Overly-generous disability benefits create a disincentive for some federal workers injured on the job to return to work or ever retire, a top Department of Labor official told a House subcommittee Wednesday.

Federal employees can receive more money on disability than their counterparts who keep working under the current system, said Gary Steinberg, acting director of DOL's Office of Workers' Compensation Programs.

They also make more by staying on disability once they reach retirement age than they would by going onto a federal pension plan.

That unfairness is why DOL is asking Congress to cut maximum benefits under the Federal Employees' Compensation Act, he said. The changes could save taxpayers $500 million over 10 years.

Most disabled workers now draw 75 percent of their prior pay, tax-free, which is more than any comparable plan offered by states to their employees who are hurt on the job. DOL's proposal would cut the rate to 70 percent, which would remain tax-free.

"With the benefits being higher at 75 percent and remaining at that level at retirement age, we believe that is a disincentive to people going back to work," Steinberg told the workforce protections subcommittee of the House Education and Workforce Committee, which is examining reforms to FECA.

"That would be a disincentive to people going through the activities of getting healthy and going back to work and I think we want to avoid any disincentives."

Disability fraud — a three-part series

Part I: Experts say fraud rampant in federal worker disability program

Part II: Disability can be easy street for federal bureaucrats

Part III: Paralysis in Congress keeps federal worker disability fraudsters cashing the checks

The Washington Examiner reported in a three-part series last month that the FECA program is vulnerable to fraud and abuse by federal employees who would rather draw lucrative disability benefits than go back to work.

The FECA fund covers virtually all federal workers, and costs taxpayers about $3 billion per year. It is managed by DOL.

Subcommittee Chairman Tim Walberg, R-Mich., cited the Examiner series in saying reforms are needed to prevent fraud and encourage those who are able to return to work.

"The Washington Examiner reveals a program plagued by waste, abuse and inefficiencies," Walberg said in his opening statement. "This is not acceptable, especially at a time when our nation faces a debt crisis.

"Creating a program that prevents abuse by bad actors, reflects the realities of the 21st Century, and provides adequate support to workers will require policy makers to make some tough choices. But we all agree maintaining the status quo is not an option."

The DOL proposal would cap maximum benefits for all workers at 70 percent of what they were making when injured, and they would remain untaxed. Under the current system, workers without dependents draw two-thirds of their old pay. Those with dependents, including a spouse, get 75 percent.

Most plans for state workers are set at two-thirds of pay, regardless of dependents. The FECA benefits are more generous than any state-level plan, and would remain among the most generous even with the changes sought by DOL, Steinberg said.

DOL also proposes cutting benefits to 50 percent of pay once the worker reaches retirement age, an effort to get them into standard retirement and off disability.

More than 10,000 FECA recipients are at least 71 years old, and a half dozen are more than 100. FECA has no time or age limit, as many state plans do.

Government Accountability Office reports show cutting benefits to 50 percent when the worker reaches retirement age would make take-home pay for FECA recipients similar to what they would get from their federal retirement plans.

However, that would vary greatly with an individual's circumstances.

Rep. Joe Courtney, D-Conn., the subcommittee's ranking Democrat, said the DOL proposal would hurt workers by leaving them financially worse off than they would have been if they'd not been hurt on the job.

Injured employees miss the opportunity for pay hikes and promotions, so they are already penalized, he said.

"It violates the basic principle underpinning FECA which is to ensure that workers are made whole if they are injured on the job," Courtney said. "The bottom line is no one should be better off or worse off than if they had not been injured."