Federal Employees' Compensation Act: Analysis of Benefits Associated with Proposed Program Changes
Released: 2015-05-20T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: 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.

section_title: What GAO Found
paragraphs: 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.

section_title: Letter
paragraphs: I am pleased to be here today to discuss our work on proposed changes  to benefit levels in the Federal Employees’ Compensation Act (FECA)  program. In fiscal year 2013, we issued three reports on how proposed  changes would affect FECA beneficiaries covered under the Federal  Employees Retirement System (FERS), and earlier issued a report that  examined the characteristics and income of FECA beneficiaries in  comparison to retired annuitants under the Civil Service Retirement  System (CSRS). Around the same time of our work on benefit levels  under proposed changes, we also issued a report on improper payments  in the FECA program.

The FECA program pays cash benefits to federal workers who sustain  injuries or illnesses while performing federal duties. The U.S.  Department of Labor (DOL) administers FECA and, according to DOL,  the FECA program paid about $2 billion in wage loss benefits in fiscal  year 2012. DOL’s Office of Workers’ Compensation Programs estimated  that future actuarial liabilities for government-wide FECA compensation  payments to those receiving benefits as of fiscal year 2012 would total  over $34 billion (this amount does not include any costs for workers  added to the FECA rolls in future years); the U.S. Postal Service  represents over 40 percent (approximately $14.4 billion) of these  estimated liabilities.

DOL 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. As of September 30, 2013, about  89 percent of the federal workforce—not including workers in the Postal  Service (USPS) or other agencies not covered by the Central Personnel  Data File—was covered by FERS.

The 2016 congressional budget justification for the Office of Workers’  Compensation Programs (OWCP) includes a discussion of a legislative  proposal to reform certain aspects of the FECA program. For example, to  reduce improper payments, the legislative proposal would authorize DOL  to cross-match FECA records with Social Security records without  obtaining claimant authorization. In addition, according to the budget  justification, the legislative proposal would prospectively provide a uniform  wage loss compensation rate of 70 percent of applicable wages and  convert retirement-age beneficiaries to a retirement level conversion  benefit. In 2012—at the time of our work—similar proposals to revise  FECA included the following changes to the benefits for future total and  partial-disability beneficiaries:

Set initial FECA benefits at a single rate (either 66-2/3 or 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.

My statement today will focus on our findings regarding (1) the potential  effects of the proposals to compensate total-disability FECA beneficiaries  at a single rate regardless of having dependents; (2) the potential effects  of the proposal to reduce FECA benefits for total-disability beneficiaries to  50 percent of applicable wages at Social Security retirement age; and (3)  how partial-disability beneficiaries might fare under the proposed  changes. This statement is drawn primarily from our three prior reports  issued in fiscal year 2013 which analyzed the effects of proposed  changes to FECA.

To consider the effect of compensating total-disability FECA beneficiaries  at the single rate of either 66-2/3 or 70 percent, we conducted simulations  that compared the extent to which FECA and the proposed revision would  replace a FECA beneficiary’s take-home pay by analyzing a set of federal  employees who had never been injured and who were employed at the  end of fiscal year 2010.us to capture the counterfactual of having never been injured and use it to   We used a matching methodology, which allows  benchmark the adequacy of benefits. We conducted separate  simulations for non-USPS and USPS beneficiaries because their data  were organized differently in separate databases and the USPS FECA  population is substantial—43 percent of FECA beneficiaries in 2010 were  employed by USPS at the time of injury. Once we matched the FECA  beneficiaries to the relevant set of federal workers, we calculated their  hypothetical FECA and hypothetical revised FECA benefits, and projected  these initial benefits to 2010.

We calculated the proportion of 2010 take- home pay replaced by the simulated FECA benefit, or wage replacement  rate.

By using 2010 take-home pay, we factored in missed career growth into  the wage replacement rates we calculated. Although FECA was not  designed to compensate for missed career growth, we used a matching  methodology that allowed us to measure the adequacy of benefits with  respect to the counterfactual. Specifically, we captured the extent to  which FECA beneficiaries are able to maintain the standard of living they  would have had absent an injury.

To compare FERS to total-disability FECA benefits, we also relied on a  matching technique, and conducted our analysis for both the current  FECA program and the proposal to reduce benefits at full retirement  age. We projected simulated FECA benefits to 2010 and compared  these FECA benefits, supplemented by a Thrift Savings Plan (TSP)  annuity, to the actual FERS benefit packages. The FERS benefit  package includes the FERS annuity, Social Security benefits, and TSP  annuities. However, FERS had only been in place 26 years in 2010, so  we did not capture a fully mature system. To capture future FECA  beneficiaries, we conducted another simulation to account for a mature  FERS. In this simulation, we examined the effects of missing part of a 30- year career due to injury.

To determine the effects on partial-disability beneficiaries, we used  different methods to analyze how they might fare under proposed FECA  revisions. We did not conduct the types of simulations we used for total- disability beneficiaries, in part because DOL does not keep data about  their total income (including any earnings) in an electronic database.  Instead, we reviewed partial-disability beneficiary case files to examine  how their post-injury employment outcomes varied (e.g., re-employed by  the federal government, re-employed in the private sector, or  unemployed) and changed over time and judgmentally selected 7  beneficiaries to present as case studies. The results from these case  studies are not generalizable to all partial-disability beneficiaries, but  provide insights.

A more detailed description of our scope and methodology can be found  in each of the reports cited in this statement. The work on which this  testimony was based was conducted in accordance with generally  accepted government auditing standards. Those standards require that  we plan and perform the audit to obtain sufficient, appropriate evidence to  provide a reasonable basis for our findings and conclusions based on our  audit objectives. We believe that the evidence obtained provides a  reasonable basis for our findings and conclusions based on our audit  objectives.
subsections: section_title: Background
paragraphs: FECA provides cash and other benefits to eligible federal employees who  suffer temporary or permanent disabilities resulting from work-related  injuries or diseases. DOL’s Division of Federal Employees’ Compensation  in the Office of Workers’ Compensation Programs (OWCP) administers  the FECA program and charges agencies for whom injured employees  worked for benefits provided. These agencies subsequently reimburse  DOL’s Employees’ Compensation Fund from their next annual  appropriation. FECA benefits are adjusted annually for cost-of-living  increaseshas large FECA program costs. At the time of their injuries, 43 percent of   and are neither subject to age restrictions nor taxed. USPS  FECA beneficiaries in 2010 were employed by USPS, as shown in table  1.

One way to measure the adequacy of FECA benefits is to consider wage  replacement rates, which are the proportion of pre-injury wages that are  replaced by FECA. Wage replacement rates that do not account for  missed career growth capture the degree to which a beneficiary is able to  maintain his or her pre-injury standard of living whereas wage  replacement rates that account for missed career growth capture the  degree to which a beneficiary is able to maintain his or her foregone  standard of living (i.e., standard of living absent an injury). Data limitations  can preclude calculating wage replacement rates that account for missed  career growth; however, doing so provides a more complete story of the  comparison between an injured worker and his or her counter-factual of  having never been injured. Wage replacement rates can be targeted by  policymakers; however, there is no consensus on what wage replacement  rate policies should target.
subsections: section_title: FECA and Retirement under FERS
paragraphs: FECA beneficiaries receive different benefits past retirement age than  workers who retire under a federal retirement system. Specifically, under  FERS, federal retirees have a benefit package comprised of three  components: the FERS annuity, which is based on years of service and  high-3 average pay; the TSP, which is similar to a 401(k); and Social  Security benefits. FECA benefits do not change at retirement age and beneficiaries cannot receive a FERS annuity and FECA benefits  simultaneously. In addition, FECA beneficiaries cannot contribute to their  TSP accounts post-injury, but they can receive benefits from contributions  made to their TSP accounts prior to being injured. In addition, Social  Security benefits attributable to federal service are offset by FECA.

section_title: Partial and Total-disability
paragraphs: If an individual has a disability and no current capacity to work, OWCP  determines that he or she is a total-disability beneficiary and calculates  long-term FECA benefits as a proportion of the beneficiary’s entire  income at the time of injury.  In 2010, 31,880 FECA beneficiaries  received long-term total-disability cash benefits.

Alternatively, if an individual recovers sufficiently to return to work in some  capacity, OWCP determines that he or she is a partial-disability  beneficiary and reduces his or her FECA benefits from the total-disability  amount. For such partial-disability beneficiaries, OWCP calculates long- term benefits based on any loss of wage earning capacity (LWEC), as  compared to their pre-injury wages. A beneficiary’s LWEC may be  based on the difference between their pre-injury wages and their actual  post-injury earnings if the beneficiary has found employment that OWCP  determines to be commensurate with their rehabilitation. Alternatively,  OWCP may construct a beneficiary’s LWEC based on the difference  between pre-injury wages and OWCP’s estimate of what the FECA  beneficiary could earn in an appropriate job placement (constructed  earnings). In 2010, 10,594 FECA beneficiaries received long-term partial- disability cash benefits.

section_title: FECA Operations
paragraphs: In addition to our work on FECA benefit levels, we have also conducted  work on program integrity and management. We have identified several  weaknesses in these areas. Most recently, in April 2013, we found  examples of improper payments and indicators of potential fraud in the  FECA program, which could be attributed, in part, to oversight and data- access issues. For example, we found cases where, in comparison to  state wage data reports, individuals underreported their employment  wages to DOL. Underreporting earnings could result in overpayments of  FECA benefits. DOL did not have access to wage data to corroborate the  self-reported incomes. Because of this limitation, we included a matter for  congressional consideration, stating that Congress should consider  granting DOL additional authority to access wage data to help verify  claimants’ reported income and help ensure the proper payment of  benefits. Congress has not yet passed legislation to give DOL additional  authority to access wage data. We also found that, although some FECA  claimants may be eligible to receive both FECA and unemployment  insurance benefits, DOL did not have a process to share the necessary  data to help the states identify overlapping payments. We recommended  that the Secretary of Labor assess the feasibility of developing a cost- effective mechanism to share FECA compensation information with  states. DOL agreed with the recommendation and has taken steps to  develop a cost-effective mechanism to share FECA compensation  information with states, but has not completed its efforts. Specifically, in  August 2014, a DOL official stated that the agency’s Office of Workers’  Compensation Programs and Office of Unemployment Insurance are  working with DOL’s Office of the Solicitor to develop agreements that  would allow DOL to provide information on FECA compensation to states  for use in determining unemployment benefits. When completed, these  actions should help states to identify whether claimants are  inappropriately receiving overlapping UI and FECA payments.

section_title: Proposed FECA Revisions Would Reduce Median Wage Replacement Rates and Increase the Difference between Total- Disability Beneficiaries With and Without a Dependent
paragraphs: 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.
subsections: section_title: Proposed Single Rates Would Reduce Wage Replacement Rates
paragraphs: 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. The  decreases in the overall median wage replacement rates were due to the  greater proportion of beneficiaries who had a dependent—73 percent of  non-USPS beneficiaries and 71 percent of USPS beneficiaries.  Beneficiaries with a dependent received lower compensation under both  proposals whereas beneficiaries without a dependent saw their  compensation increase or stay the same.

As shown in the middle group of bars in figure 1, the results of our  simulation indicate that median wage replacement rates for USPS  beneficiaries were generally higher than those for non-USPS  beneficiaries. In both cases, the wage replacement rates account for  missed income growth, as they are simulated based on 2010 take-home  pay. All else equal, FECA beneficiaries who would have experienced  more income growth—from the time of injury through 2010—had lower  wage replacement rates than did those beneficiaries who would have  experienced less income growth absent their injury. In general, USPS  beneficiaries missed less income growth due to their injury than did non- USPS beneficiaries. Consequentially, USPS beneficiaries had higher  wage replacement rates than non-USPS beneficiaries. For example, 4 out  of 5 USPS beneficiaries in our analysis would have had less than 10  percent income growth had they never been injured. In contrast, 2 out of  5 non-USPS beneficiaries would have had less than 10 percent income  growth, absent an injury.

Under our simulations, both proposals increased the difference in wage  replacement rates between beneficiaries with and without a dependent,  increasing the magnitude and reversing the direction of the difference in  median wage replacement rates, as shown in figure 2. Had we been able  to account for the actual number of dependents, beneficiaries with  dependents would have had lower wage replacement rates and thus the  difference between median wage replacement rates would have been  smaller under FECA and larger under both proposals.

For other beneficiary subgroups we examined for our 2012 reports, the  proposals did not reduce wage replacement rates disproportionately to  the reduction in the overall median. However, we found that under the  current FECA program and both proposals, wage replacement rates for  some beneficiaries, such as those who, due to injury earlier in their  careers, missed out on substantial income growth, were substantially  lower than the overall median. FECA was not designed to account for  missed income growth and thus total-disability beneficiaries who missed  substantial income growth had lower wage replacement rates— outweighing the cumulative effect of FECA’s annual cost of living  adjustments—as shown in figure 3.

section_title: Years of Service Play a Key Role in the Comparison between FECA and FERS Benefits
subsections: section_title: Current Median FECA Benefit Packages Exceed 2010 FERS Benefit Packages
paragraphs: 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. This  implies that in retirement, FECA beneficiaries generally had greater  income from FECA and their TSP in comparison to the FERS benefits  they would have received absent an injury.

section_title: Increased Years of Service Were Associated with Increased FERS Benefits Relative to FECA Benefits for 2010 Annuitants
paragraphs: As we reported in 2012, although the overall median FECA benefit was  substantially higher than the median FERS benefit for 2010 annuitants,  the difference between the two varies based on years of service. Our  simulation showed that median FECA benefit packages were consistently  greater than median FERS benefit packages across varying years of  service; however, the gap between the two benefits narrowed as years of  service increased. This occurred in large part because FERS benefits  increase substantially with additional years of service. For example, under  our simulation non-USPS beneficiaries whose total federal career would  have spanned less than 10 years had a median FECA benefit that was  about 46 percent greater than the corresponding FERS benefit. In  contrast, non-USPS beneficiaries whose total federal career would have  spanned 25 to 29 years had a median FECA benefit that was 16 percent  greater than the corresponding FERS benefit. For USPS beneficiaries,  those whose total federal career would have spanned less than 10 years  had a median FECA benefit that was about 65 percent greater than the  corresponding FERS benefit, while beneficiaries whose total federal  career would have spanned between 20 and 24 years had a median  FECA benefit that was 23 percent greater than the corresponding FERS  benefit.

section_title: Proposals Would Roughly Equalize FECA and FERS Benefit Packages for 2010 Annuitants
paragraphs: 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. This implies that under the proposed reduction,  both USPS and non-USPS FECA beneficiaries would have similar  income from their FECA benefit package in comparison to their foregone  FERS benefit.

In addition, under our simulation reduced FECA benefits were similar or  less than FERS benefits across varying years of service. However, as  years of service increase, the gap between the two benefits widened. For  example, we found that non-USPS beneficiaries whose total federal  career would have spanned less than 10 years had a median reduced  FECA benefit that was about 2 percent greater than the corresponding  FERS benefit. In contrast, those non-USPS beneficiaries whose total  federal career would have spanned 25 to 29 years had a median reduced  FECA benefit that was 19 percent less than the corresponding FERS  benefit. Similarly, USPS beneficiaries whose total federal career would  have spanned less than 10 years had a median reduced FECA benefit  that was about 13 percent greater than the corresponding FERS benefit.  In contrast, USPS beneficiaries whose total federal career would have  spanned 25 to 29 years had a median reduced FECA benefit that was 20  percent less than the corresponding FERS benefit.

section_title: Median Reduced FECA Benefit Packages Would Likely Be Less Than Median FERS Benefit Packages for Federal Annuitants with 30-Year Careers
paragraphs: When we conducted simulations for our 2012 reports, FERS had only  been in place for 26 years in 2010, and therefore our simulation did not  capture the “mature” FERS benefit that an annuitant could accrue with  more years of service. Consequently, it is likely that our analysis  understated the potential FERS benefit when we considered 2010 benefit  levels. As a result, we conducted a simulation of a “mature” FERS that  was coupled with the assumption that individuals have 30-year federal  careers. Based on this simulation, we found that the median current  FECA benefit packages for non-USPS beneficiaries were on par or less  than the median FERS benefit package—depending on the amount an  individual contributes toward their TSP account for retirement. As shown  on the right sides of figures 4 and 5, under the default scenario where  there is no employee contribution and the employing agency contributes 1  percent to TSP, the median FECA benefit package is about 1 percent  greater than the median FERS benefit package. However, under a  scenario where each employee contributes 5 percent—and receives a 5  percent agency match—the median FECA benefit package is about 10  percent less than the median FERS benefit package. Similarly, our  simulation showed that for USPS annuitants, the median FECA benefit  package was about 13 percent greater than the median FERS benefit  package under the 1 percent agency contribution scenario, and about 4  percent less than the median FERS benefit package under the 10 percent  contribution scenario.

Our simulation also found that, for both non-USPS and USPS annuitants,  the median reduced FECA benefit package under the proposed changes  was less than the median FERS benefit package—regardless of the  simulated contributions to TSP accounts. Specifically, under a scenario  where there is no employee contribution—and a 1 percent contribution  from the employing agency—the median reduced FECA benefit package  is about 31 percent less than the median FERS benefit package for non- USPS annuitants and 22 percent less than the median FERS benefit  package for USPS annuitants. Under a scenario where each employee  contributes 5 percent—and receives a 5 percent agency match—the  median reduced FECA benefit package is about 35 percent less than the  FERS benefit package for non-USPS annuitants and about 29 percent  less than the FERS benefit package for USPS annuitants.

section_title: Effects of Proposed FECA Revisions on Partial-disability Beneficiaries Depend on Post-Injury Earning Capacity and Employment Over Time
paragraphs: 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, there is limited information available about the overall  population of partial-disability beneficiaries. They do not all find work and  their participation in the workforce may change over time, and their  individual experiences will determine how they would fare under the  proposed revisions.
subsections: section_title: Total Income Comparisons for Partial-disability Beneficiaries Under Single-Rate Proposals Depend on the Extent to Which Each Is Reemployed
paragraphs: As we reported in 2012, we found that partial-disability beneficiaries in the  case studies we examined fared differently under both FECA and the  proposed revisions to pre-retirement compensation, depending on the  extent to which they had work earnings in addition to their FECA benefits.  To consider this larger context, we conducted total income comparisons  for the partial-disability case studies we examined. We defined the post- injury total income comparison to be the sum of post-injury FECA benefits  and any gross earnings from employment at the time of the LWEC  decision, as a percentage of pre-injury gross income.

Among the seven partial-disability case studies we examined, those  beneficiaries with constructed earnings LWECs had post-injury total  income comparisons that were substantially less than those with actual  earnings LWECs. As shown in table 2, the beneficiaries in case studies 5  to 7 had constructed earnings LWECs and had post-injury total incomes  that ranged from 29 to 65 percent of their pre-injury income under the  current FECA program. This range was substantially lower than the total  income comparisons for the beneficiaries in case studies 1 to 4 with  actual earnings LWECs (77 to 96 percent). We found that by definition, at  the time of their LWEC decision, those beneficiaries with constructed  earnings LWECs earned less than the income OWCP used to calculate  their LWECs. Consequently, their total income comparisons—FECA  benefits plus earnings, as a percentage of pre-injury wages—are  necessarily lower than those with actual earnings LWECs.

We also found that beneficiaries in our case studies were affected  differently by the proposed revisions to pre-retirement benefits. As  expected, the beneficiaries who did not have a dependent (case studies  2, 4, and 7) experienced either slight increases or no change in their post- injury total income comparisons under the proposed revisions to pre- retirement benefits. Under both proposals, the beneficiaries in our case  studies who had a dependent (case studies 1, 3, 5, and 6) experienced  declines in their post-injury total income comparisons.decreases in total income comparisons were relatively small compared to  the impact of not having actual earnings. For instance, the beneficiary  with a constructed earnings LWEC in case study 6 experienced declines  in total income comparisons of about 3 to 4 percentage points between  the current FECA program and the proposals. 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.

Due to the importance of actual work earnings on partial-disability  beneficiaries’ situations, we have previously concluded that a snapshot of  post-injury total income comparisons is insufficient to predict how  beneficiaries fare over the remainder of their post-injury careers.  Employment at the time of OWCP’s LWEC decision does not necessarily  imply stable employment over time, as beneficiaries can find, change, or  lose jobs over time.

section_title: Effects of Proposals to Reduce FECA at Retirement Age Depend on Whether Partial- disability Beneficiaries Remain on FECA or Elect OPM Retirement Benefits
paragraphs: 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. As we  reported in December 2012, among those partial-disability beneficiaries  who stopped receiving FECA benefits in 2005-2011, 68 percent did so  due to their election of Office of Personnel Management (OPM)  retirement or other benefits, such as Veterans Affairs disability benefits.  At that time, DOL officials told us that because many variables affect  retirement benefits, they cannot predict why partial-disability beneficiaries  would potentially choose to retire instead of continuing to receive FECA  benefits. Only 17 percent of partial-disability beneficiaries who stopped  receiving FECA benefits were beneficiaries who died (i.e., received  benefits from injury until death). These aggregate numbers do not track  individual beneficiaries’ decisions to elect retirement or to continue  receiving FECA benefits past retirement age, but they suggest that there  is a substantial percentage of partial-disability beneficiaries that elects  other benefits instead of FECA at some point post-injury.

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. To do so,  in our December 2012 report, we used data from the seven partial- disability case studies to simulate and compare FERS and FECA benefits  and to highlight various retirement options these partial-disability  beneficiaries may face. As shown in table 3, we found:

The beneficiaries in case studies 2, 4, and 6 had potential FERS  benefit packages that were higher than their FECA benefits under the  current FECA program and the proposed revision—they would likely  not be affected by the proposed revision.

The beneficiaries in case studies 1, 3, and 7 had potential FERS  benefit packages that were lower than their FECA benefits under the  current FECA program and the proposed revision—they would likely  face a reduction in FECA benefits in retirement under the proposed  revision.

The beneficiary in case study 5 had a potential FERS benefit package  that was lower than his FECA benefits under the current FECA  program, but higher than his benefits under the proposed FECA  reduction—he would likely face a reduction in FECA benefits in  retirement under the proposed revision.

Based on our prior work, we have concluded that the differences in  retirement options that individual beneficiaries face stem from two key  factors: (1) OWCP’s determination of their earning capacities, and (2)  their total years of federal service. Partial-disability beneficiaries with  greater potential for earnings from work receive relatively lower FECA  benefits to account for their relatively lower loss of wage earning capacity,  all else equal. 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. Fewer years of federal service resulted in a lower  FERS annuity and lower Social Security benefits attributable to  federal service, all else equal.

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. Partial-disability  beneficiaries receive FECA benefits that are lower than those of  otherwise identical total-disability beneficiaries to account for their  potential for work earnings. As long as they work, their income is  comprised of their earnings and their FECA benefits. However, once they  choose to retire, partial-disability beneficiaries who choose to stay on  FECA likely no longer have any work earnings and are not eligible to  simultaneously receive their FERS annuity. Thus, we found that  because of the way FECA benefits are currently calculated, such partial- disability beneficiaries may have less income in retirement than otherwise  identical total-disability beneficiaries, and the proposals would reduce  benefits in retirement without differentiating between partial and total- disability beneficiaries. The proposed reduction may serve as a long- term incentive for partial-disability beneficiaries to return to work,particularly because their initial FECA benefits are lower than those of  total-disability beneficiaries.

In conclusion, FECA continues to play a vital role in providing  compensation to federal employees who are unable to work because of  injuries sustained while performing their federal duties and FECA benefits  generally serve as the exclusive remedy for being injured on the job. Our  simulations of the potential effects of proposed changes to FECA benefit  levels incorporated the kinds of approaches used in the literature on  assessing benefit adequacy for workers’ compensation programs, such  as accounting for missed career growth. 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. However, we did not recommend any  particular level of benefit adequacy. As policymakers assess proposed  changes to FECA benefit levels, they will implicitly be making decisions  about what constitutes an adequate level of benefits for FECA  beneficiaries before and after they reach retirement age. 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. Apart  from proposed changes to FECA benefit levels, the legislative proposal in  the 2016 congressional budget justification for OWCP also seeks to  strengthen FECA program integrity. As policymakers examine proposed  changes to reduce improper payments in the FECA program, they should  consider granting DOL authority to access wage data so the agency does  not have to rely on self-reported income data, as our prior work has  recommended.

Chairman Walberg, Ranking Member Wilson, and Members of the  Subcommittee, this concludes my prepared statement and I would be  happy to answer any questions that you may have at this time.

section_title: GAO Contacts and Staff Acknowledgments
paragraphs: For further information regarding this testimony, please contact Andrew  Sherrill at (202) 512-7215 or sherrilla@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this statement. Individuals who made key contributions to  this testimony include: Nagla’a El-Hodiri (Assistant Director); Michael  Kniss (Analyst-in-Charge), James Bennett, Jessica Botsford, Holly Dye,  Kathy Leslie, James Rebbe, and Walter Vance.

This is a work of the U.S. government and is not subject to copyright protection in the  United States. The published product may be reproduced and distributed in its entirety  without further permission from GAO. However, because this work may contain  copyrighted images or other material, permission from the copyright holder may be  necessary if you wish to reproduce this material separately.


Question-summary annotations: questions: question: What did the GAO find about proposals to reduce FECA benefits?
answer: 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.

question: How does the current FECA benefit package compare to the retirement benefit package for USPS and non-USPS beneficiaries?
answer: 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.
child_questions: question: What individuals did the GAO simulations cover?
answer: This analysis focused on individuals covered under the Federal Employees Retirement System (FERS), which generally covers employees first hired in 1984 or later.

question: How did the GAO find the reduced FECA benefit package compared to the retirement benefit package for USPS and non-USPS beneficiaries?
answer: 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.
child_questions: question: What individuals did the GAO simulations cover?
answer: 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.

question: What happened when the GAO then used different simulation individuals?
answer: 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.

questions: question: How would the FECA proposed changes affect individuals?
answer: The potential effects of the proposed changes to FECA on partial-disability beneficiaries would vary based on individual circumstances.
child_questions: question: Why do different beneficiaries receive different levels of aid?
answer: 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.

question: How did the GAO measure the different individuals affected?
answer: GAO's seven case studies of partial-disability beneficiaries showed variation based on characteristics such as earning capacity and actual earnings.
child_questions: question: How would beneficiaries with high earning capacities based on actual earnings be affected?
answer: 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.

question: How would beneficiaries with low earning capacities based on actual earnings be affected?
answer: 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.

questions: question: What does the FECA program do?
answer: 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.

question: How are benefits adjusted?
answer: Benefits are adjusted for inflation and are not taxed nor subject to age restrictions.
child_questions: question: How are FECA benefits initially set?
answer: 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.

question: How have policymakers regarded FECA benefit levels?
answer: Some policymakers have raised questions about the level of FECA benefits, especially compared to federal retirement benefits.

question: What have proposals to revise FECA included?
answer: 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.

questions: question: What results does the given testimony cover?
answer: This testimony presents results from GAO reports issued in fiscal year 2013.

question: What does the testimony relating to FECA cover?
answer: 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.
child_questions: question: How does the GAO plan to measure FECA changes?
answer: 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.