When retirement is more valuable than disability compensation

when-retirement-is-more-valuable-than-disability-compensation

Federal workers collecting disability benefits under the Federal Employees’ Compensation Act have the choice to change their benefits once they reach retirement age, but the value of that change depends on how long their federal career was, according to a report publicly issued Aug. 21 by the Government Accountability Office.

“FECA recipients can receive this compensation for as long as their disability continues. At retirement age, they can remain on FECA or, instead, choose to receive their benefits from the Federal Employees Retirement System. Thus, FECA benefits represent a significant portion of retirement income for some injured federal employees,” the GAO report said.

“Through simulations, GAO found that factors such as the length of retirees’ careers absent injury affected how similar their hypothetical FECA benefits packages were to their FERS packages in 2018. FERS benefits increase substantially the longer a federal employee works.”

The simulations found that, for those on Reduced FECA, FERS retirement benefits generally offered greater value if the employee had served more than 19 years as a federal employee without an injury.

Meanwhile those on regular FECA saw only slightly greater FERS value once they had served 30 years or more.

“FECA benefits are usually greater than FERS and remaining on FECA is the default if FECA recipients take no action at retirement age. FECA recipients can elect to receive their FERS benefits at any time when eligible, and can also change their choice at a later time,” the report said.

According to the report, though tools exist for individual recipients to estimate the value of both benefits options, the Department of Labor does not routinely remind such recipients to compare those benefits.

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“As FECA recipients approach retirement age, [the Office of Worker’s Compensation Programs] provides forms and other documents that might alert or remind recipients about the existence of their options. However, this information does not explicitly advise recipients to obtain estimates of and consider their potential FERS benefits,” the report said.

“For example, as FECA recipients approach age 62, OWCP automatically sends a letter that includes information about receiving FECA compensation and Social Security retirement benefits concurrently. While this letter does not mention other benefits options, it does give the FECA recipient information about remaining on FECA into retirement. OWCP also annually requires FECA recipients to complete a form documenting any earnings, including whether they are receiving any FERS retirement benefits. This form may remind recipients about the existence of their FERS benefits, but does not state explicitly that an individual has benefits options at retirement.”

Even those recipients that are aware of the option to switch from FECA to FERS may not be able to get a reliable estimate of which program pays more, as there is no way to obtain an estimate of the reduction to FECA compensation that comes as an offset to Social Security benefits, due to calculations for such a reduction coming from a “manual and highly complex process.”

“Due to the labor-intensive and cumbersome nature of the process, SSA officials said it would be challenging to provide FECA recipients with offset estimates in advance of retirement,” the report said.

GAO recommended that DOL more actively remind FECA recipients of their options as they approach retirement age and called for DOL and SSA to modernize the offset calculation process so that recipients can more easily see what their benefit amounts will be.

Both agencies agreed with the recommendations.

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Jessie Bur covers federal IT and management.

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