Part three of a three-part series

Getting federal employees off disability and into retirement while closing off opportunities for fraud has proved all but impossible for President Obama and his immediate predecessor, as well as for Congress.

A proposal to curb the lucrative benefits paid to federal workers injured on the job far into their retirement years passed the Senate last year on a lopsided, bipartisan vote. It failed late in the session, largely because it got attached to a more controversial postal reform bill.

The change could have saved taxpayers $1.2 billion over 10 years, according to the Congressional Budget Office.

Prospects for renewed efforts this year are uncertain. So government workers who qualify can continue to draw disability payments that typically exceed what they would get if they stayed on the job until they retired by about 26 percent.

The workers' compensation plan set up by the Federal Employees' Compensation Act was meant to provide temporary wage replacement and medical treatment for employees injured on the job.

It has become a generous retirement plan that creates a disincentive to convert to a regular federal pension once the worker is eligible, according to a series of government reports.

Current law creates "perverse incentives that encourage employees to remain on workers' compensation after normal retirement age," said Sen. Susan Collins, R-Maine, who sponsored the unsuccessful reform legislation.

Collins' plan would have required federal employees on disability to convert to their federal retirement plan once they reach the age of full eligibility as defined by Social Security. For most workers, that is between 65 and 67 years old.

Disabled workers on FECA typically collect 75 percent of their regular pay, tax-free. The two main federal pension plans pay about 60 percent, and the money is taxed.

For years, the Department of Labor, which runs the FECA program, has pitched legislation to cut benefits and create an incentive to retire. Maximum benefits for all disabled workers would be capped at 70 percent and would drop to 50 percent at retirement age.

The two plans were merged into one by the Senate Homeland Security and Government Affairs Committee, which deals with rules governing federal employees.

The committee's version capped maximum benefits for all disabled workers at two-thirds of their old pay, which is in line with most state government plans for their workers. It cut benefits to 50 percent at retirement age, exempting those eligible workers already in the system prior to enactment.

The reforms were attached to a more sweeping bill to help the financially ailing U.S. Postal Service cut costs, which included controversial provisions like allowing cutting out Saturday delivery. The post office is the largest user of the FECA fund, accounting for about 40 percent of its costs.

The bill passed the Senate with bipartisan support, but a related measure failed in the House. Collins has indicated she will try again but has not revealed specific plans.

The only significant opposition to the FECA changes came from government employee unions. Injured workers are not eligible for the promotions and pay hikes they would normally get on the job, and so receive smaller retirements, union officials argued.

The Senate bill also did not draw a distinction between the two different retirement plans that cover most federal workers. The Civil Service Retirement System, adopted in 1920, pays retired workers about 60 percent of their old salaries. They are not enrolled in Social Security.

The newer Federal Employees Retirement System, which covers workers hired since 1987, reaches that same 60 percent level through a combination of a government pension, Social Security participation and matching contributions to retirement accounts.

Since the latter two components are based on earnings, not income, those workers in FERS injured on the job earn no Social Security credits or savings matches when not working.

That means some workers will take home far less money under FERS than they would on disability, according to union opponents, a concern echoed by the Government Accountability Office.

"If they are suffering a penalty throughout all of their retirement years because they suffered an injury, that's not right," said Sally Davidow, spokeswoman for the American Postal Workers Union.

"These people are not making gobs of extra money. They are making what they would have made had they not been injured. They are not the modern-day equivalent of the welfare queen," Davidow said.

On the House side, there was no bill to make significant FECA changes. Rep. John Kline, R-Minn., chairman of the House Education and Workforce Committee, sponsored a bipartisan measure that made minor changes to the law, but did not address benefit rates or incentives to retire.

The idea was to pass something all sides agreed to, Kline told the Washington Examiner. Tougher reforms, including a mandatory retirement age, were to be handled in a follow-up bill.

Kline's committee asked the Government Accountability Office to study how various proposals in disability rates would affect workers, but the reports were completed too late to help pass a major reform bill, Kline said.

The GAO reports concluded that cutting benefit rates would reduce payments to some recipients, with the degree varying based on individual circumstances.

Kline said he will develop a more comprehensive bill reforming benefit levels and retirement incentives that he hopes will gain bipartisan support.

"We have to ensure taxpayer dollars are spent wisely and federal policies aren't promoting bad behavior," Kline said. "However, we also must ensure those harmed while employees of the federal government get the support they need. Striking that balance is not easy."

Go here for part two of this series.

Go here for part one of this series.