At the time of their injuries, 43 percent of   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 of either 66-2/3 or 70  percent of wages at injury, regardless of the presence of dependents,  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

As we reported in 2012, 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. In contrast, 2 out of  5 non-USPS beneficiaries would have had less than 10 percent income  growth, absent an injury. 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 the retirement simulations from our 2012 reports 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). Specifically, the median FECA benefit package for non- USPS beneficiaries was 32 percent greater than the current median  FERS—and 37 percent greater for USPS FECA beneficiaries. Proposals Would Roughly Equalize FECA and FERS Benefit Packages for 2010 Annuitants

Based on the simulations we conducted for our 2012 reports, 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  is about 6 percent less than the median FERS benefit package for non- USPS annuitants. Under our simulation for USPS annuitants, the reduced  FECA benefit package would be approximately equal to the median 2010  FERS benefit package. 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

As we reported in 2012, partial-disability beneficiaries are fundamentally  different from total-disability beneficiaries, as they receive reduced  benefits based on their potential to be re-employed and have work  earnings. However, the beneficiary’s  total income comparisons under the current FECA program and the  proposals were over 30 percentage points lower than those of the  beneficiary in case study 3 who had the lowest total income comparisons  of those beneficiaries with actual earnings LWECs. 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. 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. We have also found that partial-disability beneficiaries who choose to  remain on FECA past retirement age currently face lower FECA benefits  in retirement as compared with total-disability beneficiaries, and would  experience a reduction in benefits under the proposals. 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

The FECA program, administered by the Department of Labor, provides wage-loss compensation to federal workers who sustained injuries or illnesses while performing federal duties. Benefits are adjusted for inflation and are not taxed nor subject to age restrictions. Initial FECA benefits are set at 75 percent of gross wages at the time of injury for beneficiaries with eligible dependents and 66-2/3 for those without. Some policymakers have raised questions about the level of FECA benefits, especially compared to federal retirement benefits. Prior proposals to revise FECA for future total- and partial-disability beneficiaries have included: setting initial FECA benefits at a single rate, regardless of whether the beneficiary has eligible dependents; and converting FECA benefits to 50 percent of applicable wages at time of injury—adjusted for inflation—once beneficiaries reach full Social Security retirement age.
This testimony presents results from GAO reports issued in fiscal year 2013. 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. For this work, GAO conducted simulations for USPS and non-USPS beneficiaries comparing FECA benefits to income (take-home pay or retirement benefits) a beneficiary would have had absent an injury and conducted case studies of partial-disability beneficiaries.

What GAO Found

In 2012, GAO ran simulations to analyze proposals—similar to a proposal discussed in the Department of Labor's 2016 budget justification—to set initial Federal Employees' Compensation Act (FECA) benefits at a single compensation rate. GAO found that the proposals reduced the median wage replacement rates—the percentage of take-home pay replaced by FECA—for total-disability beneficiaries. Specifically, according to GAO's simulation, in 2010 under the existing FECA program, the median wage replacement rates were 88 percent for U.S. Postal Service (USPS) beneficiaries and 80 percent for non-USPS beneficiaries. The proposal to use a single rate of 70 percent to compensate both those with and without dependents would reduce the beneficiaries' median wage replacement rates by 3 to 4 percentage points. The proposal to use a single rate of 66-2/3 percent would reduce the beneficiaries' median wage replacement rates by 7 to 8 percentage points.
The simulations for GAO's 2012 reports also found that proposals to reduce FECA benefits upon reaching Social Security retirement age would reduce beneficiaries' retirement income, bringing the median FECA benefits on par with or below the median retirement incomes individuals would have received absent their injuries. In simulations comparing FECA benefits to retirement benefits—both in 2010—GAO found that under the existing 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. GAO 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 2010 FERS retirement package. However, the median years of service for the FERS annuitants GAO analyzed were 16 to 18 years—which did not constitute a mature FERS system—so these simulations understated the future FERS benefit level. GAO then simulated a mature FERS system—intended to reflect benefits of workers with 30-year careers—and found that the median FECA benefit package under the proposed change would be 22 to 35 percent less than the median FERS retirement package.
The potential effects of the proposed changes to FECA on partial-disability beneficiaries would vary based on individual circumstances. Partial-disability beneficiaries differ fundamentally from total-disability beneficiaries, as they receive reduced FECA benefits based on a determination of their post-injury earning capacity. GAO's seven case studies of partial-disability beneficiaries showed variation based on characteristics such as earning capacity and actual earnings. For example, beneficiaries with high earning capacities based on actual earnings might elect to retire under FERS if their potential retirement benefits were higher than their current or reduced FECA benefit levels. They would, thus, not be affected by the proposed changes. In contrast, those beneficiaries with low earning capacities who might remain on FECA past retirement age would have their benefits reduced under the proposed change.