Disability Retirement

Chapter 3: Section 6

Under both the Civil Service Retirement System and the Federal Employees Retirement System, benefits are payable to federal and postal employees no longer able to perform in their positions because of the onset of a disabling condition. A worker exhibiting an inability to perform in his/her position (or for other vacant positions at the same grade or pay level) is assumed to be disabled for federal or postal service, even though that worker might be able to hold some other job. This “occupational” definition of disability is different than that used by Social Security (see Social Security Disability Benefits in Section 9 of this chapter). To qualify for disability benefits under Social Security, a worker generally must be no longer able to work in any job because of a disability. 

Employees insured under Federal Employees’ Group Life Insurance who retire on account of disability may retain Basic life insurance coverage as an annuitant only if they have been insured for the five years of service immediately preceding retirement or the full period(s) of service during which the Basic life insurance was available (if less than five years). Also, employees who retire on account of disability may continue their health benefits enrollment into retirement if they have been enrolled (or covered as a family member) under the Federal Employees Health Benefits program for the five years of service immediately preceding retirement (see FEHB Coverage After Retirement in Chapter 2, Section 1, for exceptions), or their entire period of service since their first opportunity to enroll. 

Disability retirees are eligible for the Federal Employees Dental and Vision Insurance Program and may continue or apply for coverage under the Federal Long-Term Care Insurance Program.

In general, employees eligible for benefits under the Federal Employees’ Compensation Act (workers’ compensation) and the civil service retirement law may choose whichever benefits work to their advantage; the law prohibits them from receiving both (see Chapter 5, Section 6). Applicants should report to OPM information regarding benefits received under FECA.

Note: To speed the review of disability retirement applications from employees with conditions causing them to have a life expectancy of one year or less, OPM asks agency retirement counselors to provide  medical documentation directly to its Disability Branch at the time the retirement application is submitted to the agency, so that branch can review the documentation before the application is received at OPM for processing.

Eligibility Rules for Disability Retirement

Federal employees must meet the following conditions in order to be eligible for disability retirement:

• CSRS employees must have completed at least five years of creditable federal civilian service, while FERS employees must have completed at least 18 months of federal civilian service that is creditable under FERS.

• You must, while employed in a position subject to the CSRS or FERS, have become so disabled that you are prevented from performing useful and efficient service in your current position. (Useful and efficient service means fully successful performance of the critical or essential elements of the position—or the ability to perform at that level—and satisfactory conduct and attendance.)

• The disability must be expected to last at least one year.

• Your agency must certify that it is unable to accommodate your disabling medical condition in your present position and that it has considered you for any vacant position in the same agency, at the same grade or pay level, and within the same commuting area, for which you are qualified for reassignment. (An employee of the Postal Service is considered not qualified for reassignment if the reassignment is to a position in a different craft or is inconsistent with the terms of a collective bargaining agreement covering the employee.)

• You, or your guardian or other interested person, must apply for disability retirement before your separation from service or within one year afterward. The application must be received by OPM within one year of the date of your separation. This time limit can be waived only in instances involving incompetence.

• If you are a National Guard Technician being separated from your position because of a disability that disqualifies you from membership in the National Guard or from holding the military grade required for your employment, special provisions may apply. Contact your employing agency for the necessary information.

• If covered by FERS, you must apply for Social Security disability benefits. OPM must receive a receipt or notice of approval or disapproval of disability benefits from the Social Security Administration before any disability annuity benefits can be paid. If the application for Social Security disability benefits is withdrawn for any reason, The Office of Personnel Management will dismiss the FERS disability retirement application upon notification by the SSA.

The general requirement that a CSRS employee must have, within the two-year period preceding separation from service, completed at least one year of civilian service subject to retirement deductions to be eligible for an annuity is not applicable in the case of an employee retiring due to disability. See 5 U.S.C. 8333(b).

In general, you must file the application for disability retirement or have a representative or immediate family member file it for you. However, your employing agency is obliged to file an application on your behalf if it determines that you would qualify but that you are personally unable to file an application and have no one to file one for you.

If Eligible for Optional Retirement—An individual who becomes eligible for disability retirement when already eligible for immediate optional retirement may choose the annuity that is more advantageous. 

Retiring under the disability provision in that situation generally will result in an earned rate annuity, which produces the same basic annuity as the immediate optional annuity, if refunded service is not involved. The exception is retiring under the FERS “MRA + 10” (at least minimum retirement age, currently 56, with at least 10 years of service but fewer than 30) provision, which is reduced for age; see CSRS and FERS: Basic Annuity Computations in Section 4 of this chapter.

There are several potential disadvantages to taking disability retirement over optional retirement in this situation:

• Even if eligible for optional retirement, an applicant for disability retirement must prove eligibility through medical and other evidence; see below. 

• Disability retirees are not eligible to elect an alternative form of annuity (see Section 7 of this chapter) or an insurable interest annuity (see General Types of Survivor Annuities in Section 4 of this chapter).

• A disability annuitant must make a redeposit of refunded contributions plus interest to receive credit for the service covered by a refund for a period of CSRS service ending before March 1, 1991. In contrast, an optional retiree who fails to redeposit a refund in that situation will receive credit for that service, paid for by a reduction in the annuity based upon the amount of the redeposit due. See Redeposit Service in Section 3 of this chapter.

• Under FERS disability rules, the annuity supplement is not payable. See Special Retirement Supplement in Section 4 of this chapter.

• A disability annuitant under age 60 must provide medical evidence at his or her own expense, and the annuity is subject to termination if the annuitant is found to be recovered. Similarly, a disability annuitant under age 60 must provide annual earnings reports, and the annuity is subject to termination if the annuitant is restored to earning capacity. (See below.) A disability annuitant who was also eligible for optional retirement would generally be entitled to an immediate annuity if found recovered or restored to earning capacity; the new annuity would be computed based upon the same average salary used in computing the disability annuity with no adjustments for the period after the individual originally retired on disability.

However, there may be a good reason (such as considerations of state benefits or taxes on annuities) to choose a disability retirement over optional retirement. 

The employing agency must inform employees who apply for disability retirement if they are eligible for optional retirement and provide them with estimates of their benefits under each. If a dual eligibility is not discovered until initial adjudication of a disability retirement application by the Office of Personnel Management, OPM will compute the benefit under both provisions and send the applicant an election letter. If there is no reply within 30 days, OPM will finish processing the application under the disability provisions. Also see Benefits Administration Letter 14-104 at www.opm.gov/retirement-services/
publications-forms/benefits-administration-letters
.

Time Limits and Appeal Rights

If the application is made by the agency, it must be filed with OPM before the employee is separated from the service. If it is made by the employee, guardian, or some other interested person, it must be made before the worker’s separation from service or within one year thereafter. This time limit may be waived in certain cases involving incompetence.

For CSRS employees, Standard Form 2801, Application for Immediate Retirement, is used in making application for disability retirement; for FERS employees, Standard Form 3107 of the same title is used. In addition, both CSRS and FERS employees must submit Standard Form 3112, Documentation in Support of Disability Retirement Application. These forms are available from your personnel office or at www.opm.gov/forms.

Based on its examination of the submitted documents, OPM decides whether a disability retirement is warranted. Generally, applicants have the burden of proving that they meet all of the requirements for disability retirement and are responsible for insuring that all documents are submitted within time limits. However, in the case of employees who have been removed for physical inability to perform, there is a presumption that the worker meets the requirements for disability retirement.

If OPM denies the application, the employee can ask for reconsideration by submitting a written and signed request. The request must be received by OPM within 30 days of the issuance of the initial decision. The applicant may submit additional medical or other information at the reconsideration stage. OPM then re-evaluates the decision taking any additional information into account.

A final denial of an application by OPM can be appealed to the Merit Systems Protection Board within 35 days of the reconsideration decision. The MSPB hearing officer reviews the case and issues a written decision based on the preponderance of the evidence. The applicant can then appeal to the three-member Board and from there to the U.S. Court of Appeals for the Federal Circuit.

Disability Determination Process

Your employing agency should render every assistance to you in completing the application by helping you to select the type of annuity best suited to your circumstances, explaining the effect of making deposit or redeposit, obtaining the necessary statement from your supervisor or manager, explaining the requirement of a physician’s statement, and getting a statement from you to accompany the application showing any unverified prior service with other agencies.  

As noted above, before you can be considered eligible for disability retirement benefits, you must have five years of creditable civilian service under CSRS or 18 months under FERS. Then, your employing agency must determine that you are not qualified for reassignment to any other vacant position within your agency and your commuting area at the same grade or pay level of the position you currently occupy. In addition, you or someone acting for you must file an application for disability retirement with OPM either before you leave federal service or within one year after you leave. This time limit can be waived only when an employee is mentally incompetent upon leaving the federal service or becomes mentally incompetent within one year after leaving. In such a situation, the application will be accepted by OPM if filed within one year from the date the employee is restored to competency or a guardian is appointed, whichever is earlier.

You are “disabled” when the information submitted indicates that there is a deficiency, caused by disease, injury, or illness, of sufficient degree to preclude useful and efficient service. “Useful and efficient service” means (1) either acceptable performance of the critical or essential elements of the position or the ability to perform at that level; and (2) satisfactory conduct and attendance. Service that is not “useful and efficient” is a level of performance or attendance which, if it were to continue, would warrant denial of a within-grade increase, demotion, separation, or other remedial action.

If you refuse reassignment to a position at the same grade or pay level in the same commuting area, your refusal terminates the agency’s obligation to identify any other vacant position and may disqualify you from further consideration for disability retirement.

A claim for disability retirement must include documentation that clearly and specifically establishes:

• a deficiency in service with respect to performance, conduct, or attendance, or in the absence of any actual service deficiency, a showing that the medical condition is incompatible with either useful service or retention in the position;

• a medical condition defined as a disease or an injury caused the service deficiency;

• the duration of the medical condition, both past and expected, and a showing that the condition, in all probability, will continue for at least a year;

• an inability to render useful and efficient service that arose while serving in covered employment;

• the inability of the employing agency to make reasonable accommodation to the medical condition; and

• the absence of another position, within the employing agency and commuting area, at the same grade or pay level and tenure, to which the employee is qualified for reassignment.

Your agency will provide assistance in obtaining the required forms to obtain statements from your supervisors and attending physicians and proof that your condition prevents you from performing useful and efficient service. If you are found to be disabled as outlined above, you will be allowed to retire on disability. Up to the age of 60, you will be subject to periodic medical re-evaluations as described in Periodic Medical Examinations, below, and an annual determination of whether you are recovered or restored to earning capacity, as described in Recovery or Restoration of Earning Capacity, below.

Your status as an employee is not affected by the act of your agency in applying for your disability retirement. Pending decision on the application, employment status is determined under normal rules. Unless you have already been separated, OPM will notify the agency of the action of allowance or disallowance of the claim. If disability retirement has been allowed, the agency should take the proper steps to effect the separation.

Periodic Medical Examinations

Unless OPM determines that the disability is permanent in character, a disability annuitant must undergo periodic medical re-evaluation until reaching age 60. If an annuitant fails to submit to a required medical examination, the annuity is suspended until continuance of the disability is established satisfactorily. A finding of permanent disability normally eliminates the necessity for such examinations (unless special circumstances warrant such a requirement).

CSRS Disability Computations

A CSRS-covered disability retiree (including CSRS Offset) generally is entitled to the larger of the earned annuity computed under the general formula as described in Section 4 of this chapter, or a guaranteed minimum benefit. (Note: Employees receiving military retired or retainer pay, or compensation from the Department of Veterans Affairs in lieu of retired or retainer pay, are not eligible for the guaranteed minimum unless they are receiving military retired pay because of a service-connected disability incurred in combat with an enemy of the United States or caused by an instrumentality of war and incurred in the line of duty during a period of war as defined by 38 U.S.C. 301, or they are receiving retired pay awarded under 10 U.S.C. 67 for Reserve retirement.)

The guaranteed minimum benefit is the lesser of:

• 40 percent of the employee’s high-3 average salary; or

• the amount obtained under the general formula after increasing the actual creditable service by the time remaining until the employee’s 60th birthday.

Example:

Employee with 37 years of service, age 58

High-3 average salary—$50,000

Total service projected to age 60—39 years

40 percent of high-3—$20,000

Annuity including increased crediting—$37,125 

Guaranteed minimum—$20,000 (lesser of those two figures)

Earned annuity, 30 years of service—$28,125

Earned annuity is paid because it is greater than guaranteed minimum

Almost all new applicants for CSRS disability retirement have their benefits calculated under the general formula because they have sufficient years of service to make the guaranteed minimum inapplicable. The exception is employees who had lengthy breaks in service and then returned under CSRS.

Enhanced Benefits—OPM allows enhanced disability annuities for the survivors of CSRS-covered disability annuitants if the disability annuitant performed at least 20 years of law enforcement officer or firefighter service and for the survivors of air traffic controller disability annuitants if they performed at least 25 years of air traffic controller service and were at least 50 years old.

Enhanced disability and survivor benefits are available under certain circumstances on claims based in whole or part on service that is usually tied to higher retirement deductions and annuity rates, e.g., law enforcement officers, firefighters, air traffic controllers, nuclear materials carriers, Customs and Border Protection officers, and Supreme Court or Capitol police. Such claims often involve situations where a separated or deceased employee has not met the age and service requirements for a regular annuity. See Benefits Administration Letter 10-105 at www.opm.gov/retirement-services/publications-forms/benefits-administration-letters.  

Social Security Offset—CSRS Offset employees, who have service that was subject to withholding for both CSRS and Social Security, are subject to an offsetting reduction in a CSRS disability annuity if the Social Security Administration pays a disability benefit based on that time. Your CSRS disability annuity will be reduced by the amount of Social Security benefit you earned while covered by CSRS Offset. The offset is applied on the first day of the month during which you are either entitled to a disability annuity under CSRS and are entitled—or on proper application would be entitled—to disability benefits under Social Security. There won’t be any offset if you are not entitled to either Social Security disability or a regular Social Security benefit when you become entitled to a CSRS disability benefit. However, if you are later entitled to either form of Social Security benefit, the offset will be applied at that time.

FERS Disability Computations

Disability benefits under FERS are computed differently depending on your age and amount of service at retirement. In addition, FERS disability retirement benefits are recomputed after the first 12 months and again at age 62, if you are under age 62 at the time of disability retirement. If at disability retirement you are already 62 years old, or you meet the age and service requirements for immediate unreduced, voluntary retirement, you will receive your “earned” annuity based on the general FERS annuity computation: 1 percent of your “high-3” average salary multiplied by your years of service, with additional months credited proportionately; if you are at least 62 years old at retirement and have completed at least 20 years of service, the multiplier is 1.1 percent.

If at disability retirement you are under age 62 and not eligible for voluntary retirement, you will receive the following benefit:

(1) For the first 12 months—60 percent of your high-3 average salary, minus 100 percent of any Social Security disability benefits (see below).

(2) After the first 12 months—40 percent of your high-3 average salary, minus 60 percent of any Social Security disability benefits (see below). 

You are entitled to your earned annuity if it is larger than your disability annuity computed under either of the previously mentioned formulas.

(3) When you reach age 62—The FERS disability benefit is again recomputed. An artificial retirement benefit is calculated as if you had worked to age 62. Thus, actual service is added to the time spent on the disability rolls to age 62. The total time is then multiplied by 1 percent (1.1 percent if actual service plus credit for time as a disability retiree equals 20 or more years of service). The total percentage amount is multiplied by the high-3 average salary existing at the onset of disability increased by all FERS cost-of-living adjustments payable from that time to age 62. 

From the second year forward, the FERS disability benefit is indexed by the FERS cost of living formula.

Social Security Disability—Due to the intertwining of FERS and Social Security, if you apply for disability benefits under the FERS program, you are also required to apply for Social Security disability benefits. The government won’t pay any FERS benefits, even interim payments pending final adjudication of the claim, until OPM receives proof of a Social Security disability application. 

Social Security applies a stricter definition of disability than does federal retirement: you must be so severely disabled that you cannot perform any substantial gainful work, and the disability is expected to last at least one year or to result in death. Thus, someone deemed eligible for disability retirement under FERS might not be eligible under Social Security. See Social Security Disability Benefits in Section 9 of this chapter.

The Federal Medical Evidence of Record (FEDMER) program, www.opm.gov/
retirement-services/benefits-officers-center
(select “Aids”), allows you to apply for both through your employing agency. The FEDMER Social Security Disability Eligibility Statement asks you to provide current SSA status, informs you about the SSA Adult Disability Starter Kit, and provides information to streamline the process for filing an SSA disability claim. OPM and SSA receive the same medical records at the time of application. Once a decision is made by either, it contacts the other with the determination. (Note: If you already are receiving or have applied for SSA disability, FEDMER does not apply.) 

You should apply for Social Security disability benefits close to your last day of pay, which is the last day of work for Social Security purposes. If you are on annual, sick or donated leave, you are considered still in a pay status. If you apply to SSA while still in pay status, you will likely will be denied a disability benefit. In that situation, you would have to reapply once out of pay status and submit evidence of the new SSA application to OPM.

Note: Make sure to apply for Social Security disability benefits, not Supplemental Security Income.   

Social Security Offset—If you are under age 62, OPM will reduce your monthly FERS disability annuity by all or a portion of Social Security disability benefits. While you are receiving an annuity computed using the 60 percent computation, OPM must reduce your monthly annuity by 100 percent of any Social Security disability benefit to which you are entitled. While you are receiving an annuity computed using the 40 percent computation, your monthly annuity will be reduced by 60 percent of any Social Security disability benefit to which you are entitled. This reduction only applies for months in which you are concurrently entitled to both FERS and Social Security benefits. 

FERS disability benefits usually begin before the claim for Social Security benefits is fully processed, and overpayments sometimes occur when OPM does not know an annuitant has been awarded a retroactive Social Security benefit after being placed in a payment status under FERS. You would have to pay back any overpayment to OPM. If the Social Security Administration awards you monthly benefits, you must notify OPM of the amount of the monthly Social Security benefit and the effective date of the payment immediately upon becoming eligible. 

Send a copy of the award notice or a statement from the Social Security Administration showing the monthly amount and effective date of your Social Security benefit to: 

Office of Personnel Management

Federal Employees Retirement System

P.O. Box 200

Boyers, PA 16017-0001 

Phone (888) 767-6738 or TDD (800) 878-5707

If you are eligible to receive Social Security disability benefits but do not receive them because of eligibility for benefits from the Office of Workers’ Compensation Programs (OWCP), you still must notify OPM of your eligibility and the amount you would be eligible to receive if you were not receiving benefits from OWCP. 

If you lose entitlement to Social Security disability benefits while receiving a FERS disability benefit, contact OPM. It will verify your loss of Social Security eligibility and recalculate your FERS benefit without a reduction. 

On reaching age 62, OPM will recompute your FERS annuity to an amount that generally represents the annuity you would have received if you continued to work until the day before your 62nd birthday and then retired under FERS non-disability provisions, as described above. When you reach Social Security “full” retirement age (see Computation of Social Security Benefits in Section 9 of this chapter), your Social Security benefit will no longer be considered a disability benefit, although the payment amount won’t change.

Survivor Benefits

CSRS—A disability retiree’s survivor annuity is calculated in the same way as it is for any other retiree—typically, 55 percent of the amount of the annuity before reduction for a survivor benefit election, although lower amounts can be elected. If you are single and have no dependent children or former spouse eligible for benefits, there would be no monthly survivor annuity benefit payable. In this case, a lump sum of your retirement contributions would be paid to your survivors under the order of precedence (see Order of Beneficiaries in Section 4 of this chapter).

Survivor benefits of CSRS Offset employees may be subject to an offset equal to the value of the offset service in the Social Security survivor benefit. The offset only applies if the survivor is eligible for Social Security benefits based on your employment.

FERS—If you were married and worked for the federal government for at least 18 months, your surviving spouse may receive a lump sum payment. The lump sum payment (which is called the basic employee death benefit) is an amount equal to one half of your annual pay rate at death or one half of your high-3 average pay, plus an annually-indexed lump-sum amount. If you had 10 years of federal service, your surviving spouse may also qualify for a monthly survivor benefit. The amount of a survivor annuity depends on the age of the disability retiree who died. If death occurred after age 62, the annuity is computed the same as it would be for the survivor of any other retiree; i.e., 50 or 25 percent (whichever the couple elected) of the amount of the annuity before reduction for a survivor benefit election. If the retiree died before age 62, a special computation is used in which the retiree’s earned annuity is increased by the amount of time between retirement and age 62 and the average salary is increased by annual inflation adjustments the annuitant received. The survivor then receives either 50 or 25 percent of that amount as an annuity.

If you die after completing 18 months of civil service, your dependent children may also receive a survivor annuity benefit if they are not receiving Social Security benefits.

Social Security Rules—Social Security may pay survivor benefits to your surviving spouse and dependent children. For your spouse to qualify for benefits, he or she must be age 60, or between the ages of 50 and 59 and disabled, or any age and caring for a child under age 16 or a disabled child. Children may qualify for benefits if they are under age 18 (or under age 19, if in high school) or disabled. Dependent parents and former spouses may also qualify for survivor benefits. The amount of the benefit depends on your Social Security earnings and the number of survivors eligible for benefits. The Social Security spousal benefit may be reduced if the survivor is eligible for benefits based on his or her own employment and that employment was not covered by Social Security (such as employment under CSRS).

A lump sum of $255 is payable to your surviving spouse provided the two of you were living together at the time of your death or he/she is entitled to survivor benefits. If there is no surviving spouse, the lump sum is paid to children who are eligible for benefits. Otherwise, the lump sum is not payable.

Also see Social Security Disability Benefits in Section 9 of this chapter.

Recovery or Restoration of Earning Capacity

After your disability annuity has been approved, OPM may periodically review your eligibility for continued payments. If you are under age 60, OPM may review your eligibility at any time at its discretion.

OPM will contact you and request a current report from your physician concerning the status of the medical condition on which your retirement was based. OPM will also ask for information regarding your current employment status. If you don’t respond to such notices, your annuity may be suspended. Therefore, it is important that OPM be kept current on any changes in your mailing address. You may do this by phone or email, or by sending notification of any address changes to Office of Personnel Management, Retirement Operations Center, P.O. Box 45, Boyers, PA 16017-0045. Include your retirement claim number (CSA number).

You are responsible for paying any expenses involved in answering OPM’s request for medical evidence,

If you are age 60 or older, you can be found recovered from a disability only if you specifically request a review of your own eligibility. 

Your disability annuity will be discontinued at the end of one year from the date of a medical examination or report showing recovery, or upon re-employment in the federal government, whichever comes first. Also see Federal Re-Employment Rules, below.

If you are under age 60, your disability annuity will be discontinued if OPM determines that you are able to earn a certain level of income. Each year, OPM sends a questionnaire to disability annuitants under age 60 to determine their earnings for the previous year. OPM verifies reported earnings with the IRS. All disability annuitants under age 60 are required to complete the survey form, which normally is mailed early in the year. Failure to respond can result in suspension of the annuity.

Under both CSRS and FERS, earning capacity is considered restored if, in any one calendar year, your income from wages and self-employment is at least 80 percent of the current rate of basic pay for the position you held before you retired. That rate is calculated as of December 31 of the year for which the income is being compared. Base pay for this purpose includes the amount of pay subject to retirement deductions, including locality pay, and certain types of premium pay. It does not include bonuses, allowances, overtime pay and various differentials.

If before reaching age 60, you recover from your disability, your annuity payments will be continued temporarily to afford an opportunity to seek re-employment. In cases of recovery, benefits end one year from the date of a medical exam showing recovery. If you are found restored to earnings capacity, your disability annuity payments will end six months from the end of the calendar year in which your income exceeded the 80 percent earnings limitation, or upon re-employment with the federal government, whichever comes first. OPM will notify you in advance of the decision to stop payments, including information on eligibility for any other benefits. Generally, terminations and suspensions of benefits are effective July 1 of each year.

If you are found recovered or restored to earning capacity and are not re-employed in the government in a position under either CSRS or FERS, you will be considered, except for service credit purposes, as involuntarily separated from the service on the date the annuity was discontinued. If you meet the age and service requirements, you will be entitled to either discontinued service retirement or deferred retirement. Your disability annuity can be restored at the same rate in effect when it was terminated: 

• If it stopped because you were restored to earning capacity, it can be reinstated effective the beginning of the year following any calendar year in which your earning capacity fell below the 80 percent figure, provided that the medical condition on which the disability was approved still exists, you were not re-employed in the federal service, were not medically recovered, and are not age 62 or older. If you are 62 or older, you may be entitled to a deferred annuity,

• If your annuity stopped because of recovery from disability, it may be reinstated as of the date of a current medical exam showing that the disability recurred and that the condition is worse than at the date of recovery, provided you were not re-employed in the federal service, were not restored to earning capacity, and are not age 62 or older. If you were age 62 or older, you would be entitled to a deferred annuity.

Federal Re-Employment Rules

If you are a disability retiree whose medical condition has improved, you may apply for re-employment with the federal government for any position for which you are qualified. The law does not require your former employing agency or any other agency to offer you a position. However, if you are found to be recovered or restored to earning capacity, you may be eligible for a job referral under the Interagency Career Transition Assistance Plan, which gives eligible individuals priority for vacancies over other candidates from outside the agency (see Chapter 9, Section 2). The selection priority lasts one year from the date of an OPM letter determining medical recovery or restoration to earning capacity.

Your disability annuity can continue after re-employment only under certain conditions:

• If you are under age 60 and are re-employed in either a position of different tenure or at a lower salary rate from the position from which you retired, you can have your annuity continued, but your salary will be reduced by the amount of the annuity, and the 80 percent earnings limitation remains in effect. The earnings figure used in such calculations is the gross salary for the position, not the reduced amount being received. (If you are under age 60 and are re-employed in a position similar in tenure and pay from the position from which you retired, you will be deemed to be recovered from your disability and your annuity payments will stop.)

• If you are re-employed at age 60 or above, your annuity payments will continue, but your salary will be reduced by the amount of the annuity. There is no limit on the amount of earnings someone aged 60 and above can receive.

As a disability annuitant, you must tell the agency in which you are seeking re-employment that you are a disability annuitant. If you are re-employed, you must notify the Office of Personnel Management, Retirement Operations Center, P.O. Box 45, Boyers, PA 16017-0045.

Taxation of Disability Benefits

There is no federal tax benefit unless the taxpayer is totally disabled for all gainful employment. Since OPM’s decision on your application must be based only on whether you are disabled for your current position, or a vacant position of equal grade or pay, a finding of disability by OPM may not meet the Internal Revenue Service’s criteria for a tax-exempt benefit. If your application is based partly on the belief that civil service disability retirement will result in a tax advantage, you should check with your local Internal Revenue Service office or www.irs.gov for current tax information.

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