Disability Retirement vs. FECA Benefits

Chapter 5: Section 6

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 each and must decide whether to draw benefits from one or the other.

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 your disabling disease or injury was job-related, while workers’ compensation benefits are paid only if the disabling condition was job-related.
• You 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 choice between a disability annuity and FECA payments, many disabled employees choose the FECA benefit, primarily because it usually yields a higher amount. 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 your election between workers’ compensation benefits and an annuity is not irrevocable. You may switch between the two systems if it is to your advantage to do so.

You should be aware that your election of one type of benefit could result in some disadvantages. For example, if you file a disability retirement application and are entitled to an annuity, but elect to receive FECA benefits in lieu of an annuity, you are still considered an annuitant. Unless your entitlement to an annuity ends (for example, because of recovery from the disabling condition), upon re-employment with the federal government, you become subject to the rules governing re-employed annuitants. Being subject to these rules may be disadvantageous if you are re-employed at a lower grade or on a part-time basis or do not work long enough to gain eligibility for a supplemental annuity.

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 if you think you might want to return to federal employment after retirement.

Note: There is another consideration if you become disabled after already being eligible for standard optional retirement. You might choose disability retirement instead of standard retirement because you believe 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. See Eligibility Rules for Disability Retirement in Chapter 3, Section 6.

Impact of Separation

If you are leaving federal employment and have applied for workers’ compensation benefits, you also must apply for disability retirement to preserve your annuity rights under CSRS or FERS. If you are found eligible for both FECA benefits and disability retirement, you must then choose between them. Applying for disability retirement benefits is the only way in which your future annuity rights (and your survivors) will be fully protected. Except in cases of mental incompetence, your disability retirement application must be received by OPM within one year of the date you separate 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.

If you are a former employee who is receiving FECA payments and do not file a timely retirement application, you will not be eligible for disability retirement benefits if your workers’ compensation benefits stop. In such cases, you also will not be eligible to temporarily continue health benefits coverage. In addition, your 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, you may want to consider filing a disability annuity application to preserve your survivors’ rights to annuity benefits and continued health insurance coverage. Those benefits might be lost if you die before filing for retirement and if workers’ compensation benefits are not payable to your survivors.

Benefit Payment Procedures

If you are an injured or disabled employee who applies for 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 that you are entitled to workers’ compensation benefits and you elect to receive the FECA payments, you must reimburse OPM for any annuity payments received in the interim. Typically, OWCP will withhold the amount of annuity payments received from your workers’ compensation benefits to reimburse OPM.

If you choose to receive workers’ compensation benefits, OPM will suspend payment of your retirement benefits during the period that FECA benefits are paid. However, if the compensation benefits end for any reason, including your personal choice, OPM will reinstate the annuity if you are still entitled to a disability retirement; i.e., have not recovered from the disability or have 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 you die and your 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 your retirement contributions). However, a FECA benefit will not be reinstated in those circumstances.

Simultaneous FECA and Retirement Payments

You may receive both an annuity and FECA benefits during the same period if:

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

Refunds of Retirement Contributions

If you are separated and are not entitled to an annuity, for example, if you have elected to receive workers’ compensation benefits in lieu of a disability annuity, you may receive a refund of your federal retirement contributions. However, if you do that, you forfeit all annuity rights stemming from the period of service covered by the refund (including survivor benefits), unless you 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 refund of retirement contributions following a FECA award can be risky. While you may believe that a job-related injury is permanent and that FECA benefits will continue for your lifetime, the payment of FECA benefits may be interrupted or ended because of a change in your medical condition, the availability of suitable work, or rehabilitation. Thus, a retirement contribution refund could imperil your 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

If you are on leave without pay (LWOP) while in receipt of FECA benefits, you will receive full credit for the LWOP period in the computation of your annuity (as well as high-3 average salary purposes). Your 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 you as an employee (not annuitant) return to federal service, that portion of the separation when you received FECA benefits is fully creditable for future annuity computation and high-3 average salary purposes.

However, no period of separation, even one in which you 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

Your spouse and dependent children will qualify for compensation death benefits from OWCP if you die 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. A survivor must elect which of the two benefits he or she wishes to receive. Most survivors will choose compensation benefits because compensation normally pays a higher amount.

If electing compensation benefits, they may also elect to receive a lump-sum payment of your 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.)

Note: 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 investments from basic pay, which means that TSP participants must be in active 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 invest in the TSP. They are eligible for post-service TSP withdrawal options.

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