Federal Employees' Compensation Act: Issues Associated with Changing
Benefits for Older Beneficiaries (Briefing Report, 08/14/96,
GAO/GGD-96-138BR).

Pursuant to a congressional request, GAO reviewed issues related to
possible changes to the Federal Employees' Compensation Act (FECA),
focusing on: (1) a profile of long-term FECA beneficiaries; (2)
supporting and opposing views on changing FECA benefits for
retirement-age beneficiaries; and (3) issues for congressional
consideration in revising FECA benefits.

GAO found that: (1) in June 1995, persons age 55 and older comprised 60
percent of long-term FECA beneficiaries and 37 percent of FECA
beneficiaries were 65 years or older; (2) $611 million of the $1.28
billion in 1995 FECA benefits went to older long-term beneficiaries who
would most likely be affected by proposed FECA changes; (3) proponents
of changing benefits for older FECA beneficiaries believe that lifetime
income replacement under FECA is too generous because it does not
reflect typical lower retirement income and that excessive FECA costs
put an undue burden on federal agencies' discretionary program budgets;
(4) beneficiaries' survivors would more likely receive survivor benefits
if the long-term beneficiaries are switched from FECA benefits to
retirement benefits; (5) opponents believe that high FECA compensation
for older beneficiaries is justified and that reducing benefits for
older recipients constitutes age discrimination and could cause economic
hardships; (6) opponents believe that charging federal agencies with
FECA costs may motivate them to comply with FECA objectives and that
implementing injury prevention programs and returning injured workers to
productive employment would be more cost-effective and equitable
approaches; and (7) issues for consideration include the equity, cost
savings, complexity, and tax consequences of converting FECA benefits to
retirement benefits, the permanence of a FECA annuity, and potential
legal challenges on the basis of alleged age discrimination.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-96-138BR
     TITLE:  Federal Employees' Compensation Act: Issues Associated with 
             Changing Benefits for Older Beneficiaries
      DATE:  08/14/96
   SUBJECT:  Disability benefits
             Retirement benefits
             Proposed legislation
             Federal employee disability programs
             Federal employee retirement programs
             Beneficiaries
             Elderly persons
             Workers compensation
             Federal personnel legislation
             Disabled persons
IDENTIFIER:  Civil Service Retirement System
             Federal Employees Retirement System
             
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Cover
================================================================ COVER


Briefing Report to Congressional Requesters

August 1996

FEDERAL EMPLOYEES' COMPENSATION
ACT - ISSUES ASSOCIATED WITH
CHANGING BENEFITS FOR OLDER
BENEFICIARIES

GAO/GGD-96-138BR


(410019)


Abbreviations
=============================================================== ABBREV

  ADEA - Age Discrimination in Employment Act
  CSRS - Civil Service Retirement System
  DOT - Department of Transportation
  FAA - Federal Aviation Administration
  FECA - Federal Employees' Compensation Act
  FERS - Federal Employees' Retirement System
  OPM - Office of Personnel Management
  OWCP - Office of Workers' Compensation Programs
  PRM - Periodic Roll Management
  SSDI - Social Security Disability Insurance
  USPS - United States Postal Service
  WEC - Wage Earning Capacity

Letter
=============================================================== LETTER


B-271742

August 14, 1996

The Honorable Mark O.  Hatfield
Chairman
The Honorable Robert C.  Byrd
Ranking Minority Member
Committee on Appropriations
United States Senate

The Honorable Bob Livingston
Chairman
The Honorable David Obey
Ranking Minority Member
Committee on Appropriations
House of Representatives

As requested by the conferees on the fiscal year 1996 appropriations
bill for the Department of Transportation (DOT) and Related Agencies
(House Report 104-286), we reviewed issues related to possible
changes to the Federal Employees' Compensation Act (FECA). 
Currently, FECA allows the receipt of workers' compensation benefits
by beneficiaries who are at or beyond retirement age; possible
changes could reduce benefits they receive. 

This briefing report serves to formalize the information presented to
staff from the Appropriations' Transportation subcommittees on May 9
and August 5, 1996.  Specifically, the report provides (1) a profile
of beneficiaries on the long-term FECA rolls,\1 with information on
beneficiaries' ages and time on the rolls; (2) views of proponents
and opponents of changing FECA benefits for older beneficiaries; and
(3) questions and issues that the Congress might consider if crafting
benefit changes. 


--------------------
\1 Injured workers on FECA's 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). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

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 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.  (See br.  section
II.)

Since actual retirement eligibility information is not readily
available, the extent to which older beneficiaries might be
considered of retirement age depends upon the criteria used.  For
example, some federal employees are currently eligible for retirement
with unreduced benefits at age 55 with 30 years of service; however,
for many workers, unreduced Social Security benefits are currently
available at age 65.  (See br.  section II.)

Widely divergent views are held by the proponents and opponents of
changing benefits for older FECA beneficiaries.  Among the views held
by proponents of change are 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 see the government's FECA cost as being too high,
thus putting a strain on agencies' program budgets.  (See br. 
section III.)

Opponents of change, in contrast, believe 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.\2 Also, they say 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 believe
that other cost-saving measures may be more appropriate, such as
keeping people off the rolls by implementing better safety programs
to prevent injuries and by more effectively returning injured
employees to productive employment.  (See br.  section III.)

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. 

  -- How would benefits be computed?  Integrating FECA and retirement
     benefits may involve adjustments for calculating retirement
     benefits.  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?  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.  (See br.  section IV.)


--------------------
\2 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 rights to sue
for recovery of damages based on employers' negligence.  Employees
also give up rights to recover for pain and suffering. 


   BACKGROUND
------------------------------------------------------------ Letter :2

The Compensation Act of 1916 provided workers' compensation coverage
to federal workers for work-related injuries.  Although this act
addressed the problem of providing compensation for injured workers
and their dependents, concerns were raised about the adequacy of the
compensation, the adverse effect on the federal budget, and whether
high levels of benefits would act as a disincentive for employees to
return to work.  As Members of Congress debated the act's provisions
in 1916 and 1923, some Members were concerned that broad
interpretations threatened to make the act, in effect, a general
pension scheme. 

Although compensation benefits were not necessarily granted for a
lifetime, the 1916 act placed no age limit on those receiving
compensation for lost wages.  The 1916 act did allow for reduced
compensation when an employee's earning capacity declined as a result
of old age.  Amendments to FECA in 1949 established 70 as the age at
which compensation benefits could be prospectively reduced.  Citing
burdens to the injured worker and to the Department of Labor in
administering this provision, as well as issues of age
discrimination, a 1974 FECA amendment eliminated this age provision. 

Although no authority exists currently to reduce FECA benefits based
on age, two types of changes have been proposed to reduce FECA
benefits when employees reach a point in time when retirement
normally occurs.  One type of change would convert injured workers
from FECA benefits to retirement benefits at retirement age.  For
example, in 1981 the Reagan administration proposed comprehensive
FECA reform, including a provision to convert FECA benefits to
retirement benefits at age 65.  A House bill modeled after the
administration's proposal did not become law. 

Another type of change, based on similar proposals developed by
several agencies in the early 1990s, would have converted FECA
wage-loss compensation benefits to a FECA annuity benefit.  The
proposed annuity would have reduced FECA benefits by a set percentage
2 years after beneficiaries reached civil service retirement
eligibility. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3

To develop a profile of beneficiaries who received long-term FECA
benefits, we analyzed Labor's periodic-roll data for information on
beneficiaries' ages, lengths of time on the rolls, and compensation
benefits.  We used the information for the FECA "chargeback year,"
which ended on June 30, 1995.  A chargeback year is the FECA billing
year for which accumulated benefit outlays are billed to employing
agencies for whom injured employees once worked. 

To identify questions and associated issues in crafting benefit
changes, we analyzed previous studies and legislative proposals that
would have changed benefits for older FECA beneficiaries.  We also
solicited views from selected federal agencies--the Departments of
Labor, Transportation, and Defense; the Office of Personnel
Management (OPM); and the Postal Service--and employee groups.  We
also researched the history of federal workers' compensation and
other pertinent laws. 

We did not verify the data on FECA beneficiaries provided by Labor. 
However, the amount of time beneficiaries were on the long-term FECA
rolls was likely underestimated because the information provided was
based generally on dates employees were most recently placed in a
long-term compensation pay status.  Therefore, our analysis would not
have included beneficiaries' time on the rolls before these dates. 
For example, injured employees who had been on the long-term rolls
may have recovered and gone back to work and then suffered a
reoccurrence of their injury and returned to the long-term rolls. 
Also, we were unable to profile the retirement eligibility
information for FECA beneficiaries because FECA records do not
include data on years of service, a necessary component for
determining the age at which employees could retire. 

As agreed with the Subcommittees, we did not develop a change
proposal.  Instead, we identified questions and issues that might
merit consideration if Congress were to draft legislation changing
FECA benefits for older beneficiaries.  We also did not examine the
issue of possible agency-by-agency changes because our mandate was to
study this issue on a governmentwide basis.  Also, given the
relatively short time frame for this study and the many possible
variations for change, we did not prepare cost/savings estimates or
verify those prepared by others.  Finally, we did not evaluate
proposals for change or cost-reduction alternatives that did not
concentrate on older beneficiaries.  For example, we did not evaluate
a proposal to model FECA benefits after those found in various state
workers' compensation programs. 

In addition to the above information, appendix I contains information
on other federal disability programs, namely OPM's disability
retirement programs and the Social Security Administration's
disability insurance program--which might provide benefits to federal
employees whose disabilities were not work related; appendix II
discusses Labor's specific initiative to manage long-term disability
cases; and appendix III presents profile information on FECA
beneficiaries who had been employed by the Federal Aviation
Administration (FAA) and compares that information to that for other
governmental units. 

We performed our review from January 1996 through July 1996 in
accordance with generally accepted government auditing standards. 


   PROGRAM OFFICIALS' COMMENTS
------------------------------------------------------------ Letter :4

In May 1996, we provided a preliminary briefing to knowledgeable
workers' compensation program officials from the Departments of
Labor, Transportation, and Defense; OPM; and the Postal Service to
obtain comments on the facts and observations from our work. 
Overall, those officials agreed that our briefing presentation was
accurate and comprehensive.  After finalizing the text of this
report, we provided copies of the report text to these same officials
on July 2, 1996.  These officials agreed that overall the information
presented was accurate and comprehensive.  Where appropriate, we made
changes to incorporate technical comments provided by these program
officials. 


---------------------------------------------------------- Letter :4.1

We are sending copies of this briefing report to interested
congressional committees, the Secretaries of the Departments of
Labor, Transportation, and Defense; the Director, OPM; the Postmaster
General; and the Director, Office of Management and Budget.  Copies
will be made available to others upon request. 

Major contributors to this report are listed in appendix IV.  Please
contact me at (202) 512-8676 if you have any questions concerning
this briefing report. 

L.  Nye Stevens
Director
Federal Management
and Workforce Issues


Briefing Section I BACKGROUND
============================================================== Letter 


   OBJECTIVES
------------------------------------------------------------ Letter :5



   (See figure in printed
   edition.)


      OBJECTIVES, SCOPE, AND
      METHODOLOGY
---------------------------------------------------------- Letter :5.1

Our objectives were to (1) develop a profile of long-term FECA
beneficiaries, (2) identify views of proponents and opponents of
changes to FECA benefits for older beneficiaries, and (3) identify
questions and issues Congress might consider if crafting legislation
to change benefits. 

For the first objective, we developed a profile of the beneficiaries
who were receiving long-term compensation benefits.  Because previous
reform proposals did not appear to be directed toward those who
suffered temporary disabilities and were expected to receive
compensation benefits for relatively short periods, we did not
profile these cases.  Based on available FECA data such as age and
time on the rolls, the profile provides some indication of the extent
to which FECA rolls include beneficiaries who are older and less
likely to return to work. 

For the second and third objectives, we interviewed officials from
selected federal agencies--the Departments of Labor, Transportation,
and Defense; OPM; and the Postal Service--and employee groups.  We
also analyzed previous studies and legislative proposals to change
FECA benefits.  The views, questions, and issues identified provide
the reasoning that could shape the debate on changing benefits and
that might affect choices in pursuing changes or in developing
specific benefit provisions. 


   BACKGROUND:  RELEVANT
   LEGISLATIVE HISTORY
------------------------------------------------------------ Letter :6



   (See figure in printed
   edition.)

With the passage of the Compensation Act of 1916 (39 Stat.  743),
Members of Congress raised concerns about levels of benefits and
potential costs of establishing a program for injured federal
employees.  Some legislators were concerned that the new program
would result in a budget-threatening program of fraud and abuse. 
Workers and their representatives worried that the program would not
provide adequate compensation for injuries or death.  Others were
worried whether the program would maintain work incentives.\1

As Congress debated the act's provisions in 1916 and again in 1923,
some Members were concerned that a broad interpretation threatened to
make the workers' compensation program, in effect, a general pension
scheme. 

The 1916 Act granted benefits to federal workers for work-related
injuries.  These benefits were not necessarily granted for a
lifetime; they could be suspended or terminated under certain
conditions.  Nevertheless, the act placed no age or time limitations
on injured workers' receipt of wage compensation.  The act did
contain a provision allowing the reduction of benefits to older
beneficiaries stating that when the wage-earning capacity of the
disabled employee would probably have decreased on account of old
age, irrespective of the injury, compensation benefits could be
adjusted on the basis of this probable reduction in wage-earning
capacity. 

While the 1916 Act had not specified the age at which compensation
benefits could be reduced, the 1949 FECA amendments (63 Stat.  858)
established 70 as the age at which a review could occur to determine
if an individual's benefits should be reduced.  In 1974, Congress
again amended FECA (Public Law 93-416), this time eliminating the
"old-age provision." According to Senate Report 93-1081, the
Committee on Labor and Public Welfare stated that (1) the provision
requiring the review of compensation was an unnecessary burden on
both the injured employees and the Secretary of Labor (who had the
authority to conduct the review), (2) age 70 has no bearing on one's
entitlement to benefits, and (3) such a provision was discriminatory. 
FECA currently does not include a provision to change benefits based
on old age. 


--------------------
\1 Nordlund, Willis A History of the Federal Employees' Compensation
Program (U.S.  Department of Labor, Apr.  1992, pp.  36-37). 


   BACKGROUND:  GROWTH OF FECA
   LONG-TERM ROLLS HAS VARIED
------------------------------------------------------------ Letter :7



   (See figure in printed
   edition.)

   Source:  GAO analysis of Labor
   data.

   (See figure in printed
   edition.)


      LONG-TERM ROLLS HAVE
      INCREASED IN PAST DECADES
---------------------------------------------------------- Letter :7.1

Calls for reform in the 1980s--including a proposal to change
benefits for older FECA beneficiaries--followed rapid growth in the
1970s of FECA costs and numbers of long-term beneficiaries.  As
shown, from 1972 through 1980, the number of long-term beneficiaries
more than doubled from 19,674 to 41,190.  In a 1981 report,\2 we
noted that increasing numbers of long-term disabled beneficiaries,
along with increased benefits and changes in economic conditions,
caused program costs to increase sharply.  Between 1970 and 1979, the
program costs for beneficiaries with long-term disabilities rose from
$54.5 million to $463.6 million. 

As reported in our 1981 report, Labor officials estimated that 30,000
of the 46,000 beneficiaries on the long-term disability roll would
receive compensation benefits for the remainder of their lives. 
According to these officials, many of those beneficiaries entered the
FECA system late in their careers and have received benefits well
beyond the age that they could have been expected to retire. 

The number of long-term beneficiaries increased at a slower rate
through the 1980s than it did in the 1970s.  Nevertheless, the
periodic rolls grew by approximately 8,000 cases over that decade. 

Present concerns may be heightened more by current cost than by
current growth.  The number of long-term cases seems to have reached
a plateau in recent years.  From 1990 through 1995, as shown, the
number of long-term cases (excluding survivor benefit cases) has
fluctuated between about 50,000 and 52,000.  (See app.  II for
details of a recent Labor effort to better manage FECA long-term roll
cases.)


--------------------
\2 Federal Employee's Compensation Act:  Benefit Adjustments Needed
to Encourage Reemployment and Reduce Costs, (GAO/HRD 81-19, Mar.  9,
1981). 


   BACKGROUND:  TWO TYPES OF
   CHANGE PROPOSALS
------------------------------------------------------------ Letter :8



   (See figure in printed
   edition.)


      TWO PROPOSALS FOR CHANGING
      BENEFITS FOR OLDER
      BENEFICIARIES
---------------------------------------------------------- Letter :8.1

Since the early 1980s, the perception that many beneficiaries are, in
effect, "retired on FECA" has resulted in two types of change
proposals.  Although not specifically agreeing on the point in time
to change benefits, both types of proposals would have changed FECA
benefits when beneficiaries reach a point in time when retirement
normally occurs. 

One type proposed converting FECA benefits to retirement benefits. 
In 1981, the Reagan administration proposed comprehensive FECA
reform, including a provision to convert FECA benefits to retirement
benefits at age 65.  The proposal included certain employee
protections, one of which was calculating retirement benefits on the
basis of the employee's pay at time of injury (with adjustments for
regular federal pay increases).  A House bill (H.R.  4388), modeled
after the administration's proposal, was introduced in August 1981
but did not become law.  Similarly, legislation proposed in 1995 to
end workers' compensation for DOT employees at retirement age also
did not become law. 

Another type of proposal suggested changing FECA wage compensation
benefits to a FECA annuity benefit.  In the early 1990s, several
federal agencies developed similar proposals for a FECA annuity.  A
Department of Defense version, for example, proposed an annuity that
would reduce FECA benefits by one-third when beneficiaries were 2
years beyond their retirement eligibility date.  A key feature of the
FECA annuity approach was that it would have kept the changed benefit
within the FECA program, thereby avoiding the complexities inherent
in any proposal to convert FECA benefits to retirement benefits.  For
example, converting to retirement benefits could be difficult for
some employees who currently are not participating in a federal
retirement plan.  Also, the funding of future retirement benefits
could be a problem if current retirement funding contributions have
not been made. 


Briefing Section II PROFILE OF
BENEFICIARIES ON LONG-TERM FECA
ROLLS
============================================================== Letter 


   76 PERCENT OF THE LONG-TERM
   ROLLS ARE WAGE EARNING CAPACITY
   (WEC) CASES
------------------------------------------------------------ Letter :9



   (See figure in printed
   edition.)

   Source:  GAO analysis of Labor
   data.

   (See figure in printed
   edition.)

As of June 30, 1995, the long-term rolls consisted of about 44,000
cases in 3 wage-earning capacity (WEC) categories.  These cases,
which make up 76 percent of the total cases on the periodic rolls,
are for individuals who are receiving long-term compensation
benefits.  These categories include individuals who most likely would
be affected by changes in compensation benefits based on retirement
eligibility criteria, particularly if a time-on-rolls criterion for
initiating changed benefits applied.  Under FECA, injured employees
receive compensation relative to the extent of their disability
(total or partial) and their capacity to earn income. 

For purposes of our analyses, we considered no-WEC and
WEC-undetermined cases to represent long-term, total disability
cases. 

  -- No WEC:  Generally for totally disabled individuals who have
     little or no future reemployment potential.  These cases receive
     full compensation benefits. 

  -- WEC undetermined:  These individuals have temporary total
     disabilities and are similar to "no WEC" cases in that they
     receive full compensation benefits.  Labor's procedures call for
     it to review the status of these cases once a year. 

We considered WEC-established cases to represent long-term, partially
disabled cases. 

  -- WEC established:  Using a formula that takes actual or potential
     earnings into consideration, partially disabled employees who
     earn less than their preinjury earnings would have their
     compensation benefits reduced according to their WEC percentage. 
     Not all individuals among WEC-established cases fit the image of
     "retired" because some may be employed. 

Our analysis excludes the following categories of long-term cases: 
(1) schedule awards (payments over a set period for the loss of, or
partial loss of, a body part or function), (2) rehabilitation cases,
(3) overpayment cases, and (4) death cases in which benefits are paid
to survivors.  It is unclear as to whether the first three categories
of cases would be affected by change.  Death cases are excluded
because the proposals we examined would not have changed benefits for
survivors.  Profile information is also presented without the "WEC
established" cases. 


   60 PERCENT OF LONG-TERM WEC
   CASES ARE AGE 55 OR OLDER
----------------------------------------------------------- Letter :10



   (See figure in printed
   edition.)

   Source:  GAO analysis of Labor
   data.

   (See figure in printed
   edition.)


      MANY BENEFICIARIES HAVE
      REACHED NORMAL RETIREMENT
      AGE
--------------------------------------------------------- Letter :10.1

Substantial proportions of the long-term beneficiaries of wage
compensation may have reached retirement age.  Sixty percent of the
approximately 44,000 long-term cases receiving compensation are at
least age 55, the age at which some federal employees are eligible
for optional retirement with unreduced benefits.  Actual eligibility
depends upon sufficient years of service; federal employees under
CSRS are currently eligible at age 55 with 30 years of service, age
60 with 20 years, or age 62 with 5 years of service.\3 Data on FECA
beneficiaries' years of service (and thus their actual retirement
eligibility age) is not readily available from workers' compensation
case files.  Thus, the number of beneficiaries who are actually
eligible for retirement is unknown. 

Social Security retirement ages provide another benchmark for
establishing a retirement age for beneficiaries who are receiving
FECA benefits in retirement years.  Social Security allows retirement
with reduced retirement benefits at age 62; for most workers,
however, age 65 is the age at which they can retire with full Social
Security benefits.  Thirty-seven percent of the FECA beneficiaries
were 65 years or older. 

If those with "WECs established" are not considered, 64 percent of
the 33,000 beneficiaries who received long-term compensation in the
chargeback year ending in June 1995, rather than 60 percent, were age
55 or older. 


--------------------
\3 Earlier optional retirement is available in some federal
occupations such as air-traffic controller, law enforcement, and fire
fighting. 


   64 PERCENT OF COMPENSATION IS
   PAID TO BENEFICIARIES AGE 55 OR
   OLDER
----------------------------------------------------------- Letter :11



   (See figure in printed
   edition.)

   Source:  GAO analysis of Labor
   data.

   (See figure in printed
   edition.)


      OLDER BENEFICIARIES ACCOUNT
      FOR MUCH OF THE WAGE
      COMPENSATION COSTS
--------------------------------------------------------- Letter :11.1

Almost two-thirds of the wage compensation costs of the long-term
FECA rolls is associated with older beneficiaries.  During chargeback
year 1995, 64.5 percent of the wage compensation paid to long-term
beneficiaries (about $611 million of a total of $947 million) was
paid to those age 55 and older.  Slightly over 26 percent of the
total wage-compensation paid to long-term beneficiaries was paid to
those age 70 or older; 40 percent was paid to those age 65 or older. 

Almost the same distribution applies if those with WECs established
were excluded from the analysis.  Wage compensation benefits for
beneficiaries age 55 and over who received unreduced long-term
compensation benefits were 66 percent of the total long-term
compensation cost ($531 million of $804 million).  Eighty-five
percent of the long-term wage compensation ($804 million of $947
million) was paid to those with no WECs or with undetermined WECs. 


   MANY OLDER, TOTALLY DISABLED
   HAVE BEEN ON THE ROLLS FOR 3 OR
   MORE YEARS
----------------------------------------------------------- Letter :12



   (See figure in printed
   edition.)

   Source:  GAO analysis of Labor
   data.

   (See figure in printed
   edition.)


      INDICATION THAT MANY OLDER
      BENEFICIARIES ARE UNLIKELY
      TO RETURN TO WORK
--------------------------------------------------------- Letter :12.1

From our profile analysis, we cannot determine the extent to which
older beneficiaries may, or may not, return to work.  Nevertheless,
the profile can provide some indication of the likelihood of older
and totally disabled beneficiaries' returning to work.\4 In our 1981
report, we cited experts' general agreement that the older a person
is and the longer he or she remains disabled and out of the
workforce, the less likely he or she is to return to work. 

If the likelihood of returning to work was low based on FECA
beneficiaries being age 55 and over with 3 or more years on the
long-term rolls, then 87 percent of those who received compensation
benefits for total disability in the 1995 chargeback year would have
had a low likelihood of returning to work.  A more conservative
measure of likelihood might be 10 or more years on the rolls.  About
28 percent of the totally disabled beneficiaries who were age 55 or
older had been on the long-term rolls for 10 or more years. 

Briefing Section III

--------------------
\4 Those with partial disabilities are excluded from this analysis
because some may have already returned to work. 


PROPONENTS' AND OPPONENTS' VIEWS
ON CHANGES TO FECA
============================================================== Letter 


   VIEWS OF PROPONENTS OF CHANGING
   FECA BENEFITS
----------------------------------------------------------- Letter :13



   (See figure in printed
   edition.)

The proponents of changing benefits for older FECA beneficiaries
argue that FECA benefits should not, in effect, be a substitute for
retirement benefits.  First, the essential replacement of take-home
income provided to some FECA beneficiaries can create disincentives
for them to return-to-work.  In other words, it creates an incentive
for some beneficiaries to "retire" on the FECA rolls.  Second, the
lifetime levels of FECA benefits are unrealistic and inappropriate
because they do not reflect the normal progression toward lower
income that is typically provided by retirement benefits.  The FECA
benefits are theoretically for wage loss, but this is an
inappropriate benefit for those who are into their retirement years. 
An inequity is thus created between those federal workers who retire
normally and those who, in effect, retire on FECA benefits.  Finally,
as a result of being too generous, the lifetime benefit levels create
a long-term, costly liability for the government.  Proponents believe
that changes should reduce the generous benefits for older
beneficiaries to more closely approximate normal retirement income,
thereby lessening government costs. 

According to proponents, change may improve agencies' operations. 
Agencies' discretionary budgets are reduced by FECA costs.  Thus, by
changing FECA compensation benefits to retirement benefits for
"normal" retirement years, agencies could reduce the strain on their
discretionary accounts.  Secondarily, by shifting beneficiaries from
the FECA rolls to OPM's retirement rolls, Labor (which administers
the FECA program) could better manage newly filed cases and existing
caseloads of younger injured workers. 

In addition to arguing that retirement benefits are more appropriate,
in principle, for older FECA beneficiaries, conversion proponents
cite an advantage for these beneficiaries.  Survivor benefits under
federal retirement are not limited to deaths related to compensable
injuries, but they are so limited under FECA.  Coverage under OPM's
retirement systems could provide better survivor benefit coverage. 


   VIEWS OF OPPONENTS OF CHANGING
   FECA BENEFITS
----------------------------------------------------------- Letter :14



   (See figure in printed
   edition.)

Opponents argue that benefit reductions would cause older
beneficiaries economic hardships.  For example, a criticism of the
1995 proposal for conversion to retirement benefits was that in some
cases these benefits would be only 5 percent of FECA benefits because
service credit for retirement purposes would not be provided for the
time spent on FECA rolls.  Hardships resulting from conversion to
retirement benefits may not be shared equally.\5

Without protections, injured employees with few years of service or
ineligible for retirement might suffer large reductions in benefits. 
In some cases, employees injured early in their careers may have lost
promotion and other advancement potential, thereby making any
retirement income based on their salary at the date of injury
artificially low.  Those eligible for retirement under FERS might
also be disadvantaged because contributions to their thrift savings
plan and the Social Security portion of their retirement plan would
be discontinued while on the FECA rolls. 

Opponents also view reduced benefits as breaking the workers'
compensation promise.  Injured workers have historically exchanged
their right to tort claims for promised benefits.  From this
perspective, benefits that approximate predisability take-home income
are justified.  Reducing FECA benefits would undermine this exchange. 
Conversion to retirement benefits breaks this promise; benefits
typically would be reduced, taxable, and partly funded by employees'
contributions.  Since only older beneficiaries' benefits would
change, opponents also see this as age discrimination. 

Agencies' anticipation of reduced workers' compensation costs could
result in fewer incentives to manage claims and to develop safer
working environments.  The current practice of charging the cost of
FECA benefits to agencies may act as an incentive by encouraging
agencies to operate in accordance with FECA objectives. 

Finally, opponents believe FECA costs and numbers of beneficiaries
could be reduced by making work environments safer and by
rehabilitating and reemploying injured workers.  Also, if FECA
beneficiaries are inappropriately included on the rolls, then more
effective claims monitoring should take place.  Furthermore,
opponents believe that proposed changes would unfairly penalize those
who truly have no prospect of recovery and returning to work. 

Briefing Section IV

--------------------
\5 FECA annuities would not raise an equity issue because all
annuitants would typically receive the same percentage of their
previously paid FECA benefit.  However, "grandfathering" current
beneficiaries and changing benefits only for new beneficiaries would
create unequal benefits among them. 


QUESTIONS AND ISSUES TO CONSIDER
IF CRAFTING CHANGES
============================================================== Letter 


   QUESTIONS TO CONSIDER IF
   CRAFTING BENEFIT CHANGE
   LEGISLATION
----------------------------------------------------------- Letter :15



   (See figure in printed
   edition.)


      QUESTIONS TO CONSIDER
--------------------------------------------------------- Letter :15.1

The questions presented below reflect technical issues that Congress
might consider if it were to change benefits for older FECA
beneficiaries.  Although we are presenting these questions as
separate technical issues, these issues are often interrelated.  For
example, decisions about how changed benefits would be computed may
raise issues about how these benefits would be funded.  The questions
are: 

  -- What type of changed benefit would be provided? 

  -- How would benefits be computed? 

  -- Would all FECA beneficiaries be affected? 

  -- What criteria would initiate changed benefits? 

  -- How would other benefits, such as FECA medical benefits or
     survivor benefits, be treated? 

  -- How would benefits, particularly retirement benefits, be funded? 


   WHAT TYPE OF CHANGED BENEFIT
   WOULD BE PROVIDED? 
----------------------------------------------------------- Letter :16



   (See figure in printed
   edition.)


      TYPES OF CHANGED BENEFIT
--------------------------------------------------------- Letter :16.1

Two alternatives have been previously proposed to change the benefits
for older FECA beneficiaries.  One would have converted FECA benefits
to retirement benefits.  This alternative was based on the assumption
that these older beneficiaries would typically have federal
retirement benefits available.  A second alternative would have
changed FECA wage-loss compensation benefits to a newly established
FECA annuity.  The annuity alternative would have kept the changed
benefit under the FECA program; it made no assumption about the
availability or adequacy of retirement benefits.  In some cases,
eligible employees might have opted for retirement benefits rather
than for the reduced FECA benefit available through the FECA annuity. 

Past proposals for both alternatives have been designed to reduce
FECA costs, but the approaches are different.  With the conversion
alternative, savings result from removing older beneficiaries from
the FECA program.  In contrast, savings from the FECA annuity
alternative result from reducing FECA benefits for older
beneficiaries by a specified percentage. 

Any net savings to the government would have to take into account
additional costs (or savings) with respect to providing (or not
providing) federal retirement benefits.  Because retirement benefits
may result in federal income-tax revenue, additional savings to the
government may result.  As noted in the scope, we did not estimate
cost/savings implications for the various proposals for change, or
validate past cost/savings estimates. 



   (See figure in printed
   edition.)


      ISSUES FOR THE CONVERSION
      ALTERNATIVE
--------------------------------------------------------- Letter :16.2

The retirement conversion alternative, which seeks to integrate FECA
and retirement benefits, raises complex issues.  The complexity
arises in part from the fact that conversion could result in varying
retirement benefits, depending on conversion provisions, retirement
systems, and individual circumstances.  Conversion to retirement
benefits could also change benefits received from being tax-free to
being subject to tax. 

Although a conversion proposal could be written without protecting
injured employees' incomes, the potential for large decreases in
benefits (including no federal retirement benefit in some cases)
creates pressure for protections.  Designing these protections leads
to considering FECA beneficiaries under many different circumstances
that affect retirement eligibility and benefit levels. 

In considering the conversion alternative, cost savings can vary
widely, depending on conversion provisions.  An Air Force sponsored
study in 1992 projected net savings for a variety of conversion
scenarios with differing ages of conversion and employee protections
for time on the FECA rolls.\6 (The study considered only CSRS
conversions.) Projected net savings ranged from 0 to about 20
percent.  For the various provisions considered in that study, the
older the employee when converting and the more generous the
projected salary growth, the less the net savings. 



   (See figure in printed
   edition.)


--------------------
\6 Terry, Mary Beth; Sharp, Jay; and Smith, Dr.  David; Cost Analysis
of Worker's Compensation Programs.  Systems Research and Applications
Corporation (Arlington, VA., Feb.  1992). 


      FECA ANNUITY ALTERNATIVE
--------------------------------------------------------- Letter :16.3

In comparison to the conversion alternative, the FECA annuity
alternative would avoid issues arising from an attempt to integrate
FECA and retirement benefits.  Because benefits remain under the FECA
system, a FECA annuity would avoid issues of unfunded liabilities for
retirement systems or equity issues with respect to benefits provided
by various retirement plans.  Also, a FECA annuity could allow
benefits to remain tax free, while approximating a taxable retirement
benefit. 

One issue concerning the FECA annuity is its permanence, once set. 
This would imply a nonreviewed, permanent benefit.  One proposal
would cease (1) case development, (2) rehabilitation efforts, and (3)
requirements for medical examinations to prove continued disability. 
Another option might be an adjustable annuity based on continuing
FECA reviews.  The FECA proposal that implies a nonreviewed benefit
also provides for 5 years of compensation before providing the FECA
annuity.  This might ensure a certain degree of permanence in the
injury before providing a permanent annuity.  Whether adjustable or
not, the FECA annuity could be terminated by a beneficiary.  An
individual might elect retirement benefits in lieu of a reduced FECA
annuity. 

Making the FECA annuity permanent might have some administrative
advantage.  By substantially reducing the number of FECA cases that
Labor must actively manage, Labor could focus more of its resources
on the remaining beneficiaries who are more likely to return to work. 



   (See figure in printed
   edition.)


      POSSIBLE LEGAL CHALLENGES
--------------------------------------------------------- Letter :16.4

For both proposals, the appearance of forcing an individual into
accepting retirement benefits or a reduced annuity at a specific age
might be challenged as constituting age discrimination.  To avoid the
appearance of mandating retirement, conversion proposals have been
written to "cease" FECA benefits, rather than to directly convert
FECA benefits to retirement benefits.  Initiating changed benefits on
the basis of a retirement eligibility date rather than age might also
help to avoid the appearance of age discrimination. 

Either proposal might face legal challenges on the basis of alleged
age discrimination.  It could be argued that changing benefits for
older beneficiaries violates protections against age discrimination
contained in the Age Discrimination in Employment Act (ADEA). 
Accordingly, if Congress amends FECA to reduce injured workers'
rights and benefits once they become retirement eligible, it might
consider language providing that such amendments take precedence over
any otherwise inconsistent provisions of law.  For example, a
provision "notwithstanding any other provision of law" could be
included in the amendment.  The inclusion of such a provision would
reduce the likelihood of successful legal challenges to reduce or
eliminate FECA benefits for retirement eligible individuals on the
basis of age discrimination. 


   HOW WOULD BENEFITS BE COMPUTED? 
----------------------------------------------------------- Letter :17



   (See figure in printed
   edition.)


      COMPUTING RETIREMENT
      BENEFITS AFTER CONVERSION
--------------------------------------------------------- Letter :17.1

Under the retirement conversion alternative, two major options for
computing retirement benefits would involve either adjusting or not
adjusting these benefits.  The unadjusted option would allow for
retirement benefits as provided by current law.\7 The adjusted option
would typically ensure that time on the FECA rolls was treated as if
the beneficiary had continued to work.  This adjustment could (1)
credit time on FECA for years of service or (2) increase the salary
base (for example, increasing salary from the time of injury by
either an index of wage increases or inflation, assigning the current
pay of the position, or providing for merit increases and possible
promotions missed due to the injury). 

The conversion alternative was originally designed at a time when
CSRS was the principal federal retirement system.  The subsequent
advent of FERS--a three-tiered retirement system of pension annuity,
thrift savings plan, and Social Security benefits--raises the issue
of additional possible adjustments.  For those eligible for FERS
benefits, adjustments to the basic annuity might be designed to
reflect forgone contributions to the thrift savings plan and Social
Security during time on the FECA rolls.  Continuing contributions to
FERS could be another option to prevent lower retirement benefits due
to time on the FECA rolls. 

Adjustments raise the issue of funding enhanced retirement benefits
beyond those for which contributions have been made.  This issue is
addressed on page 54. 



   (See figure in printed
   edition.)


--------------------
\7 Current law generally requires reemployment in order to receive
retirement credit for the period for which FECA benefits were
received.  Those who remained on their agencies' rolls in a
leave-without-pay status while receiving FECA benefits are an
exception; they can receive credit without reemployment. 


      COMPUTING THE FECA ANNUITY
--------------------------------------------------------- Letter :17.2

Under the FECA annuity alternative, proposed computations would be
relatively simple.  The FECA annuity would be a percentage of FECA
benefits at the time the beneficiary became eligible for the annuity. 
The annuity has typically been proposed to be two-thirds of the
previous FECA compensation benefits. 

Provisions to adjust calculations for certain categories of
beneficiaries also have been proposed.  Partially disabled
individuals receiving reduced compensation would receive the lesser
of the FECA annuity or the current reduced benefit.  Since this FECA
annuity would be calculated based on 66-2/3 percent of gross FECA
compensation, this proposal would reduce benefits only for those
whose FECA compensation had not already been reduced to less than
66-2/3 percent as a result of a WEC determination.  For partially
disabled beneficiaries whose benefits have already been reduced, but
not below 66-2/3 percent, further reductions would have a floor of
66-2/3 percent of gross FECA compensation.  Under one proposal,
actively employed federal employees with partial disabilities would
be excluded from any change in FECA benefits. 

FECA annuity computations could be devised to achieve certain
benchmarks.  For example, the formula for a FECA annuity could be
designed to approximate a taxable retirement annuity.  A FECA annuity
of 66-2/3 percent of FECA compensation benefits has been justified as
approximating the income replacement rate as a taxable retirement
benefit. 


   WHICH CATEGORIES OF
   BENEFICIARIES WOULD BE AFFECTED
   BY CHANGES? 
----------------------------------------------------------- Letter :18



   (See figure in printed
   edition.)

Under previous proposals, conversion to retirement benefits might not
have affected participants in every federal retirement system.  For
example, a 1981 proposal allowed disabled employees who were under
retirement systems dissimilar to CSRS to remain on FECA, at
comparable CSRS benefit levels, pending a study of long-term
solutions.  In effect, this would have constituted conversion for
some beneficiaries and FECA annuity-like benefits for others.  Since
FERS covers most employees hired after 1983, any current conversion
proposal might have to consider the treatment of FERS participants,
in light of differences between CSRS and FERS. 

One conversion decision concerns whether to exempt injured workers
who are ineligible for federal retirement benefits.  Ineligible
workers include, for instance, those without 5 years of federal
service under CSRS, those who have withdrawn retirement
contributions, temporary workers, and state and local police covered
under special FECA provisions.  The Reagan administration's 1981
proposal, for example, excluded state and local police from changed
benefits. 

Provisions might be devised to make individuals eligible for
retirement conversion benefits.  For example, those who have
insufficient years of service to be vested might be given credit for
time on the FECA rolls until vested.  Those who have withdrawn their
retirement contributions might, or might not, be required to repay
them.\8

Another option would be exempting partially disabled FECA
beneficiaries.  One proposal for a FECA annuity excluded the
partially disabled from changed benefits while they were active
federal employees; other proposals did not include this exemption. 
Past proposals have differed as to whether changes might affect both
current or only new FECA beneficiaries. 

Exempting current beneficiaries delays receipt of full savings from
FECA cost reductions to the future.  Another option might be a
transition period for current beneficiaries.  For example, current
beneficiaries could be given notice that their benefits would be
changed after a certain number of years. 


--------------------
\8 Future FECA beneficiaries might be prohibited from withdrawing
contributions to foreclose this source of ineligibility. 


   WHAT CRITERIA WOULD INITIATE
   CHANGED BENEFITS? 
----------------------------------------------------------- Letter :19



   (See figure in printed
   edition.)


      DEFINING THE POINT OF
      CHANGED BENEFITS
--------------------------------------------------------- Letter :19.1

Past proposals have used either age or retirement eligibility as the
primary criterion for changing benefits.  Secondary
criteria--criteria that would modify the time of changed benefits
from that indicated by the primary criterion--have also been
proposed. 

With regard to the primary criterion, if retirement eligibility is
used, consideration must be given to establishing eligibility for
those who might otherwise not become retirement eligible.  For
example, at least for the purposes of initiating the changed benefit,
time on the FECA rolls might be treated as if it counted for service
time toward retirement eligibility.  This same solution might also be
needed in the case of the FECA annuity option when retirement
eligibility dates would be used as the criterion for changing
benefits. 

Benchmarks might be developed to guide the establishment of primary
criterion based on either age or retirement eligibility dates.  For
example, age criterion might be benchmarked against the average age
of retirement for federal employees or the average age of retirement
for all employees.  One argument for using retirement age of
nonfederal workers as a criterion states that many federal employees
take jobs in the private sector after leaving federal jobs and,
therefore, retire at ages more typical of the private sector.  One
past proposal used a benchmark relative to individual retirement
eligibility--that is, 2 years after retirement eligibility--based on
research indicating that most federal employees retire by that point. 



   (See figure in printed
   edition.)


      POSSIBLE SECONDARY CRITERIA
      TO INITIATE CHANGED BENEFITS
--------------------------------------------------------- Letter :19.2

Some past proposals have included secondary criteria to delay changed
benefits for those who would immediately or shortly meet the primary
criterion at the time of injury.  For example, one proposal would
change benefits after the primary criterion of age was met or after 5
years of FECA benefits, whichever was later.  The intent of such a
delay was evidently to ensure that the employee has an opportunity to
recover and return to work before changing benefits.  Without such a
protection, under the retirement conversion alternative, an older
injured person might face conversion to retirement benefits even when
recovery and return to work is almost assured.  For the FECA annuity
option, delaying an otherwise immediate annuity might better ensure
that the annuity reflected a more permanent disabling condition. 

Secondary criteria could also provide for earlier changed benefits. 
One proposal has been to commence changed benefits when the FECA
beneficiary receives other benefits, such as Social Security, which
are based on age.  If these conditions were met, this secondary
criterion would take precedence over the primary criterion.  The
apparent rationale is that this secondary criterion reinforces the
presumption that the person would be retired from the federal service
but for the injury. 


   HOW WOULD OTHER BENEFITS BE
   TREATED? 
----------------------------------------------------------- Letter :20



   (See figure in printed
   edition.)


      TREATMENT OF OTHER BENEFITS
--------------------------------------------------------- Letter :20.1

In addition to changing FECA compensation benefits, consideration
should be given to whether to change other FECA benefits, such as
medical benefits or survivor benefits. 

For example, the 1981 administration proposal would have ended
survivor benefits under FECA for those beneficiaries whose benefits
were converted to the retirement system.  Survivor annuities under
the federal retirement system are not contingent on the cause of
death, whereas survivor benefits under FECA are only available when
the death is related to compensable injuries.  Thus, the coverage of
survivor benefits would have changed if this proposal had become law. 

Other options involve administering the benefits.  OPM now
administers retirement annuity benefits for federal employees; Labor
administers FECA benefits.  Assuming that beneficiaries remain
eligible for noncompensation benefits arising from the injury; under
a conversion to retirement benefits, which agency or agencies would
administer these benefits?  Although it might be advantageous to
consolidate case management in one agency, such as OPM if the
retirement conversion alternative were selected, the agency chosen to
manage the case might have to develop an expertise it does not
currently possess.  For instance, OPM might have to develop an
expertise in medical fee schedules to control workers' compensation
medical costs. 


   HOW WOULD CHANGED BENEFITS BE
   FUNDED? 
----------------------------------------------------------- Letter :21



   (See figure in printed
   edition.)

For the retirement conversion alternative, another issue is the
funding of any retirement benefit shortfall.  Currently, agencies and
individuals do not pay retirement contributions based on FECA
benefits; thus if retirement benefits exceed those for which
contributions have been made, retirement funding shortfalls would
occur. 

Retirement funding shortfalls could be financed through at least
three general options:  First, lump-sum payments could be made by
agencies at the time of the conversion.  This option has been
criticized because the start-up cost was considered too high. 
Second, shortfalls could be covered on a pay-as-you-go basis after
conversion.  For example, agencies might make annual payments to
cover the shortfall resulting from the conversions.  Third, agencies'
and employees' contributions to the retirement fund could continue
before conversion, preventing shortfalls at conversion. 

Another consideration relates to which agency would pay for the
changed benefit.  Possible sources include the agency that last
employed the FECA beneficiaries or the agency (or agencies)
administering the benefit.  Considerations of the impact on agencies'
budgets and agencies' incentives to control and manage safety and
injury cases might help to shape choices between sources of funding. 

Some conversion proposals would have FECA beneficiaries continue
their retirement contributions.  A transition issue becomes whether
current beneficiaries would be required to make up retirement
contributions for their time on FECA rolls.  Another funding issue is
whether FECA beneficiaries would be required to repay withdrawn
contributions from the retirement fund.\9

Proposals for the FECA annuity alternative typically keep funding
under the current FECA chargeback system.  This is an annual
pay-as-you go system, with agencies paying for the previous year's
FECA costs. 


--------------------
\9 In the 1981 proposal, for example, agencies would pay for any
shortfalls for current FECA beneficiaries, but only for the agencies'
share of contributions for new beneficiaries.  Past withdrawals of
contributions would be forgiven; withdrawals after enactment would be
prohibited for the totally disabled; and withdrawals by those
partially disabled would be allowed with the loss of associated
future retirement benefits. 


PROGRAMS THAT PROVIDE INCOME
BENEFITS TO DISABLED FEDERAL
WORKERS
=========================================================== Appendix I

Under FECA, eligible employees who are injured on the job or who
suffer job-related illnesses are entitled to workers' compensation
benefits.\1 Individuals who are unable to perform useful and
efficient service as a result of nonjob-related injuries or illnesses
or who are unable to return to the job they held before their
work-related injury may be eligible for benefits from other federal
programs.  Some of the more common benefits these employees may be
eligible for include (1) disability retirement benefits under either
the Civil Service Retirement System (CSRS) or the Federal Employees'
Retirement System (FERS) or (2) SSDI benefits.  Descriptions of these
programs, their eligibility requirements, and how their benefits are
coordinated are described below. 


--------------------
\1 For more information on workers' compensation programs, see our
report entitled Workers' Compensation:  Selected Comparisons of
Federal and State Laws, (GAO/GGD-96-76, Apr.  3, 1996)


   FECA
--------------------------------------------------------- Appendix I:1

Under FECA, workers' compensation benefits are authorized for
employees who suffer temporary or permanent disabilities resulting
from work-related injuries or diseases.  FECA is administered by
Labor's Office of Workers' Compensation Programs (OWCP).  FECA
benefits include payments for (1) loss of wages when employees cannot
work because of work-related disabilities due to traumatic injuries
or occupational diseases, (2) schedule awards for loss of, or loss of
use of, a body part or function, (3) vocational rehabilitation, (4)
death benefits for survivors, (5) burial allowances, and (6) medical
care for injured workers. 

Wage-loss benefits for eligible workers' with temporary or permanent
total disabilities are generally equal to either 66-2/3 percent of
salary for a worker with no spouse/dependent or 75 percent of salary
for a worker with a spouse/dependent.  Wage-loss benefits can be
reduced based on employees' wage-earning capacities when injured
workers are capable of working. 


   CSRS AND FERS
--------------------------------------------------------- Appendix I:2

In addition to employees becoming disabled as a result of
work-related injuries, employees may also suffer nonemployment
related injuries or illnesses that prevent them from performing
useful and efficient service.  In either case, employees may be
entitled to disability retirement benefits under either CSRS or
FERS.\2 The Office of Personnel Management (OPM) is responsible for
administering benefits under these systems. 

Employees covered by CSRS must have completed at least 5 years of
federal civil service to be eligible for disability annuities.  A
claim for disability retirement must include information that
establishes the following: 

  -- a deficiency in service with respect to performance, conduct, or
     attendance, or in the absence of a deficiency, a showing that
     the medical condition is incompatible with either useful service
     or retention in the position;

  -- a medical condition defined as a disease or injury that caused
     the service deficiency;

  -- a medical condition that will in all probability, continue for
     at least 1 year;

  -- the inability to provide useful and efficient service that arose
     while serving under CSRS;

  -- the inability of the employing agency to make a reasonable
     accommodation to the medical condition; and

  -- the absence of another position, within the employing agency or
     commuting area, at the same grade or pay level and tenure, to
     which the employee is qualified for reassignment. 

Up to the age of 60, OPM may require individuals to undergo periodic
medical reevaluations to determine whether their disabling conditions
continue to exist.  OPM also monitors individuals' earnings to
determine if they have restored earning capacities.  Earning capacity
is considered restored if, in any calendar year, income from wages or
self-employment or both equals at least 80 percent of the current
rate of pay for the position occupied immediately before the
disability retirement. 

Under CSRS, eligible individuals receive disability retirement
benefits that are the higher of (1) the amount of their earned
annuity based on a percentage of their highest 3-years average
salary\3 or (2) the lower of 40 percent of the highest 3-years
average salary or the earned annuity if the individuals' length of
service was extended to age 60. 

Under FERS, employees must have at least 18 months of creditable
service to qualify for disability benefits and generally must meet
the same conditions as those cited above for CSRS disability
benefits.  In the first year of disability under FERS, eligible
individuals would receive 60 percent of their high-3 average pay
minus 100 percent of any Social Security disability benefits they
receive.  After the first year and until age 62, benefits would be 40
percent of the high-3 average pay reduced by 60 percent of the Social
Security disability benefits received.  If an individual's earned
annuity (1 percent times high-3 average pay times years of service)
was higher than the above amounts, the individual would receive the
higher amount.  Eligible employees' benefits are recomputed at age 62
as if they had continued working until age 62 and also take into
consideration all FERS cost-of-living adjustments that took effect
while they were receiving disability benefits.  Under both FERS and
CSRS, survivor benefits would be available for eligible claimants. 


--------------------
\2 Employees who recover from work-related injuries, but are unable
to perform useful and efficient service may also be eligible for CSRS
or FERS disability retirement benefits. 

\3 In effect, this amount would be the equivalent of an employee's
regular retirement benefit without age reduction. 


   SSDI
--------------------------------------------------------- Appendix I:3

Some individuals who are unable to do any kind of work for which they
are suited and whose disabilities are expected to last at least 1
year may be eligible for SSDI benefits.  Injuries or illnesses
causing these disabilities may or may not be work related.  Unlike
some individuals who may receive either FECA, CSRS, or FERS benefits
when they are partially disabled, individuals with partial
disabilities are not eligible for SSDI benefits.  The Social Security
Administration is responsible for administering the SSDI program. 

To qualify for SSDI, employees must have worked long enough and
recently enough in employment covered by Social Security.  Generally,
individuals need to accumulate 20 work credits\4 in the last 10 years
to qualify for SSDI benefits; younger workers can qualify with fewer
credits.  Individuals' monthly SSDI benefits are based on their
lifetime average earnings covered by Social Security.  After
receiving SSDI benefits for 2 years, individuals are automatically
entitled to Medicare benefits.  At age 65, individuals are switched
from SSDI benefits to Social Security retirement benefits in the same
amount. 


--------------------
\4 Individuals can earn up to 4 credits a year.  The amount of
earnings required to earn a credit increases each year as general
wage levels increase. 


   COORDINATION OF BENEFITS
--------------------------------------------------------- Appendix I:4

Employees eligible for FECA benefits could also be eligible for CSRS
or FERS disability benefits from OPM or SSDI benefits from the Social
Security Administration.  Depending on which benefits employees are
entitled to, employees might have to make an election between them. 
In many cases in which individuals receive benefits from different
programs simultaneously, one benefit would likely be offset against
the other. 

Disabled individuals who are eligible must make an election between
FECA wage-loss benefits and either CSRS or FERS disability benefits,
since as a general rule,\5 they may not receive both benefits at the
same time.  This election is not irrevocable.  Individuals have the
right to elect the monetary benefit that is the most advantageous. 
FECA benefits may be more advantageous because they are not subject
to federal income taxes and, therefore, could result in take-home
income that could approximate an employee's preinjury, after-tax
income. 

Eligible injured employees covered by FERS or their survivors who
qualified for social security old age benefits or Social Security
survivor benefits would have their FECA benefits offset by the amount
of Social Security benefits attributed to the employee's federal
service.  Other FECA beneficiaries (e.g., employees covered under
CSRS) who qualify for SSDI benefits would have a portion of these
benefits offset by the amount of FECA benefits received. 

FECA benefits and SSDI benefits cannot exceed 80 percent of an
individual's average current earnings before becoming disabled. 


--------------------
\5 The exception to the rule being FECA schedule award benefits for
the loss of, or loss of use of, a body part or function.  Individuals
can generally receive benefits from other programs and FECA schedule
award benefits at the same time. 


LONG-TERM DISABILITY CASES AND
PERIODIC ROLL MANAGEMENT PROJECT
========================================================== Appendix II

OWCP places employees with permanent disabilities or injuries that
have lasted or are expected to last for prolonged periods (over 1
year) on the periodic rolls.\1 By placing individuals with long-term
compensable disabilities on the periodic roll, OWCP can better ensure
that they receive regular payments of workers' compensation benefits. 
In addition to adjudicating new FECA claims, OWCP's claims examiners
are responsible for reviewing periodic roll cases to ensure that
payments are correct and that individuals continue to be entitled to
benefits. 

To address the growth in the number of periodic roll cases and the
rise in workers' compensation costs that occurred between 1980 and
1991, OWCP instituted the Periodic Roll Management (PRM) project in
1992 to assist its permanent staff in managing its long-term roll
cases.  For the PRM project, experienced claims examiners direct
teams of other examiners and support staff working under 4-year term
appointments.  PRM staff are responsible for screening long-term
disability cases for those needing medical examinations, medical and
vocational rehabilitation, and placement assistance.  Permanent
staff, relieved of labor-intensive roll maintenance, are able to
devote increased attention to the management of new FECA disability
cases, according to an OWCP official. 

In fiscal year 1992, OWCP initiated the PRM project in four of its
district offices.  In fiscal year 1995, the project was expanded to
five additional district offices.  Budget reductions in fiscal year
1996 caused OWCP to terminate the fiscal year 1992 teams short of
their terms.  The administration's budget calls for the PRM project
to be expanded to the remaining district offices in fiscal year 1997. 
Of the approximately 50,000 periodic roll cases scheduled for review
under this project, PRM teams had reviewed about 33,000 of them
through March 1996.  Benefits have been adjusted or terminated in
9,748 cases.  Total estimated savings through fiscal year 1996 for
the 9 offices that have implemented the PRM project are $182 million. 


--------------------
\1 Periodic roll cases are sometimes referred to as long-term roll
cases. 


INFORMATION ON FEDERAL AVIATION
ADMINISTRATION'S FECA
BENEFICIARIES
========================================================= Appendix III

The mandate for our study arose from a concern that the federal
workers' compensation program has become, in effect, a retirement
system for some workers' compensation beneficiaries.  This concern
arose during deliberations on the fiscal year 1996 appropriations for
DOT and the Federal Aviation Administration (FAA).  Since the
situation for DOT and FAA may be somewhat unique compared with the
federal government as a whole, we agreed with subcommittee staff to
study this issue on a governmentwide basis and to provide some
comparative information on FAA and DOT. 

According to a DOT official, the high costs for wage compensation for
air traffic controllers in FAA--due to their relatively high salary
bases--make DOT's FECA profile somewhat unusual.  This official
suggested that statistical averages may be somewhat misleading about
current trends because the averages reflect a large number of FAA
claimants who were added to the rolls in the 1970s.  This official
told us that increases in FECA costs for FAA have been below
governmentwide averages for the last 10 years. 

FAA's long-term FECA beneficiaries were unique when compared to
beneficiaries from all other DOT agencies or all other government
agencies.  FAA's FECA beneficiaries tended to be older, had higher
average compensation, and were more likely to have suffered from
certain occupational diseases and injuries. 

As shown in figure III.1, the percentage of long-term, totally
disabled FAA FECA beneficiaries in every older age category exceeded
the respective percentages of totally disabled beneficiaries from
other DOT agencies or from other government agencies.  Only 18
percent of FAA's 1,048 FECA beneficiaries were under 55 years of age,
compared to 44 percent for the 198 other DOT beneficiaries and 37
percent of the other 33,375 government beneficiaries.  Beneficiaries
from the rest of DOT tended to be somewhat younger than beneficiaries
from other government agencies.  If partial disability cases were
included, 19 percent of FAA's FECA beneficiaries were under age 55
compared to 40 percent for all FECA beneficiaries. 

   Figure III.1:  Percentage of
   Total Disability Cases on
   Periodic Rolls by Age for
   Selected Governmental Units,
   (Year Ending June 30, 1995)

   (See figure in printed
   edition.)

Source:  GAO analysis of Labor data. 

As shown in figure III.2, the average compensation for long-term,
total disability cases was considerably higher for FAA's FECA
beneficiaries than beneficiaries elsewhere in the government.  At
$42,642, it exceeded the average for beneficiaries from the rest of
DOT by about $14,800.  The governmentwide average of $24,103 (not
shown in figure) was 57 percent of that amount.  (Including
long-term, partially disabled beneficiaries in the analysis reduces
the average to $39,919 for FAA beneficiaries; the corresponding
governmentwide average of $21,490 was 54 percent of the FAA average.)

   Figure III.2:  Average
   Compensation for Total
   Disability Cases on the
   Periodic Rolls by Selected
   Governmental Units, (Year
   Ending June 30, 1995)

   (See figure in printed
   edition.)

Source:  GAO analysis of Labor data. 

FAA's FECA beneficiaries with total disabilities were more likely to
be on the rolls with certain injuries--mental disorders, heart
conditions, and hearing loss--than were other beneficiaries.  Figure
III.3 shows, for example, that FAA's FECA beneficiaries were over
five times as likely as governmentwide beneficiaries to be on the
rolls for a mental disorder.  The distribution for beneficiaries from
the rest of DOT was more similar to the governmentwide distribution
than that for FAA's FECA beneficiaries.\1

   Figure III.3:  Percentage of
   Total Disability Cases on the
   Periodic Rolls by Selected
   Injuries and Governmental
   Units, (Year Ending June 30,
   1995)

   (See figure in printed
   edition.)

Source:  GAO analysis of Labor data. 


--------------------
\1 However, the relatively small number (198) of beneficiaries
analyzed from the rest of DOT may make the small percent comparisons
sensitive to the presence or absence of a single case. 


MAJOR CONTRIBUTORS TO THIS
BRIEFING REPORT
========================================================== Appendix IV

GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C. 

Larry H.  Endy, Assistant Director, Federal Management and Workforce
 Issues
Edward R.  Tasca, Assignment Manager

DENVER REGIONAL OFFICE

Terry J.  Hanford, Evaluator-in-Charge


*** End of document. ***