District Attorney Cyrus Vance said four ringleaders coached the officers on how to falsely describe symptoms of depression and other mental health problems.
The officers received payouts as high as £305,000 from claims and Mr Vance said the ringleaders made tens of thousands of dollars in secret kickbacks.
Prosecutors say the scheme went back to 1988 and included some who said they suffered ailments after the September 11 attacks.
One of the defendants who said he could not work taught martial arts.
Another former police officer who claimed he could not leave the house worked at a pastry stand at a street festival.
A total of 106 ex-workers were being charged with faking psychiatric problems.
Among those arrested was a retired police officer who has since worked helping members of the detectives' union.