FERS Disability Insurance For Government Workers

The Federal Employee Retirement System (FERS) is a retirement program that provides benefits to Federal employees from three different sources (Basic benefits, Social Security and Thrift Savings plan) and is paid in multiple ways, one of which is through Disability income benefits. As a Federal Government employee supported by FERS, this is where your Disability benefits can be drawn from. We have provided information below to assist Federal employees in better understanding the Disability benefits they have. This will explain how to qualify for benefits, how to calculate your coverage and how to best protect your income.

How To Qualify For FERS Disability Benefits: There are a few requirements that must be satisfied in order to qualify for FERS disability benefits.

You must have completed at least 18 months of creditable Federal service according to FERS.

While employed in a position subject to the retirement system, you must have become disabled for useful and efficient service in your current position, due to an injury or illness.

The disability must be expected to last at least one year.

Benefits must be applied for prior to separation of service or within 1 year thereafter.

You are required to apply for social security benefits.

How To Calculate Your FERS Disability Benefits: FERS disability benefits are computed in different ways depending on your age and your number of completed years of service. Once you have qualified for benefits, they are computed as follows.

Benefits for the first 12 months of disability:
You are eligible for 60% of your high-3 average salary minus 100% of your Social security benefit for any month in which you are entitled to Social Security benefits.

Benefits after the first 12 months of disability:
You are eligible for 40% of your high-3 average salary minus 60% of your Social Security benefit for any month in which you are entitled to Social Security disability benefits.

Benefits after age 62:
Depending on your number of years of service, you are either eligible for 1% or 1.1% of your high-3 average for each year of service.

Why FERS Disability Falls Short: There are three primary concerns with FERS Disability

Taxation of benefits - FERS Disability benefits will be taxed as ordinary income because they are employer-provided. Therefore, although Federal employees may be eligible for coverage equal to 60% of income, it will not actually be equal to 60% of income after being taxed.

Benefit reduction from 60% to 40% - The FERS Disability benefit reduces from 60% coverage in the first year of a disability claim to only 40% each year thereafter. It is fair to say that most people cannot survive on 40% of their income, especially after being taxed.

Social Security Offset - FERS Disability benefits will offset dollar-for-dollar, with up to 100% of all Social Security benefits received in the first year of a disability claim and up to 60% of all Social Security benefits each year thereafter.

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Personal Disability Insurance For Federal Employees

Federal Government employees are able to further protect their income by obtaining Individual Disability insurance. Obtaining an individual Disability policy allows Federal workers to cover the existing gaps, which we’ve pointed out, in the FERS coverage. Individual Disability benefits are not taxable and will generally not offset with Social Security benefits.

How to obtain Individual Disability coverage:
In order to obtain individual Disability insurance a person must apply with an insurance company. Applying for coverage will consist of completing an application, providing medical history and providing tax returns as proof of income. Similar to any individual applying for coverage, you can expect that this full process will take anywhere from 3-8 weeks.

As a Federal Government employee there are certain limitations you will face in regard to the disability insurance policy, policy riders and the level of coverage you can obtain. The primary determining factor will be years of completed service:

Federal employees with less than 18 months of service – Mild Limitations

Federal employees with more than 18 months of service but less than 10 years – Mild Limitations

Federal employees with 10 or more years of service – Most Limited

A person’s income is his/her most valuable financial asset and the fact of the matter is that most people cannot survive on 60% or 40% of their normal income. Obtaining an individual Disability insurance policy allows people to protect themselves, their family, quality of life and their future. As a Federal employee, we encourage you to get informed about the options available and make efforts to properly protect your income and your family. Take the first step to improving your Disability insurance today and call 1-800-817-4522.

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