Understanding FERS Disability Retirement – Part I

The federal government allows employees who are unable to work because of a mental or physical condition to retire under a disability retirement. Optional disability retirement is available for employees who are covered by either the Civil Service Retirement System (CSRS) or those covered by the Federal Employees Retirement System (FERS).

In the first of two columns discussing disability retirement rules for FERS employees, this column presents:

1. general statutory requirements that qualify a FERS employee for a FERS disability retirement annuity;
2. criteria that must be documented to establish eligibility for a FERS disability requirement;
3. when the application for FERS disability retirement must be filed;
4. the criteria that the Office of Personnel Management (OPM) considers in determining whether to approve an application for disability retirement; and
5. electing between a disability retirement and workers’ compensation benefits.

It is in the best interest of both employees and the federal government for employees to remain gainfully employed in their current job if they can provide useful and efficient service without endangering themselves, other employees, or government property. Disability retirement should be the very last option and used only when attempts have been made to preserve an individual’s employment and those attempts have failed.

General Eligibility Requirements for FERS Disability Retirement

An employee will be eligible for a disability retirement annuity only if the employee is covered by FERS and disabled while serving in a position subject to FERS contributions. The employee must also have at least 18 months of creditable civilian service. This includes service for which full FERS employee contributions via payroll deduction (0.8 percent, 3.1 percent or 4.4 percent of the employee’s wages each pay date) were made and not refunded, non-deduction (temporary or intermittent service) that was performed before Jan. 1, 1989 and a full deposit was made and service for which full Social Security (FICA) taxes and full or reduced CSRS deductions were taken and not refunded.

Disability Criteria

Once the agency determines that an employee meets the general statutory requirements for disability criteria, the agency and employee must then document that the employee satisfied the disability criteria required by regulations. These disability criteria are:

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

• A medical condition that is defined as a health impairment resulting from disease or injury, including psychiatric conditions;

• The duration of the medical condition (both past and expected) and the expectation that probably the disability will continue for at least one year from the date the application for disability retirement has been filed;

• The inability of the employing agency to reasonably accommodate the employee’s medical condition; and

• The agency has considered the employee for reassignment to any vacant position within the employing agency and commuting area, at the same grade or pay level for which the employee is qualified.

The employee is responsible for furnishing sufficient medical evidence to support the application for disability retirement. The employee’s medical documentation will normally be information from a personal physician. If the employee’s agency conducts the examination, the results of the examination must be furnished with the application.

Affected employees should note that disability retirement will not be approved when persistence of the medical condition that has caused the employee’s service deficiency results from a failure or refusal to accept non-invasive treatment. The non-invasive treatment would ordinarily be expected to support activities of daily life. This is the case unless acceptance of treatment conflicts with the employee’s religious beliefs.

OPM will not approve an application for disability retirement when there is reasonable expectation that recovery will occur within one year after the filing of the application for disability retirement. A disability annuity is appropriate only when all the criteria have been met.

Filing the Disability Retirement Application

The applicant for FERS disability retirement must complete SF 3107 (Application for Retirement) and is also required to apply for Social Security disability benefits. A receipt or a notice of approval or disapproval of disability benefits from the Social Security Administration should be submitted with the application for disability retirement or as soon as possible thereafter.

The following documents also must accompany the application for disability retirement: (1) SF 3105A (Employee Statement of Disability); (2) SF 3105B (Supervisor’s Statement); (3) SF 3105C (Physician’s Statement); and (4) SF 3105D (Agency Certification of Reassignment and Accommodation Efforts).

OPM Review for Approving Disability Retirement

A determination of disability is made only when the information submitted along with the application for disability retirement indicates that there is a service deficiency caused by disease or injury of enough nature to prevent useful and efficient service by the employee. OPM will allow a disability retirement claim only if the submitted documentation clearly and specifically meets the criteria as previously discussed.

OPM’s Disability Division issues the decision either allowing or disallowing the disability application. Approval of an application means that the application and the supporting documents meet the criteria for disability retirement. Disallowance of an application means that the application and supporting documentation do not meet the criteria for approval. Disallowance of an application does not necessarily mean that the employee may not be disabled nor that the agency may not have difficult circumstances to resolve. It simply means that the documentation does not demonstrate that the criteria for disability retirement have been met. Notice of either an allowance or a disallowance decision will be sent to both the employee and the employee’s agency.

Separated employees who have applied for disability retirement should not be on annual leave. If the employee is on annual leave, separation should be as soon as possible, but usually no later than the end of the pay period in which the notice of approval is received.

The agency should consult with the employee to determine whether to use any or all the employee’s unused sick leave hours in order to extend the employee’s federal service, or whether separation should be immediate using the unused sick leave to extend the FERS length of service in the FERS annuity computation.

An employee whose disability retirement application is disallowed may request reconsideration of OPM’s initial decision. A notice of the initial decision gives full instructions on how to request reconsideration.

OPM has the right to review a disability annuitant’s current medical information and/or undergo annual re-examination until the annuitant reaches age 60. OPM may request such information from the annuitant to determine whether the annuitant has recovered from the disabling condition at retirement.

If an annuitant fails to respond to OPM’s request for new medical information, then payment of the disability annuity may be suspended until eligibility for continuance of the disability is adequately established.

If on review of current medical information, a disability annuitant is found by OPM to have recovered from the disabling condition(s) that were present upon approval of disability retirement, then disability annuity will be discontinued. This will occur one year from the date of the original medical examination on which OPM recovery funds was based, or on the date of re-employment in federal service, whichever occurs first.

Electing Between a Disability Retirement and Workers’ Compensation Benefits

An employee may be eligible for both a FERS disability and workers’ compensation benefits. Whether or not the employee may receive the workers’ compensation benefits concurrently depends on the type of compensation paid by the Department of Labor’s Office of Workers’ Compensation Program (OWCP).

It is essential that the employee apply for retirement and workers’ compensation benefits simultaneously, even if it is apparent that workers’ compensation benefits would be greater. Applying for disability retirement: (1) protects the rights of the employee in situations in which the OWCP cuts back or eliminates workers’ compensation benefits; and (2) protects the rights of potential survivors to benefits in the event of the employee’s death.

The OWCP pays two types of compensation that will determine whether an employee can receive both a disability annuity and workers’ compensation benefits. If the OWCP pays an eligible employee a “non-scheduled” award in which the injured employee is compensated for loss of earnings, then the employee cannot request a “non-scheduled” award, a disability annuity and workers’ compensation benefits simultaneously. The employee may elect the benefit that provides the greater advantage.

The OWCP will pay a “scheduled award” In which the injured employee is compensated in a lump sum payment for the loss of the use of a body part. An employee who receives a scheduled award may receive a disability annuity and workers’ compensation simultaneously.

Some other criteria in the case of choosing workers’ compensation benefits and/or disability annuity:

• OWCP benefits are federal and state income tax free whereas almost all the disability annuity is subject to federal and state income taxes.

• If a disability annuitant elects to receive OWCP benefits, then the disability annuity is suspended during the period the employee is receiving these benefits. If OWCP benefits are discontinued for any reason, then the annuitant is entitled to begin receiving the disability annuity from OPM upon termination of OWCP benefits.

• An individual who elects to receive OWCP benefits in place of a disability annuity is eligible to receive a lump sum payment of his or her FERS contributions made via payroll deduction. If the employee applies for and receives the lump sum payment, then the right to a disability annuity and the right of survivors to FERS survivor annuity benefits is lost unless the individual is subsequently re-employed and establishes a new annuity right, based upon subsequent service and repayment of FERS contributions.

• An individual receiving OWCP benefits must notify OPM promptly of any change in the reason for OWCP award. For example, the benefit is changed from a scheduled award to a non-scheduled award. The individual will be liable for any overpayment of annuity that occurs due to dual payment of benefits while receiving a non-scheduled award.

• Benefits to a surviving spouse. FERS survivor annuity benefits to a spouse are payable under workers’ compensation only if the employee’s death was 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 benefit. This assumes the deceased FERS employee had at least 10 years of FERS service and that the deceased employee had applied for and had been awarded a disability retirement even if the disability annuity was suspended for receipt of compensation. But the law prohibits receipt of both death compensation benefits and a survivor annuity benefit to a surviving spouse. The surviving spouse must elect which of the two benefits to receive. The exception to this law is that an eligible spousal survivor annuitant may receive a scheduled award or a third-party settlement and a FERS survivor annuity covering the same period. If the deceased (former employee) was receiving workers’ compensation benefits at the time of death but had not made a timely application for disability retirement, then no FERS spousal survivor annuity can be paid.