FERS Medical Retirement, learn about retiring from the federal government with a disability pension.
Rules for Continuing a FERS Disability Retirement
If a FERS disability annuitant fails to respond to OPM’s request for annual medical documentation, then payment of the FERS disability annuity may be suspended until eligibility for continuance of the disability annuity is adequately established.
If, on review of current medical documentation, a disability annuitant is found by OPM to be recovered from the disabling conditions that were presented prior to the approval of FERS disability retirement, then the disability FERS annuity will be discontinued. This cessation of the FERS disability annuity will occur one year from the date of the original medical examination on which OPM recovery funding was based, or on the date of reemployment in the federal service, whichever occurs first.
Restoration to Earning Capacity - A FERS disability annuitant younger than age 60 must report his or her annual earned income (consisting of salary/wages and/or net self-employment income). If a disability annuitant fails to respond to OPM’s request for earned income information, OPM will suspend annuity payments until the annuitant’s entitlement to continued FERS disability annuity payments is approved.
Earning capacity is considered restored if in any calendar year an annuitant’s income from salary/wages or net self-employment income (or both) equals 80 percent of the current rate of pay for the position occupied immediately prior to disability retirement.
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Earned income for the purpose of the 80 percent earning limitation includes all income from salary/wages during the calendar year in question. Earned income does not include gifts, pensions, annuities, Social Security benefits, worker’s compensation insurance proceeds, unemployment compensation, rents or royalties not involving or resulting from personal services, investment income, inheritance, prizes or awards, fellowships or scholarships or net business losses.
Each year (usually in February) OPM sends a questionnaire to disability annuitants under age 60 in order to report their earnings from the previous calendar year. This questionnaire is called the “Annuitant’s Report of Income.” All disability annuitants under age 60 are required to complete and return the questionnaire form. Failure to do so will result in the suspension of the FERS disability annuity.
Electing Between a FERS Disability Retirement Annuity and Workers’ Compensation Benefits
An employee may be eligible for both a FERS disability annuity and worker’s compensation benefits. Whether or not the employee may receive the benefits concurrently depends on the type of compensation paid by the Department of Labor’s Office of Worker’s Compensation Program (OWCP).
It is essential that the employee apply for both FERS disability retirement and worker’s compensation benefits, even if it is apparent that the amount of worker’s compensation benefits would be greater. Applying for FERS disability retirement protects: (1) The rights of the employee in situations in which OWCP cuts back or eliminates worker’s compensation benefits; and (2) The right of potential surviving family members to benefits in the event of the employee’s death.
OWCP will pay an eligible employee compensation for loss of earnings. This form of worker’s compensation is called a non-scheduled award. If the employee receives a non-scheduled award, then a FERS disability annuity and worker’s compensation benefits may not be received simultaneously. The employee may elect the benefit that provides the greater advantage.
OWCP will pay an eligible employee compensation for the loss of the use of a body part (arm, leg, etc.). This form of compensation is a scheduled award. An employee who receives a scheduled award may receive a FERS disability annuity and worker’s compensation simultaneously.
In addition to a scheduled award, the general restriction of receiving both a FERS disability annuity and worker’s compensation benefits is subject to the following exceptions:
- A FERS employee receiving worker’s compensation benefits due to the death of another person (such as a survivor spouse) may also receive a regular FERS annuity on the basis of his or her own federal service.
- Employees who have received a lump sum payment in conjunction with a non-scheduled award may elect to receive a regular FERS annuity once they are eligible. However, they must refund to the OWCP any portion of the lump sum payment that is based on any period extending beyond the effective date of the regular FERS annuity. The Department of Labor determines the applicable period.
- An individual eligible for a FERS disability annuity and worker’s compensation for work injuries, and whose compensation is suspended upon receipt of a financial settlement from the party solely responsible for the injury, may be paid the FERS disability annuity during the compensation period covered by the third-party settlement. This is because the individual is not receiving worker’s compensation.
If a disability annuitant elects to receive worker’s compensation payments, then the FERS disability annuity is suspended during the period the individual is receiving worker’s compensation payments. If worker’s compensation benefits are discontinued for any reason, then the annuitant is then entitled to begin receiving the annuity upon notifying OPM of the termination of the OWCP benefits.
An employee who elects to receive OWCP benefits in place of a FERS disability annuity is eligible to receive a lump-sum payment of the FERS contributions he or she made over the years via payroll deduction (FERS deposits the employee made for military active-duty time or temporary federal service performed before January 1, 1989). If the employee applies for and receives a refund of these FERS contributions, then the right to a FERS annuity and the right of a surviving family member to a FERS survivor annuity is lost. This is the case unless the employee is subsequently reemployed in federal service and establishes a new FESR annuity right, based upon the subsequent federal service. And, if elected, the individual could make a redeposit of the previously withdrawn FERS retirement contributions plus interest charges.
Survivor Spousal Benefits
FERS survivor benefits are payable to a surviving spouse under worker’s compensation only if the employee’s death is caused by the injuries for which compensation is being or could be paid. A surviving spouse who is not eligible for death compensation benefits from the OWCP may receive a FERS survivor annuity. This is assuming the surviving spouse is eligible for this benefit and that the decreased FERS employee had applied for and had been awarded retirement, even if the FERS disability annuity was suspended due to receipt of OWCP benefits.
However, the law prohibits the concurrent receipt of OWCP death compensation benefits and a FERS survivor annuity. The surviving spouse must choose one of the two benefits. The exception is that an eligible FERS survivor annuitant may receive a scheduled award and a FERS survivor annuity covering the same period of time. But if the deceased employee was receiving OWCP benefits at the time of death but had not made a timely application for FERS disability retirement, then no FERS survivor annuity can be paid.
Optional Retirement Versus Disability Retirement
An FERS employee eligible for regular (immediate) retirement is entitled to a FERS annuity which is computed in the same manner with no adjustments for Social Security benefits. If an employee is eligible for a disability retirement or for a regular (immediate) FERS retirement, there are several considerations that the employee should be aware of:
- An applicant for FERS disability retirement must prove eligibility through medical and other evidence – even if eligible for an immediate retirement.
- A FERS disability annuitant under age 60 must provide annual earnings reports. The disability annuity is subject to termination if the annuitant is restored to full earnings capacity.
- A FERS disability annuitant under age 60 must provide medical evidence at his or her own expense. The disability annuity is subject to termination if the annuitant is found to be recovered.
- A FERS disability annuitant who was also eligible for optional (regular) retirement would be entitled to an immediate FERS annuity if found recovered or restored to full earning capacity. However, the new FERS annuity would be computed based on the same high-3 average salary used in computing the FERS disability annuity, with no adjustments for increases in the cost-of-living for the period after the individual originally retired on disability.
- An individual must be permanently unable to work in order to be offered preferential tax treatment for disability retirement. Any employee having questions related to federal tax treatment of retirement benefits should contact a professional tax advisor.
- If a FERS employee is eligible for early retirement (either a Voluntary Early Retirement Authority or VERA, or a Voluntary Separation Incentive Program or VSIP) or for a FERS disability retirement, a disability retirement may offer a larger FERS annuity. The FERS employee is therefore encouraged to ask his or her Human Resources or Personnel Office to compute both types of a FERS annuity and then to select the larger type of FERS annuity.
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Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
