What is a Disability Retirement under FERS?
Unlike the Immediate, Deferred, or Postponed Retirements, the Disability Retirement is a unique type of retirement only offered to federal employees who become disabled and can no longer work in their respective positions. Unfortunately, anyone can become disabled at any age; whether that’s physically and/or mentally.
The FERS Disability plan provides income to those who have become disabled before age 62 and are not eligible for an Immediate Retirement. It also allows someone to retire who might not have normally had enough years of creditable service to do so, at least without having a permanent penalty or reduction to their pension.
Once age 62, OPM then calculates the Disability benefits differently and considers the federal employee to have a Disability Retirement under FERS. It is also possible for a disabled federal employee to qualify for the Disability Retirement younger than 62 if he or she has met the qualifications of an immediate voluntary retirement (MRA with 30 years of service, or Age 60 with 20 years of service).
Who is eligible for a Disability Retirement?
OPM has very clear and specific requirements for how to qualify for Disability benefits. Below is taken directly from OPM’s website on what makes someone eligible for benefits (source at the end of the article):
- You must have completed at least 18 months of Federal civilian service which is creditable under the Federal Employees Retirement System (FERS).
- You must, while employed in a position subject to the retirement system, have become disabled, because of disease or injury, for useful and efficient service in your current position.
- The disability must be expected to last at least one year.
- Your agency must certify that it is unable to accommodate your disabling medical condition in your present position and that it has considered you for any vacant position in the same agency at the same grade or pay level, within the same commuting area, for which you are qualified for reassignment.
- You, or your guardian or other interested person, must apply before your separation from service or within one year thereafter. The application must be received by either OPM or your former employing agency within one year of the date of your separation. This time limit can be waived only if you were mentally incompetent on the date of separation or within one year of this date.
- You must apply for social security disability benefits. Application for disability retirement under FERS requires an application for social security benefits. If the application for social security disability benefits is withdrawn for any reason, OPM will dismiss the FERS disability retirement application upon notification by the Social Security Administration.
What are the Pros and Cons of a Disability Retirement?
The great part about the FERS Disability benefits is that they provide federal employees with a portion of their income for the remainder of their disability. Let’s suppose that Bob is 50 and has been a federal employee for the last 15 years. Bob suddenly is injured in a car accident and is no longer able to perform the normal duties of his job at work. Because he has at least 18 months of service and meets the eligibility criteria, then these benefits would last for the rest of his life, assuming that his disability continued at least until age 62. Once age 62, OPM would convert Bob’s disability income to Disability Retirement income, and Bob would receive a pension that would last the rest of his life. Bob’s pension under a Disability Retirement would include the years that he was disabled as a creditable service. This would equal 12 years since he was disabled starting at age 50. His total years of creditable service would be 27; 15 years for when he was working when he wasn’t disabled, and the 12 years that he was disabled.
Someone could theoretically start working for the federal government in their 20s, work for only 18 months, become disabled and start receiving disability income under FERS up until their age 62, and all of that time counts towards calculating the pension they would receive for the rest of their life.
Additional benefits that the Disability Retirement provides are that retirees are able to keep their Federal Employee Health Insurance (FEHB) and other insurances, such as Federal Employee Group Life Insurance (FEGLI), Dental, Vision, etc, into retirement. They also can still leave survivor benefits to their spouse, as well as have the cost of living adjustments (COLAs) for their pensions that begin at age 62, or for those who meet the criteria to retire earlier than 62 with an immediate voluntary pension.
When we help clients plan to apply for Disability Retirement, we sit down and estimate what their benefit will be, as well as discuss timelines. One thing we make sure to plan for would be the time period between becoming disabled and not being eligible for the Disability Retirement at age 62 (or younger if you meet the criteria for an immediate voluntary retirement). In this case, the disability income that a person would receive would be 60% of their salary for the first 12 months, and 40% of the salary after 12 months, which is reduced by any Social Security Disability benefits that they are receiving.
For a lot of people, this reduction of income they are used to receiving could be difficult to adjust to, especially for younger employees who have years or decades left until they qualify for the Disability Retirement under FERS. Some solutions could include having a large emergency fund or possibly getting a supplemental disability insurance policy with a private insurance company to cover the gap between what you’re used to making vs. what the income you would receive under the FERS Disability income benefits.