Section 204(a) of the Pennsylvania Workers’ Compensation Act entitles workers’ comp insurance carriers to an offset if the injured worker receives unemployment compensation benefits, Social Security Retirement benefits, severance benefits or pension benefits. Most of these benefits, and their offsets, are easily calculated. However, when one gets into the area of pensions, in particular “defined benefit” plans, things get more complicated.
In a “defined benefit” plan, the amount of money paid to the recipient is certain; therefore, the party funding the plan takes the risk of the plan not being adequately funded to make the necessary payments to recipients. The money paid into the plan is put into a general fund, which is then used to pay all recipients. Contrast this with a “defined contribution” plan, where the employer pays a certain amount on behalf of each employee, and that account is then used to only pay that employee. That employee then only receives the payments that his own account can support. Thus, the employee takes the risk of underfunding.
A Pennsylvania workers’ comp insurance company can only obtain an offset from a pension plan “to the extent funded by the employer directly liable for the payment of compensation.” The issue, then, becomes how much that employer funded the plan. This can get complicated in a “defined benefit” plan, where the injured worker was employed by multiple employers over his or her career.