Federal Employees' Compensation Act: Analysis of Proposed Changes on USPS Beneficiaries

What GAO Found

Under our simulation, compensating all USPS FECA beneficiaries at 70 percent of wages at the time of injury reduced the overall median wage replacement rate—the percentage of take-home pay replaced by FECA—from 88 to 84 percent. In comparing wage replacement rates of those beneficiaries with and without a dependent, we found that beneficiaries with an eligible dependent had a median wage replacement rate that was 3 percentage points greater than that of beneficiaries without a dependent under current FECA. The proposed revision increased the magnitude and reversed the direction of this difference. Beneficiaries with an eligible dependent had a median wage replacement rate that was 8 percentage points less than that of beneficiaries without a dependent.

With regard to Labor’s proposal to reduce FECA benefits at Social Security retirement age, we found that in 2010, the median FECA benefit package (FECA and TSP) was 37 percent higher than the median current FERS benefit package (FERS, TSP, and Social Security) and that Labor’s proposal would result in the reduced FECA package being roughly equal to the FERS package for 2010 USPS annuitants. Our final simulation of a mature FERS system—intended to reflect future benefits of federal workers with 30-year careers—found that the median FECA benefit package was 13 percent greater or 4 percent less than the median FERS retirement benefit package, depending on TSP contributions. Under the mature FERS simulation, the median reduced FECA benefit was 22 or 29 percent less than the median FERS benefit package, again depending on TSP contributions.

Why GAO Did This Study

In 2010, the Federal Employees' Compensation Act (FECA) program paid $1.9 billion in cash benefits to federal workers who sustained injuries or illnesses while performing federal duties. The U.S. Department of Labor (Labor) administers FECA and bases FECA benefits on an employee's wages at the time of injury and whether the employee has eligible dependents. In addition, consideration is given to the beneficiary's ability to work after the injury. Specifically, beneficiaries unable to return to work--total disability beneficiaries--who have an eligible dependent are compensated at 75 percent of gross wages at the time of injury and those without an eligible dependent are compensated at 66-2/3 percent. These 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 the retirement benefits under the Federal Employees Retirement System (FERS), which generally covers employees first hired in 1984 or later. A proposal by Labor to revise FECA includes the following changes to the benefits for future total and partial disability beneficiaries:

• Set initial FECA benefits at a single rate (70 percent of applicable wages at time of injury), regardless of whether the beneficiary has eligible dependents.

• Convert FECA benefits to 50 percent of applicable wages at time of injury--adjusted for inflation--once beneficiaries reach the full Social Security retirement age.

A large proportion of FECA beneficiaries were employed by the U.S. Postal Service (USPS) at the time of their injury--43 percent of 2010 FECA beneficiaries were USPS employees. To consider the effects of these proposed changes on USPS FECA beneficiaries, we evaluated (1) What would be the effect of compensating total disability USPS FECA beneficiaries at a single rate regardless of having dependents, as proposed by Labor? and (2) How would FERS and total disability FECA benefits in retirement compare for USPS beneficiaries under current FECA and Labor's proposed FECA revision?

To address our objectives, we conducted simulations to compare FECA benefits with (1) actual take-home pay in 2010, and (2) actual FERS benefits in 2010. We limited the analysis in this report to FECA beneficiaries who were employed by USPS at the time of injury, USPS workers, and USPS annuitants covered under FERS. We examined the effects of the proposed FECA revisions on those FECA beneficiaries who were considered to be totally disabled, i.e., they had no wage earning capacity. FECA benefits were not designed to increase at a rate comparable to pay increases an individual could have received through step increases or promotions (career growth) if he or she had never been injured. However, our analysis factors in career growth to provide a comparison between FECA benefits and the take-home pay the beneficiary could have received, absent an injury.

For information, contact Andrew Sherrill at (202) 512-7215 or sherrilla@gao.gov.