United States General Accounting Office

GAO Testimony

Before the Subcommittee on Workforce Protections

Committee on Education and the Workforce

House of Representatives

For Release on Delivery

Expected at

10:00 a.m., EST

Tuesday

Sept. 30, 1997

RECENT GAO REPORTS ON

THE FEDERAL EMPLOYEES’

COMPENSATION ACT

Michael Brostek

Associate Director, Federal Management and

Workforce Issues

General Government Division

GAO/T-GGD-97-187

Summary 

Recent GAO Reports on the Federal

Employees’ Compensation Act

The federal government’s workers’ compensation program is authorized

under the Federal Employees’ Compensation Act (FECA). This program,

which is administered by the Department of Labor, provides employees

suffering from work-related injuries and occupational diseases with

various types of benefits, depending on the nature and extent of the injury

and their ability to return to work. In recent years, GAO has issued reports

on three subjects that are being addressed in today’s FECA oversight

hearings: (1) recovery of “continuation of pay” (COP) benefits in third-party

cases, (2) selected comparisons of FECA provisions with provisions of

other workers’ compensation laws, and (3) issues associated with

changing benefits for older FECA beneficiaries.

In a June 1995 report, GAO recommended that FECA be amended to allow

the government to obtain refunds of COP benefits when injured employees

recover damages from liable third parties. Injured employees are to

continue to receive their regular pay for up to 45 days when they are

absent from work for traumatic injuries. Because of interpretations of FECA

by the Employees’ Compensation Appeals Board and a federal court, the

government no longer has a legal basis to obtain refunds of injured

employees’ COP benefits in third-party injury cases. In effect, these

employees receive a double recovery of income for their first 45 days of

absence from work due to injury.

GAO’s April 1996 report compared FECA provisions with those of other

workers’ compensation laws and identified three principal ways in which

benefits under FECA could be greater than those under other workers’

compensation laws. First, although the formula for calculating benefits

under FECA was similar to most other laws, FECA’s authorized maximum

weekly benefit amount was greater. Second, unlike most states, FECA

provides claimants with a spouse or a dependent with an additional

benefit of 8-1/3 percent of salary. Finally, under other workers’

compensation laws, employees must be out of work for a 3- to 7-day

waiting period before they can receive wage-loss benefits. Under FECA, the

3-day waiting period is preceded by a period of 45 days in which

employees with traumatic injuries continue to receive their regular pay.

GAO’s August 1996 report provided information on (1) selected

characteristics of individuals on FECA’s long-term rolls, 2) views of

proponents and opponents of changing FECA benefits for older

beneficiaries, and (3) questions and issues that Congress might consider if

crafting benefit changes. Of the $1.28 billion in compensation benefits paid

Page 1 GAO/T-GGD-97-187
Summary 

Recent GAO Reports on the Federal

Employees’ Compensation Act

in 1995, about $611 million was paid to beneficiaries on the long-term rolls

who were age 55 and older.

Page 2 GAO/T-GGD-97-187
Statement 

Recent GAO Reports on the Federal

Employees’ Compensation Act

Dear Mr. Chairman and Members of the Committee:

I am pleased to be here today at this Federal Employees’ Compensation

Act (FECA) oversight hearing to discuss three reports we have completed in

the last few years. These reports address (1) the recovery of continuation

of pay (COP) benefits in cases where third-parties were liable for injuries,

(2) selected comparisons of FECA provisions with provisions of other

federal and state workers’ compensation laws, and (3) issues associated

with changing benefits for older FECA beneficiaries.

In the recovery of COP report, we recommended that Congress redefine COP

to preclude injured employees from, in effect, receiving double recoveries

by obtaining both COP benefits from the government and damages from

third parties who were responsible for their work-related injuries. In the

comparisons’ report, we identified and compared the more significant FECA

benefit provisions with the provisions of other federal and state workers’

compensation laws. In our report on issues associated with changing FECA

benefits for older beneficiaries, we identified the views of proponents and

opponents of change and issues that we believe would merit consideration

by anyone crafting legislation to change workers’ compensation benefits

for older beneficiaries.

Background FECA was enacted in 1916 to provide federal employees with workers’

compensation coverage for injuries and diseases sustained while

performing their duties. One of the principal reasons for establishing

workers’ compensation programs was to provide adequate benefits to

injured workers while at the same time limiting employers’ liabilities

strictly to workers’ compensation payments. Payments were to be prompt

and predetermined to relieve employees and employers of uncertainty

over the outcome of court cases and to eliminate wasteful litigation.

Benefits authorized by FECA include payments for (1) loss of wages for an

employee who cannot work because of a work-related disability,

(2) occupational diseases, (3) schedule awards for loss of, or loss of use

of, a body part or function, (4) vocational rehabilitation, (5) death benefits

for survivors, (6) burial allowances, and (7) medical care for injured

workers.

According to Labor’s Office of Workers’ Compensation Programs (OWCP),

in fiscal year 1996, OWCP used the equivalent of 902 full-time staff in

administering FECA. In addition, the agencies for whom injured employees

Page 3 GAO/T-GGD-97-187
Statement 

Recent GAO Reports on the Federal

Employees’ Compensation Act

worked also used their staff to assist OWCP in managing claims. In fiscal

year 1996, about 175,000 workers’ compensation cases were created and

20,400 wage-loss claims were filed. For many employees whose injuries

were not serious, the only FECA benefits that were paid were those that

covered medical expenses.

Recovery of COP

Benefits in

Third-Party Cases

In June 1995, we reported to Senators Joseph I. Lieberman and Thad

Cochran on additional refunds that the government could obtain in

third-party cases if FECA were amended to change the definition of COP.

1

Under FECA, federal agencies are authorized to continue paying their

employees regular salaries for up to 45 days when they are absent from

work due to work-related traumatic injuries. Benefits paid for these 45

days are called COP benefits.

In the case of some injuries, federal employees can receive damages from

third parties who are liable for the injury that caused them to be absent

from work. Common injuries for which third parties might be liable

include dog bites and automobile accidents.

Because of interpretations of FECA by the Employees’ Compensation

Appeals Board (ECAB) and a federal court, the federal government no

longer has a legal basis to obtain refunds of COP benefits paid to injured

employees when they recover damages from third parties who are liable

for their on-the-job injuries. As a result, employees can receive regular

salary payments (i.e., COP) from their employing agencies and

reimbursement from third parties—in effect, a double recovery of income

for the first 45 days that they are absent from work due to injury. In

contrast, employees may not receive double recoveries for medical

expenses or for wage-loss compensation benefits after the 45-day COP

period has expired because FECA provides that the government can recoup

funds for these payments from employees receiving third-party recoveries.

In a June 1985 decision, ECAB held that OWCP could not recover COP benefits

when employees receive damages from responsible third parties, even

though employees could in effect obtain double recoveries for

work-related injuries. ECAB stated that FECA specifically provided that COP

was not compensation, and FECA only required refunds of compensation

benefits in third-party cases.2

 In August 1985, the U.S. Court of Appeals for

1

Federal Employees’ Compensation Act: Redefining Continuation of Pay Could Result in Additional

Refunds to the Government (GAO/GGD-95-135, June 8, 1995).

2

Paul L. Dion, 36 ECAB 656 (1985).

Page 4 GAO/T-GGD-97-187
Statement 

Recent GAO Reports on the Federal

Employees’ Compensation Act

the Ninth Circuit held that FECA established the government’s exclusive

remedy for reimbursement from any damages that federal employees

might recover from third parties and that no common law remedy, such as

equitable subrogation,3

 was available.4

After ECAB’s and the Court of Appeals’ decisions on COP benefits, federal

employees who had previously refunded COP benefits to the government

filed three class action suits to compel the government to repay these

benefits. These lawsuits were either litigated or settled in favor of the

employees. According to a Labor official, the lawsuits provided for the

government to return over $5 million to claimants who had previously

refunded COP benefits to the government.

To preclude employees from, in effect, receiving double recoveries and to

help reduce the costs to the federal government of employees’

work-related injuries caused by third parties, we recommended that

Congress amend FECA to expressly provide for refunds of amounts paid as

COP when employees receive third-party recoveries. Subsection (e) of 5

U.S.C. 8118 of FECA could be amended to provide that COP shall not be

considered compensation “except for the purpose of refunds to the United

States from third-person recoveries pursuant to section 8132 of this title.”

Additionally, to ensure that refunds of COP benefits are returned to the

employing agency that paid them, section 8132 could be amended to

provide that amounts refunded shall be credited to the Employees’

Compensation Fund “except for continuation of pay under section 8118 of

this title, which shall be credited to the employing agency that paid it.”

We estimated the government could recover from $1 to $2 million per year

if FECA was amended to change the definition of COP to allow the

government to obtain refunds of COP benefits in third-party cases. We also

estimated that the Postal Service would realize about 70 percent of these

recoveries.

3

Equitable subrogation is a legal theory, developed in common law courts, which allows one person to

acquire the rights of another person to bring a claim against a third party.

4

Janakes v. U.S. Postal Service, 768 F.2d 1091 (9th Cir. 1985).

Page 5 GAO/T-GGD-97-187
Statement 

Recent GAO Reports on the Federal

Employees’ Compensation Act

Selected Comparisons

of Federal and State

Workers’

Compensation Laws

In April 1996, we issued another report on FECA to Senators Cochran and

Lieberman.5

 In this report, we compared monetary and other significant

benefits authorized by FECA with those authorized under the Longshore

and Harbor Workers’ Compensation Act (the Longshore Act) and state

workers’ compensation laws.

In general, FECA provided the same types of benefits to injured federal

workers as those provided to injured workers covered under other federal

and state workers’ compensation laws. The principal workers’

compensation benefits paid under all of these laws were for wage loss and

medical care. We identified three principal ways in which FECA benefits

differed from those of other workers’ compensation laws. In each of these

cases, benefits available under FECA could be greater than those under the

other workers’ compensation laws.

First, although the formula for calculating benefits under FECA was similar

to the formulas of most other laws (66-2/3 percent of salary), FECA’s

authorized maximum weekly benefit amount was greater. Under FECA, in

1995 the maximum weekly compensation benefit could not exceed $1,274

(75 percent of the maximum base pay of a GS-15, step 10 employee). The

maximum weekly benefit under the Longshore Act was $761. State

maximums ranged from $253 to $817. According to OWCP, as of

September 30, 1995, less than 1 percent of the beneficiaries on the

long-term compensation rolls6

 actually received compensation benefits

based on the authorized maximum benefit amount.

Second, FECA provides claimants who have a spouse and/or dependent

with an additional benefit of 8-1/3 percent of salary. While seven states

authorized additional dependent benefits, increased benefits are generally

for a fixed amount ranging from $5 to $10 per week for a spouse and/or

each child. Increased benefits for dependents are generally provided only

when authorized maximum benefit levels are not exceeded. The

Longshore Act and workers’ compensation laws of the other 43 states and

the District of Columbia do not provide increased compensation benefits

for injured workers with dependents.

Finally, FECA provides eligible federal workers who suffer traumatic

injuries with COP benefits for a period not to exceed 45 days. These are the

5

Workers’ Compensation: Selected Comparisons of Federal and State Laws (GAO/GGD-96-76, Apr. 3,

1996).

6

Injured workers on the long-term (or periodic) rolls are those with permanent disabilities or with

injuries that have lasted or are expected to last for prolonged periods (over 1 year).

Page 6 GAO/T-GGD-97-187
Statement 

Recent GAO Reports on the Federal

Employees’ Compensation Act

COP benefits discussed earlier. After the 45th day, there is a 3-day waiting

period before wage-loss benefits begin. Under the Longshore Act and all

state workers’ compensation laws, injured workers do not receive COP

benefits but can receive wage-loss benefits after they are absent from

work for a 3- to 7-day waiting period. If these workers continue to be

absent from work for specified periods of time, ranging from 5 to 42 days,

they are generally eligible for benefits retroactive to the date of injury. In

cases where employees are not eligible for retroactive wage-loss benefits,

some employers may provide their employees with salary continuation

benefits or may allow them to receive paid sick leave or other types of

leave for days absent from work.

Other differences and similarities exist between FECA and states’ workers’

compensation laws. However, in cases where there are differences, they

do not appear to be as significant as those mentioned above. Examples of

these differences and similarities are described as follows:

• Because FECA’s maximum authorized benefit amount exceeded those of

the other workers’ compensation programs, income replacement rates for

higher-paid federal employees could exceed 100 percent. For example, a

married federal employee living in Virginia earning $60,000 annually who is

injured on the job would be eligible to receive nontaxable FECA benefits of

$45,000. For income replacement rate comparison purposes, this

employee’s take-home pay7

 would be $43,407 ($60,000 less deductions for

(1) FERS benefits ($5,070), (2) state income taxes ($2,813), and (3) federal

income taxes ($8,710). The income replacement rate (FECA benefits divided

by take-home pay) in this case would be nearly 104 percent.

• For some injured federal workers, schedule awards for the permanent

loss, or loss of use, of specific body parts could be higher than the awards

under other workers’ compensation programs because of the higher

maximum weekly benefit amount authorized by FECA.

• In 1995, the maximum burial allowance authorized under FECA was $800.

This benefit was lower than all but one state’s maximum burial allowance.

• Under FECA and in 25 states, injured employees may choose their

physicians. In other states, employees or their employers may select

physicians from state workers’ compensation agency approved lists of

physicians.

7

Actual take-home pay could be different.

Page 7 GAO/T-GGD-97-187
Statement 

Recent GAO Reports on the Federal

Employees’ Compensation Act

Issues Associated

With Changing

Compensation

Benefits for Older

Beneficiaries

In August 1996, we reported to the Chairmen of the House and Senate

Appropriations Committees,8

 on possible changes to FECA benefits for

beneficiaries who are at or beyond retirement age. Our briefing report on

this issue provided (1) a profile of beneficiaries on the long-term FECA

rolls, (2) views of proponents and opponents of changing FECA benefits for

older beneficiaries, and (3) questions and issues that Congress might

consider if crafting benefit changes.

Older FECA beneficiaries make up a high percentage of cases on the

long-term rolls and account for a substantial portion of the FECA benefits

paid for long-term compensation. Sixty percent of the approximately

44,000 long-term beneficiaries receiving compensation benefits in

June 1995 were 55 years of age or older; 37 percent were age 65 or older.

Of the $1.28 billion in compensation benefits paid in 1995, $947 million

went to long-term beneficiaries—those who would most likely be affected

by a change in benefits for older beneficiaries. About $611 million

(64 percent) of the compensation benefits paid to these beneficiaries went

to those age 55 and over. The specific number of older beneficiaries that

could be affected if changes in workers’ compensation benefits were made

is not known because actual retirement eligibility information is not

readily available from FECA records.

For our August 1996 report, we identified widely divergent views that were

held by proponents and opponents of changing benefits for older FECA

beneficiaries. Among the views held by proponents of change were that

“lifetime” wage/salary replacement under FECA is too generous because it

does not reflect the normal progression to lower income that typically

occurs with retirement. Proponents also saw the government’s FECA cost

as being too high, thus putting a strain on agencies’ program budgets.

Opponents of change, in contrast, believed that benefits that replace

wages lost because of a work-related injury are justified because these

benefits have traditionally been considered substitutes for tort action

under the workers’ compensation approach for compensating for

work-related injuries. Under the workers’ compensation approach,

employers are generally liable for complete medical coverage and the

replacement of a substantial portion of injured employees’ wages,

regardless of fault. Employees, in exchange for guaranteed benefits, give

up their rights to sue for recovery of damages based on employers’

8

Federal Employees’ Compensation Act: Issues Associated With Changing Benefits for Older

Beneficiaries (GAO/GGD-96-138BR, Aug. 14, 1996).

Page 8 GAO/T-GGD-97-187
Statement 

Recent GAO Reports on the Federal

Employees’ Compensation Act

negligence. Employees also give up their rights to recover damages from

the employer for pain and suffering.

The opponents of change also said that reducing benefits for older

beneficiaries could be considered age discrimination, and reductions

could cause beneficiaries economic hardships. To the extent that

opponents would agree that FECA is costly, they believed that other

cost-saving measures may be more appropriate, such as keeping

employees off the rolls by implementing better safety programs to prevent

injuries and by more effectively returning injured employees to productive

employment.

Lastly, we identified the following questions and associated issues that we

believe would merit consideration by anyone crafting legislation to change

wage compensation benefits for older beneficiaries:

• What type of changed benefits would be provided? Converting

beneficiaries from FECA to retirement benefits or providing beneficiaries

with a FECA annuity are the two main options proposed in the past. One

proposal for a FECA annuity would reduce FECA benefits by one-third when

beneficiaries were 2 years beyond their retirement eligibility date.

• How would benefits be computed? Converting from FECA to retirement

benefits might involve adjustments to retirement benefits based on factors

such as credit for time on FECA rolls and increases in an employee’s salary

base since the time of injury. Calculating a separate FECA annuity would be

relatively simple.

• Which FECA beneficiaries would be affected? That is, would change affect

all beneficiaries, including those who do not participate in a federal

retirement plan (e.g., Peace Corps volunteers)? Would change only affect

workers injured after the effective date of change or would it also affect

beneficiaries who are currently receiving compensation benefits?

• What criteria would initiate changed benefits? Would age or retirement

eligibility alone trigger the change, or would secondary criteria need to be

considered to protect some employees from economic adversity?

• How would other benefits be treated? The administration of benefits, such

as medical benefits and survivor annuities, may need clarification.

• How would benefits be funded? If beneficiaries were converted from FECA

to retirement benefits, alternatives for funding these benefits may have to

be developed.

Page 9 GAO/T-GGD-97-187
Statement 

Recent GAO Reports on the Federal

Employees’ Compensation Act

Mr. Chairman, this completes my statement. I would be pleased to answer

any questions.

(410191) Page 10 GAO/T-GGD-97-187
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