The measure requires that retirement-age employees who receive money under the Federal Employees' Compensation Act be paid no more than they would under normal retirement benefits.
Those with a disability deemed permanent and total -- about 25 percent of FECA beneficiaries -- would not see a change to their benefits, according to Sen. Collins, R-Maine, a champion of the measure.
The provision is part of a bill that is advancing through the Senate and is aimed primarily at reforming the U.S. Postal Service, but FECA change would affect workers' compensation for all federal employees, not just for postal workers.
Collins, who put forth a similar change with legislation she introduced in February, cited estimates by the Office of Management and Budget that the change would save the government $500 million over 10 years, with much of those savings going toward USPS, the largest participant in FECA.
National Treasury Employees Union, the National Association of Letter Carriers and the American Postal Workers Union opposed the provision.
"The Federal Employees Compensation Act is a lifeline to federal employees hurt in the course of their service to the nation, and it is unconscionable to consider cutting its benefits," said NTEU President Colleen Kelley.
The change is "grossly unfair," an NACL statement said. APWU called the move "deeply troubling."
Sen. Daniel Akaka, D-Hawaii, a member of the panel that advanced the postal legislation Wednesday, suggested removing the provision from the bill, but the committee voted down his amendment.
"The savings expected from these changes would have very little effect on the Postal Service's deficit," Akaka said. "We need to take a closer look at comprehensive reform to make sure we get it right and reduce waste and fraud."
Sen. Joseph Lieberman, I-Conn., Collins and the governmental affairs committee also commissioned a Government Accountability Office report, released Wednesday, to determine causes and possible solutions to federal workers' compensation fraud.
The report found that much of the fraud in the FECA system is due to lack of access to data, which prevents agencies from monitoring claims. Self-reported data on wages and dependent status furthers the risk of fraud, the report said.
Another issue, according to USPS officials cited in the report, is many U.S. attorney offices will not prosecute cases with fraud less than $100,000, and most allegations fall below that amount.
The agencies the report focused on -- USPS, the Homeland Security Department, several branches of the military, and the Labor Department, which runs the FECA program -- agreed with the findings.
GAO said it would follow up with best practices and potential risks, and plans to conduct two other FECA-related investigations, including one related to those who are retirement-age and receiving benefits.