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Chapter 5, Section 6: Disability Retirement vs. FECA Benefits

For many federal employees, workers' compensation benefits and disability retirement are closely related issues, but it is important to realize that these two benefit programs are very different.

General Relationship

For many federal employees, workers' compensation benefits and disability retirement are closely related issues, but it is important to realize that these two benefit programs are very different. Each has its own set of eligibility and procedural rules, and the two are administered by different agencies -- the Labor Department's Office of Workers' Compensation Programs in the case of Federal Employees Compensation Act benefits, and the Office of Personnel Management in the case of disability retirement. An employee's right to receive benefit payments under one program does not ensure entitlement to benefits under the other. However, as long as their injury or illness is work-related, many disabled federal workers find that they may be eligible for benefits under both.

Because employees often must decide whether to draw benefits from one or the other, it can be important for a worker to understand both programs and how they relate to each other. However, the two administering agencies operate independently and have made few efforts to integrate the two programs. Little official information is available that allows a direct comparison of both programs and the guidance employees need to understand them as they relate to one another.

The information below provides general comparisons of the two programs. Be sure to check pertinent sections of this Almanac (particularly Section 6 of this chapter and the discussions of CSRS vs. FERS differences in Chapter 3), as well as the official guidance and publications issued by OPM and OWCP, for further details if needed.

Benefit Differences and Choices

Two fundamental points are essential to a clear understanding of the differences between injury compensation benefits under FECA and disability retirement coverage under either CSRS or FERS:

  • Disability retirement benefits are payable whether or not the employee's disabling disease or injury was job-related, while workers' compensation benefits are paid only if the cause of the disabling condition was job-related.
  • Employees generally may not receive annuity payments from OPM and FECA payments from OWCP for the same period of time, but must elect one type of benefit (the limited exceptions to this rule are explained below).

Faced with the dual compensation choice between a disability annuity and FECA payments, many disabled employees choose the FECA benefit, primarily because it usually amounts to a higher payment. That's because FECA's disability payment formula typically is more generous, and workers' compensation benefits are tax-free. However, there are exceptions, as well as other considerations, which might cause an individual to choose a disability retirement benefit instead.

Note that a disabled employee's election between workers' compensation benefits and an annuity is not irrevocable. Individuals may switch between the two systems if it is to their advantage to do so. OPM considers an election of benefits in death cases to be irrevocable, however.

Individuals should be aware that their election of one type of benefit could result in some disadvantages. For example, an individual who files a disability retirement application with OPM and who is entitled to an annuity, but elects to receive FECA benefits in lieu of an annuity, is still considered an annuitant. Unless the person's entitlement to an annuity ends (for example, because of recovery from the disabling condition), upon re-employment with the federal government, the worker becomes subject to the rules governing re-employed annuitants. Being subject to these rules may be disadvantageous if the individual is re-employed at a lower grade or on a part-time basis or does not work long enough to gain eligibility for a supplemental annuity.

There is a final consideration for employees who are facing a FECA/disability retirement choice, but who also are eligible for standard optional retirement. They sometimes choose disability retirement instead of standard retirement on a belief that disability retirement is more favorable. However, the benefits under the two generally are the same. Moreover, the choice of disability retirement has certain disadvantages: the requirement to prove eligibility through medical and other evidence and the vulnerability of recipients under age 60 to loss of benefits due to restoration of earning capacity or medical recovery. Also, those who owe a redeposit for a period of service ending before March 1, 1991, may have an actuarial reduction in a standard annuity in lieu of making the redeposit, while those retiring on disability must make the redeposit in order to receive credit for the service.

On the other hand, certain job restoration rights that do not apply to standard optional retirement do apply to disability retirement, which could be a consideration for those who think they might want to return to federal employment after retirement.

Impact of Separation

Upon leaving federal employment, separated employees who have applied for workers' compensation benefits also must apply for disability retirement to preserve their annuity rights under CSRS or FERS. Employees who are found eligible for both FECA benefits and disability retirement must then choose between them. Applying for disability retirement benefits is the only way in which the future annuity rights of separated employees (and their survivors) will be fully protected. Except in cases of mental incompetence, the disability retirement application of a separated employee must be received by OPM within one year of the date of separation from federal service. All medical evidence submitted to OWCP in connection with a FECA claim and any OWCP evaluation of the claim should be included with a disability retirement claim.

Former employees who are receiving FECA payments and who do not file a timely retirement application will not be eligible for disability retirement benefits if and when their workers' compensation benefits stop. In such cases, former employees also will not be eligible to temporarily continue health benefits coverage. In addition, their survivors' rights to death benefits would not be established.

The one-year limit applies only to disability retirement benefits. There is no similar requirement for a normal retirement annuity based on age and years of service. However, such employees may want to consider filing a disability annuity application to preserve their survivors' rights to annuity benefits and continued health insurance coverage. Those benefits might be lost if the separated person dies before filing for retirement and if workers' compensation benefits are not payable to their survivors.

Benefit Payment Procedures

If an injured or disabled employee applies and is found eligible for disability retirement benefits, OPM will begin annuity payments as long as OWCP has not awarded workers' compensation benefits by the time the retirement claim has been adjudicated. If OWCP subsequently decides the worker is entitled to workers' compensation benefits, an annuitant who elects to receive the FECA payments must reimburse OPM for any annuity payments received in the interim. Typically, OWCP will withhold the amount of annuity payments received from the workers' compensation benefits to reimburse OPM.

If annuitants choose to receive workers' compensation benefits, OPM will suspend payment of their retirement benefits during the period that FECA benefits are paid. However, if the compensation benefits end for any reason, including the worker's personal choice, OPM will reinstate the annuity if the individual is still entitled to a disability retirement; i.e., has not recovered from the disability or has not been restored to earning capacity.

Retirement benefits are payable under certain circumstances where compensation benefits are not payable. For instance, retirement benefits may be payable to a former spouse if a court order provides for such an award, but FECA benefits are not payable to a former spouse as a result of a court order. In addition, if a deceased employee's widow or widower remarries before age 55 and that marriage ends, the survivor's retirement benefit may be reinstated (provided the survivor has not received a refund of the employee's retirement contributions). However, a FECA benefit will not be reinstated in those circumstances.

Simultaneous FECA and Retirement Payments

In very limited circumstances, federal employees may receive a concurrent payment of annuity and FECA benefits for the same period of time. Circumstances in which such dual payments can occur include:

  • The employee is receiving a schedule award under FECA. A schedule award is usually paid when there is a disability resulting from the loss, or loss of use, of a function or member of the body (such as a hearing loss or the loss of an arm). However, if the award is based on total or partial disability (i.e., a non-schedule award), the employee may not receive an annuity during the same period that he is receiving FECA benefits. (If an employee is receiving civil service annuity payments and a schedule award is changed to a non-schedule FECA benefit, he must immediately notify OPM. Any overpayment of FECA benefits or annuity he receives is subject to collection by the OPM or OWCP.)
  • The employee is receiving FECA benefits due to the death of another person and is eligible for annuity on the basis of his own federal service.
  • FECA payments are suspended because he is receiving a financial settlement from the party directly responsible for the injury (e.g., a third-party settlement). In this instance, his annuity may be paid during the period that his OWCP benefits are suspended.
  • An employee may receive FECA compensation concurrently with military retirement or retainer pay, subject to the reduction of such pay in accordance with 5 U.S.C. 5532(b).

Refunds of Retirement Contributions

Separated employees who are not entitled to an annuity, including individuals who have elected to receive workers' compensation benefits in lieu of a disability annuity, may receive a refund of their federal retirement contributions. However, those who do so forfeit all annuity rights stemming from the period of service covered by the refund (including survivor benefits), unless they are re-employed in a position subject to CSRS or FERS and make the required redeposit plus interest. See Redeposit Service in Chapter 3, Section 3. Taking a retirement contribution refund following a FECA award can be risky. While employees may believe that a job-related injury is permanent and that FECA benefits will continue for their lifetime, the payment of FECA benefits may be interrupted or ended because of a change in the employee's medical condition, the availability of suitable work, or rehabilitation. Thus, a retirement contribution refund could imperil a worker's ability to qualify for an annuity in the future that includes the period of work covered by the refund. In addition, if your FECA benefit is terminated, your Federal Employees' Group Life Insurance coverage, if any, also would end without the right to convert to an individual policy.

Impact on Retirement Service Credits

An employee who is in a leave-without-pay (LWOP) status while in receipt of FECA benefits will receive full credit for the LWOP period for purposes of retirement annuity computations of annuity (as well as high-3 average salary purposes). An employee's use of LWOP while in receipt of FECA benefits is not subject to the normal LWOP limitation of six months in each calendar year for annuity crediting purposes. Thus, when a separated employee (not annuitant) returns to federal service, that portion of the separation when the employee received FECA benefits is deemed to be a period of LWOP during which the employee is receiving FECA benefits, and is fully creditable for future annuity computation and high-3 average salary purposes.

However, no period of separation, even one in which the employee received FECA benefits, may be used as a credit for purposes of meeting the requirement that a CSRS employee complete one year of covered service in the two-year period immediately preceding a non-disability retirement. There is no such requirement for FERS employees.

Survivor Benefit Considerations

A surviving spouse and dependent children will qualify for compensation death benefits from OWCP if an employee dies because of a job-related injury or illness. Although they also may be eligible for survivor annuity benefits from the CSRS or FERS system, the two benefits are not payable for the same period of time. A survivor must elect which of the two benefits he or she wishes to receive. Most survivors will choose compensation benefits instead of a survivor annuity because compensation normally pays a higher amount.

If electing compensation benefits, they may also elect to receive a lump-sum payment of the employee's contributions to the retirement fund. The lump sum is paid under a statutory order of precedence: first, to the designated beneficiary; if none designated, to the surviving spouse; if none, to the child or children and descendants of deceased children, by representation; if none, to any surviving parents; if none, to the duly appointed executor or administrator of the estate; if none, to the next of kin. (If a survivor elects a survivor annuity under disability retirement, the annuity is calculated in the same way as it is for any other retiree.)

In addition, survivors of FERS-covered employees who elect to receive FECA compensation are not eligible for the basic employee death benefit.

Impact on TSP Participation

The Thrift Savings Plan only accepts participant contributions from basic pay, which means that TSP participants must be in an active "employed" status. If the agency changes a FECA recipient's status to separated, he or she becomes eligible to elect a TSP withdrawal. On the other hand, if the FECA recipient's status is never changed from inactive, the individual is eligible for in-service withdrawals. Disability retirees may not contribute to the TSP. They are eligible for post-service TSP withdrawal options.

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