Understanding the FERS Disability Retirement Rules

FERS Medical Retirement, learn about retiring from the federal government with a disability pension.

This is the third of a series of FEDZONE columns presenting the FERS disability retirement rules. The first column discussed statutory requirements that a FERS-covered employee must meet in order to qualify for a disability retirement. The second column discussed the requirements that a FERS disability annuitant must meet in order to receive the FERS disability annuity. This column discusses the computation of a FERS disability annuity and other benefits associated with FERS disability retirement.

The FERS disability annuity is computed differently depending on FERS disability annuitant’s age, the amount of the disability annuitant’s Social Security disability benefits (assuming that the disability annuitant has been approved by the Social Security Administration for Social Security disability benefits), and amount of the disability annuitant’s FERS-covered service. The FERS disability annuity is recomputed after the first 12 months of the disability annuitant’s retirement and then again at the time the disability annuitant becomes age 62.

Computation of the FERS Disability Annuity for FERS Employees Younger than Age 62 At the Time of Being Approved for Disability Retirement

In most cases, FERS-covered employees who qualify for disability retirement are younger than age 60. They do not have enough years of FERS-covered service to be eligible for an immediate (voluntary) FERS retirement. As a result, their initial (first 12 months of disability retirement) FERS disability annuity is computed as:

60% of the disability annuitant’s high-three average salary minus 100% of the disability annuitant’s Social Security disability benefit for any month the disability annuitant is entitled to Social Security disability benefits.Starting in the 13th month of disability retirement and continuing through the month before the month the disability annuitant becomes age 62, the FERS disability annuity is computed as:

40% of the disability annuitant’s high-three average salary minus 60% of the disability annuitant’s Social Security disability benefit for any month the disability annuitant is entitled to Social Security disability benefits.

However, if the disability annuitant is entitled to the retired FERS employee “earned” (regular) FERS annuity (equal to 1 percent of the annuitant’s high-three average salary multiplied by the annuitant’s years and months of FERS service), the retired employee will receive that annuity. Years and months of service includes temporary service and/or military service for which a full deposit was made, and unused sick leave hours converted to months and days of service.

When a FERS disability annuitant becomes age 62, the annuitant’s disability annuity will be recomputed by OPM’s retirement office using an amount that the disability annuitant would have received had he or she continued working until the day before his or her 62^nd birthday, and then retired under FERS non-disability provisions.

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In the computation of the disability annuity at the time the disability annuitant becomes age 62, OPM’s retirement office increases the disability annuitant’s FERS service time by the number of years the disability annuitant received a FERS disability annuity. The high-three average salary will be increased by all FERS cost-of-living adjustments (COLAs) which occurred during the time the disability annuitant received a disability annuity. The FERS “basic” annuity formula (equal to 1 percent of the FERS employee’s high-three average salary multiplied by the total years and months of service) is then applied by OPM’s retirement office. The total months of service include temporary time and military service for which a full deposit was made, and unused sick leave hours. If the actual service time, plus the credit for the time receiving a disability annuity, equals 20 or more years, then the accrual factor increases from 1 percent to 1.1 percent.

The following table summarizes how the FERS disability annuity is computed by OPM’s retirement office at the various stages of a FERS disability annuitant’s retirement:

FERS Formulae in the Computation of a Disability Annuitant’s Annuity:

Stage of Retirement	Disability Annuity Computation
First 12 months of FERS disability retirement	60% of high-three average salary less 100% of Social Security disability benefit, if entitled
Starting the 13^th month after FERS disability retirement starts and through the month before the month the disability annuitant becomes age 62	40% of high-three average salary less 60% of Social Security disability benefit, if entitled.
Starting the month in which the disability annuitant becomes age 62	The amount the disability annuitant would have received if he or she had worked until the day before his or her 62^nd birthday

The following example illustrates the various calculations associated with a FERS disability retirement:

Margaret, age 56, has been approved for a FERS disability retirement. She also applied for and was approved for Social Security benefits.

Relevant information:

Years of service under FERS before being approved for FERS disability retirement: 14

High-three average salary: $120,000

Social Security disability benefit: $10,000 per year

The following table shows Margaret’s FERS disability annuity amounts at various stages of Margaret’s disability retirement:

Margaret’s FERS Disability Annuity Amounts at Various Stages of Her Disability Retirement

First 12 months of disability retirement	60% of $120,000 less 100% of $10,000 = $72,000 - $10,000 = $62,000
Starting the 13^th month after disability retirement starts and through the month before the month Margaret becomes age 62	40% of $120,000 less 60% of $10,000 = $48,000 - $6,000 = $42,000
Starting at age 62	20¹times 1.1% times ($120,000 times 1.105²) = $29,172³

¹At age 62 Margaret would have 20 years of service (14 years of actual FERS service and 6 years receiving her FERS disability annuity).

²Between the time that Margaret’s disability annuity started at age 56 and the year Margaret became age 62, FERS COLAs totaled 10.5%.

³Starting the year after Margaret becomes age 62, Margaret is eligible to receive her first FERS annuity COLA.

Other Items and Benefits Associated with FERS Disability Retirement

If a FERS employee is approved for a FERS disability retirement, then the employee can elect to give a current spouse either the full (maximum) 50 percent spousal survivor annuity or less than the maximum 25 percent spousal survivor annuity. If the employee chooses either type of FERS survivor annuity, then the FERS disability annuity will be reduced by 10 percent or 5 percent, respectively.
If a FERS employee is approved for FERS disability retirement and the employee wants to make a deposit for temporary (“non-deduction”) service that occurred before January 1, 1989, and/or for post-1956 active duty military service, then the deposit(s) must be paid in full before separation, even though both deposits will not be used in the FERS disability annuity’s recalculated FERS annuity until the disability annuitant becomes age 62.
A FERS disability annuitant is eligible to retain all federal employee insurance benefits – health, life, dental, vision and long-term care through retirement. This assumes that the disabled annuitant met all the requirement to keep the federal health benefits and the federal life insurance benefits at the time FERS disability retirement was approved.
FERS disability annuitants are not eligible for the FERS Special Retirement Supplement annuity.

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.