The 11 -- including 10 USPS employees and one U.S. Navy civilian employee -- falsely claimed to be injured or disabled, and some also failed to report income they were getting despite saying they couldn't work, the IG said in a statement.
Among the USPS employees, Shonta Holmes submitted a disability claim in 2012 saying carpal tunnel syndrome prevented her from working. Holmes began receiving federal disability benefits in 2004, and a July 2012 doctor's report confirmed her claims, saying she was "permanently and totally disabled," and thus unable to work anymore.
Yet, an investigation from October 2011 to September 2013 found Holmes shopping, running errands, boxing and lifting weights and working out at a gym with a personal trainer.
Holmes had received $426,000 in federal disability benefits as of May 3, according to the inspector general.
Ronald J. Werner, a civilian firefighter with the U.S. Navy, submitted a claim in 2008 when he stopped working, saying he had suffered a knee injury a few years prior.
In May 2013, a doctor's report said he was "permanently unable to work" due to a "total knee replacement," thus unable to among other activities, sit, walk, stand, reach, twist, bend or drive a car to work, the inspector general said.
But investigators often observed Werner near a truck with a logo reading "Werner's Home Improvements," entering and shopping in home improvement stores, and loading and unloading various building construction materials.
Werner put more than $180,000 in home improvement store purchases on his credit card between 2010 and 2013, and he was praised by a store employee as "highly recommended."
Between April 2008 and March of this year, Werner received $341,000 in federal disability benefits.
Ten of the 11 defendants were taken into custody Wednesday in New York. The 11th was arrested April 17.
All are charged with theft of government funds, which carries a maximum sentence of 10 years in prison, and federal workers' compensation benefits fraud, carrying a maximum of five years.
The 11 employees range from 40 to 66 years old and reside in either New York or New Jersey.
USPS and other federal employees are covered by the Federal Employees' Compensation Act "which provides tax-free benefits to civilian federal employees who sustain injuries or an occupational disease as a result of their employment," according to the inspector general.
USPS is the largest participant in FECA, paying more than $1 billion in benefits annually. In 2013, a three-part series -- "Free Ride Feds" -- by the Washington Examiner's Mark Flatten exposed rampant fraud in the program.