Pension & Disability Insurance
Most people who have worked for a state or local government expect to retire with a regular pension, but they may be surprised to learn that some employees can receive both a pension and disability insurance. This combination is known as “double-dipping” because the beneficiary receives income from two public retirement funds simultaneously.
Most states offer this benefit through their civil service systems, which are designed to reward those who have given long and faithful service. The name of this benefit is a bit misleading because some employees use it as an early retirement program instead of a disability program.
About 50 percent of the states offer a civil service disability plan that allows employees to receive a pension while they are on long-term medical leave. Generally, employees must be unable to perform any job in the state; however, some states exclude certain jobs such as police officers and firefighters because of the physical demands of their positions.
Employees typically receive 65 to 70 percent of their annual salary while on disability leave. They also may qualify for health insurance and vacation time pay while receiving a pension.
The average state disability benefit is now about $30,000 per year, but some employees receive as much as $50,000 because they are retiring with full salary and health insurance benefits. Some states have caps on the total amount of disability income that an individual can collect. For example, the maximum combined pension and disability payment in New York is $60,000 per year for a maximum of 12 years.
In some cases, the employee’s contributions to the retirement system are not refunded until they reach a certain age or have been off disability leave for a certain number of years. Although this benefit may be attractive initially, it can lead to serious financial problems in the future if the pension is not properly funded.
There are significant costs associated with establishing and maintaining a civil service disability system, but the benefits to the employees and employers outweigh the expense because it reduces unemployment and state or local government spending on public assistance programs such as Medicaid.
Additionally, if an employee were found to be ineligible for this benefit, he could file a grievance with his union. Therefore, if a claim is denied, it’s likely that a formal appeal will be filed on the employee’s behalf.
The states that offer this benefit typically pay for it through their defined-benefit plans. Although most public plans are severely underfunded and depend upon investment returns to meet future obligations, employees who receive disability benefits under these plans can be protected from major pension reductions.
The Social Security disability program is the only federal worker disability plan because state and local employees do not participate in Federal Employees’ Compensation Act (FECA) or Longshore and Harbor Workers’ Compensation (LHWCA) benefits that disabled federal workers receive.