Pension Offset is available to the Post-Merger Corporation

Section 204(a) Offsets to Pension, Severance and "Old Age" Social Security benefits.

In 1996 the Pennsylvania Workers' Compensation Act was amended to allow an Employer to offset its workers' compensation benefit payment liability by the amount of pension benefits paid to the injured Employee.  There were several requirements.

The Pension offset was available, to the extent the pension was funded by the Employer.
This is the Employer directly responsible for work comp benefit payments.
The Employer can be insured or self-insured.
The Employee must receive the pension benefits, not just be entitled to receive them.

The vast majority of appellate litigation of pension offset issues address the pension funding question.
In Governmental body defined benefit plans, the question is: What is the amount funded by the employer, where amounts are paid into the plan on a "group" basis.

When a Corporation is bought/sold/merged, similar pension funding issues arise.

Stepp v. WCAB (FairPoint Communications, Inc.) No. 2270 C.D. 2013, a published panel decision of the Commonwealth Court of Pennsylvania, authored by Judge Leavitt on September 10, 2014, addressed this pension funding issue.

Factual and Procedural Background

Employee began work with Marianna Scenery Hill Telephone Company in 1973.
In 2000 FairPoint Communications Inc. acquired Marianna,
Employee sustained a back injury in 2008 and received total disability benefits via Notice of Compensation Payable (LIBC 495).

October 2010,Employee began receiving pension benefits.
January 2011, FairPoint filed a Notice of Workers' Compensation Benefit Offset (LIBC-761).
Employee filed a Petition for Review of the Pension Offset.

[Employer also filed a Petition for Suspension/Modification in July 2010 based upon medical examination and work availability. The WCJ accepted this evidence and modified total disability of $733.67 per week to a partial disability benefit rate of $123.01 per week.

This decision does not directly impact the pension funding issue, as a pension offset is available against total or partial disability benefits.].

WCJ Decision

Employee Petition for Review was denied.
FairPoint was entitled to the pension offset against the workers' compensation benefits paid.

WCJ found Marianna and FairPoint were the same entity for the purpose of determining whether Employee's work comp benefits were subject to an offset.
WCJ (mis-) calculated a net Employee work comp benefit rate as $310.40 per week.

WCAB Appeal by Employee

WCAB affirmed WCJ conclusion FairPoint was entitled to a pension offset.
WCAB "corrected" WCJ calculations.

Pension offset of $423.27 per week, applied against Employee modified indemnity wage loss benefit of $123.01 per week, resulted in $0 due and a suspension of work comp benefit payments.

Commonwealth Court Appeal of Employee

Employee argued FairPoint was not entitled to a pension offset as his pension plan was funded by Marianna, a different, still existing corporation.

Court referred to its prior statement of the legislative intent of the Section 204(a) amendment, in Pennsylvania State University v. WCAB (Hensal), 911 A.2d 225 (Pa. Cmwlth. 2006).

"In 1996, the legislature, attempting to combat the increasing costs of workers' compensation in Pennsylvania, amended Section 204(a) of the Act to allow employers an offset against workers' compensation benefits for social security, severance and pension benefits simultaneously received by an employee. 
...Amended Section 204(a) serves the legislative intent of reducing the cost of workers' compensation by allowing an employer to avoid paying duplicate benefits for the same loss of earnings. Similarly, Section 204(a) implicitly recognizes that public policy bars an employer from utilizing an employee's own retirement funds to satisfy its workers' compensation obligation."

In a Petition for Review of a Pension Offset, the burden of proof remains upon the Employer, as it is the party seeking to change the benefit status of the employee.The employer bears the burden to prove the extent to which it funded the pension plan.

In Stepp, the percentage of funding by Marianna was not challenged by Employee.
Employee asserted error in allowing FairPoint any offset for the amounts funded by Marianna.

Court cited LTV Steel Corporation Inc. v WCAB (Mozena) 754 A.2d 666 (Pa. 2000) for the proposition, when corporations merge " the surviving corporation succeeds to both the rights and liabilities of the constituent corporation".

Mozena were hearing loss claim,s where the Supreme Court decision allowed consideration of all time periods and occupational noise exposure, in assessing the liability of LTV. This was based upon the authority of the Business Corporation Law of 1988, Section 1929.
"The mergers acquisitions or other changes in corporate structure from 1974 to 1984 did not constitute the creation of a new employer for determining the amount of hearing loss caused by any one employer.  The totality of circumstances reflected that the new owner was a successor-in-interest and not a new employer.

The facts in Stepp bear repeating, as they made be important to assess their significance when discussing this decision, in regards to its application to other "merger" circumstances.

Employer presented the deposition of its benefits manager, J. Coan.
FairPoint's acquisition of Marianna was described as a "merger and fast purchase".
FairPoint held the stock of Marianna.
Marianna became a wholly owned second tier subsidiary of FairPoint in 2001.
Fairpoint acquired and maintains all human resources and employee benefit books and records of Marianna, including those before 2001.
After 2001 Marianna remained an active Company and all Marianna employees continued as Marianna employees, even though the had a new Parent Company and were part of the FairPoint family of subsidiaries.

The Court noted in Stepp, all employees in the FairPoint "family of subsidiaries" were covered by the same workers compensation plan. (slip opinion page 2).

Employee argues the "merger" of Mariana and FairPoint was not a true merger of the type described in the Section 1929 of the BCL of 1988.
On this point, the Commonwealth Court seems to return to its review of the legislation intent of the 1996 Amendments, in concluding, that Employee's position would effectively erase consideration of Marianna's pension plan contributions and result in a windfall to Employee.

Practice Pointers:

1. Employers should be diligent in review and monitoring the pension status of all employees receiving workers compensation benefits. 

2. The availability and application of the benefit offset provisions may be significant.
 In the above case, the work comp liability for partial disability was reduced from $123.01 per week to "0".

3. Equally significant is the Employer's success in reducing its total disability benefit from $733.67 per week to a partial rate of $123.01 per week. 

This significant change in benefit liability was based upon the "old fashion" remedy of medical examination and establishing work available within the employee's limitations!

Kudo's, to Employer for the foresight to pursue of 2 different remedies for reduction of work comp liability, as available by the Act.