What happens when two benefit systems move on different clocks, but your household budget spends every dollar in real time? A new federal court ruling shows just how costly that mismatch can become for someone living on disability income.
In a recent nonprecedential decision, the United States Court of Appeals for the Federal Circuit confirmed that Luisa Navarro, a retired federal worker on Federal Employees’ Retirement System (FERS) disability, must repay $40,749 in overpaid annuity benefits to the Office of Personnel Management (OPM).
The case is a reminder that financial sustainability is not only about saving energy or cutting waste at home. It also depends on understanding the rules that govern the safety nets many workers rely on when their health fails.
Hidden trap in disability benefits
Under FERS, a federal employee who becomes disabled can receive a disability retirement annuity. For people under sixty two, that annuity is tied closely to Social Security disability benefits. OPM’s own guidance explains that monthly FERS disability payments are reduced by all or part of any Social Security disability benefit the person receives, especially in the early years of disability retirement.
In other words, the two checks are not meant to stack on top of each other forever. They are designed to interact. That coordination can make sense from a budget perspective, but only if everyone involved understands the timing and the paperwork.
The Navarro case in plain language
According to the court opinion and a summary by FedSmith, Navarro applied for FERS retirement in June 2019. Her retirement was approved and converted to disability retirement in early 2020. At that point, OPM told her to apply for Social Security Administration (SSA) disability insurance and to notify OPM as soon as SSA decided her claim, including the amount and the date the disability entitlement would begin.
More than two years later, in April 2022, SSA granted her disability benefits and set her entitlement date in late 2019, only a few months after she first applied for FERS retirement. Navarro testified that about a week after receiving the SSA notice, she called OPM, spoke with someone identified as “Anna S” and asked what she should do to avoid being overpaid.
What she did not do, according to the record, was send OPM a copy of the SSA award letter, even though OPM’s earlier instructions had been very specific about that step.
Four months later, after an automated data match with SSA, OPM discovered the Social Security decision on its own. The agency then reduced Navarro’s ongoing FERS disability annuity and informed her that she had been overpaid for the period from November 2019 through July 2022.
The overpayment total came to $40,749, which OPM planned to recover in monthly installments from her annuity.
Navarro argued before the Merit Systems Protection Board that OPM had mismanaged her case and that she deserved a waiver of repayment. Both the Board and, later, the Federal Circuit disagreed.
What the Set Aside Rule really means
The court’s decision turns on a policy known as the “Set Aside Rule.” Under this rule, if a person knows or suspects that they are being overpaid, they are expected to set that money aside rather than spend it. Courts have treated this rule as part of the test for whether recovering an overpayment would be against “equity and good conscience.”
The Federal Circuit noted that FERS disability annuities must be reduced by the amount of any Social Security disability benefits a retiree receives. The opinion repeats the statutory rule in clear terms, stating that “a FERS disability annuity must be reduced by the amount of any Social Security disability benefits a FERS retiree receives.”
Because Navarro had been told in writing to set aside Social Security checks that might duplicate her FERS disability payments, and because she called OPM specifically to ask how to avoid another overpayment, the court concluded that she at least suspected a problem.
That was enough for the Set Aside Rule to apply, closing the door on a waiver.
The judges also found that OPM’s four-month delay in adjusting her annuity was not the kind of “extremely egregious” error that would qualify as an exceptional circumstance under OPM’s policy guidelines.
Lessons for anyone juggling multiple benefits
For most people, disability benefits are not abstract legal ideas. They are the money that keeps the rent paid, the fridge running, and the electric bill from ballooning in the middle of summer. Cases like Navarro’s show how quickly that fragile balance can tilt when letters are missed or warnings are only half followed.
In practical terms, the ruling reinforces a few points that OPM has been putting in its pamphlets for years. People on FERS disability should expect their annuity to be reduced once Social Security disability kicks in. They need to tell OPM promptly when SSA approves benefits and keep copies of every award letter. It can also be wise to treat any new check as “temporary” until both agencies have recalculated the final amounts.
That may feel cautious, even inconvenient. Yet to a large extent it is the only way to protect both a household budget and the public funds that support long-term disability programs.
The court opinion was published by the United States Court of Appeals for the Federal Circuit.
