University v. Workers’ Compensation Appeal Board (Hensal), 911 A.2d 225, 229—230 (Pa. Cmwlth. 2006).

   Public employer, who filed notice of compensation offset claiming a portion of claimant’s workers’ compensation award was subject to an offset due to claimants’ receipt of a disability pension under a defined benefit plan, was entitled to an offset based on expert actuarial testimony to establish amount of the requested offset where workers’ compensation judge found that employer’s actuarial evidence was credible. Department of Public Welfare v. Workers’ Compensation Appeal Board (Cato), 911 A.2d 241 (Pa. Cmwlth. 2006).

   Pension Offset

   Where there is a defined-benefit plan, an employer cannot meet its burden of establishing the amount of its offset for workers’ compensation award absent actuarial testimony. City of Philadelphia v. Workers’ Compensation Appeal Board (Andrews), 948 A.2d 221 (Pa. Cmwlth. 2008).

   Employer may take a credit for workers’ compensation claimant’s receipt of pension benefit in defined-benefit and defined-contribution plans to the extent it funded those benefits; employer’s right to a pension offset no longer turns on whether the pension constitutes payments in lieu of compensation, nor does it matter that the pension is a service-connected disability pension. City of Philadelphia v. Workers’ Compensation Appeal Board (Andrews), 948 A.2d 221 (Pa. Cmwlth. 2008).

 (a)  Offsets of amounts received from pension benefits shall be achieved on a weekly basis. If the employe receives the pension benefit on a monthly basis, the net amount contributed by the employer and received by the employe shall be divided by 4.34. The result is the amount of the weekly offset to the workers’ compensation benefit.

 (b)  When an employe receives a pension benefit in the form of a lump-sum payment, the actuarial equivalent of the lump-sum with respect to the annuity options (qualified joint and survivor annuity or life annuity) available at the time of the employe’s receipt shall be used as the basis for calculating the offset to the workers’ compensation benefit. The monthly annuity equivalent shall be divided by 4.34. The result shall be the offset to the workers’ compensation benefit on a weekly basis.

 (c)  Pension benefits which are rolled over into an IRA or other similarly restricted account may not offset workers’ compensation benefits, so long as the employe does not withdraw or otherwise utilize the pension benefits from the restricted account while simultaneously receiving workers’ compensation benefits from the liable employer.

 (d)  If the employe, while receiving workers’ compensation benefits from the liable employer, withdraws or otherwise utilizes pension benefits from the IRA or other similarly restricted account, when the IRA or account is funded in whole or in part by the liable employer’s contributions, the insurer is entitled to an offset to workers’ compensation benefits.

   (1)  If the employee begins receiving a monthly payment from the IRA or other similarly restricted account, the insurer shall receive an offset to the workers’ compensation benefit equal to the offset the insurer would be entitled to if the employee were receiving a monthly pension benefit under subsection (a).

   (2)  If the employee withdraws or otherwise utilizes an amount from the IRA or other similarly restricted account which is greater than the actuarial equivalent of the lump sum with respect to the annuity options (qualified joint and survivor annuity or life annuity) available at the time of the employee’s receipt, the insurer shall be entitled to an offset against future payments of workers’ compensation benefits in an amount equal to the amount of the pension benefit withdrawn or otherwise utilized by the employee. The amount of the pension benefit withdrawn or otherwise utilized by the employee shall be divided by the weekly workers’ compensation rate. The result shall be the number of weeks, and fraction thereof, the insurer may offset against future payments of workers’ compensation benefits.

 (e)  The employee shall report the subsequent receipt of pension benefits from the IRA or other similarly restricted account to the insurer on Forms LIBC-756 and LIBC-750, ‘‘Employee Report of Wages (Other Than Workers’ Compensation Benefits Received).’’

 (a)  When the pension benefit is payable from a multi-employer pension plan, only that amount which is contributed by the employer directly liable for the payment of workers’ compensation shall be used in calculating the offset to workers’ compensation benefits.

 (b)  To calculate the appropriate offset amount, the portion of the annuity purchased by the liable employer’s contributions shall be as determined by the pension fund’s actuary. The ratio of the portion of the annuity purchased by the liable employer’s contributions to the total annuity shall be multiplied by the net benefit received by the employee from the pension fund on a weekly basis. The result is the amount of the offset to be applied to the workers’ compensation benefit on a weekly basis.

 (c)  If the employee receives the multi-employer pension benefit on a monthly basis, the net amount received by the employe shall be multiplied by the ratio of the liable employer’s contribution to the pension plan on behalf of the employee and that product shall be divided by 4.34. The result is the amount of the offset to be applied to the workers’ compensation benefit on a weekly basis.

 (d)  If the employee receives the multi-employer pension benefit in a lump sum, the actuarial equivalent of the lump sum with respect to the annuity options (qualified joint and survivor annuity or life annuity) available at the time of the employee’s receipt of the benefit shall be used as the basis for calculating the offset to the workers’ compensation benefit. The ratio of the employer’s contribution to the pension plan shall be multiplied by the monthly annuity value of the pension benefit. The result shall be divided by 4.34 to achieve the offset to the workers’ compensation benefit on a weekly basis.

   Nonmunicipal Contributions

   In determining the correct calculation of an offset, the Commonwealth was not the ‘‘employer directly liable’’ for compensation under section 204(a) and third-party contributions to the pension fund should not be used for calculation of a pension setoff. The employer was entitled to a credit only to the extent it directly contributed to the pension. Lower Merion Township v. Workers’ Compensation Appeal Board, 783 A.2d 878 (Pa. Cmwlth. 2001), appeal denied 568 Pa. 745, 798 A.2d 1294 (Pa. 2002).

 (a)  Workers’ compensation benefits otherwise payable shall be offset by amounts an employee receives in severance benefits subsequent to the work-related injury. The offset may not apply to severance benefits to which an employee may be entitled, but is not receiving.

 (b)  The net amount of any severance benefits shall offset workers’ compensation benefits on a weekly basis except as provided in subsections (c) and (d).

 (c)  When the employee receives severance benefits in a lump-sum payment, the net amount received by the employee shall be divided by the weekly workers’ compensation rate. The result is the number of weeks, and fraction thereof, the insurer may offset against future payments of workers’ compensation benefits.

 (d)  When an employee receives a severance benefit in the form of tangible property, the market value of the property, as determined for Federal tax purposes, shall be divided by the weekly workers’ compensation rate. The result is the number of weeks, and fraction thereof, the insurer may offset against future payments of workers’ compensation benefits.

   This section cited in 34 Pa. Code §  123.1 (relating to purpose); and 34 Pa. Code §  123.5 (relating to offset for benefits already received).