The opinion of the court was delivered by: THOMPSON
This matter comes before the court on remand from the United States Court of Appeals for the Third Circuit. Sciarotta v. Bowen, 837 F.2d 135 (3d Cir. 1988). Pursuant to the opinion of the Third Circuit, the sole issue before the court is to determine ". . . whether the Social Security Administration's ["SSA"] method of converting plaintiff's lump sum workers' compensation settlement to a stream of periodic payments, based on the assumption that the settlement represented the maximum allowable monthly payment, was rational." Id. at 136.
Factual and Procedural Background
Mr. Sciarotta, a 49-year old machine operator, suffered a permanently disabling heart attack at work on July 19, 1979. At that time his gross weekly wages were $ 270.40, as stated in his petition for New Jersey workers' compensation. The SSA awarded him social security disability insurance benefits as of the date of his disability heart attack, pursuant to 42 U.S.C. § 423. Sciarotta also filed a claim for New Jersey state workers' compensation benefits under N.J.S.A. §§ 34:15-1 et seq., which he settled on October 15, 1981, for a lump sum of $ 40,000. $ 5,000 of this award was deducted for attorney's fees, leaving Sciarotta a net lump sum award of $ 35,000. This settlement, by its terms, had "the effect of a dismissal with prejudice" of his claim, and constituted a "complete and absolute surrender and release of all [his] rights arising out of this/these [workers' compensation] claim(s)." New Jersey had applied a reduction to the amount it was willing to pay when the parties settled on the $ 40,000 figure because Sciarotta was receiving federal social security disability benefits.
After being advised of this settlement, the SSA determined that Sciarotta's social security disability benefits were subject to offset because Sciarotta's benefits remained above 80% of his pre-disability salary, despite the reduction in benefits implemented by New Jersey. Prior to reduction by SSA, Sciarotta had received $ 627.20 per month in social security disability benefits. After the offset against the workers' compensation lump sum settlement had been calculated, claimant's social security disability income was reduced to $ 396 per month, a reduction of $ 231.20.
To accomplish the offset, SSA converted Sciarotta's lump sum settlement into a theoretical stream of periodic workers' compensation benefits. In converting the lump sum to determine the offset, the SSA followed instructions issued by the Secretary of Health and Human Services ("Secretary") in the SSA's Program Operation Manual System ("POMS"), at § D1 11501.235C (July, 1986). The instructions set forth a three-step procedure for prorating a state lump sum award "at an established weekly rate." The three steps are to be applied in priority order as follows (quoting from POMS, supra):
1. The rate specified in the lump-sum award. If the award specifies a rate based on life expectancy list the case under code 557.
2. The periodic rate paid prior to the lump-sum (if no rate is specified in the lump-sum award).
3. If WC [Workers' Compensation], the State's WC maximum in effect in the year of injury. This figure can be used if no rate is specified in the award or there was no preceding periodic benefit. It can also be used pending post-adjucative development of the rates specified in 1 or 2.
The SSA correctly determined that steps 1 and 2 do not apply to Mr. Sciarotta's situation, and used step 3 to determine the offset amount. Accordingly, the SSA divided claimant's net lump sum workers' compensation award of $ 35,000 by the maximum weekly benefit allowable under New Jersey law in 1979, $ 156 per week. Had Sciarotta successfully litigated his claim, he would have received $ 156 per week for at least 450 weeks, or $ 70,200. N.J.S.A. 34:15-12(a) and (b) (West, 1979). The $ 156 represents 75% of the statewide average weekly wages in New Jersey in 1979, as computed, determined, and promulgated by the New Jersey Commissioner of Labor and Industry, in accordance with statute. Id.
Dividing $ 35,000 by $ 156, the SSA determined that Sciarotta's compensation settlement theoretically represented a stream of New Jersey workers' compensation payments of $ 156 per week for 224 weeks, or approximately 4.3 years. Combining this theoretical amount with claimant's social security disability insurance benefits, the SSA determined that his total government benefits impermissibly exceeded 80% of his pre-disability earnings, and therefore reduced his federal disability payments by $ 231.20 per month, the "overpayment," for 224 weeks.
Sciarotta appealed the reduction of social security payments decision administratively. The Appeals Council, the final level of administrative review, denied claimant's request for review on March 27, 1985, thus rendering the decision of the Secretary final. Claimant then sought judicial review of this decision in the United States District Court for the District of New Jersey. On November 14, 1986, Judge Cowen, applying the literal words of the statutory provision authorizing such reductions, 42 U.S.C. § 424a, held that where a state imposes a reduction on workers' compensation payments because of the receipt of federal disability benefits, as here, the SSA may not in turn reduce the federal disability benefits because of the receipt of the state workers' compensation benefits. Sciarotta v. Secretary of Health and Human Services, 647 F. Supp. 132 (D.N.J. 1986).
The Secretary appealed the district court decision to the United States Court of Appeals for the Third Circuit. On January 19, 1988, the Circuit Court reversed the district court's order, and upheld the SSA's right to reduce disability benefits to offset state workers' compensation benefits in those cases where the state offset does not reduce total government benefits to less than 80% of pre-disability earnings. Sciarotta v. Bowen, 837 F.2d 135 (3d Cir. 1988). The Third Circuit also considered and remanded to this court an issue raised earlier by the ...