The Choice of FERS Disability Retirement or Workers’ Compensation

The federal government allows employees who are unable to work due to either mental or physical conditions to retire under what is called FERS disability retirement. Since it is in the best interest of both an employee and the federal government for an employee to remain gainfully employed as long as the employee can provide useful and efficient service, disability retirement should be considered as a last option. Disability retirement should be used only when attempts have been made to preserve an employee’s federal employment, and those attempts have failed.

This is the second of several columns presenting the rules for FERS disability retirement and discusses a FERS-covered employee’s electing either disability retirement or receiving workers’ compensation benefits. In some situations, a FERS-covered employee may be eligible to receive both a FERS disability annuity and workers’ compensation benefits. Whether or not the employee may receive these benefits concurrently depends on the type of compensation paid by the Department of Labor’s Office of Workers’ Compensation Program (OWCP).

It is important that an employee who feels he or she is disabled for one reason or another that the employee apply for FERS disability retirement and workers’ compensation benefits simultaneously, even if it appears that workers’ compensation benefits would be greater. In so doing, it protects the rights of:

(1) The employee in case the OWCP cuts back or eliminates workers’ compensation benefits; and
(2) Potential FERS survivor benefits in the event of the employee’s death.

“Non-scheduled” and “Scheduled” OWCP Awards

The OWCP will pay eligible employees compensation for the loss of earnings as a result of injury or other reasons. This is called a “non-scheduled” award. If an employee receives a non-scheduled award, then a FERS disability annuity and workers’ compensation benefit may not be received simultaneously. The employee may elect the benefit that provides the greater advantage.

The OWCP also pays a “scheduled” award on eligible employee compensation for the loss of the use of a body part, a result of a workplace accident. An employee who receives a schedule award may receive a disability annuity and workers’ compensation simultaneously.

In addition to scheduled awards, the general restriction of receiving both a FERS disability annuity and workers’ compensation benefit is subject to the following exceptions:

· Employees who have received a lump sum payment in conjunction of a “nonscheduled” compensation award may elect to receive a FERS disability annuity. However, these employees must return to the OWCP any portion of the lump sum that is based on any period extending beyond the effective date of the FERS disability annuity election. The Department of Labor determines the applicable period.

· An employee eligible for both a FERS disability annuity and workers’ compensation for work-related injuries, and whose compensation is suspended upon receipt of a financial settlement from the party directly responsible for the injury, may receive the FERS disability annuity during the compensation period covered by the third party’s settlement. This is because the employee is not receiving workers’ compensation.

If a FERS disability annuitant elects to receive workers’ compensation payments, the FERS disability annuity is suspended. If workers’ compensation benefits are discontinued for any reason, the disability annuitant is then entitled to renew the disability annuity upon notifying OPM of the termination of the OWCP benefits.

A FERS employee who elects to receive OWCP benefits in place of a FERS disability annuity is entitled to receive a lump-sum payment of contributions he or she made to the FERS Retirement and Disability Fund. These contributions were made via payroll deductions every pay period and are equal to:

(1) 0.8 percent of an employee’s bi-weekly wages (FERS employees hired before January 1, 2013),
(2) 3.1 of an employee’s bi-weekly gross wages (FERS employees hired during calendar year 2013); and
(3) 4.4 percent of an employee’s bi-weekly gross wages (FERS employee’s hired after December 31, 2013). If the employee applies for and receives a refund of his or her FERS contributions, the rights to a FERS annuity and to a FERS survivor annuity are lost. The only way the employee can receive a FERS annuity in retirement would be to re-enter federal service and redeposit the withdrawn FERS contributions including interest charges.

A FERS employee receiving OWCP benefits must notify the Office of Personnel Management promptly of any change in the reason for a compensation award. For example, the OWCP benefit is changed from a “scheduled” award to a “non-scheduled” award. The employee will be liable for any overpayment of a FERS disability annuity that occurs due to dual payment of benefits while receiving a non-scheduled award.

Benefits to a Surviving Spouse

FERS survivor benefits are payable under workers’ compensation only if the employee’s death is caused by the injuries for which compensation is being or could be paid. A surviving spouse who is not eligible for death compensation benefits from the OWCP may be eligible to receive a FERS survivor annuity. This is assuming the surviving beneficiary is eligible for such benefits and that the deceased employee had applied for and had been awarded retirement benefits even if the annuity was suspended for receipt of workers’ compensation.

However, the law prohibits concurrent receipt of death compensation benefits from the OWCP and FERS survivor benefits. The survivor must elect which of the two benefits to receive. The exception is that an eligible survivor annuitant may receive a “scheduled” award or a third-party settlement and a FERS survivor annuity covering the same period of time. If the former employee was receiving workers’ compensation at the time of death but had not made a timely application for disability retirement, no FERS survivor annuity will be paid.