The reality is, most Federal Employees don’t have any idea what their long term disability plan would pay if they got sick or hurt. Don’t get me wrong. I think it is great that the Federal Government has a plan in place at no cost to the employees to pay them if they get sick or hurt. But, these federal employees carry around this false sense of security when it comes to their Disability Income Plan. After reviewing the facts about what benefits are actually paid out, there could potentially be a big problem for most of these employees if they had any kind of a long term illness or injury.
Federal Employees are covered under a plan called, Federal Employees Retirement System (FERS). It pays the employee 60% of their income (taxable) to the sick or injured employee for the first 12 months after a 30 day wait. Then the benefit drops to 40% after 12 months and benefits can be offset up to an additional 60% of what is received by Social Security.
I recently spoke with a 43 year old client of mine that is an Investigator with the Department of Labor. She told me that she has been with the DOL for 8 years and would probably be there until she retires. We sat down and did the math together on what here benefits would be if she got sick or hurt and couldn’t work. Her current taxable monthly income is $7,850. If she were to get sick or hurt for a period over 1 year, her FERS Disability Plan would pay her, $3,140 taxable income until she is 62 years old. After a modest combined tax rate of 25%, her net monthly income would be $2,355. Her exact words were, “I had no idea. I could barely make my Mortgage Payment with that”. I then reminded her that if she qualified for social security, her FERS benefits could be reduced by up to and additional 60% of what she receives from Social Security. That’s the Shocking Reality.
There are currently over 2,697,000 civilian federal employees with Disability Income Protection under the FERS plan. Over 84% of those do not carry any supplemental coverage.