Federal Managers Association
- FMA SUBMITS WRITTEN TESTIMONY ON FECA REFORM - July 26, 2011
Testimony for the Record
Before the United States Senate
Committee on Homeland Security and Governmental Affairs
Subcommittee on the Oversight of Government Management, the Federal Workforce, and the District of Columbia
July 26, 2011
Examining the Federal Workers’ Compensation Program for Injured Employees
Statement Submitted for the Record by
Federal Managers Association
Chairman Akaka, Ranking Member Johnson and Members of the Senate Subcommittee on the Oversight of Government Management, the Federal Workforce and the District of Columbia:
On behalf of the over 200,000 managers, supervisors, and executives in the federal government whose interests are represented by the Federal Managers Association (FMA), we would like to thank you for allowing us to express our views regarding reforms to the Federal Employees’ Compensation Act (FECA).
Established in 1913, FMA is the largest and oldest association of managers and supervisors in the federal government. FMA originally organized within the Department of Defense to represent the interests of its civil service managers and supervisors, and has since branched out to include nearly forty different federal departments and agencies. We are a nonprofit, professional, membership-based advocacy organization dedicated to promoting excellence in the federal government.
Established in 1916, the Federal Employees' Compensation Act provides workers' compensation coverage to nearly three million federal and postal workers around the world for employment-related injuries and occupational diseases. Benefits include wage replacement, payment for medical care, and medical and vocational rehabilitation assistance in returning to work. FECA is administered by the Office of Workers’ Compensation Programs (OWCP) at the Department of Labor (DOL). Although FECA is administered by OWCP, disbursements for an injured or disabled employee are charged back to the agency’s salary and expense account.
Since its inception in 1916, FECA has only been overhauled five times. The last of these major reforms occurred in 1974. FECA, like any program, must be periodically evaluated to make sure that it is adequately responding to a rapidly changing environment. OWCP is to be commended for the remarkable strides it has made in improving service to injured workers and returning injured employees to work. With the help of Congress even more could be done.
Federal Employees’ Compensation Act costs are a significant concern to federal agencies and federal managers alike. In 2010, total program costs were $2.78 billion. The charge back provision, instituted to make agencies accountable for safety, has led many managers to see their rapidly downsizing budgets tapped to pay for long-term disability cases. Currently, injured workers without dependents are compensated at a rate of 66 2/3 percent of income at the time of injury and those with dependents receive 75 percent. We at FMA would like to take this opportunity to discuss various reform proposals as well as put forth our own suggestions for reform.
S. 261 – The Federal Employees’ Compensation Reform Act of 2011
The Federal Managers Association applauds Senator Collins (R-Me.) for her willingness to tackle the issue of FECA reform, which is complicated and complex. FMA has long championed FECA reform, and we appreciate the Senator’s willingness to start a debate on the issue. However, we have serious concerns about S. 261, the Federal Employees’ Compensation Reform Act of 2011, as currently written.
Under the legislation, FECA recipients would transition to their respective retirement system at full Social Security retirement age. FMA is supportive of reducing the strain on agency budgets for recipients who are of retirement age, but the bill as written poses many concerns. We are primarily worried that employees in the lower grades and those who were injured early on in their careers would be devastatingly impacted financially.
While receiving FECA benefits, participants cannot contribute to Social Security, the Thrift Savings Plan (TSP), or the Civil Service Retirement and Disability Fund (CSRDF). Correspondingly, as the recipient is no longer on agency employment rolls, the agency does not contribute to any of the above retirement plans on behalf of the employee. Under the legislation, employees would be credited for years of service before receiving workers’ compensation. For employees who were injured early on in their careers, the financial impact of such a switch would be catastrophic. When receiving FECA benefits, the participant loses all possibility of promotions and raises, and they receive no service credit for the time spent on the FECA rolls. In short, the legislation as drafted could have serious financial implications for many of the FECA participants.
We at FMA support removing retirement-eligible FECA recipients from agency salary budgets, but S. 261 is not the answer. We look forward to working with Senator Collins to craft a sensible solution that will provide equitable benefits for FECA recipients as they approach retirement age.
H.R. 2465 – The Federal Workers' Compensation Modernization and Improvement Act
In July, the House Education and Workforce Committee approved legislation which would make much needed changes to the FECA program, but did not address the issue of retirement. The Federal Workers' Compensation Modernization and Improvement Act (H.R. 2465) provides updates to many outdated provisions in the FECA laws, and we at FMA support these changes. Specifically, the legislation expands FECA coverage for injuries as a result of a terrorist attack, increases compensation for facial disfigurement and funeral expenses, and eases the claims process for workers who sustain an injury in a designated zone of armed conflict.
Department of Labor Proposal in FY12 Budget
In the President’s Fiscal Year 2012 Budget, the Department of Labor proposed changes to FECA which would, according to the agency, save the federal government $400 million over a ten-year period. We at FMA encourage implementation of several of the proposals put forth by DOL, but also have concerns with the recommendation to provide recipients with 50 percent of their gross salary at the time of injury plus cost of living adjustments once they reach retirement age. We have the same concerns with this change as we do with the proposal put forth by Senator Collins. For one, there is potential for financial hardship for many recipients. We are not convinced, as DOL claims, that the benefits provided under this proposal closely mirror the average retirement benefit for employees. Additionally, under the DOL proposal, agencies would still be financially responsible for FECA participants after they reach retirement age, a change we would like to see made.
However, we at FMA support other various reforms suggested by the Department of Labor. Under the proposal, DOL would have authority to match Social Security wage data with FECA files without the consent of the recipient. This authority would further ensure beneficiaries are compliant.
Additionally, the DOL proposal recommends reducing FECA benefits to seventy percent for all recipients. We at FMA agree with DOL in the sense that the current structure provides a disincentive to return to work, and we also feel the disparate benefits based on dependents or marital status is discriminatory. We detail our views and suggestions for reform in this area in the next section of our testimony. DOL also suggests changes to the schedule award provision based on physical impairment in an injury, such as the loss of a limb. DOL suggests paying all schedule awards at a rate of 70 percent of $53,630 (the equivalent of the annual base salary of a GS 11 step 3), adjusted annually for inflation. The Federal Managers Association supports an across-the-board standardization for physical impairments and we also discuss this later in our testimony.
FMA RECOMMENDATIONS FOR REFORM
The Federal Managers Association makes the following suggestions for legislative FECA reform:
- Reduce the FECA benefit from 75 percent to 66 2/3 percent of income
- Establish a FECA retirement program
- Base benefit increases on employee pay adjustments, not the Consumer Price Index (CPI)
- Extend the right to resume employment from one to three years
- Eliminate anatomical loss disparity
Eliminate Inherent Disincentive to Return to Work
In 1949, FECA was amended to increase the basic compensation rate from 66 2/3 percent to 75 percent of income if the injured employee had dependents. Injured workers without dependents are still compensated at a rate of 66 2/3 percent of income. According to the Department of Labor, more than seventy percent of recipients are paid at the 75 percent rate.
Since FECA benefits are tax free, the compensation rate for those with dependents can actually increase an employee’s take home pay over what they would have earned from their regular paycheck. In fact, in 1998, the Government Accountability Office (GAO) reported that nearly 30 percent of recipients took in a higher income under FECA than when they were working. In the experience of FMA members, it is not unusual to see FECA beneficiaries collect more per pay period than their regular salary.
We at FMA also feel the current structure penalizes employees for their marital status as those without dependents receive less in compensation. In fact, several FMA members have commented that they feel this is discriminatory and would seek legal action if injured. The disparity was implemented in the 1940s when a household with two wage earners was uncommon and husbands served as the primary wage earner. In 2011, this is simply no longer the case.
The goal of FECA is to provide a stable source of income replacement for federal employees while they recover from their injury sustained on the job. Paying employees more to stay at home rather than to come back to work represents a significant disincentive to leaving the FECA rolls. Setting the maximum rate of benefits at 66 2/3 percent of income, regardless of dependents, would remove an inherent disincentive for injured workers to return to their jobs.
Establish a FECA Retirement System
Prior to 1974, employees receiving FECA benefits had their case reviewed and benefits possibly reduced upon reaching age 70. In 1974, Congress eliminated this provision. This change effectively opened the door for individuals collecting FECA benefits to continue to do so well past the age that they would have retired had they not been injured. Federal employee retirement benefits are substantially less than active service pay; however, this is not the case with FECA beneficiaries. According to DOL, 65 percent of FECA beneficiaries are over age 55. What is even more shocking is that 22 percent of the long-term claimants are over the age of 70. This is well past the average retirement age in federal service, yet agencies are continuing to pay for these individuals.
Because FECA benefits are tax-free, they are more generous than an individual could receive under the federal retirement system, providing an incentive for individuals to remain on the FECA rolls past when they would otherwise have retired. This also forces the agency to continue providing FECA benefits longer than they would have paid the employee’s salary. Many FMA members work in Department of Defense industrially-funded activities and must compete against the private sector for workloads and employees. The increase in overhead for having to pay FECA benefits past the age of retirement gives the government a significant competitive disadvantage compared to the private sector.
FMA recommends that FECA be amended to prospectively transfer the cost of FECA benefits for retirement age recipients from agencies to a separately funded account. While on FECA, we suggest employees and agencies contribute to this fund so recipients can transition smoothly. FMA additionally supports establishing a retirement category that identifies individual as compensation retirement eligible. We also support moving FECA recipients off their agency rolls and placing them on retirement rolls (at a pre-established retirement age) through this newly-established account.
Tie Benefit Increases to Active Employee Pay Adjustments
FECA, like many benefit programs, is structured to prevent benefits from being eroded by inflation by indexing benefits to increases in the Consumer Price Index (CPI). Federal employee pay adjustments, however, are based on wage growth in the private sector as measured by the Employment Cost Index (ECI). Since FECA benefits are income replacement, it would be more equitable to base increases on those given to active workers.
Extend Mandatory Re-employment Window to Three Years
From a management standpoint, FECA benefits greatly increase the cost of accomplishing the agency’s mission. In paying FECA benefits, agencies are essentially paying one active worker to perform a task while also compensating a FECA claimant for the loss of potential earnings. According to DOL, 85 percent of claimants return to work within the first year of injury, and 89 percent return by the end of the second year. Only two percent of claimants remain on the FECA rolls long term. Because some injuries take longer than one year to resolve, extending a FECA recipient's right to reemployment from one year to three years would enable agencies to reduce their costs by reinstating more injured workers and therefore, FMA supports extending a FECA recipient's right to reemployment from one year to three years.
Eliminate Anatomical Loss Disparity
Under FECA, injured workers are awarded compensation for permanent injuries sustained on the job based on their pay grade. This leads to a disparity in payments for workers with identical injuries but who are of different pay grades. For example, the schedule award for the loss of the use of an arm for a GS-2, step 1 is $120,102 while a GS-15, step 1 is eligible to receive $597,768. FMA supports the use of a schedule that is wage grade neutral. Although this may in some cases be more expensive than the present system, it is fundamentally an issue of fairness that all employees be treated equally for anatomical loses.
PERSONAL EXPERIENCE WITH FECA REFORM
FMA’s National Secretary Richard Oppedisano recently completed thirty years of federal service with the Department of the Army. Prior to his retirement, Dick served as Operations Officer/Chief of Staff in the Office of the Commander, US Army Watervliet Arsenal, Watervliet, NY. During his time at Watervliet, he established a very successful FECA review program with management and union support. We at FMA would like to provide you with a first-hand account and overview of the program in hopes it will encourage other federal agencies and installations to follow suit.
When I become Chief of Placement and Recruitment at Watervliet, I instructed my staff to review each FECA recipient’s file to determine for what positions they qualified and their physical limitations. For example, a machinist (four-year apprentice graduate) could qualify for production comptroller, quality control specialist or an administrative position within the manufacturing division which did not require heavy lifting.
Additionally, for every vacancy that came through my office, my staff would review the opening to see if we had anyone on FECA who may qualify for the vacancy. Often, the position had a full performance level identified and would be a promotion opportunity for someone who was working full time. The union had concerns with this so we made an agreement that the vacancy would be capped at a level equal to the journeyman level.For any further promotion opportunity the vacancy would have to be advertised and any and all employees could apply and receive consideration.
If a match occurred, we would refer the FECA recipient to the selecting official. If the individual was selected (or someone else from the list of FECA employees), we would inform OWCP and the FECA entitlement would be reduced by the salary of the position in which the employee was placed.If the selecting official did not select the FECA recipient, the reasoning would be submitted to me in writing and if I concurred we would continue recruiting for the position. If I did not concur, and most of the time I did not, I would put my objections in writing and return the referral notice back to the selecting official for placement.If the selecting official still did not agree to select the FECA recipient, we would set up an appointment with the Commanding Officer and after hearing both sides he would make the final decision.Ultimately, we did not have many Commander meetings.
The bottom line was that this program was so successful that the arsenal saved more than $700,000 in three years.
We at FMA have long championed reform to the FECA program, and we appreciate the newfound attention Congress is placing on reform proposals. We hope that FMA’s insights and recommendations have contributed to your oversight and understanding of this important program. FMA stands ready to work with the Committee and other Members of Congress to effect common sense FECA reforms.