• For Purposes of an Offset Under Section 204(a), Claimant’s Joint and Survivor Annuity Constitutes the Benefit to Which an Employer is Entitled to Offset.
  • October 9, 2017
  • The claimant sustained a work injury in June 2010, which was acknowledged by the employer. The claimant’s average weekly wage was $1,273.59, and his compensation rate was $845 per week. In February 2012, the employer issued a notice of worker’s compensation benefit offset based on information it received from the Pennsylvania State Employees’ Retirement System (PSERS). That information stated that the employer was entitled to a pro rata pension offset for benefits the claimant received in the amount of $1,885.03 per month. The employer calculated the weekly offset to be $434.34, thus reducing the claimant’s compensation rate to $410.66 per week. The claimant filed a petition challenging the offset, as well as penalty and reinstatement petitions.

    In connection with these petitions, the employer presented testimony from a claims representative for the third party administrator, the PSERS’ director of benefit administration and an actuary employed by PSERS. The benefits director testified there were various payment options the claimant could select from, some of which provided a greater monthly payout than others. However, PSERS does not take into consideration the selected option in calculating the offset. Rather, the offset is always based on the participant’s maximum single life annuity (MSLA). The actuary testified that a calculation is made to determine the extent to which the Commonwealth funds an employee’s pension by determining how much money will be needed to fund the pension for the rest of his life. Once that determination is made, a calculation as to the amount the employee contributes over the course of his life can be made. When the employee’s contribution is deducted from the total amount of funding needed, the amount the Commonwealth contributes to the pension can be determined.

    The Workers’ Compensation Judge dismissed the claimant’s petitions, concluding he failed to meet his burden of proof. The judge found the calculations for the pension offset to be sound and the methodology accurate in calculating the employer-funded portion of the defined benefit plan. The Appeal Board affirmed on appeal, pointing out that, even though the claimant took a lower paying option, that decision did not impact the amount of money required to fund the claimant’s pension for the remainder of his life, as well as his wife’s life.

    The claimant appealed to the Commonwealth Court, which affirmed the Board. The claimant argued that the actuary erred in taking an offset in the amount of $1,885.03 per month since he opted for a lower monthly payout, which also provided for pension payments to his spouse should he predecease her. Thus, the claimant actually received approximately $700 less per month than if he opted for the standard option (MSLA). The court disagreed, holding that the claimant’s pension benefit under the choice he selected remained the actuarial equivalent to the standard option. Although the claimant was receiving a reduced payment under the option he selected, the employer was not receiving a corresponding reduction in the amount it must fund the claimant’s pension benefits. The court held that under Section 204(a) of the Act, the employer is entitled to a workers’ compensation offset for pension benefits an employee receives to the extent funded by the employer.