In Christian’s latest article for The Legal Intelligencer, he explains the case of Stepp v. Worker’s Compensation Appeal Board. This case deals with the offset of pension benefits. Here is an excerpt from the article. You can read the full article by following the link below.
Commonwealth Court: Pension Offset Inures to Parent Company
With the passage of Act 57 of 1996, the Pennsylvania Workers’ Compensation Act was amended to provide for offsets against indemnity compensation for certain pension or severance payments as well as for “old age” Social Security payments and unemployment compensation benefits. The relevant section of the act dealing with the offsets of pension benefits is Section 204(a), which provides that “the benefits from a pension plan to the extent funded by the employer directly liable for the payment of compensation which are received by an employee shall also be credited against the amount of the” employee’s disability benefits. On Sept. 10, in the matter of Stepp v. Workers’ Compensation Appeal Board (FairPoint Communications), No. 2270 C.D. 2013, the Commonwealth Court dealt with the meaning of the phrase “the extent funded by the employer” as it pertains to a successor company in interest. Given that pension-offset situations arise in a small percentage of cases, reading Stepp will refresh the practitioner’s awareness of the general principles and should provide a valuable practice tip.
In a 2006 case, quoted in Stepp, the Commonwealth Court explained the legislative intent of Section 204(a) as “reducing the cost of workers’ compensation by allowing an employer to avoid paying duplicate benefits for the same loss of earnings.” On the same token, the legislature did not want an employer to utilize an employee’s own retirement funds to satisfy its workers’ compensation obligations. While Section 204(a) of the act authorizes the unilateral offset itself, the receipt of pension benefits is usually discovered by the injured worker’s completion of Form LIBC-756, which is the Employee’s Report of Benefits for Offsets. This form allows the employer to inquire on a semi-annual basis whether the claimant is receiving any benefits that are subject to an offset against workers’ compensation indemnity benefits, and enables the employer to take a unilateral offset simply by filing a notice of compensation benefit offset (NCBO). Should the claimant disagree with the unilateral action taken by the employer, a review petition can be filed, seeking to challenge either the amount or nature of the offset.
Since the benefits are customarily reported by the claimant on the LIBC-756 form, it is incumbent on the practitioner to see to it that the form is properly completed as the figures may be used in taking the offset. More important, any time an NCBO form is received, it is crucial to note whether the offset was based on the “net” or “gross” amount of the applicable benefits, as the court in Philadelphia Gas Works v. WCAB (Amodei), 964 A.2d 963 (Pa. Commw. 2009), endorsed the “net” method. The unusual thing about the Stepp case is that the controversy over the pension offset was created when the claimant unilaterally notified his employer in writing that he intended to retire and sought to collect his pension benefits. While the decision did not hinge on this fact, deferring the retirement and receipt of pension would have avoided the offset issue and prevented the claimant from being subject to allegations that he had taken himself out of the workforce.
By way of background, the claimant, Regis Stepp, began working for a company called Marianna Scenery Hill Telephone Co. in 1973. In 2000, FairPoint Communications acquired Marianna. The evidence of record suggested that Marianna became a “wholly owned second-tier subsidiary” of FairPoint following the acquisition. Stepp continued to be an employee of Marianna, but FairPoint continued to manage the human resources department for all employees of all the subsidiaries of FairPoint. While the record did not specifically indicate, it was assumed that all of the employees of the subsidiaries of FairPoint were covered under the same workers’ compensation policy.
In 2008, Stepp sustained a work injury to his back and was unable to work entirely for about five months. Stepp ultimately returned to a light-duty position for a day-and-a-half and concluded that he did not believe he could perform the light-duty position due to the pain. Consequently, Stepp has not returned to work since.
Two years after being injured, Stepp notified FairPoint in writing of his intention to retire. Shortly thereafter, FairPoint petitioned to suspend the claimant’s benefits on unrelated grounds. Stepp began receiving his pension payments in October 2010.
On Jan. 4, 2011, FairPoint filed an NCBO, indicating that an offset of $454.58 per week would be charged against Stepp’s indemnity benefits based on a 95.71 percent rate of Stepp’s pension benefit that was alleged to be employer-funded. Stepp filed a review petition, seeking to challenge not the percentage of contribution, as is normally the case, but instead alleging that since Marianna had funded the pension plan and not FairPoint, per se, FairPoint was not entitled to any offset at all.
After fully litigating the matter, the workers’ compensation judge denied Stepp’s review petition. The WCJ found that, as a result of FairPoint’s acquisition of Marianna, FairPoint and Marianna were the same entity for purposes of determining whether the employer could offset Stepp’s indemnity benefits based on the pension.
Stepp appealed to the Workers’ Compensation Appeal Board, which affirmed the WCJ’s decision, holding that FairPoint acquired Marianna’s right to a pension offset after FairPoint acquired Marianna, and was therefore entitled to a Section 204(a) offset against the pension benefits. On appeal to the Commonwealth Court, Stepp argues that the board erred in granting the offset to FairPoint, since Marianna had funded the pension plan.
The Commonwealth Court started its analysis by reiterating the fact that when a change to the status quo is attempted through a reduction of benefits based on a pension offset, the employer bears the burden of proving the extent to which it funded the pension plan in question, even though it is the claimant that brings the petition.
In an effort to determine the succession issue, the court turned to corporate law, citing the 2000 case, LTV Steel v. WCAB (Mozena), 754 A.2d 666, 677 (Pa. 2000), for the proposition that following a merger “the surviving corporation succeeds to both the rights and liabilities of the constituent corporation.” The court also appealed to Section 1929 of the Business Corporation Law of 1988 for the proposition that all property rights of the acquired companies “shall be deemed to be vested in and shall belong to the surviving or new corporation.”
Stepp’s argument was essentially that the board erred because what FairPoint was calling a “merger” was not a true merger of the type described in Section 1929 of the Business Corporation Law. Instead, it was merely a stock purchase to which Section 1929 is not relevant.
In crediting the fact witness for the employer, the court noted that while Marianna was a wholly owned subsidiary of FairPoint, the operations of both companies were merged. This merger of operations includes FairPoint’s control of all Marianna workers’ compensation claims. The court stated, “When FairPoint assumed responsibility for claimant’s work injury, it did so on behalf of Marianna, which remained claimant’s employer.”
While the court conceded that this was not a merger governed by Section 1929 of the Business Corporation Law of 1988, it still found that the principles of LTV Steel were applicable so as to not “effectively erase” Marianna’s contributions to the claimant’s pension, which would, in turn, result in a windfall for Stepp in violation of Section 204(a) of the act. While a novel argument, it was rejected at all three levels of review.
Given that employers have the power to unilaterally alter the receipt of indemnity benefits through the issuance of a notice of workers’ compensation benefit offset form (LIBC-761), the circumstances surrounding the issuance of the various forms and the subsequent cessation or reduction of benefits remain a large source of litigation. The Stepp case should sound a warning to practitioners to ensure the Employee Report of Benefits (LIBC-756) forms are completed properly. Just as important, decisions regarding when and how to apply for pension benefits should be addressed with clients approaching retirement age.