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A proposal in the president’s 2011 budget sparks new debate on age caps for federal employees who receive workers’ comp.

Tucked away in President Obama's fiscal 2011 budget blueprint is a proposal that reignites a decades-old debate over whether the government should impose an age cap on compensation to federal employees with job-related illnesses or injuries.

The administration estimates that it can save more than $400 million during the next decade by overhauling the 1916 Federal Employees Compensation Act, which provides federal workers up to 75 percent of their basic pay, adjusted for inflation, if they are injured on the job, or suffer from a job-related illness -- unless or until they recover. In exchange, employees give up the right to sue the government for certain damages, such as pain and suffering. Private sector workers' compensation claims and benefits differ by state.

The Terminations, Reductions and Savings volume of Obama's budget plan includes a recommendation to end full FECA benefits for future recipients when they reach retirement age; instead the government would provide them retirement annuity-level benefits. Other proposed reforms include streamlining claims processing and allowing the government to recover compensation costs from third parties involved in the injury. It does not appear that the proposal would affect current retirement-age FECA recipients.

Lawmakers and other government officials long have criticized the lack of an age limit on FECA benefits, claiming the system is supposed to replace lost wages, not provide money for retirement. Current law provides a strong incentive for recipients to avoid retirement and instead continue collecting FECA payments, long after they would have otherwise retired, critics maintain.

Obama is not the first president to propose reforming FECA, which is run by the Labor Department. Congress has debated the issue since at least the early 1980s, and previous Labor inspectors general have supported an age cap. States also often impose compensation caps on age.

But the National Active and Retired Federal Employees Association opposes such caps.

NARFE Legislative Director Daniel Adcock said the claim that FECA recipients are overpaid was dubious. He noted that FECA payments take into account inflation only -- not the possible raises, promotions or bonuses an employee could have received on the job.

"Given the challenge of determining what their retirement benefit would have been, [the proposal] could substantially reduce their incomes," said Adcock, acknowledging that the current system is "imperfect" but so far is the best way to care for injured federal workers. He also expressed skepticism over the administration's savings claims. If injured workers are kept in the government's retirement system, agencies would have to contribute to it throughout that employee's lifetime, which could lead to a substantial cost, he said.

Several federal agencies have examined the issue, including the Government Accountability Office and the Congressional Budget Office. In a 1996 report, GAO examined both sides of the issue, and while not providing a specific recommendation, outlined a list of technical concerns about introducing an age cap, including how the benefits would be calculated and who would be affected.