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How legislation would rein in workers' compensation

Jun. 3, 2012 - 03:28PM   |  
By REG JONES   |   Comments

In my May 14 column, I wrote about the difference in the benefits available to those who retire on disability versus those who receive workers' compensation. Employees may be approved for disability retirement if they are unable to provide useful and efficient service in their current position or one of comparable grade and pay. But only those whose disability is based on permanent, total or partial disabilities sustained in the performance of their duties can be approved for workers' compensation.

What spurred me to write about these differences is the proposed 21st Century Postal Service Act of 2012, which recently passed the Senate. Title III of that legislation addresses workers' compensation reform, and it applies not just to Postal Service employees but to every federal employee.

That workers should be helped financially when they are disabled was not in dispute during the Senate debates, especially if the disability was incurred on the job; however, what was in dispute was whether an employee on workers' comp should receive an income for the rest of his life that, in some cases, exceeds the amount he would have received if he had kept working and retired normally.

The Senate-passed measure is intended to encourage long-term beneficiaries to elect retirement when they meet age and service requirements. In its original form, the legislation would have automatically moved workers' comp beneficiaries to the retirement rolls. As passed, however, those who are already on workers' comp would be exempted, as would those who are totally disabled, regardless of their age. Other recipients wouldn't see any changes for three years.

To illustrate the effect that being moved from workers' comp to disability retirement would have on an employee, I've created two examples. Both employees have 21 years' service, basic pay of $60,000 and a high-three for retirement calculation purposes of $56,000 the average salary over their three consecutive highest-paid years. I'm assuming that their initial entitlement to benefits is the same as what they would be entitled to when they have the age and service to retire. In the real world, their initial benefits would be increased over time by annual cost-of-living adjustments, which are different for disability retirees and workers' comp recipients.

The first example is a Civil Service Retirement System employee, whose initial disability annuity is calculated under the CSRS formula: the sum of 1.5 percent of $56,000 multiplied by the first five years of service, or $4,200; plus 1.75 percent of $56,000 multiplied by the next five years of service, or $4,900; plus 2 percent of $56,000 multiplied by the last 11 years of service, or $12,320. The total annuity is $21,420.

The second example is a Federal Employees Retirement System employee, whose initial disability annuity for the first 12 months is 60 percent of the $56,000 high-three or $33,600, minus 100 percent of any Social Security disability benefit. After the first 12 months and up to age 62, he receives 40 percent of the high-three, or $22,400, minus 60 percent of any Social Security disability benefit. At age 62, the disability annuity is converted to a regular retirement, as if the employee had worked to age 62.

Both employees' workers' compensation would be much higher than a disability annuity. If the employee has no spouse or dependents, he would receive two-thirds of his $60,000 basic pay, or $40,000. If he has a spouse or dependents, he would receive three-quarters of basic pay, or $45,000.

It should be no surprise to learn that most employees who have a choice between workers' comp and disability retirement elect the former. Not only do workers' comp payments start out larger than those available under disability retirement, the difference is greater because workers' comp payments are tax-free. Disability annuities aren't tax-free, unless an employee is considered to be totally disabled.

Will this provision become law? Only time will tell. Neither it nor any of the other provisions contained in the workers' compensation portion of the Senate bill are in the House bill yet.

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