Federal Employees' Compensation Act:

Benefit Adjustments Needed To Encourage Reemployment and Reduce Costs

HRD-81-19: Published: Mar 9, 1981. Publicly Released: Mar 9, 1981.

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The increasing number of long-term disabled beneficiaries under the Federal Employees' Compensation Act, together with increased benefits and changes in economic conditions, have caused program costs to increase sharply. A review was undertaken to determine: (1) whether benefits under the act are adequate and equitable compensation for wages lost by federal employees because of their on-the-job injuries, while providing an economic incentive for them to be rehabilitated and return to work; and (2) the kinds of claimants being compensated for long-term disabilities and their chances and incentives for returning to work.

The high compensation structure under the act provides little financial incentive for injured employees to return to work as originally intended by Congress. In some instances, benefits are higher than preinjury take-home pay. One cause of the high level of federal workers' compensation benefits is the rate at which benefits are paid; 66.7 percent of gross salary for beneficiaries without dependents and 75 percent for those with one or more dependents. Since many long-term disabled beneficiaries are close to or beyond the average age when most federal employees retire and have extremely limited employment possibilities, they are, in effect, retired. The Department of Labor drafted proposed legislation which would: (1) subject federal workers' compensation benefits to federal income tax; (2) eliminate increased benefits for dependents; and (3) provide for the transfer of beneficiaries to the Civil Service retirement program.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Labor's fiscal year (FY) 1984 proposal called for studies over the next 5 years that would deal with benefit inequities including, those that relate to retirement issues. However, this proposal was not enacted. Action on these matters are not likely in the near future.

    Matter: Congress should integrate the federal workers' compensation and federal retirement programs to provide for the transfer of compensation beneficiaries to the retirement program within 3 years of the time the employee would be eligible to retire. This would help ensure that the act's objectives are accomplished and better define the roles and responsibilities of these programs.

  2. Status: Closed - Not Implemented

    Comments: Action on tax workers' compensation benefits is not likely. Current tax reform legislation does not address this issue.

    Matter: Congress should make federal workers' compensation benefits subject to federal income taxes and reconsider at what level federal workers' compensation benefits should be set, probably near the original 66-2/3 percent level, to lessen inequities among beneficiaries and to reestablish the original congressional intent of providing economic incentives to return to work. At whatever level decided upon, Congress should incorporate a single percentage, as this will eliminate the increased benefits for dependents.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: Labor is unlikely to revise its legislative proposal to transfer compensation beneficiaries to the retirement rolls at age 65. Labor's FY 1984 proposals call for studies over the next 5 years to deal with benefit inequities including those that relate to retirement issues.

    Recommendation: The Secretary of Labor should revise Labor's legislative proposals integrating these programs, to provide for the transfer of compensation beneficiaries to the retirement program within 3 years of the time the employee would be eligible to retire, rather than at Labor's presently proposed 65 years of age.

    Agency Affected: Department of Labor

  2. Status: Closed - Not Implemented

    Comments: Changes proposed by Labor are not likely to be acted on in the near future.

    Recommendation: The Secretary of Labor should revise the Department's proposals to delete the increase in benefits from 66-2/3 and 75 percent to 80 percent and reconsider at what level federal workers' compensation benefits should be set, probably near the original 66-2/3 percent level established by Congress. At whatever level decided upon, Labor should retain a single percentage as now proposed, as this will eliminate the increased benefits for dependents.

    Agency Affected: Department of Labor

 

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