FECA benefits are adjusted annually for cost-of-living   and are neither subject to age restrictions nor taxed. FECA and Retirement under FERS

FECA beneficiaries receive different benefits past retirement age than  workers who retire under a federal retirement system. In addition, Social Security benefits  attributable to federal service are offset by FECA. Proposed FECA Revisions Would Reduce Median Wage Replacement Rates and Increase the Difference between Total-Disability Beneficiaries With and Without a Dependent

Our simulations of the effects of compensating non-USPS and USPS  total-disability beneficiaries at the single rate (regardless of the presence  of dependents) of either 66-2/3 or 70 percent of wages at injury, reduced  the median wage replacement rates. Median wage replacement rates  overall, and within the subgroups we examined, were generally lower  under the 66-2/3 percent compensation proposal. Proposed Single Rates Would Reduce Wage Replacement Rates

Compared to the current FECA program, both proposals reduced 2010  median wage replacement rates for total-disability non-USPS and USPS  beneficiaries, as shown in figure 1. The decreases in the overall median  wage replacement rates were due to the greater proportion of  beneficiaries who had a dependent—73 percent of non-USPS  beneficiaries and 71 percent of USPS beneficiaries. Years of Service Play a Key Role in the Comparison between FECA and FERS Benefits

		Current Median FECA Benefit Packages Exceed 2010 FERS Benefit Packages

According to our retirement simulation comparing current FECA benefits  to FERS benefits, we found that the overall median FECA benefit  package (FECA benefits and TSP annuity) for both USPS and non-USPS  FECA beneficiaries was greater than the current median FERS retirement  benefit package (FERS annuity, TSP annuity, and Social Security). Proposals would Roughly Equalize FECA and FERS Benefit Packages for 2010 Annuitants

Based on our simulation, we found that reducing FECA benefits once  beneficiaries reach retirement age to 50 percent of wages at the time of  injury would result in an overall median for the reduced FECA benefit  package (reduced FECA plus the TSP) that was about 6 percent less  than the median FERS benefit package for non-USPS annuitants. As a result, we conducted a simulation of a “mature” FERS  that was coupled with the assumption that individuals have 30-year  federal careers. Effects of Proposed FECA Revisions on Partial-disability Beneficiaries  Depend on Post-Injury Earning Capacity and Employment Over Time  We found partial-disability beneficiaries to be fundamentally different from  total-disability beneficiaries, as they receive reduced benefits based on  their potential to be re-employed and have work earnings. Effects of Proposals to Reduce FECA at Retirement Age Depend on Whether Partial-Disability Beneficiaries Remain on FECA or Elect OPM Retirement Benefits

We have also found that the proposals to reduce FECA benefits at  retirement age would primarily affect those partial-disability beneficiaries  who continue to receive FECA benefits past retirement age. Since those beneficiaries who elect FERS retirement would not be  affected by the proposed revisions to FECA compensation at retirement  age, the overall effects of the proposals on partial-disability beneficiaries  should be considered in the larger context of retirement options. The beneficiaries in case studies 1, 3, and 7 had potential FERS  benefit packages that were lower than their FECA benefits under  current policy and the proposed revision—they would likely face a  reduction in FECA benefits in retirement under the proposed revision. In table 2, beneficiaries with:  low earning capacities post-injury (case studies 1, 3, and 5) had  FECA benefits that were more favorable than FERS benefits; high earning capacities post-injury (case studies 2 and 4) had FECA  benefits that were less favorable than FERS benefits; and mid-range earning capacities post-injury (case studies 6 and 7) had  FECA benefits whose favorability depended on their total years of  federal service. The proposed reduction may serve as a long- term incentive for partial-disability beneficiaries to return to work,particularly because their initial FECA benefits are lower than those of  total-disability beneficiaries. More specifically, we  assessed the proposed changes by simulating the level of take-home pay  or retirement benefits FECA beneficiaries would have received if they had  not been injured, which provides a realistic basis for assessing how  beneficiaries may be affected. While our  analyses focused on how the median FECA beneficiary might be affected  by proposed changes, it also highlighted how potential effects may vary  for different subpopulations of beneficiaries, which can assist  policymakers as they consider such changes to the FECA program.
Why GAO Did This Study

In 2012, the FECA program provided more than $2.1 billion in wage-loss compensation to federal workers who sustained injuries or illnesses while performing federal duties. Total-disability beneficiaries with an eligible dependent are compensated at 75 percent of gross wages at the time of injury and those without are compensated at 66-2/3 percent. Benefits are adjusted for inflation and are not taxed nor subject to age restrictions. Some policymakers have raised questions about the level of FECA benefits, especially compared to federal retirement benefits. Proposals to revise FECA for future total- and partial- disability beneficiaries include: setting initial FECA benefits at a single rate (66-2/3 or 70 percent of applicable wages at time of injury), regardless of whether the beneficiary has eligible dependents; and converting FECA benefits to 50 percent of applicable wages at time of injuryadjusted for inflationonce beneficiaries reach full Social Security retirement age.
This testimony presents results of GAOs four recent reports on FECA issues. It summarizes (1) potential effects of the proposals to compensate total-disability FECA beneficiaries at a single rate; (2) potential effects of the proposal to reduce FECA benefits to 50 percent of applicable wages at full Social Security retirement age for total-disability beneficiaries; and (3) how partial disability beneficiaries might fare under the proposed changes. To do this work, GAO conducted simulations comparing FECA benefits to income (take-home pay or retirement benefits) a beneficiary would have had absent an injury, and conducted seven case studies of partial disability beneficiaries.

What GAO Found

GAO's simulation found that under the current Federal Employees' Compensation Act (FECA) program, the median wage replacement rate--the percentage of take-home pay replaced by FECA--for total-disability beneficiaries was 88 percent for U.S. Postal Service (USPS) beneficiaries and 80 percent for non-USPS beneficiaries in 2010. GAO also found that proposals to set initial FECA benefits at a single compensation rate would reduce these replacement rates by 3 to 4 percentage points under the 70-percent option and 7 to 8 percentage points under the 66-2/3 percent option. Beneficiaries with dependents would receive reduced FECA benefits under both options. The decreases in wage replacement rates were due to the greater proportion of beneficiaries who had a dependent--over 70 percent of both USPS and non-USPS beneficiaries.
In GAO's simulation comparing FECA benefits to retirement benefits, GAO found that under the current FECA program, the median FECA benefit package for total-disability retirement-age beneficiaries was 37 and 32 percent greater than the median 2010 retirement benefit package for USPS and non-USPS beneficiaries, respectively. This analysis focused on individuals covered under the Federal Employees Retirement System (FERS), which generally covers employees first hired in 1984 or later, and covered about 85 percent of the federal workforce in 2009. GAO also found that the proposal to reduce FECA benefits at the full Social Security retirement age would result in a median FECA package roughly equal to the median FERS retirement package in 2010. However, the median years of service for the FERS annuitants GAO analyzed was about 16 to 18 years, so these simulations did not capture a fully mature retirement system and likely understated the future FERS benefit level. Consequently, GAO also simulated a mature FERS system--intended to reflect future benefits of workers with 30-year careers--and found that the median FECA benefit package under the proposed change would be from 22 to 35 percent less than the median FERS retirement package.
Partial-disability beneficiaries are fundamentally different from total-disability beneficiaries, as they receive reduced FECA benefits based on a determination of their earning capacity. GAO's seven case studies of partial-disability beneficiaries showed that how they might fare under the proposed FECA changes can vary considerably based on their individual circumstances, such as their earning capacity and actual levels of earnings. For example, among GAO's case studies, those beneficiaries with high earning capacities may elect to retire under FERS and would likely not be affected by the proposed FECA reduction at retirement age because their potential retirement benefits were substantially higher than their current or proposed reduced FECA benefit levels. In contrast, those beneficiaries with low earning capacities had potential retirement benefits that were lower than their current FECA benefits and the proposed FECA reduction at retirement age would reduce their FECA benefits.