The Federal Employee Retirement System (FERS) is a 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 retirement benefits. As a federally employed physician under FERS, this is where your disability benefits can be drawn from. We have provided information below to help federally employed physicians understand the income protection they have through work and available individually.
How To Qualify For FERS Disability Benefits
There are a few requirements that must be satisfied in order to qualify for FERS disability benefits.
- Must complete at least 18 months of creditable Federal service.
- 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 May Fall Short
While having a basic level of coverage can be nice, there are several limitations that federally employed physicians should know about their benefits through FERS.
- 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.
- Strict Eligibility Criteria: Qualifying for FERS disability is not guaranteed. Employees must prove they are unable to perform their current job due to a medical condition expected to last at least one year.
Private Disability Insurance for FERS Physicians
For federally employed physicians under FERS, a private disability insurance policy allows you to more adequately protect yourself, your family and your future income by supplementing the percentage of income that FERS does not cover. Our firm works with a number of insurance companies that offer high quality disability insurance to federal employees.
How to Obtain Individual Disability Coverage
In order to obtain individual disability insurance, federal employees must apply to an insurance company through an agent or broker, which includes completing a paper application, medical screening and providing proof of income. The options available to federally employed physicians are partially based on your number of completed years of service:
- Federal employees with less than 18 months of service – few limitations
- Federal employees with less than 10 years of service – mild limitations
- Federal employees with 10 or more years of service – limited to select carriers
Advantages of Individual Disability Insurance
- Enhanced policy features and definitions that make it easier to qualify for benefits
- Individual policies do not offset with SSDI, FERS or other disability benefits
- Private policies are portable in case you leave federal service
- Benefits on private policies are generally paid income-tax free
This promotional information is not approved or endorsed by the Federal Employee Retirement System. Neither M.R. Insurance Consultants, Guardian nor its affiliates are associated with the Federal Employee Retirement System or the Division of Retirement. FERS information is based upon information available at the time of publication but is subject to change. Additional information can be found on the OPM website.
