Analyses of Take-Home Pay Replacement Rates

For the more than 23,250 beneficiaries included in our analyses, we estimated that FECA benefits replaced, on average, over 95 percent of the take-home pay they would have received had they not been injured. Beneficiaries’ estimated take-home pay replacement rates ranged from a low of about 76 percent to a high of 136 percent depending on when they were injured, their pay when injured, and whether they had dependents or lived in a state with an income tax. For beneficiaries who earned higher pay, nontaxable FECA benefits replaced pay that would have been subject to higher tax rates. State Income Taxes Increase Replacement Rates

Replacement rates for beneficiaries who lived in states that taxed income were, on average, an estimated 96 percent compared with about 94 percent for those living in states with no income tax. In estimating replacement rates for beneficiaries with a spouse, we assumed that their spouses did not have taxable income. Career Patterns for Workers in Selected Occupations

We were unable to determine whether beneficiaries’ career progression patterns were affected by their on-the-job injuries. Our analyses showed that about 70 percent of all beneficiaries were over 40 years old when they were injured, and the average adjusted pay of beneficiaries in the selected occupations approximated the average pay of active workers in the same occupations. As of June 1997, about 65 percent were over 55 years old. Figure 2 contains profile information on the percentages of beneficiaries with and without dependents, by age ranges when they were injured and as of June 1997, by amounts of annualized workers’ compensation benefits, and by amounts of pay received at the time of injury adjusted to 1997 pay levels. Of the approximately 78,000 beneficiaries who received compensation benefits for the year ending in June 1997, 51,265 were on OWCP’s long-term rolls. Spousal income. Career Patterns

To obtain information on the career patterns of workers in selected occupations that were the same as the occupations of FECA beneficiaries, we first used occupational code data from OWCP’s automated systems to identify the most frequently coded occupations of FECA beneficiaries. We developed information on beneficiaries’ characteristics for 30,057 beneficiaries—nearly 23,250 beneficiaries for whom we developed replacement rate information and approximately 6,800 of the remaining 11,460 beneficiaries on the long-term rolls who were receiving FECA wage-loss compensation benefits of either 66-2/3 or 75 percent of gross pay. Table II.3 shows that average replacement rates generally increased as beneficiaries’ pay increased. Each of these factors and the extent of their effects are discussed in more detail in the following subsections. Using these deduction amounts and our other assumptions, percentages of pay at the time of injury adjusted to 1997 pay levels replaced by FECA benefits for single beneficiaries and beneficiaries with dependents were 92 and 97 percent, respectively. Likewise, if beneficiaries’ deductions were equal to or greater than their income (thereby owing no tax), the replacement rate for single and married beneficiaries would be about 73 and 82 percent, respectively, because the relationship between take-home pay (gross pay less retirement and Medicaid contributions) and FECA benefits would always be the same. GAO Comments

1.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on workers' compensation benefits for lost wages provided to workers with job-related injuries under the Federal Employees' Compensation Act (FECA), focusing on: (1) the percentages of take-home pay that FECA benefits replaced for beneficiaries on the long-term rolls who were receiving full benefits; (2) career patterns of workers in selected occupations that were the same as the occupations of FECA beneficiaries; and (3) beneficiaries' characteristics such as current age, age when injured, compensation benefits paid in 1997, and pay at the time of injury adjusted to 1997 pay levels.

What GAO Found

GAO noted that: (1) for the more than 23,250 beneficiaries on the long-term rolls for whom GAO developed replacement rates, GAO estimated that FECA benefits replaced, on average, over 95 percent of the take-home pay beneficiaries would have received had they not been injured; (2) estimated replacement rates ranged between about 76 and 136 percent; (3) compensation benefits equaled between an estimated 80 and 99 percent of take-home pay for about 70 percent of these beneficiaries and amounted to 100 percent or more in 29 percent of the cases; (4) under assumptions GAO needed to make to compute beneficiaries' income taxes and retirement contributions, replacement rates tended to be higher for beneficiaries who: (a) received higher amounts of pay before their injury; (b) were injured before 1980; (c) received the FECA dependent benefit; and (d) lived in states with an income tax; (5) using different assumptions to show their effect on replacement rates, beneficiaries with more exemptions or deductions for income tax purposes would have had lower replacement rates because these rates generally decrease as taxable income decreases; (6) beneficiaries with a spouse who had taxable income would have higher replacement rates because replacement rates generally increase as spousal income increases; (7) single and married beneficiaries who had no income subject to income taxes while working--generally those with low incomes--would have replacement rates of about 73 and 82 percent, respectively; (8) GAO's analyses showed that about 70 percent of all beneficiaries were over 40 years old when they were injured, and the average adjusted pay of beneficiaries in the selected occupations approximated the average pay of active workers in the same occupations; (9) GAO was unable to determine the extent to which beneficiaries' career prospects were diminished by their on-the-job injuries because GAO's analyses were limited to readily available data; (10) the career patterns of individuals depended on a multitude of personal employment factors as well as the specific jobs in which individuals are employed, according to agency officials familiar with career patterns of workers; (11) about 65 percent of the 30,000 beneficiaries identified by GAO were over 55 years old, and the average age of beneficiaries was 61, as of June 1997; and (12) in June 1997, their annual compensation averaged $26,220, and their average gross pay at the time of injury adjusted to 1997 pay levels was $34,833.