[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




 
  PRESIDENT'S FISCAL YEAR 2006 BUDGET FOR THE U.S. DEPARTMENT OF LABOR

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 16, 2005

                               __________

                            Serial No. 109-3

                               __________

         Printed for the use of the Committee on Ways and Means




                    U.S. GOVERNMENT PRINTING OFFICE
23-914                      WASHINGTON : 2006
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

E. CLAY SHAW, JR., Florida           CHARLES B. RANGEL, New York
NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
ROB PORTMAN, Ohio                    WILLIAM J. JEFFERSON, Louisiana
PHIL ENGLISH, Pennsylvania           JOHN S. TANNER, Tennessee
J.D. HAYWORTH, Arizona               XAVIER BECERRA, California
JERRY WELLER, Illinois               LLOYD DOGGETT, Texas
KENNY C. HULSHOF, Missouri           EARL POMEROY, North Dakota
RON LEWIS, Kentucky                  STEPHANIE TUBBS JONES, Ohio
MARK FOLEY, Florida                  MIKE THOMPSON, California
KEVIN BRADY, Texas                   JOHN B. LARSON, Connecticut
THOMAS M. REYNOLDS, New York         RAHM EMANUEL, Illinois
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia
JOHN LINDER, Georgia
BOB BEAUPREZ, Colorado
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                                                                   Page

Advisory of March 9, 2005 announcing the hearing.................     2

                                WITNESS

U.S. Department of Labor, Hon. Elaine L. Chao, Secretary.........     5


  PRESIDENT'S FISCAL YEAR 2006 BUDGET FOR THE U.S. DEPARTMENT OF LABOR

                              ----------                              


                       WEDNESDAY, MARCH 16, 2005

                     U.S. House of Representatives,
                               Committee on Ways and Means,
                                                    Washington, DC.

    The Committee met, pursuant to notice, at 10:36 a.m., in 
room 1100, Longworth House Office Building, Hon. Bill Thomas 
(Chairman of the Committee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
March 09, 2005
No. FC-5

                      Thomas Announces Hearing on

                  President's Fiscal Year 2006 Budget

                    for the U.S. Department of Labor

    Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways 
and Means, today announced that the Committee will hold a hearing on 
the President's fiscal year 2006 budget for the U.S. Department of 
Labor. The hearing will take place on Wednesday, March 16, 2005, in the 
main Committee hearing room, 1100 Longworth House Office Building, 
beginning at 10:30 a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from the Honorable Elaine Chao, 
Secretary, U.S. Department of Labor. However, any individual or 
organization not scheduled for an oral appearance may submit a written 
statement for consideration by the Committee and for inclusion in the 
printed record of the hearing.
      

BACKGROUND:

      
    On February 2, 2005, President George W. Bush delivered his State 
of the Union address, in which he discussed several legislative 
initiatives. The President provided the details of these proposals on 
February 7, 2005, in his fiscal year 2006 budget, as submitted to the 
Congress.
      
    In announcing the hearing, Chairman Thomas stated, ``This hearing 
will allow us to examine the President's proposals to help workers 
prepare for, find, and retain good jobs. We look forward to Secretary 
Chao's testimony.''
      

FOCUS OF THE HEARING:

      
    The focus of the hearing will be on U.S. Department of Labor 
proposals in the President's fiscal year 2006 budget within the 
Committee's jurisdiction.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``109th Congress'' from the menu entitled, ``Hearing Archives'' (http:/
/waysandmeans.house.gov/Hearings.asp?congress=17). Select the hearing 
for which you would like to submit, and click on the link entitled, 
``Click here to provide a submission for the record.'' Once you have 
followed the online instructions, completing all informational forms 
and clicking ``submit'' on the final page, an email will be sent to the 
address which you supply confirming your interest in providing a 
submission for the record. You MUST REPLY to the email and ATTACH your 
submission as a Word or WordPerfect document, in compliance with the 
formatting requirements listed below, by close of business Wednesday, 
March 30, 2005. Finally, please note that due to the change in House 
mail policy, the U.S. Capitol Police will refuse sealed-package 
deliveries to all House Office Buildings. For questions, or if you 
encounter technical problems, please call (202) 225-1721.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons, 
and/or organizations on whose behalf the witness appears. A 
supplemental sheet must accompany each submission listing the name, 
company, address, telephone and fax numbers of each witness.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

    Chairman THOMAS. May I ask our guests and staff to find 
seats, please? Good morning. Today, we welcome U.S. Department 
of Labor Secretary Elaine Chao, as we continue to examine the 
Administration's fiscal year 2006 budget. Madam Secretary, as 
always, thank you for coming. We look forward to your testimony 
in terms of continued efforts to grow the economy to ensure 
that our Nation's economic infrastructure reflects current and 
future needs and that we are providing jobs for those who 
desire them.
    Since your last appearance, our economy has continued to 
expand, and the Chair believes it is in large part due to our 
work together to provide timely tax relief and politics 
encouraging further growth in trade. In 2004, the Gross 
Domestic Product growth was 4.4 percent. That is much higher 
than the historic 3.1 percent and a record since 1999. Solid 
economic expansion has led to job growth and wage increases. In 
the last year, the U.S. economy created nearly 2.4 million new 
jobs, while wages and salaries rose 5.2 percent during the same 
time. It is a clear indication as we examine jobs and the 
economy that today's economy is different than earlier American 
economies. Those of us who focused on this when we were not in 
the Congress remember the classic Humphrey-Hawkins legislation 
which stated as its goal full employment. Full employment under 
that legislation was an unemployment rate of 6 percent. We have 
been under that if, in fact, that would be the definition for 
full employment, which shows you how much the economy has 
changed. Meanwhile, it is important to note that the economy 
recovered from the 2001 recession. This Congress made generous 
temporary extended unemployment benefits available to Americans 
as they transitioned into new jobs. That assistance, I believe, 
was well-timed, and it served its purpose. By January of 2005, 
more than 142 million people were working in the United States, 
which is, of course, an all-time record.
    Clearly, our economy is strong, but we need to keep it that 
way. The President has talked and will continue to focus on 
Social Security. The first baby boomers will be retiring in 
less than 3 years, and an aging society needs a different 
economic structure than our earlier one. It is essential that 
Congress focus on the broader issue of retirement security, 
including pension protections. Pensions are a major part of 
retirement for millions of Americans, and we must make sure 
that the programs are viable for the future. The President has 
put forward a reform proposal, and the Committee is ready to 
examine that and other ideas that anyone, including Members, 
may bring forward. We look forward to hearing more about your 
comprehensive pension reform and the Administration's plans to 
have the best-trained, most diverse and most innovative 
workforce in the world. With that, I would recognize the 
gentleman from New York, the Ranking Member, for any statement 
he would wish to make.
    Mr. RANGEL. Thank you, Mr. Chairman. I join with you in 
welcoming the distinguished Security of Labor to this 
Committee, and I agree with you that as a trustee of the Social 
Security fund, we, too would be interested in your views, as is 
the President, in terms of how we can make certain that the 
trust fund is solvent so that young people can have the same 
form of confidence in the Social Security system as the older 
people have already had. In addition to that, soon, perhaps, we 
might have to review the Central American Free Trade Agreement 
(CAFTA), and I understand your office is in the process of 
reviewing the international labor standards and other issues 
that would assist us in making a determination. In connection 
with your role as trustee, I assume there is supposed to be 
some type of a Trustees' Report that the Congress is expected 
to receive. If you could share with us when we could look at 
that, it is good.
    I hope I have an opportunity to concentrate on your 
programs to put our veterans back to work. There has been a 
sharp increase in the number of veterans who have found that 
they have been unable to convert their military occupation 
skills into civilian skills, and we notice that the budget does 
not provide for an increase in that number. Also, in our inner 
cities, as a Member of the Congressional Black Caucus, while we 
have the most productive workforce in the world, we have a 
public school system that in my area, 50 percent of the kids do 
not go to school, or they drop out of school, and those who do 
get out of school, there is very little relationship between 
their training and the market, and so, we have a 50 percent 
unemployment rate--we have a 50 percent unemployment rate among 
the minorities in the City of New York, and we are going 
through a building boom. We have problems with the developers 
and problems with the unions, racist problems. So, knowing that 
all of this comes within your domain, it would be very helpful 
if we can get your views on those things. Thank you, Mr. 
Chairman.
    Chairman THOMAS. I thank the gentleman. It is my pleasure 
to present to the Committee the Honorable Elaine Chao, 
Secretary, U.S. Department of Labor.
    Mr. MCDERMOTT. Mr. Chairman, may I ask unanimous consent to 
enter some remarks in the record at this point?
    Chairman THOMAS. Without objection, any Member who may have 
written opening statements can be placed in the record.
    Mr. MCDERMOTT. Thank you.
    [The prepared statement of Mr. McDermott follows:]

 Opening Statement of The Honorable Jim McDermott, a Representative in 
                 Congress from the State of Washington

    Good morning, Ms. Chao. Thank you for coming before the committee 
again today. I've read your testimony and it covers a number of 
important issues that affect the lives and the economic security of 
millions of American workers from the unemployment insurance program, 
to worker training, trade adjustment assistance, our pension system and 
our health care system. With great interest I look forward to working 
with Chairman Herger to hold hearings on your proposals to the 
Unemployment Insurance program, a program vital to the stability and 
strength of our economy and crucial for families with unemployed 
workers.
    I hope that the proposals in the President's Budget have been 
developed in cooperation with State Governors and legislatures. It 
seems too many of the Administration's ideas have not gone through such 
a process in the past. This committee needs to continue to look at ways 
to strengthen the Unemployment Insurance program to ensure that it 
meets the needs of today's economy and today's workforce. Ironically, 
for reasons I can not understand, many low wage workers do not qualify 
for benefits under the Unemployment Insurance program when they lose 
their jobs simply because their wages are low, not because they haven't 
been working full time. We've seen that the triggers currently in law 
designed to extend the duration of unemployment benefits during an 
economic recession and times of high unemployment simply do not work. 
We need to work together to update these triggers. We need to ensure 
that part time workers, a growing segment of our workforce, are not 
denied unemployment benefits simply because of their part time status. 
This is especially important for women--working moms, whether they're 
married or not. And, we need to make sure that employers are not 
inappropriately classifying employees as contract workers in order to 
avoid paying unemployment taxes and payroll taxes.
    Under current law the IRS isn't even allowed to issue regulations 
on this issue despite the fact that we know tens of millions of tax 
dollars are going uncollected because of employer fraud. But overall, 
Secretary Chao, our workforce is challenged like never before because 
of globalization. Because of the democratization of information, of 
services, of capital and of labor. We need to look beyond programs that 
simply address the symptoms of a challenged workforce, such as 
unemployed workers. We need to find ways to prevent these workers from 
losing their jobs to begin with. When someone applies for trade 
adjustment assistance, or unemployment compensation, it's already too 
late. We've already failed. They're out of work, and an employer has 
downsized. We need to ensure that our workers, and the employers that 
rely on them, have the access to continuing education and job training 
while they're still employed, so that workers and employers alike stay 
competitive in a growingly competitive economy.
    Chairman THOMAS. I will tell the Secretary of Labor that any 
written statement she may have will be made a part of the record, and 
you can address the Committee in any way you see fit with the time you 
have.

                                 

  STATEMENT OF THE HONORABLE ELAINE L. CHAO, SECRETARY, U.S. 
                      DEPARTMENT OF LABOR

    Ms. CHAO. Thank you very much, Mr. Chairman. I will make it 
short. I am delighted to be here today to discuss the 
President's budget. The President's budget will enable the 
Department of Labor to continue to build upon its precedent-
setting record of enforcing our worker protection laws, and we 
will implement bold new training programs and initiatives that 
will help us deliver more training opportunities to America's 
workforce. The proposed reforms to our Work Force Investment 
Act (WIA) will enable us to serve more individuals and also 
achieve even better results. To summarize, the President's 
fiscal year 2006 budget for the Department of Labor increases 
resources for each of the Department's principal enforcement 
agencies.
    In fiscal year 2006, the Department of Labor will continue 
to enhance worker safety and health, will continue to set new 
records in protecting workers' pay, benefits, and union dues. 
We will also take further steps to strengthen the reemployment 
rights of veterans, and in addition, the Department will seek 
to increase access to quality health care for workers and their 
families through initiatives such as association health plans. 
To convey a sense of where we are going, let me just talk for a 
second about where we have been. In the course of the last 4 
years, worker fatalities have fallen to record lows. Just since 
2001, workplace fatalities for Hispanic workers have been 
reduced by 11.6 percent. Fatalities in mining operations have 
dropped to the lowest points since the records were first kept 
in 1910.
    This Administration's commitment to ensuring America's 
retirement security is also reflected in the fourth record year 
of monetary results. In fiscal year 2004, the Employees' 
Benefits Security Administration (EBSA) achieved more than $3 
billion in monetary results for workers' retirement and health 
plans, and this is a 121-percent increase over the previous 
year. The Department of Labor has also made significant efforts 
to improve worker training programs. The President's 
initiatives, including the High Growth Job Training Initiative, 
the Community College Initiative, and reforms to the WIA are 
focused upon helping workers train for and also find jobs in 
sectors of the economy that are fast growing and experiencing a 
shortage of workers, and these are also good paying jobs.
    To ensure a sound safety net for those who lose their jobs, 
we have proposed a new $40 million strategy to help ensure the 
integrity of the unemployment insurance trust funds. This will 
increase the number of eligibility interviews at one-stop 
career centers and strengthen efforts to detect and also 
prevent an increasing trend in identity thefts. Several other 
legislative initiatives important to this Committee are 
associated with this year's budget submission as well. The 
first one is that the President has called for reform of our 
Nation's pension guarantee system. This Administration has 
taken the initiative on this issue before the situation 
receives crisis proportions. The problems of single employer 
private sector pension underfunding and the annual deficits at 
the Pension Benefit Guaranty Corporation (PBGC) cannot 
continue. It is not sustainable, and we will jeopardize the 
retirement security of over 34 million American workers who 
depend upon defined benefit plans.
    Second, the WIA reauthorization that was just passed by the 
House allows Governors and local leaders, officials, more 
flexibility to respond to the needs of their States and also to 
local areas of need. We want to go a step further and bring all 
workers into the mainstream training system, which will further 
effectively connect hard to serve individuals with employers. 
The WIA-plus consolidated grant proposal would permit the 
consolidation of over five other job training programs, 
including Trade Adjustment Assistance (TAA) at the option of 
State governors. This would also create a single funding stream 
that would be more flexible, less costly to run and in the end 
better serve workers.
    Finally, the Administration has also proposed restructuring 
the debt of the Black Lung Disability Trust Fund. Without 
restructuring the debt in this trust fund, which reached $8.7 
billion already at the end of last year, we will continue to 
grow, and the fund will never be solvent. It is not possible to 
mention every Department of Labor program and initiative that 
merits the Committee's attention in the very brief opening 
statement, but I would like to note that even in an era of 
budget realities that require tough choices, which we all face, 
this budget continues to provide a strong array of protections 
and services for America's workers. So, Mr. Chairman, I have 
got a written statement also which I will submit for the 
record, and I will be glad now to answer any questions that you 
or other Members of the Committee may have.
    [The prepared statement of Ms. Chao follows:]

 Statement of The Honorable Elaine L. Chao, Secretary, U.S. Department 
                                of Labor

    Good morning. Chairman Thomas and distinguished members of the 
Committee, thank you for inviting me to testify. I am pleased to have 
the opportunity to discuss the President's Fiscal Year (FY) 2006 Budget 
proposal, which includes initiatives to reduce improper payments and 
enhance the integrity of the Federal-State Unemployment Insurance (UI) 
system, strengthen funding for single-employer pension plans, improve 
our Trade Adjustment Assistance (TAA) program, reform our job training 
programs, refinance the Black Lung Disability Trust Fund's debt, and 
improve access to health benefits through Association Health Plans.
The President's Economic Message
    The President has put forth an ambitious agenda to ensure that 
America's economy remains the most prosperous in the world. To 
accomplish this, he has proposed a three-pillar strategy, which 
includes restraining spending by the Federal Government; working with 
Congress to pass legislation that promotes economic growth; and 
reforming government institutions so that they can meet the realities 
of our new century.
    To confront the great challenges that will determine the quality of 
life for our children and grandchildren and to prepare Americans for 
jobs of the 21st Century, the President has called for a series of 
actions. One of these is to reform our workforce training programs. 
Technology and globalization are transforming America's economic 
landscape; therefore, the President is committed to providing American 
workers with the opportunity to obtain the skills they need to succeed. 
President Bush believes we must ensure that every adult, especially 
low- and middle-income Americans, has access to quality skills 
training. By working together, we can reform the current workforce 
training system to eliminate duplication and waste, double the number 
of people trained through major Workforce Investment Act (WIA) grant 
programs, prepare workers for high-demand occupations, and provide 
better services for our workforce.

The President's FY 2006 Budget Request
    The total FY 2006 Budget request for the Department of Labor is 
$54.5 billion, which reflects a $4.3 billion projected increase in 
mandatory spending. Before addressing Unemployment Insurance and Trade 
Adjustment Assistance programmatic issues, I would like to comment 
briefly on the President's FY 2006 Budget request for these two 
programs. The Budget request includes $2.6 billion in discretionary 
funding for grants to States for UI administration. This includes an 
increase of $30 million for states to address the very serious issue of 
identity theft and an increase of $10 million to continue an effort 
begun this year to ensure that UI beneficiaries are meeting 
reemployment goals by connecting with the local One-Stop Career 
Centers. Through the prevention, detection, and recovery of improper 
benefit payments, we estimate that the $40 million discretionary 
request for these initiatives will produce mandatory outlay savings for 
the Unemployment Trust Fund (UTF) in 2006 of up to $330 million.
    The total UI discretionary request for FY 2006 is $40.5 million 
below the funding level enacted for FY 2005 due to lower UI claims 
workload. These funds are sufficient to finance the States' efforts in 
processing 18.8 million initial UI claims and collecting State payroll 
taxes from 7.3 million employers.
    The FY 2006 Budget request includes $966.4 million for the Trade 
Adjustment Assistance (TAA) and Alternative Trade Adjustment Assistance 
(ATAA) programs, of which $259 million is allocated for TAA training, 
out-of-area job search and relocation allowances and related state 
administration. This funding request will allow the Department of Labor 
to provide States with funding for training, income support, and job 
search and relocation allowances for an estimated 80,000 dislocated 
workers who were impacted by international trade. In addition, we have 
implemented a number of key management reforms that are allowing us to 
more effectively operate the TAA and ATAA programs so workers can get 
the assistance they need.

Status of Current UI Integrity Initiatives
    Thanks in large part to quick action by this Committee last year on 
the ``SUTA Dumping Prevention Act of 2004,'' an important initiative to 
strengthen State unemployment tax integrity is now underway. That 
legislation requires States to close loopholes that some employers have 
used to pay less than their fair share of State unemployment taxes. 
States are expected to enact conforming legislation this year and have 
already begun to investigate cases of SUTA dumping that are illegal 
under their current statutes. This Act also provided States with an 
important new tool to quickly detect and prevent overpayment of 
benefits; State UI agencies have access to the National Directory of 
New Hires to identify individuals who went back to work but continued 
to claim UI benefits. The Department is working closely with the Office 
of Child Support Enforcement at the Department of Health and Human 
Services to establish communications systems, develop the technical 
specifications, and put required data safeguards in place for States to 
begin accessing the National Directory of New Hires data.

Legislative Proposals to Strengthen Financial Integrity of UI Programs
    As you know, the UI program plays a vital role in America's 
workforce investment system by providing temporary income support to 
eligible workers who have lost their jobs through no fault of their 
own. UI helps the unemployed bridge the financial gap between jobs.
    For FY 2006, the Administration proposes a set of amendments to 
Federal law that will strengthen the integrity of the UI system. These 
amendments will give States access to new tools and resources to: (1) 
prevent, detect, and collect benefits that were paid to individuals who 
were not entitled to them; (2) collect delinquent taxes from employers; 
and (3) upgrade aging State information technology systems.
    Since 1987, States have investigated a small but statistically 
valid sample of weekly payments taken from the three to four million 
paid claims each week. Data from these investigations permit us to 
estimate the amount of benefits that are improper--both overpaid and 
underpaid. About 95% of all of these improper payments are 
overpayments. Most overpayments result from claimants failing to meet 
statutory eligibility requirements, such as searching for work or 
returning to work and continuing to claim benefits. In 2003, 
overpayments were estimated to be $3.8 billion, or just over 9% of the 
nearly $41 billion in State UI payments that year. States detected 
about $1.2 billion of these and recovered $504 million. We believe that 
our FY 2006 Budget proposals will enable States to reduce significantly 
overpayments and increase the amount of overpayments that are 
recovered.

1. Use 5% of Recovered Overpayments for Benefit Payment Control 
        Activities
    States' efforts to reduce and recover overpayments are limited by 
the amount of administrative funding available. Currently, Federal law 
requires that all recoveries of overpayments go into the State's 
unemployment trust fund, to be withdrawn only to pay UI benefits. We 
propose boosting resources available to States to pursue integrity 
activities by permitting them to use a portion of those recovered funds 
to deter, detect, and collect overpayments. States may specify the 
amount--up to 5%--of overpayment recoveries to be used exclusively for 
these purposes. This would provide a new source of funds for States to 
use to reduce fraudulent and improper payments, giving them the 
resources they need to expand their efforts. This proposal is estimated 
to yield a net savings of $229 million over 10 years.

2. Allow Collection Agencies to Retain Up to 25% of Recovered 
        Overpayments
    Currently States are reluctant to use private collection agencies, 
primarily because they would have to divert UI administrative grants 
from other services to pay the collection agency costs. We propose 
permitting States to allow collection agencies to retain a limited 
portion--up to 25%--of the fraud overpayments and delinquent employer 
taxes they recover. States would be expected to first exhaust their 
established means of collecting overpayments and delinquent taxes 
before engaging such collection agencies. To prevent abusive or unfair 
tactics, any State contract with a collection agency must specify 
certain safeguards, including that the collection agency follow the 
Fair Debt Collection Practices Act. We anticipate a net savings of $369 
million over 10 years by allowing this additional method of collection 
of overpayments.

3. Impose At Least 15% Fine on Overpayments
    All States impose monetary penalties on employers who pay their 
taxes late. However, most States do not impose monetary penalties on 
individuals who obtain benefits fraudulently. Penalties can serve as 
both a deterrent to overpayments and an incentive for repayment. We 
propose requiring States to impose a fine of at least 15% of the 
overpayment on individuals who defraud the system. States' use of the 
penalty funds would be limited to additional efforts in deterring, 
detecting, and collecting overpayments. Recently, the State of 
Washington imposed such a penalty and has seen a considerable increase 
in overpayment collections. We estimate that this proposal would yield 
a net savings for State UI programs of about $798 million over 10 
years.

4. Encourage Employer Response to State Requests
    Information provided by employers is essential in determining the 
eligibility of unemployed workers who file a claim for UI benefits. 
However, employers sometimes fail to respond to State queries about the 
reasons workers are separated from employment, and this can lead to 
improper UI payments to ineligible workers who quit their jobs without 
good cause, or were discharged for work-connected misconduct. Despite 
the administrative and benefit costs created by these mistakes, 
employers often do not bear any responsibility for the costs of these 
overpayments. Indeed, after an overpayment is established, States may 
relieve the employer of those benefit charges. We propose requiring 
States to impose benefit charges on employers for any UI benefits 
improperly paid as a result of their late or incomplete responses to 
State agencies, unless the non-response is due to a good faith error. 
This will encourage employers to respond promptly to State requests for 
information about their former workers and will generate an estimated 
$227 million in savings over 10 years.

5. Add Delinquent Overpayments to Debts Offset by Federal Tax Refunds
    About half of overpayments identified each year are not recovered. 
Under current law, individuals' Federal income tax refunds are used to 
offset delinquent child support obligations, debts owed to Federal 
agencies, and State income tax debts. We propose adding delinquent UI 
overpayments to the list of debts that can be offset by Federal tax 
refunds. This would recover an estimated $3.1 billion in overpayments 
over 10 years.

Legislative Proposal for Infrastructure Loans
    An additional legislative proposal is designed to address another 
UI program need: updating information technology (IT) infrastructure. 
State UI programs require large and complex benefit and tax processing 
systems, and service delivery by telephone relies heavily on 
telecommunications hardware and software. Aging IT systems present a 
significant risk to States. Older systems are also more difficult and 
costly to maintain. However, not all States have an effective funding 
mechanism available to replace and enhance aging technology components.
    We propose allowing States to borrow funds from the Unemployment 
Trust Fund in order to replace/update their UI IT systems, including 
using new technology to establish linkages with programs that offer 
reemployment services to UI beneficiaries. This proposal is similar to 
the current arrangement in that States can borrow from the Unemployment 
Trust Fund when their benefit accounts become insolvent. Borrowing 
States would be liable for repayment of principal and interest. By 
giving States the opportunity to address their IT needs, this proposal 
will promote timely and accurate benefit payment to unemployed workers, 
prevention and detection of improper benefit payments, and facilitation 
of reemployment.

Legislative Proposal to Strengthen Funding for Single-Employer Pension 
        Plans
    The Bush Administration believes that the pension promises 
companies have made to their workers and retirees must be kept. Single-
employer, private sector defined benefit pension plans cover 16 percent 
of the nation's private workforce, or about 34 million Americans. The 
consequences of not honoring pension commitments are unacceptable--the 
retirement security of millions of current and future retirees is put 
at risk.
    However, the current system does not ensure that pension plans are 
adequately funded. As a result, pension promises are too often broken.
    Termination of plans without sufficient assets to pay promised 
benefits has a very real human cost. Many workers' and retirees' 
expectations are shattered, and, after a lifetime of work, they must 
change their retirement plans to reflect harsh, new realities. 
Underfunded plan terminations are also placing an increasing strain on 
the pension guaranty system.
    Increased claims from terminations of significantly underfunded 
pension plans have resulted in a record deficit in the single-employer 
fund of the Pension Benefit Guaranty Corporation (PBGC). For the fiscal 
year ending September 30, 2004, the PBGC reported a record deficit of 
$23.3 billion in that fund, more than double the year-earlier deficit 
of $11.2 billion. The increasing PBGC deficit and high levels of plan 
underfunding are themselves a cause for concern. More importantly, they 
are symptomatic of serious structural problems in the private defined 
benefit system.
    It is important to strengthen the financial health of the defined 
benefit plan system now. If significantly underfunded pension plans 
continue to terminate, not only will some workers lose benefits, but 
other plan sponsors, including those that are healthy and have funded 
their plans in a responsible manner, would likely be called on to pay 
far higher PBGC premiums. Underfunding in the pension system must be 
corrected now to protect worker benefits and to ensure taxpayers are 
not put at risk of being called on to pay for broken promises.
    The Administration has developed a reform package to improve 
pension security for workers and retirees, stabilize the defined 
benefit system, and avoid a taxpayer bailout of the PBGC. The 
President's proposal is based on three main elements:
    First, the funding rules must be reformed to ensure that plan 
sponsors adequately fund their plans and keep their pension promises. 
The current system is ineffective and needlessly complex. The rules 
fail to ensure that many pension plans are, and remain, adequately 
funded.
    Second, disclosure to workers, investors and regulators about 
pension plans' status must be improved. Workers need to have good 
information about the funding status of their pension plans to make 
informed decisions about their retirement needs and financial futures. 
Too often in recent years, participants have mistakenly believed that 
their pension plans were well funded, only to receive a rude shock when 
the plan was terminated without enough assets to pay all promised 
benefits. Regulators and investors also require more timely and 
accurate information about the financial status of pension plans than 
is provided under current law.
    Third, premium rates must be updated to reflect current costs and 
revised to more accurately reflect the risk of a plan defaulting on its 
promises and to help restore the PBGC to financial health. The current 
premium structure encourages irresponsible behavior by not reflecting a 
plan's true level of risk.
    The proposal would strengthen the defined benefit system and 
restore solvency to the PBGC, so that the nation's workers and retirees 
can be confident of the secure retirement they have worked for all 
their lives.

Implementation of the Trade Adjustment Assistance Reform Act of 2002
    The Trade Adjustment Assistance (TAA) program is an integral part 
of the comprehensive workforce investment system. TAA helps workers 
dislocated due to foreign trade adjust to changing market conditions 
and shifting skills requirements. Many of these workers are being 
dislocated from jobs that are lost permanently from the domestic 
economy, requiring the skills of affected workers to be completely 
retooled. In many cases, this is complicated by mass layoffs or plant 
closures that occur in single-industry towns, which makes finding 
comparable employment in the same geographic area difficult.
    The TAA program should be a vital part of States' workforce and 
economic development strategies in order to maximize opportunities for 
trade-affected workers. Under the TAA program, training opportunities 
that are designed to provide sustainable employment once completed are 
made available for trade-affected workers. However, training alone will 
not return a worker to the workforce. The Department has been proactive 
in encouraging the integration of the TAA program with the other parts 
of the workforce investment system, such as the Workforce Investment 
Act's Dislocated Worker program. Through a series of policy advisories 
and workforce forums delivered nationwide, the Department is 
emphasizing the importance of a seamless system that provides 
reemployment services financed by complementary programs and delivered 
by One-Stop Career Centers to trade-affected workers. Such services 
include assessment, counseling, career planning, job search, and 
placement services.
    Successfully integrating the TAA program into the workforce 
investment system becomes more critical as the Department implements a 
reengineered business model for making more timely determinations on 
trade petitions. Through this reengineering process we have been able 
to reduce the time it takes to process petitions to less than the 
statutory limit of 40 days. On average we process petitions in 
approximately 31 days. This reduced certification time allows workers 
to be able to access the full range of employment and training services 
available to them and quickly obtain new employment.
    Another major reform we have implemented is the distribution 
methodology for allocating TAA training funds to the States. Prior to 
our reform, these capped training funds were distributed on a 
``request'' basis, meaning that States would request and be awarded 
monies throughout the fiscal year. We found that this provided little 
fiscal accountability for these funds as some States carried over 
excess funds while other States ran short. In fact, this approach 
caused an inequitable distribution of funds when comparing State 
funding levels to State TAA participant levels.
    Our current methodology distributes 75 percent of available TAA 
training funds at the beginning of each fiscal year to States based on 
their prior years' TAA participant and training expenditures levels. We 
hold 25 percent of the funds in reserve to be distributed to States to 
respond to unanticipated needs that arise throughout the fiscal year. 
This change in the distribution methodology has assured that the 
limited training funds are being provided to the maximum number of TAA 
participants who need training services. In addition, we have focused 
on the leveraging of resources from among the State WIA Dislocated 
Worker formula grant program, the TAA program, and National Emergency 
Grants (NEG) to assure that trade-affected workers are getting the full 
array of reemployment resources, while promoting increased State fiscal 
and performance accountability.

WIA Plus Consolidated State Grants
    I will now briefly discuss an important component of the 
President's proposal for reforming job training programs and 
reauthorization of the Workforce Investment Act (WIA)--the WIA Plus 
Consolidated State Grants. The current system of Federal job training 
programs is too complex, involving multiple funding streams and various 
Federal, State and local bureaucracies. This has caused a duplication 
of effort and diverted resources that should be used to train workers 
for high-growth jobs. WIA Plus Consolidated State Grants build on the 
President's call to consolidate four of our Department's State training 
and employment programs: WIA Adults, WIA Dislocated Workers, WIA Youth, 
and the Wagner-Peyser Employment Services.
    In addition to the consolidation of those four funding silos, 
States will have the option to consolidate in this single grant their 
share of funds from several additional Federal job training programs 
that are currently administered by the Departments of Labor (Trade 
Adjustment Assistance training and certain programs providing services 
to veterans), Education (Adult Education and Vocational Rehabilitation 
State Grants) and Agriculture (Food Stamp Employment and Training). 
Federal resources for these other programs total more than $3.6 
billion. Together with the Department of Labor's core WIA consolidated 
grant, Governors could be provided with their State's share of more 
than $7.5 billion in Federal employment and training resources through 
a single State grant. By consolidating programs, States will be 
empowered to train more workers; design a job training and service 
delivery system that trains workers for jobs in the 21st Century 
economy; rationalize the way they deliver workforce-related services; 
improve results; and reduce administrative overhead.
    In an increasingly competitive global economy, States must be able 
to quickly respond to economic downturns by having the increased 
flexibility to pull multiple job training programs and funding streams 
together. As an example, if a State or local area experienced a mass 
layoff, the WIA Plus Consolidated State Grant funds would provide the 
increased flexibility needed to design programs that correspond with 
current economic development and labor market needs, specific to their 
State economy.
    If a State decided to include Trade training resources in its WIA 
Plus Consolidated State Grant, trade-affected workers would obtain more 
seamless access to the important services not available under the Trade 
program. Workers will be able to get such services as job search 
assistance and career counseling, in addition to the TAA services of 
job search and relocation allowances, occupational skills training, 
income support, and the Health Coverage Tax Credit. It is important to 
note that eligible trade participants would still have the same access 
to the capped training dollars as they do under current law. Moreover, 
trade-affected dislocated workers would continue to be able to receive 
Trade Readjustment Allowances (TRA) under the same conditions as 
current law because TRA would not be part of the WIA Plus Consolidated 
State Grant.
    For States choosing to consolidate Trade training funds, Governors 
would describe in their WIA Plus State Integration Plan how trade 
participants would be served under the WIA Plus Consolidated State 
Grant, including how services will be maintained to eligible workers. 
This will ensure that trade-displaced workers receive the training 
funds made available under current law.
    WIA Plus Consolidated State Grants will help streamline service 
delivery systems and shift excessive administrative costs towards 
providing additional training services. Ultimately, the proposed 
consolidation will ease administration since the State will be 
responsible for developing only one State Integration Plan, 
administering one funding stream and reporting on one set of 
performance measures.

Restructuring the Black Lung Disability Trust Fund
    I also want to highlight the Administration's proposal for 
legislation to restructure and eventually retire the debt of the Black 
Lung Disability Trust Fund (BLDTF). The BLDTF is facing a growing debt, 
which in Fiscal Year 2006 will exceed $9 billion. The Trust Fund's 
revenues, which consist primarily of excise taxes on coal, are 
insufficient to repay the debt's interest or principal. Under current 
conditions, this indebtedness will continue to grow, with the BLDTF 
never becoming solvent, even when benefit outlays have declined to a 
level approaching zero.
    To solve this problem, the Administration will propose legislation 
that will authorize a restructuring of the BLDTF debt; extend until the 
debt is repaid current BLDTF excise tax rates, which are set to decline 
in January 2014, and provide an estimated one-time net payment of $3.8 
billion to compensate the General Fund of the Treasury for forgone 
interest payments.

Legislative Proposal to Improve Access to Health Benefits
    The FY 2006 Budget also reiterates the Administration's support for 
Association Health Plans legislation that would allow small businesses, 
civic, faith-based, and community associations, and others to pool 
together through their trade and professional associations to provide 
health benefits for workers and their families. By joining together, 
small businesses and other association members would benefit from 
similar economies of scale, uniform regulation and administrative 
efficiencies enjoyed by large employers and labor unions. Association 
Health Plan legislation is a key component of the President's plan to 
improve access to quality, affordable health coverage for all 
Americans.

Conclusion
    Thank you for the opportunity to describe our efforts to implement 
new strategies to improve the management of existing programs and 
fulfill our mandate to serve the American workforce. I look forward to 
working with the Committee on these issues. This concludes my remarks. 
I will be glad to respond to any questions you may have.

                                 

    Chairman THOMAS. Thank you very much, Madam Secretary. 
Gentleman from Florida, the Chairman of the Trade Subcommittee, 
wish to inquire?
    Mr. SHAW. Yes, Mr. Chairman, and I would like to join with 
you in welcoming Secretary Chao before this Commission. She 
always makes a delightful witness, and we always learn from 
her. In your remarks, you mention the question of private 
pension funds and begin to full fund these plans, which I agree 
with, and I think it is a very good--I have a brother who is a 
retired United Airlines pilot, and he is very nervous about 
where his pension may be going. If it were a full funded 
pension plan, I do not think that there would be any great 
concern about it. I also worry very much about the largest 
pension fund, so-called fund, in the entire country if not the 
entire world, and that is our Social Security system, which is 
totally unfunded except with indication of debt by the Federal 
Government to the Federal Government, which, in itself, is 
simply a statement that we owe an obligation, and it is not a 
real asset. Unfortunately, so many of our American people feel 
that there is cash in the system when we all know better that 
there is not. I would like to turn for just a moment to a 
question or a statement that Mr. Rangel made, and that is that 
in his City of New York that 50 percent of the minorities are 
unemployed. Do we have any targeted programs to the groups of 
high unemployment and the pockets of poverty that obviously 
exist that would create this type of unemployment?
    Ms. CHAO. Absolutely. First of all, the unemployment rate 
of New York State is about 6.5 percent--New York City is about 
6.5 percent. The national unemployment rate is about 5.4 
percent. The entire workforce development system should be the 
resource that long-term unemployed workers or those who are 
hard to place workers should seek assistance and find a 
comforting place. What we are trying to do now is to improve 
the workforce development system. It is a wonderful system. The 
people who work in it are caring and compassionate, and they do 
a great job. We want to challenge ourselves to do better. Right 
now, the system, the one-stop career center is a delivery 
system, but there are multiple funding streams which are very 
inflexible. So, for example, if you are a long-term dislocated 
worker, you may not be eligible for dislocated worker funding 
by definition of the statute. If WIA reauthorization were to 
occur, and greater flexibility were introduced, there would be 
more resources available to help the harder to place and the 
longer term unemployed.
    Mr. SHAW. Mr. Rangel also noted that even those who had 
education, that many of them were being educated for jobs that 
do not really exist. I know in my own district, in Palm Beach 
County, the Palm Beach Community College reaches out and 
communicates with the private sector so that they are sure that 
they are gearing the educational endeavors toward employment, 
which is tremendously important. Would you like to comment on 
that?
    Ms. CHAO. Well, the President has asked for $500 million 
last year and was funded about $200 million in his High Growth 
Job Training Program, which is a partnership with the community 
colleges. Community colleges do a great job of training workers 
seeking new opportunities in the workforce, and there are new 
jobs out there. We need to reskill workers who want to be 
reskilled, and the community colleges are partnering very 
nicely with the one-stop career centers.
    Mr. SHAW. Thank you. I yield back, Mr. Chairman.
    Chairman THOMAS. I thank the gentleman. Does the gentleman 
from New York wish to inquire?
    Mr. RANGEL. What specific programs, Madam Secretary, do you 
have for veterans, mature adults that find it very difficult to 
get into the job market?
    Ms. CHAO. We have been very focused on helping veterans who 
are returning to the civilian workforce----
    Mr. RANGEL. What is the name of the program?
    Ms. CHAO. We have the Disabled Veterans Opportunity Program 
(VDOP), we have the----
    Mr. RANGEL. What does that mean?
    Ms. CHAO. It is disability--it is a program that puts 
counselors in one-stop career centers.
    Mr. RANGEL. No, no, ma'am.
    Ms. CHAO. Yes.
    Mr. RANGEL. I am a veteran. I am very emotional about this. 
Do you have any program that calls itself----
    Ms. CHAO. We do.
    Mr. RANGEL. A veterans' program?
    Ms. CHAO. Absolutely, we have a lot.
    Mr. RANGEL. What is the name of that program?
    Ms. CHAO. Will you hold on for a second, please?
    Mr. RANGEL. Yes, ma'am.
    Ms. CHAO. It is called the Disabled Veterans Opportunity 
Program, and it is part of the Veterans Employment Training 
Services (VETS).
    Mr. RANGEL. I am not talking about disabled veterans. I am 
talking about healthy veterans. I am not talking about 
veterans' hospital type of programs. Just because you are a 
veteran does not mean you are disabled. We are talking about 
people who are coming out with low job skills who want to go to 
work.
    Ms. CHAO. Yes, we have a whole agency that is devoted to 
them. It is called the Veterans Employment----
    Mr. RANGEL. That is what I am trying to find out, because I 
know you do not mean it is a veterans' disability program, 
unless I misunderstand the word disability.
    Ms. CHAO. I thought that was your question. I am sorry.
    Mr. RANGEL. No, ma'am, I am not talking about crippled 
soldiers.
    Ms. CHAO. Okay.
    Mr. RANGEL. I am talking about veterans out looking for 
work. What is the name of their program if they are not 
disabled?
    Ms. CHAO. It is the VETS.
    Mr. RANGEL. What is the funding for that?
    Ms. CHAO. It is about $300 million.
    Mr. RANGEL. Well, that is not in the information I have. I 
am going to let someone else deal with that. I understand that 
from veterans groups that you did have a program that was in 
the $200 million, that is the same funding as it was from last 
year, and that there has been a sharp increase in veterans, and 
so, therefore, a decrease in the service. So, I am sorry I got 
emotional with you, but I have got to find out more about that 
program.
    Ms. CHAO. There is no reduction in services at all. In 
fact, we have increased the budget. There are increases in 
service, and we have also focused on disabled veterans who are 
coming back.
    Mr. RANGEL. Well, I want to find out as much as I can about 
that. As a trustee from the Social Security system, do you have 
any idea when we expect to get a report?
    Ms. CHAO. There is a Social Security report that is going 
to come out on March 23, next Wednesday.
    Mr. RANGEL. All right; thank you. In view of the fact that 
we find a shift from private employers to defined contribution 
from defined benefits programs, do you think that the 
guaranteed benefits of Social Security are far more important 
than they were before in terms of retirement income?
    Ms. CHAO. There are three parts of anyone's retirement 
security. There is personal savings, Social Security, and their 
employer-provided pension, if there is one. So, all are 
important.
    Mr. RANGEL. The guaranteed benefit, do you believe that 
this has been considered not a part of the risk of the other 
portions but a very important part of what someone should rely 
on that is guaranteed rather than the fluctuations of the 
market?
    Ms. CHAO. I think that Social Security, even when it was 
enacted, was never meant to be the sole source or the main 
source.
    Mr. RANGEL. No, ma'am, I am not talking about sole source. 
I am just saying that in terms of the risk of the other sources 
that they are guaranteed, that it is an anchor type of source.
    Ms. CHAO. Well, that is what the President is trying to 
maintain. He is trying to preserve the strength and the 
integrity of the Social Security system.
    Mr. RANGEL. Well, as a trustee, do you believe that the 
private accounts are guaranteed?
    Ms. CHAO. Do you mean the voluntary retirement accounts?
    Mr. RANGEL. Whatever you want to describe it.
    Ms. CHAO. I do not think it is private. After all, the 
government would be in charge of the management of it.
    Mr. RANGEL. The very personal freedom of choice accounts 
that the President is going to 60 cities in 60 days to 
advocate, those types of accounts?
    Ms. CHAO. I believe that is called the voluntary retirement 
accounts.
    Mr. RANGEL. The voluntary retirement accounts, are they 
guaranteed?
    Ms. CHAO. No, they would not be guaranteed, because it 
would only----
    Mr. RANGEL. I understand.
    Ms. CHAO. Okay.
    Mr. RANGEL. We are on the same side.
    Ms. CHAO. Social Security is not guaranteed either. At this 
rate, it is going to go bankrupt.
    [Laughter.]
    Mr. RANGEL. Madam trustee, do you really believe that the 
funding that we get today as a benefit is as risky as funds 
that would be in a personal account?
    Ms. CHAO. I think the question now is we are all trying to 
understand what the problem is.
    Mr. RANGEL. We are all trying to understand what the 
President thinks the problem is, but I am trying to get an 
answer from you as do you believe that----
    Ms. CHAO. The President thinks it is important to have a 
common understanding of the problem. From there, we can come 
and work together and come to some common solutions.
    Mr. RANGEL. Mr. Chairman, this Secretary is a very 
knowledgeable lady, but you are not helping in trying for us to 
get a better understanding of the problem, but I thank you for 
your efforts.
    Chairman THOMAS. The gentleman's time has expired. Does the 
gentleman from Michigan wish to inquire?
    Mr. LEVIN. Yes. Welcome.
    Ms. CHAO. Thank you.
    Mr. LEVIN. I read in the report last week that there may be 
hearings here on CAFTA and in the Senate after we return. A 
couple of years ago, we provided money to Labor, to the 
Department, to study how core labor standards, international 
labor standards, were being handled in a number of countries, 
and as a result of that, a report was commissioned by the 
International Labor Rights Fund to conduct an analysis in 
Central American countries. Their report was given to you I 
think now some years ago. We filed a request under the Freedom 
of Information Act (FOIA) in May of 2004 to receive a copy of 
that report. When that was denied, we appealed it in October of 
2004. It is now March of 2005. You have not yet responded to 
that appeal. Why not?
    Ms. CHAO. I am sorry if--first of all, I am not aware of 
that FOIA request.
    Mr. LEVIN. You are not aware of the FOIA request?
    Ms. CHAO. No, I am not, not that one, no. We receive 
thousands of FOIA requests. I will look into it.
    Mr. LEVIN. Are you aware of the report?
    Ms. CHAO. No, I am not.
    Mr. LEVIN. Is CAFTA coming up, do you think, this year?
    Ms. CHAO. We are involved----
    Mr. LEVIN. Would you like it to come up this year?
    Ms. CHAO. I am afraid that is not my question to answer. I 
mean, that is not. I do not determine that.
    Mr. LEVIN. Do you have any preference?
    Ms. CHAO. This is an issue which it is up to the Congress, 
and it is up to the U.S. Trade Representative.
    Mr. LEVIN. Will you tell me when you will give me an 
answer?
    Ms. CHAO. I will go back this afternoon and find out what 
the status is.
    Mr. LEVIN. You will give me an answer as to when you are 
going to--do you usually not answer appeals when made by 
Members of Congress?
    Ms. CHAO. Of course not.
    Mr. LEVIN. So, this is October? How many months between 
October and March? Six. So, 6 months, is that your usual time 
lag in order to respond to FOIA requests from Members?
    Ms. CHAO. I would hope not, but I will look into it for 
you.
    Mr. LEVIN. Is there anybody behind you who has read that 
report? Would you ask them?
    Chairman THOMAS. If the gentleman would yield, while the 
Secretary is inquiring, the Chair intends, if it is all 
possible, to continue the hearing. The Chair understands there 
is a vote on an amendment, and then, there will likely be a 
recommit and final passage. So, the Chair will try to keep 
going through the 15-minute amendment vote, and then, we will 
have the discussion on the motion to recommit. So, if Members 
who are not readily next in line or want to go vote and come 
back, the Chair will try to maintain order and pick up people 
as they come and go so that they can have an opportunity to 
question the witness.
    Mr. LEVIN. Okay.
    Chairman THOMAS. I thank the gentleman for yielding.
    Mr. LEVIN. Thank you.
    Ms. CHAO. What I have just been told is that the last time 
you inquired about this, the report was not finalized, it was 
not finished.
    Mr. LEVIN. Is it finished now?
    Ms. CHAO. It is done by the International Labor Affairs 
Bureau. We are going to have to go and ask.
    Mr. LEVIN. All right; you mentioned quickly, you said 
something about Social Security going, in your word, bankrupt. 
When do you say that is going to happen?
    Ms. CHAO. The President has always said----
    Mr. LEVIN. No, no, when do you think it is going to happen? 
You are a trustee. What is the----
    Ms. CHAO. I think the year was 2042 when the fund will 
become insolvent.
    Mr. LEVIN. Not bankrupt.
    Ms. CHAO. That is correct.
    Mr. LEVIN. So, you withdraw the word bankrupt?
    Ms. CHAO. That is correct.
    Mr. LEVIN. Thank you.
    Chairman THOMAS. The gentleman yields back the balance of 
his time. The gentlewoman from Connecticut wish to inquire?
    Mrs. JOHNSON. Thank you, Mr. Chairman and welcome, 
Secretary Chao. First of all, let me congratulate you on this 
proposal to allow States to merge the various job training 
grants. Five years ago, as Chairman of the Subcommittee on 
Human Resources of this Committee in combination with the 
Chairman of the parallel Committee in the Education and Labor 
Committee, we held a joint hearing, and we had President 
Clinton's appointees beg us to do this.
    As one of the States that piloted the one-stop centers, I 
have been accosted by people who advise unemployed people 
saying I am sitting here doing nothing because there are no TAA 
people available. I could be helping other people who are 
unemployed. It is really outrageous that Congress has been 
unable to overcome their silo approach to problems and 
recognize that unemployed people need help. Our one-stops are 
terrific. The Department of Labor resources at the State level 
have become far more sophisticated in both training and what 
jobs they are training for, and so, I really thank you for your 
leadership on that grant issue. It passed without much comment 
on the House floor, at least in the House so far, you have 
gotten no credit for it, but I can tell you people have been 
pressing for this for years, and I want the record to note that 
you deserve credit for leadership in this regard. Now, my 
question goes to last year, we passed bipartisan antifraud 
legislation. How has the Department of Labor--this is in regard 
to employers paying the right amount of unemployment taxes--how 
has the Department of Labor worked with States to assure that 
these problems are addressed?
    Ms. CHAO. We understand very well how important our 
programs are, and we want to ensure that they are being used in 
a way that will optimize the beneficiaries' needs, and so we 
indeed have devoted about $30 million to ensuring that we 
minimize fraud and abuse of the program, and especially with 
identity theft increasing as well, it is very important that we 
focus on this problem.
    Mrs. JOHNSON. It certainly is, and I appreciate the 
Department's healthy working relationships with our State 
Department of Labor. That has made a lot of things happen in a 
way that in the past they really have not.
    Mr. Chairman, I yield back the balance of my time, and I 
will go vote.
    Chairman THOMAS. I thank the gentleman. The gentleman from 
Louisiana, the Chairman of the Social Security Subcommittee 
wish to inquire?
    Mr. MCCRERY. Mr. Chairman, at this time, I do not have any 
questions, but I would like to reserve the opportunity to 
question later.
    Chairman THOMAS. The Chair, then, would indicate that the 
Committee would stand in recess, and the Chair cannot provide a 
specific time other than 5 minutes after the last vote, because 
we may, in fact, go through a series of procedural votes 
following this particular amendment. The Chair hopes to return 
no later than 11:30 a.m. but five minutes after the close of 
the last vote. The Committee stands in recess.
    [Recess.]
    Chairman THOMAS. The Committee will reconvene.
    Mr. MCDERMOTT. Thank you, Mr. Chairman. Welcome, Secretary 
Chao. According to a biennial report of the Bureau of Labor 
Statistics which comes out of your office, 5.3 million 
Americans were laid off their jobs that they held for more than 
3 years between 2001 and 2003. Sixty-5 percent of those 
displaced workers had long work histories and were reemployed 
by 2004, so two-thirds. Now, you have got one-third that did 
not make it. The majority of them were reemployed, lost wages 
as compared to their prior job, and one-third lost 20 percent 
or more of their previous earnings. That is your situation.
    Johns Hopkins University did a study with the National 
Science Foundation that the inflation adjusted incomes of 
families in the bottom fifth of the economy bounced up and down 
more than 25 percent in the early seventies, but by the middle 
of this decade, those annual fluctuations doubled as much as 50 
percent, from 47 to 79. Real family growth income for the 
lowest fifth of households was 116 percent. It was 99 percent 
for the top fifth. Between 1979 and 1998, the bottom fifth real 
family income decreased, decreased 5 percent, and the top fifth 
increased by 40 percent. Now, that raises several questions 
about what is happening in our economy, and one of them is if 
you are unemployed, and you were making $18 an hour working for 
Boeing, and you suddenly are offered a $10 an hour job flipping 
hamburgers, why should I go take that $10 an hour job when I 
can wait, and maybe I will ultimately get a job that pays me 
something more than $10? It has been suggested that 
unemployment insurance to cushion that difference between what 
you used to make and what you make today is a good proposal. It 
would get people back to work quicker if they knew that they 
were going to be able to match their income, and in an 
ownership society--the President is all big about this 
ownership society business. How can you, in an ownership 
society, know where you are going to be if your income 
fluctuates by 50 percent? How do you buy a house? How do you 
buy a car? How do you fund your kids' education, how do you 
anything when that is what is going on? So, the proposal to 
cushion that kind of fluctuation and take some of it out seems 
like a good proposal. Is the President willing to consider any 
such thing?
    Ms. CHAO. The President signed the richest TAA program in 
our country's history. Currently now for a worker in Boeing, if 
they were dislocated, they are probably receiving 104 weeks of 
unemployment insurance, 104 weeks of training, 104 weeks of 
direct income support, 65 percent of their health care is taken 
care of, and there is wage insurance. If you are over the age 
of 50, and they get a new job that pays less than their old 
job, the government will come in and pay 50 percent of the 
differential.
    Mr. MCDERMOTT. Now, you are talking about people covered by 
the trade preference business.
    Ms. CHAO. Right.
    Mr. MCDERMOTT. How about somebody who is just out there 
working for a company, and they lose their job? It is not all 
from Boeing. It is not all related to trade.
    Ms. CHAO. That is right.
    Mr. MCDERMOTT. The loss of jobs in this country. What about 
all of the other people?
    Ms. CHAO. Well, let me respond to your concerns about 
wages. Hourly wages for production and nonsupervisory workers 
are up by about 3 percent in the past year. Hourly compensation 
in the form of the non-farm business sector is up by about 5.2 
percent, and compensation, as measured by the Employment Cost 
Index, is up by about 6 percent overall. Having said that, 
there is a whole host of--that is what the Department of Labor 
is there for, is to help workers who have lost their jobs and 
to ensure that they have the counseling and the skills training 
that they need to be able to access good paying jobs in high 
growth industries.
    Mr. MCDERMOTT. Do you agree that people stay on 
unemployment longer than they might if they are only offered 
low-wage jobs?
    Ms. CHAO. About 50 percent of those who are on unemployment 
insurance get a job at about 9.3 weeks.
    Mr. MCDERMOTT. The others just hang on, waiting, hoping it 
will get better?
    Ms. CHAO. No, that is the average, and so, some are 
shorter, and others are longer, and we are very concerned about 
the long-term unemployed, which is why we are seeking 
reauthorization of workforce development, WIA, so that there is 
greater flexibility to allow Governors to have the access to 
different funding streams which are coming into their States.
    Mr. MCDERMOTT. Have you looked at all your proposals by 
talking to Governors and States about their unemployment 
programs? Have you got the Governors' buy-off on all of the 
programs that are going to be proposed in this Congress?
    Ms. CHAO. The reauthorization of the WIA is currently 
ongoing, and so, it has been passed in some similar form by the 
House the previous 2 years, and the WIA-plus is a different and 
new form which is our effort to continue to work with Congress 
to come up with new ideas, and so, that is currently being 
discussed.
    Mr. MCDERMOTT. That was not my question. My question was 
have you talked to the Governors?
    Ms. CHAO. Yes.
    Mr. MCDERMOTT. Have they registered anything----
    Ms. CHAO. Yes, of course, we have talked to the governors 
and their staffs, yes.
    Mr. MCDERMOTT. They are all saying this is fine.
    Ms. CHAO. I think no, that is not true, of course; you know 
that.
    Mr. MCDERMOTT. Yes.
    Ms. CHAO. Some of them are learning more about the program, 
and we are just rolling it out now.
    Chairman THOMAS. The gentleman's time has expired.
    Mr. MCDERMOTT. Thank you, Mr. Chairman.
    Chairman THOMAS. Does the gentleman from Michigan wish to 
inquire?
    Mr. CAMP. Well, I do, thank you, Mr. Chairman, and thank 
you Secretary Chao, for being here today. I want to thank you 
for your continued efforts on behalf of displaced workers, 
particularly your personal responses to plant closings in my 
district, and I want to thank you for that. For the last couple 
of years, the Department of Labor has distributed TAA funds 
differently than in years past, and instead of receiving one 
lump sum, States are getting a smaller base payment up front, 
and then, throughout the year, they can reapply as their 
caseload requires or demands. I just have a couple of 
questions: how this is working for the Department, how it is 
working for the States, and I do want to thank you at least 
with respect to Michigan, the work that the Department has done 
with the State of Michigan, particularly in trying to develop 
the assumptions that determine these payments and working with 
the State on that. I wondered if you had any comments on that 
and what the pluses and minuses of this process might be.
    Ms. CHAO. The TAA program is one that we have worked very 
hard to make as effective as we can, and the statutory 
timetable is 40 days, and we have reduced that to about 31 
days. So, there is a very quick turnaround. Second, as I 
mentioned, this is the richest program that our country has 
ever had, and it really enables workers who are seeking jobs to 
access high growth opportunities in sectors that again have 
high growth potential, and so, that is all done through the 
common delivery system, the one-stop career centers. Right now, 
for recipients, it is kind of confusing, because there are 
about nine different funding streams. So, the recipient has to 
be fairly sophisticated in understanding what government 
programs are available. It is our goal that the funding 
streams, on a voluntary basis, per State, be allowed to be 
merged so that the Governors would have an easier time 
accessing these funds, knowing what the total amount of the 
moneys are and using it as part of their economic development 
and workforce training purposes.
    Mr. CAMP. If those reapplication payments are received near 
the end of the fiscal year, what happens to those funds? Do 
those revert to the Department of Labor? Or can the State 
continue to distribute those funds?
    Ms. CHAO. We basically return it to the States.
    Mr. CAMP. All right; and if the State receives a payment 
from the Department of Labor near the end of the Federal 
Government's fiscal year, they get to keep that payment and 
continue to use that for any caseload, any out of work or 
displaced workers that they have.
    Ms. CHAO. Right.
    Mr. CAMP. I also want to ask just a brief question about 
the pilot program on the reemployment accounts. I realize that 
21 States received awards out of 22 that applied. I regret my 
own State of Michigan, which has the second-highest 
unemployment rate, did not apply for these. What is the 
Department of Labor doing to work with States to ensure that 
they are able to access all of these funds and benefits?
    Ms. CHAO. Well, first of all, these are all voluntary, so 
it really does depend on the Governors as to whether they want 
to have access to an additional pot of money that would be 
available to them, and this, again, would be targeted at the 
vulnerable, the especially difficult to place and the long-term 
unemployed. So, this is an additional pot of money that would 
be available, and we would hope that Governors would avail 
themselves of it.
    Mr. CAMP. All right; thank you very much. Thank you, Mr. 
Chairman.
    Chairman THOMAS. I thank the gentleman. Does the gentleman 
from Georgia, Mr. Lewis, wish to inquire?
    Mr. LEWIS of Georgia. Thank you very much, Mr. Chairman. 
Welcome, Madam Secretary, welcome.
    Ms. CHAO. Thank you.
    Mr. LEWIS of Georgia. How long have you been a trustee of 
the Social Security Trust Fund?
    Ms. CHAO. It is part of the responsibility of being the 
Secretary of Labor, so it is 2001.
    Mr. LEWIS of Georgia. So, you are serving your second term, 
beginning your second 4 years.
    Ms. CHAO. Whoever is the Secretary, yes, yes, I guess--it 
is not me particularly. It is whoever is the Secretary of 
Labor, Secretary of the Treasury, and Secretary of Health and 
Human Services..
    Mr. LEWIS of Georgia. I understand that, Madam Secretary. I 
understand that very well. What is your understanding of the 
President's proposed private accounts? How do you see this 
fitting into strengthening Social Security?
    Ms. CHAO. Well, we have got a baby boomer generation that 
is retiring. We will have an insolvent situation in 2042. 
Sixteen workers, as you well know, in 1950, supported one 
retiree. Now, we only have three workers supporting one 
retiree. So, to preserve the system, while it is not in crisis 
now, something has to be done.
    Mr. LEWIS of Georgia. Madam Secretary, is there such a 
thing as a Social Security Trust Fund? We have heard just a few 
days ago that no such thing really existed. I would like for 
you to elaborate.
    Ms. CHAO. No, it is a pay as you go system. It is a pay as 
you go system.
    Mr. LEWIS of Georgia. Can you tell me what do you mean by 
that?
    Ms. CHAO. Basically, a person who goes to work has Social 
Security taxes taken from them, and then, that Social Security 
tax is used to support the retirement of someone who is 
retired. So, it takes about 16 workers--it took about 16 
workers to support one retiree in 1950, and only--right now, 
there are about three workers, because we have a shrinking 
workforce.
    Mr. LEWIS of Georgia. Madam Secretary, as Secretary of 
Labor, I would like to know from you do you truly believe that 
Social Security is a significant source of income for retirees, 
workers, for retired workers, disabled workers, survivors? Does 
Social Security effect and assure some degree of independence 
and dignity for our seniors? What would people do without 
Social Security?
    Ms. CHAO. The President agrees with all of that, and he has 
never said to do without it. What he is trying to do is to 
maintain the system.
    Mr. LEWIS of Georgia. I want to know how you feel.
    Ms. CHAO. I feel the same way.
    Mr. LEWIS of Georgia. Really?
    Ms. CHAO. Yes, we need to preserve the system. That is what 
we are trying to do.
    Mr. LEWIS of Georgia. Do you think by privatizing the 
system is the best way to strengthen it and to preserve it for 
generations yet unborn?
    Ms. CHAO. Well, first of all, retirees and current retirees 
are not impacted. This is a voluntary program for young people 
if they so choose.
    Mr. LEWIS of Georgia. Have you been out campaigning for----
    Ms. CHAO. No.
    Mr. LEWIS of Georgia. You have not spent part of the 60 
days with the President?
    Ms. CHAO. Not yet.
    Mr. LEWIS of Georgia. You plan to do so?
    Ms. CHAO. Yes.
    Mr. LEWIS of Georgia. Thank you, Madam Secretary.
    Chairman THOMAS. I thank the gentleman. The gentleman from 
Kentucky, Mr. Lewis, wish to inquire?
    Mr. LEWIS of Kentucky. Yes, thank you, Mr. Chairman. Madam 
Secretary, welcome. It is good to see you here. Just following 
up on the Social Security question, if you do take the personal 
accounts off the table, as some have suggested, then, what is 
left to save Social Security for our kids and our grandkids? 
Yes, Social Security is great for my father who is 88 right 
now, and it is probably going to be great for me, because I am 
58. But my daughter, who is 22, my son, who is 33, and a 
granddaughter who is 14, I want to look out for their interests 
for the future. If you take the personal accounts off the 
table, then, the only thing left for them would be increased 
taxes at a very significant rate, cutting benefits, means 
testing. We are looking at some pretty drastic measures if we 
do not look at personal accounts. I personally believe that we 
can basically ensure those personal accounts through the Social 
Security system as it is. So, I think if we do not look at 
personal accounts, then, we are asking our children to bear a 
burden that they are not going to be able to bear. Would you 
comment on that?
    Ms. CHAO. Well, Congressman, you are exactly right. The 
choices are very tough. If, indeed, we do not think of a new 
way, a third way, we would be cutting benefits or increasing 
taxes. If you take a 30-year-old today, if the current system 
continues, they will experience a 27 percent cut in their 
benefits when they hit retirement.
    Mr. LEWIS of Kentucky. Yes. Thank you, Madam Secretary.
    Chairman THOMAS. The gentleman from California, Mr. 
Becerra, wish to inquire?
    Mr. BECERRA. Thank you, Mr. Chairman. Madam Secretary, 
thank you for being here with us. I appreciate your testimony. 
I would like to continue on the line of questioning regarding 
Social Security, but I would first like to make sure that I 
understood your responses to Mr. Levin with regard to the 
report that was done by the Department of Labor regarding labor 
standards and enforcement within Central American countries. 
That report, for which money was provided to the Department of 
Labor during the 2002 fiscal year, and it apparently was done, 
and last year, a request was made by Mr. Levin through a 
Freedom of Information Act, which ultimately was denied by the 
Department. Are you going to be able to get back to him? I want 
to make sure I am clear on what your response was. You will be 
getting back to him? He has appealed the denial. He appealed 
that denial back in October, and you will be able to get back 
to him a response as to why you denied or what will happen with 
that report that was supposed to be published?
    Ms. CHAO. Of course. We respond to every question by the 
Committee. We have already done so.
    Mr. BECERRA. Thank you. I think he asked for a time line, 
and I am not sure if you are prepared to give a time line, but 
do you know more or less when he can expect to receive a 
response?
    Ms. CHAO. As soon as I get back to the office, I will take 
a look at this.
    Mr. BECERRA. I appreciate that very much. On Social 
Security, as one of the--what is it?--six trustees for Social 
Security and with the fiduciary financial responsibility to 
sustain the Social Security system, I am wondering if you can 
comment on a couple of things. You mentioned that Social 
Security is not guaranteed, and your quote was it is you said 
it is going bankrupt. First, I am wondering, if you can tell 
me----
    Chairman THOMAS. Will the gentleman yield briefly?
    Mr. BECERRA. Yes.
    Chairman THOMAS. In the response to the gentleman from 
Michigan, the Secretary indicated that the word insolvent was 
what she was intending to use and, in fact corrected the record 
so that it would be insolvent.
    Mr. BECERRA. I appreciate that.
    Chairman THOMAS. I thank the gentleman.
    Mr. BECERRA. Thank you very much, Mr. Chairman. In terms of 
the guarantee, are you aware of any time in the 70 years that 
Social Security has paid out that it has not paid out the 
benefits that it has guaranteed to any individual who is 
retired?
    Ms. CHAO. No, we want to keep it that way.
    Mr. BECERRA. So, when you say it is not guaranteed, is 
there some basis, factual basis, for you to make the statement, 
or did you mean that in the future, it might not be guaranteed?
    Ms. CHAO. The program is there. We want to make sure that 
the promises that the government has made to the worker is 
indeed going to be kept.
    Mr. BECERRA. When you said is not, I am wondering if you 
meant to say in the future will not be versus is not. Is not is 
present tense, and I am wondering if you are telling us, or you 
are saying that the system is not guaranteed.
    Ms. CHAO. The program will exist. We want to make sure that 
payments are forthcoming.
    Mr. BECERRA. Right, as they are today.
    Ms. CHAO. If there is a financial problem, then, the 
proceeds under the program are not guaranteed.
    Mr. BECERRA. As we go out and talk to the American public, 
is it fair for me to go out into the public and say that the 
Secretary of Labor says that Social Security is not guaranteed?
    Ms. CHAO. If something is not done about the Social 
Security system, payments under the Social Security program 
perhaps will not be guaranteed. That is going to be a problem.
    Mr. BECERRA. That does not quite answer the question, but I 
just wanted to make sure, because if I go around the country 
saying Secretary Chao has said that Social Security is not 
guaranteed, I am trying to make sure I am not misquoting you.
    Ms. CHAO. I think that you can say that the average 30-
year-old today will have 27 percent of their benefit cut.
    Mr. BECERRA. If we do nothing.
    Ms. CHAO. If nothing is done about the Social Security 
system today.
    Mr. BECERRA. That is based on an actuarial projection of 
what might happen into the future. Would it be fair to say that 
if the actuarial projection of the trustees were to be the more 
optimistic projection that it could be that that 27-year-old 
will get 100 percent of his benefits?
    Ms. CHAO. Highly unlikely at this point.
    Mr. BECERRA. Is that not one of the projections that you, 
yourself, as a trustee have issued, that says that if we have 
growth rates that exceed 2 percent that that 27-year-old will 
get 100 percent of his benefits if we do nothing?
    Ms. CHAO. I am not aware of that.
    Mr. BECERRA. You are not aware of that report you issued?
    Ms. CHAO. No. I do not know what number you are referring 
to.
    Mr. BECERRA. Okay; your own report--as a trustee, you issue 
a report.
    Ms. CHAO. Yes, it is quite a thick report.
    Mr. BECERRA. Yes, it is a report that you issue, where you 
indicate based on what your demographers and your statisticians 
and your economists tell us that if we have growth rates that 
exceed 2 percent, then, we may not have to do anything to 
Social Security, not that anyone is suggesting that, but we 
might not have to do anything, because growth rates would be 
enough to cover any shortfall that might exist for that 27-
year-old when he retires. Are you familiar with that aspect of 
your report?
    Ms. CHAO. I think it is very unsettling for workers and 
retirees to be faced with the uncertainties in their future 
payment streams, which is--they should not have to face 
uncertainty in their retirement. What we are trying to do is to 
make it more secure and stable for them.
    Mr. BECERRA. Thank you, Mr. Chairman.
    Chairman THOMAS. The gentleman's time has expired. The 
Chair would indicate that when the term guarantee is used, you 
would think that could provide you a legal course of action to 
recover promises not delivered. The courts have said, however, 
that Social Security benefits are not guaranteed in the sense 
that you have an absolute right to them. Congress can, and, in 
fact, Congress has in the past changed the benefits and there 
is no guarantee that the benefits as currently proposed will, 
indeed be delivered if Congress chooses to change it, or on a 
pro rata basis, they would not be available.
    Mr. BECERRA. Mr. Chairman, if you would yield on that 
clarification, I think you are correct: Congress can change the 
law, but as the law currently exists, it is an entitlement and 
therefore is a guarantee unless there is a Congress that wishes 
to change it and no longer guarantee for those workers that 
they will receive what they have been promised.
    Chairman THOMAS. That is correct, and that is what Congress 
did in 1983 when it cut the benefits by extending the age and, 
in fact, delayed the cost of living increase.
    Mr. BECERRA. So, it would have to be an act of Congress. 
Members of Congress would have to affirmatively decide that.
    Chairman THOMAS. There would have to be a statute change, 
definitely a statute change, but that does not mean that you 
have a legal recourse. We are in the last few seconds on a vote 
on the motion to recommit. We will then have final passage. The 
Chair will now renew the statement that we will reconvene at 5 
minutes after the last vote. The Committee stands in recess.
    [Recess.]
    Chairman THOMAS. The Committee will reconvene, and the 
Chair will indicate that Members have an additional half an 
hour if they so choose to inquire of the Secretary, and the 
Chair recognizes the gentleman from Washington.
    Mr. MCDERMOTT. Thank you, Mr. Chairman. I ask unanimous 
consent to enter into the record a memo talking about the 
information that the Secretary gave us about the trade 
preference utilization in terms of raising incomes by 50 
percent. I think the figures come from a very small database, 
and I would like to put that in the record. Thank you.
    Chairman THOMAS. Without objection.
    [The information follows:]

    Mr. Chairman, in response to my question about the need to 
help cushion the loss of wages for displaced workers who 
subsequently become reemployed in lower paying jobs, Secretary 
Chao responded that these workers may be covered by an existing 
program if they are over the age of 50. However, this program, 
known as Alternative Trade Adjustment Assistance (ATAA), 
provides a wage insurance subsidy to only a very small number 
of displaced workers who lose earnings upon reemployment. In 
fact, during its initial implementation, only 42 workers in the 
entire country participated in the program. This number stands 
in stark contrast to the millions of workers who are laid off 
and then find another job at lower wages. If we are serious 
about helping workers in transition from one job to another, a 
significantly more comprehensive effort is obviously needed. As 
part of the Trade Act of 2002 (Pub. L. 107-210), Congress 
established a wage insurance program that is limited in scope, 
duration and resources. The Alternative Trade Adjustment 
Assistance program is a 5-year demonstration project that 
provides partial wage replacement to a strictly defined group 
of workers. While the Department of Labor has not publicly 
released data for FY2004, only 42 workers participated in the 
program in the first two months of its existence in FY2003. 
According to the President's FY2006 budget, only $5 million was 
expended on the program in FY2004.
    In order to qualify for the ATAA program, workers must be: 
(1) eligible for regular Trade Adjustment Assistance (meaning 
they lost their job for reasons related to trade); (2) be over 
age 50; (3) forgo the opportunity to participate in TAA-funded 
training, (4) have no easily transferable skills, (5) obtain 
reemployment within 26 weeks after being laid off, and (6) earn 
a wage in their new job that is less than $50,000 and less than 
their previous wage. If a worker meets these criteria, the wage 
insurance program provides 50 percent of the difference between 
the participant's pre- and post-layoff earnings up to a maximum 
of $10,000 over 2 years. According to the government 
Accountability Office (GAO), implementation of and 
participation in the wage insurance program has been extremely 
limited. Only 19 states implemented their wage insurance 
programs during 2003. Of the 1,962 approved TAA petitions in 
FY2003, only 60 included approved requests for the wage 
insurance program. The Department of Labor has not yet released 
data on implementation in FY2004.
    GAO cites several reasons for the lack of participation in 
the wage insurance program. States have been slow to implement 
the program, in part because of difficulty developing new 
payment systems for issuing workers' checks. In addition, state 
officials and employers have found the wage insurance program 
eligibility criteria problematic. In order for workers to 
qualify for most benefits under the general TAA program, a 
petition must be submitted on their behalf either by the 
employer experiencing a layoff, a group of at least three 
affected workers, a union, or the state or local workforce 
agency. Unlike with other benefits, however, this petition must 
include a specific request for wage insurance in order for 
workers to be eligible for the program. Since most petitioners 
are not aware of all the forms of assistance available under 
TAA, this requirement prevents many eligible workers from 
participating in the wage insurance program.
    Another problematic eligibility requirement is that 
employers must confirm that their former employees lack easily 
transferable skills. It can be difficult for an employer to 
assess the skill levels of an entire group of affected workers, 
who may possess a diverse set of skills and skill levels. In 
addition, the Trade Act requires that to be eligible for the 
wage insurance program, workers must lack easily transferable 
skills, yet find reemployment within 26 weeks of layoff. These 
somewhat contradictory requirements exclude workers who can 
find reemployment quickly but at lower wages--the very workers 
who may be best served by a wage insurance benefit. In fact, 
the only workers who are likely to qualify for the benefit are 
those who take low-skill jobs at significant pay cuts, and for 
whom the $10,000 maximum subsidy falls short of compensating 
them for their wage loss. I hope the Department of Labor can 
improve the implementation of the ATAA program so more 
potentially eligible workers might benefit. However, the 
eligibility criteria for the program is such that it will 
always exclude the vast majority of workers who suffer earnings 
loss upon reemployment. Nevertheless, the program's basic model 
of providing wage insurance is a step in the right direction. 
If we learn the right lessons of reducing limitations, 
obstacles and complexity, such a design might begin to provide 
meaningful assistance to the increasing number of displaced 
workers who suffer significant declines in earnings when they 
find a new job.

    Chairman THOMAS. The gentleman from North Dakota wish to 
inquire?
    Mr. POMEROY. I do, Mr. Chairman. Thank you. Madam 
Secretary, thank you for making yourself available and 
especially through these delays of votes. We appreciate it. 
Those of us on the bottom rung sometimes do not get to ask 
under these circumstances. We appreciate you hanging around. I 
have been taking a good look at your PBGC recommendations, and 
I just have a few questions on them. First, it looks like among 
the recommendations with PBGC, there is going to be a change in 
investment posture. Can you describe it? This is not a trick 
question. It appears as though you are drawing down equity 
investment in PBGC.
    Ms. CHAO. This is not part of a legislative proposal. That 
is actually within the administrative purview of the PBGC. 
There is an advisory Committee which recommends that.
    Mr. POMEROY. Let me just think about this. Now, how does 
the governing structure of PBGC work? Who does the head of PBGC 
report to?
    Ms. CHAO. The Secretary of Labor is the Chairman of the 
PBGC. The Secretary of Commerce and Secretary of the Treasury 
are also involved.
    Mr. POMEROY. Okay; so, we have been talking about your 
Social Security trustee work. You are also chairman of the 
board of the PBGC.
    Ms. CHAO. That is correct, in an oversight capacity.
    Mr. POMEROY. The head of PBGC works for the Board, or does 
he work for the Department of Labor?
    Ms. CHAO. He works for the Board. Actually, it is 
independent.
    Mr. POMEROY. I want to get back to this investment issue.
    Ms. CHAO. Yes.
    Mr. POMEROY. What are you doing relative to equity 
investment going forward for PBGC?
    Ms. CHAO. PBGC, over the years, has tried to find out and 
determine through----
    Mr. POMEROY. We have got about 3 minutes now, and you are 
not answering my question. Let me put it to you in a way that 
can be quickly answered: I understand that present equity 
investment posture for PBGC is about 30 percent, and I also 
understand that under the reform proposal, it is going to come 
down to about 15 percent. Do you have knowledge about this 
matter?
    Ms. CHAO. That is incorrect.
    Mr. POMEROY. Okay; would you correct me?
    Ms. CHAO. This is an administrative matter within PBGC. It 
is made by the Investment Advisory Committee, which advises the 
PBGC.
    Mr. POMEROY. Is there going to be a reduction in the equity 
position for the PGBC?
    Ms. CHAO. There already has been.
    Mr. POMEROY. What is the dimension of it?
    Ms. CHAO. It has increased, it has decreased. Most 
recently, it has decreased.
    Mr. POMEROY. Under the present PBGC Board's direction, and 
of course, the PBGC Board has authority over the PBGC 
Investment Board, is there a further reduction in the equity 
position anticipated?
    Ms. CHAO. No, there is not.
    Mr. POMEROY. What will be the ultimate equity position of 
the PBGC? Fifteen percent?
    Ms. CHAO. I think it is still about Twenty-eight to 30.
    Mr. POMEROY. Fifteen percent is the published figure. You 
are telling us today that there will be no change in moving out 
of equities for PBGC?
    Ms. CHAO. It depends on the market. If it goes up, it will 
go up. If it goes down, it goes down.
    Mr. POMEROY. No, it also depends on investing strategy. Do 
you move it into fixed assets, or do you move it into equities?
    Ms. CHAO. Yes, and the Advisory Committee makes that 
decision.
    Mr. POMEROY. Well, it is my understanding that they are 
moving very dramatically into fixed assets. Are you saying that 
is incorrect?
    Ms. CHAO. Recently in the last few years, when the market 
was down, yes, they did, but in other years, they have moved 
up.
    Mr. POMEROY. What is anticipated going forward, nothing?
    Ms. CHAO. No.
    Mr. POMEROY. No change?
    Ms. CHAO. It is the advisory group's recommendation.
    Mr. POMEROY. As Secretary of Labor and Chairman of the 
Board of PBGC, you are telling us that no change is anticipated 
in the equity holdings of PBGC. Is that your testimony this 
morning?
    Ms. CHAO. It depends on the market. If you understand the 
market----
    Mr. POMEROY. No, it does not depend on the market. It 
depends upon the investment strategy.
    Ms. CHAO. No, we do not anticipate changing the investment 
strategy.
    Mr. POMEROY. Okay; thank you very much. The other proposals 
are also interesting. Now, I note in your testimony, you 
indicate that the reform proposal is to improve pension 
security for workers and retirees, stabilize the defined 
benefit pension system, and avoid a taxpayer bailout. Now, I 
notice the President's budget anticipates $18 billion in higher 
premium revenue for coverage under PBGC; is that correct?
    Ms. CHAO. Yes.
    Mr. POMEROY. Now, it is also my understanding that the 
increases are 60 percent premium increases for funded plans and 
much steeper increases for underfunded plans; is that correct?
    Ms. CHAO. Will you repeat the question, please?
    Mr. POMEROY. It is my understanding that underfunded plans 
are going to have a hellacious--that is a pejorative term--it 
is my understanding that underfunded plans are going to have 
extraordinary premium increases. In fact, I have heard an 
analysis that in order to get the kind of revenue anticipated 
to reach $18 billion as contained in the President's budget, 
premium increases for underfunded plans would go up potentially 
from $9 per $1,000 of underfunding to $136 of $1,000 of 
underfunding, a 1,400-percent increase. Is that correct?
    Ms. CHAO. No, that is not correct.
    Chairman THOMAS. The gentleman's time has expired, and the 
Chair believes this would be an excellent question to have the 
Secretary and the Department respond in writing to the 
gentleman in terms of that analysis.
    Ms. CHAO. I would be glad to.
    Mr. POMEROY. I would be more than happy to, Mr. Chairman, 
because I believe extraordinary premium increases actually 
destabilize the entire pension fund system and PBGC as well.
    Chairman THOMAS. The Chair is interested in the response to 
the gentleman's question. The gentleman from California, the 
Chairman of the Subcommittee on Human Resources wish to 
inquire?
    Mr. HERGER. Thank you, Mr. Chairman. Madam Secretary, in 
the last Congress, we passed out of the Subcommittee I chair 
bipartisan legislation that was passed by the Congress and 
signed by the President calling on States to take stronger 
steps to ensure that all employers are paying their proper and 
fair share of unemployment taxes and not engaging in the 
abusive practice of State Unemployment Tax Acts (SUTA) (Social 
Security Act, 1935, 49 Stat. 620) dumping. Could you tell us, 
please, maybe review for us how the States are implementing 
this legislation and how the Department of Labor is helping 
them prevent the type of abuses that brought this issue to our 
attention?
    Ms. CHAO. I would be more than glad to. We are obviously 
concerned about employers who are not carrying out their 
responsibilities, and the SUTA dumping initiative would 
certainly prevent unscrupulous employers from doing that. Six 
States already have enacted legislation. Two States have bills 
awaiting Governors' signatures. Nine States' bills passed one 
house of the State legislature, and 20 States have bills in 
Committees. Most legislatures were not in session when the law 
was enacted, and we anticipate that States will introduce and 
enact legislation by the required date.
    Mr. HERGER. Thank you, and can you tell us, are there any 
other measures that the current budget proposes to limit fraud 
and abuse involving unemployment benefits?
    Ms. CHAO. We are, of course, concerned about fraud and 
abuse, because we want to make certain that all the funds are 
going to help people who are really in need. With the increase 
in identity thefts also, we are very concerned about possible 
abuses, again, of the beneficiaries themselves under this 
program, so the President's budget has proposed about an 
increase of $30 million to try to tackle this problem.
    Mr. HERGER. Thank you, Mr. Chairman. I yield back my time.
    Chairman THOMAS. I thank the gentleman. Does the 
gentlewoman from Ohio wish to inquire?
    Ms. TUBBS JONES. Mr. Chairman, thank you very much. Labor 
Secretary Chao, it is always good to see you here in our 
hearing room. How are you today, ma'am?
    Ms. CHAO. Thank you.
    Ms. TUBBS JONES. How are you today?
    Ms. CHAO. Fine, thank you.
    Ms. TUBBS JONES. Okay; good. As a woman and minority, you 
know how heavily women and minorities depend on Social Security 
as probably their largest or only retirement benefit. You are 
familiar with that, are you not, ma'am?
    Ms. CHAO. What was your point, ma'am?
    Ms. TUBBS JONES. The question is are you familiar with the 
fact that African-Americans and other minorities and women rely 
heavily on Social Security as a retirement benefit?
    Ms. CHAO. I am listening to you, ma'am.
    Ms. TUBBS JONES. You could not be.
    Ms. CHAO. No, I am.
    Ms. TUBBS JONES. The question is are you aware----
    Ms. CHAO. I am now, because you have told me that.
    Ms. TUBBS JONES. You were not before.
    Ms. CHAO. We can have a whole discussion about this, but 
please, go ahead.
    Ms. TUBBS JONES. Just please answer my question, ma'am. You 
are a member of the Social Security----
    Ms. CHAO. I am aware that some believe that, yes.
    Ms. TUBBS JONES. That some believe it?
    Ms. CHAO. Yes.
    Ms. TUBBS JONES. You are a member of the Social Security 
Trustee Board, are you not?
    Ms. CHAO. Yes, ma'am, yes.
    Ms. TUBBS JONES. If you would turn around and talk to any 
of your employees in the back there, they all will----
    Ms. CHAO. They are my colleagues.
    Ms. TUBBS JONES. Tell you that women and minorities heavily 
rely upon Social Security as a retirement benefit.
    Ms. CHAO. Yes.
    Ms. TUBBS JONES. Wow, it took us a long time to get to that 
point. Now, as a woman and minority and a member of the Social 
Security Trustee Board, what efforts are you making to assure 
women and minorities that Social Security will be a benefit 
that they can receive the guaranteed benefit that they are 
entitled to and paid into?
    Ms. CHAO. As an American, I am concerned about the 
retirement security of all Americans and the integrity of the 
system is at stake. The President is trying----
    Ms. TUBBS JONES. Understand this, that you are blessed as a 
woman and a minority to be sitting on that trustee board. For 
women and minorities fighting for you to have that opportunity, 
Secretary Chao, you would not be there. So, my question is you 
are in the room at the table on behalf of those folks. What are 
you doing to assure women and other minorities that they have 
an opportunity to be assured of Social Security benefits?
    Ms. CHAO. By shoring up the financial integrity of the 
Social Security system going forward into the future.
    Ms. TUBBS JONES. What is your proposal to shore up Social 
Security going into the future?
    Ms. CHAO. I think it is important for us to have an 
understanding as to what the problem is, and together, we can--
--
    Ms. TUBBS JONES. That is not my question. My question is 
what is your proposal for shoring up Social Security going into 
the future?
    Ms. CHAO. We are not looking for monologues, okay, we are 
looking for dialog, and I think it is very important for us to 
have dialog on this issue.
    Ms. TUBBS JONES. I did not ask about we. I said as a member 
of the Social Security trustee board, which you are, ma'am, 
what is your proposal? I am trying to have a dialog, and you 
are giving me crap in your answer.
    Ms. CHAO. I do not see why my proposal is that important, 
frankly. It is the Social Security proposal as put forth by the 
Administration.
    Ms. TUBBS JONES. I understand, but you are a trustee, are 
you not?
    Ms. CHAO. Yes.
    Ms. TUBBS JONES. You understand what a trustee's job is, do 
you not, ma'am?
    Ms. CHAO. I am very much aware----
    Ms. TUBBS JONES. Because you have a fiduciary 
relationship----
    Ms. CHAO. Of the fiduciary responsibilities.
    Ms. TUBBS JONES. Understanding the fiduciary relationship--
--
    Ms. CHAO. Yes, and that is why this proposal as the 
President has put forward is very necessary.
    Ms. TUBBS JONES. What is it? What is the proposal?
    Ms. CHAO. The President has said retirees and current 
retirees are going to have their Social Security payments 
protected. It is a voluntary----
    Ms. TUBBS JONES. What is it you are doing to shore up 
Social Security, ma'am, as a trustee?
    Ms. CHAO. If nothing is done, as I mentioned, going 
forward, if you take a look at the average 30-year-old today, 
if nothing is done with a declining population base, that 
worker is going to have their benefits cut by 27 percent.
    Ms. TUBBS JONES. You guarantee that all workers are going 
to have their benefits cut under whatever proposal you are 
talking about. Talk to me for a moment: do you agree that 
private accounts alone are not enough to cure the solvency of 
Social Security?
    Ms. CHAO. I think it is one of the proposals that is being 
put forward.
    Ms. TUBBS JONES. The question is are private accounts alone 
enough to cure the solvency of Social Security, Secretary Chao?
    Ms. CHAO. It is one of the solutions, yes.
    Ms. TUBBS JONES. Alone, it cannot cure the solvency.
    Ms. CHAO. I do not really see what the point is in----
    Ms. TUBBS JONES. I know you do not see the point, because 
you do not want to answer the question.
    Ms. CHAO. No, not at all.
    Ms. TUBBS JONES. I am looking for an answer to my question 
in writing, Mr. Chairman. Thank you for the time.
    Chairman THOMAS. The gentleman from Florida wish to 
inquire?
    Mr. FOLEY. Happily. Thank you, Mr. Chairman. It is hard to 
answer a question on an aspect of saving Social Security if the 
other side will not even allow the debate to begin. The other 
side has refused to even talk about a personal account. They 
have said dramatically that if that conversation remains on the 
table, then, it is a non-starter. One of the biggest applauses 
I have heard recently at a townhall meeting, Democrat and 
Republican debating Social Security was when a college student 
said up and basically asked the question of our Democratic 
colleague that participated: what is the Democratic proposal? 
You do not seem to have one. He acknowledged to his chagrin 
that they did not. Now, I applaud the Administration for 
talking about a critically important program. Secretary Chao, I 
believe you are seated there because you have earned your way 
as a Cabinet Secretary.
    Ms. CHAO. Thank you.
    Mr. FOLEY. Not because of being a woman or an Asian but as 
an American who has excelled in her responsibilities and tasks.
    Ms. CHAO. Thank you.
    Mr. FOLEY. I also want to suggest and thank you and the 
Administration for the crackdown on corporate crime. We have 
seen the result of that yesterday in the significant penalty to 
a person who abused their trust. I also want to applaud you for 
taking that same attempt to bring transparency to the finances 
of union organizations. In Florida, we have seen several union 
officials go to jail recently as they have been kiting moneys 
out of the accounts of hard working union members, and they 
have had their moneys failed to be accounted for, so I applaud 
you for that. The proposals on Social Security clearly are 
controversial, but I asked last week the basic question: if I 
paid $1 in today, and 30 years from today you told me I can 
only receive 73 cents back, that is technically a default in 
American business, is it not?
    Ms. CHAO. Yes.
    Mr. FOLEY. So, if I cannot pay back my responsibilities, I 
am de facto not necessarily bankrupt, but I am in a contested 
state. I am not necessarily solvent. I am illiquid, correct?
    Ms. CHAO. Yes.
    Mr. FOLEY. The Administration is at least trying to talk to 
the American public about options. I do not think there is 
anything that has been dramatically forced by the President 
onto Congress: private accounts, retirement age, cap, raising 
the $90,000, correct? So, it is an open dialog, and I hope we 
can continue to have a dialog rather than a screaming match. I 
also wanted to ask you a question relative to the Bureau of 
Labor Statistics as it conducts its surveys on employment. 
There is the household survey, the payroll survey, and of 
course, those numbers tended to be somewhat misleading in 2002 
and 2003. Reliable and timely economic data is critically 
important for us to function as well as the markets. Now that 
the economy and labor markets have fully rebounded from the 
recession of 2001, has the Department of Labor undertaken any 
comprehensive review of the divergence between the household 
survey and payroll survey?
    Ms. CHAO. Last month's numbers were a terrific example of 
the divergence and the complexity of our workforce. Basically, 
we had 262,000 new jobs created, but the unemployment went up 
5.4 percent, and that is because they are two different 
surveys. We have about 148 million people in our workforce. 
Fifty million people leave their jobs every year, and 50 
million people find new jobs, so there is great turnover. What 
we are trying to measure is 0.1 of 1 percent. The good news is 
both surveys, the household and the payroll survey, are 
trending upward, and they show that 2.2 to 3 million jobs have 
been created in the last 18 months.
    Mr. FOLEY. Thank you. I yield back.
    Chairman THOMAS. I thank the gentleman. Does the gentleman 
from Massachusetts wish to inquire?
    Mr. NEAL. Thank you, Mr. Chairman. Madam Secretary, is it 
your position that there is a crisis in Social Security?
    Ms. CHAO. Well, if nothing is going to be done, there 
certainly is. I think it is solvent now, but in the future, 
there is going to be difficulties in meeting the retirement 
needs of retirees.
    Mr. NEAL. Could we not treat that issue as you have 
described it, though, as it refers to private pension accounts 
as well, if they do not set aside the proper reserves?
    Ms. CHAO. Yes.
    Mr. NEAL. Having said that, is it your position--the 
President, by the way, has stopped using the word crisis as you 
know. My wild guess is it is because the word does not poll 
very well any longer. Let me proceed. Is it your position that 
personal accounts will take care of the solvency issue?
    Ms. CHAO. I think if nothing is done, the system will face 
tough choices. Policy makers will face tough choices in trying 
to maintain retirement benefits. If it is either a tax increase 
or a benefit cut, and those are not appetizing choices. So, the 
discussion has been hopefully to revolve around the need for 
some measures to preserve our system, and the voluntary 
retirement accounts are one option that we hope people will 
consider. They are voluntary.
    Mr. NEAL. Is it the position of the Department of Labor 
that that will take care of the solvency issue?
    Ms. CHAO. The Department of Labor is part of this 
Administration.
    Mr. NEAL. I have noticed.
    [Laughter.]
    Ms. CHAO. As we should be.
    Mr. NEAL. Yes.
    Ms. CHAO. So, I think that would be the case, yes.
    Mr. NEAL. Well, in a sense, I know that you have not had a 
chance to see this, but the President at his press conference 
this morning, quoted here by Bloomberg News says, quote, 
personal accounts do not solve the issue. So, in a sense, he 
has kind of left people who are out there defending it hanging 
out there without the necessary words of defense, and he has 
acknowledged at these rallies that he is holding--I have been 
holding my own rallies, incidentally, and there is no admission 
fee. We do not check to see what political party you belong to. 
We seek no special affiliation. We do not have any litmus test 
of conservative, liberal, or anything; come on in and have a 
discussion about Social Security. So, when we do have this 
issue before us, and the President says the other side will not 
negotiate, or we want to hear what they have got to say or we 
want to hear about their proposals, you cannot do it very well 
if there is this confined atmosphere for people who only agree 
with the President. That is the reason that he has never really 
answered this question, I suspect, until today: personal 
accounts do not solve the issue. Let me take you to the next 
part of this, if I might: Mr. Foley said that--he talked about 
the proposals as they relate to Social Security. Would you 
agree with me there really is not a proposal from the President 
in front of us? Is that a fair assessment?
    Ms. CHAO. Well, the President has put forward some of his 
ideas.
    Mr. NEAL. Concepts.
    Ms. CHAO. Yes. That is what he has always done, send 
principles up in an effort to work with Congress to come up 
with some solutions.
    Mr. NEAL. Fair enough. As a trustee, could you guarantee to 
the audience today and to those of us who are Members of the 
Committee that there will be no cuts in survivor benefits or 
for those of us who receive disability payments?
    Ms. CHAO. I do not think----
    Mr. NEAL. You do not think you can do that?
    Ms. CHAO. I do not think I can do that.
    Mr. NEAL. Fair enough, and thank you for your candor on 
that. Let me, if I can, take you to another track here, because 
I believe CAFTA is going to be discussed here in the not too 
distant future. The Administration's proposal in the 
President's budget cuts $369 million, according to the 
Congressional Research Service, for job training funds in the 
WIA and employment services budget. If we are going to proceed 
to CAFTA, and let me tell you, if you come from the Northeast, 
and I know you were well educated in that part of the country--
--
    Ms. CHAO. I hope you do not hold it against me.
    Mr. NEAL. No, in fact, I think it is something--I wish all 
the members of the Administration who went to college in the 
Northeast might acknowledge that some day.
    Chairman THOMAS. The gentleman's time has nearly expired.
    [Laughter.]
    Mr. NEAL. I have worked hard on the Chairman as well 
without much success. Would you quickly comment, then, on that 
notion about $369 million being cut at the same time you are 
going to entertain CAFTA? My area is really getting hurt by 
this now.
    Ms. CHAO. We are very concerned about training. Basically, 
we have $1.2 billion in float within the system that is not 
accountable, not accounted for. $1.5 billion goes to 
infrastructure, and about $500 million goes for unaccounted--
literally, that is a category. So, of that, we think that $300 
million can be better utilized in direct training.
    Mr. NEAL. Okay; would you recommend to the President that 
this money be restored, though?
    Ms. CHAO. We really, as I mentioned, there is $1.2 billion 
in excess funds within the system. There should be better 
utilization.
    Mr. NEAL. Thank you, Mr. Chairman.
    Chairman THOMAS. I thank the gentleman. The gentleman's 
time has expired. The gentleman from Texas, Mr. Brady, wish to 
inquire?
    Mr. BRADY. Thank you, Mr. Chairman. I look forward to the 
debate on Central American trade. As you know, because of 
preferences, almost all of Central America's goods have access 
to the U.S. market today, most of it duty-free, tariff-free. 
This will reopen two-way trade, so that American farmers and 
American small businesses and American manufacturers can sell 
them to Central America, which will be a benefit for both 
regions, since Central America especially has come so far in 
the past decade in labor rights and rule of law, democracy. 
They are just, I think, a shining star of what a region makes 
its decision to move toward our standards have done a beautiful 
job of it, so I am anxious for that debate. Let us talk a 
little bit about the economy and job training. Our economy, 
like the rest of the world's, is changing, and to keep good 
jobs and to get good jobs, job training done right is just a 
key part of that. I know that one of the proposals by the 
President is to provide more flexibility, so that each region 
can really train workers to the jobs in that region. Many of 
our veterans' groups have been following closely the 
President's proposal to consolidate veterans' job training in 
employment programs with other workforce programs. The good 
news, I think, is businesses really want veterans. They have a 
great work ethic. They have a lot of skills that can move into 
almost any type of job. Making sure they have the full services 
of job training, I think, is really key for them, really key 
for our businesses as well. Can you describe how you see the 
President's job training reform proposal, how that can affect 
services to veterans, especially what types of benefits and 
flexibility will we have for them under the new proposal?
    Ms. CHAO. Veterans are sacred beings in our society. They 
have done so much for us, and we will not let them down. So, 
within the Department of Labor, we have something called the 
Veterans Employment Training Service, and on top of that there 
is an entire workforce development system which gives their 
needs priority. We have counselors to help disabled veterans; 
we have counselors to help returning veterans; and again, they 
get priority on all services.
    Mr. BRADY. Yes, and my understanding, and is it true, Madam 
Secretary, that under the proposal, today we set one standard 
for getting as many veterans back to work as possible, but 
within the workforce, general workforce, we actually set a 
higher standard for more people getting back to work, and under 
this President's proposal, are we not really setting a higher 
goal across America to put more veterans back to work than we 
do today, again, by providing flexibility so that the Houston 
job market is much different than the California job market, 
much different than New York, much different than Kansas City, 
to unlock the boxes of the bureaucracy and actually put 
veterans' job training ahead of the paperwork that too many of 
our local organizations have to face; is that sort of how you 
see that?
    Ms. CHAO. Yes, you are right, because let us take another 
example: the Silicon Valley situation is very different from 
Kannapolis, North Carolina, where there are textile workers. 
So, the States should really be given, especially the 
Governors, much greater flexibility in determining how best to 
use their multi-siloed funding. There are so many silos now in 
training. What we are trying to do is break down the silos and 
consolidate the funds so that there is greater flexibility. For 
example, right now. a long-term unemployed dislocated worker 
cannot access dislocated funding, because that is not in the 
definition. So, we want to, again, allow more funding to be 
more flexibly used to help workers.
    Mr. BRADY. Great; thank you, Madam Secretary. I would just 
encourage you, let us keep working with our veterans' groups, 
just so they can be reassured that our whole goal is more 
flexibility, more services, better jobs.
    Ms. CHAO. Absolutely.
    Mr. BRADY. So, thank you, Mr. Chairman.
    Chairman THOMAS. I thank the gentleman. The Chair indicated 
at the reconvening from the last recess that the Secretary had 
until 12:30, and the Chair regrets any Member who was not able 
to verbally question the Secretary, but certainly, any written 
question that a Member may have will be responded to by the 
Secretary, I am quite sure.
    Ms. CHAO. Yes.
    Chairman THOMAS. With that, the hearing stands adjourned.
    [Whereupon, at 12:32 p.m., the hearing adjourned.]
    [Questions submitted from Representative Cardin and 
Representative McDermott to Secretary Chao, and her responses 
follow:]

              Question Submitted by Representative Cardin

    Question: You mentioned several budget proposals to collect and/or 
reduce UI overpayments. Are you also considering any proposals to 
correct situations in which unemployed workers are not getting the UI 
benefits to which they are entitled? For example, a study commissioned 
by the Department of Labor four years ago suggested that 80,000 workers 
may be denied unemployment benefits every year because they are 
misclassified as independent contractors.
    You have discussed the Administration's proposal to consolidate a 
number of job training programs. Can you tell us if that proposal, in 
addition to the Administration's other budget requests, increases or 
decreases total funding for job training? I ask because the 
Congressional Research Service informs us that total job training funds 
in the Work Force Investment Act and Employment Services would be cut 
by $369 million in President Bush's FY 2006 budget.
    Defined benefit (DB) plans are vital tools for both employers and 
employees. These plans offer security to employees because they 
allocate the risk of investment to the employer, and provide 
professional investment management for retirement savings. They offer 
employers stability, a solid return of investment, and a valuable 
benefit to attract the best employees. I believe that we should work to 
encourage not only the maintenance of existing DB plans, but also 
increase policy incentives to create new DB plans.
    We can agree that the PGBC (PBGC) is underfunded, and that it is a 
tragedy for employees when defined benefit plans are transferred to the 
PBGC because many employees and retirees will lose significant amounts 
of retirement savings. We can also agree that it is important to ensure 
that employees and retirees receive accurate and timely information 
about the state of their pension plans. But my concern is with the 
long-term implications of some of the proposals you have suggested on 
the future of the DB system.
    The number of defined benefit plans has steadily decreased since 
1986. In 1986 there were 172,000 plans, and now there are fewer than 
31,000. The economic environment and funding rules have only 
exacerbated this trend away from DB plans. Yet your proposals 
``reward'' those companies that have chosen to stay in the defined 
benefit system with substantially higher premiums and substantially 
greater risks of getting hit by draconian funding rules. You punish 
companies that are financially strapped by requiring greater payments.
    (i) What role did the maintenance of current DB plans play in the 
formulation of your proposal? Was it a priority? What parts of your 
proposal are aimed at encouraging companies to stay in the DB business?
    (ii) In the formulation of your proposal did you take into account 
the underlying economic conditions (recession, large and rapid stock 
market losses) that contributed to the current state of underfunding in 
both DB plans generally and in the PBGC? How will your plan fare 
through future economic fluctuations?
    (iii) Did you consider, in creating these proposals, the effect on 
company finances that these changes will have, and the aggregate effect 
these changes may have on the PBGC (through increases in bankruptcy and 
plan termination for underfunded plans which will face even larger, 
faster funding payments than they face today)? How did you seek to 
mitigate these challenges?
    (iv) If companies with well-funded DB plans choose to leave the DB 
system because of the changes you propose, where will you receive the 
premium payments to make up the PBGC deficit?
    Employers come in and speak to me all the time about how they would 
like to provide pension plans, but find that the rules make it 
difficult to plan ahead. As you know, planning ahead is pivotal in any 
budget process, particularly for companies, who cannot change the rules 
the way Congress can when it does not reach its own budget goals.
    Yet your funding proposals create greater volatility in pension 
funding through the use of the yield curve, and you base the severity 
of the funding requirements on credit ratings, which can be difficult 
to predict.
    Under a pure yield curve theory a company could have a different 
funding liability every day of the year. The same holds true for 
employees, who could have a vastly different lump sum payment from 1 
day to the next.
    An SEC report on credit rating agencies (required by Sarbanes 
Oxley) concluded that: ``in the case of Enron, the credit rating 
agencies displayed a disappointing lack of diligence in their coverage 
and assessment of that company. In addition, the Staff Report found 
that, because the credit rating agencies are subject to little formal 
regulation or oversight, and their liability traditionally has been 
limited by regulatory exemptions and First amendment protections, there 
is little to hold them accountable for future poor performance.''
    Do you think it wise to place so much emphasis on the evaluations 
of credit rating agencies? How will you evaluate companies that are not 
publicly held?
    Do you have any new details on how your yield curve proposal would 
work?
    Do you think creating greater volatility in pension funding will 
help maintain pension plans? Will it help to provide greater funding? 
What about in a high interest rate environment?
    [Response not received at the time of printing.]

                           ------------------

              Question Submitted by Representative Pomeroy

    Question: PBGC's proposals to increase premiums have become part of 
the President's Budget and the Budget adopted by the House. With an 
estimated price tag of $18 billion, it appears that the Administration 
intends to retire most of $23 billion deficit in the 5-year budget 
timeframe. Please explain the rationale in light of the long-term 
nature of the PBGC liabilities. Could you discuss how the $17 billion 
of ``probables'' would be factored into this premium increase? Is that 
reasonable?
    Your projected fixed per employee rate increase to $30 per employee 
would raise about $2 billion over five years, so the $16 billion 
balance would come from the variable rates. Thus, in order to reach the 
target level suggested by OMB and adopted in the Budget, the variable 
rate would have to increase to $136 per $1,000 of unfunded liability. 
This represents an increase of over 1400% from the current $9 per 
$1,000. If this calculation is not accurate please provide an 
explanation of how the rates for underfunded plans will be calculated 
in order to meet the $18 billion dollar total amount of PBGC fees 
anticipated in the FY 2006 budget. Also, since the Administration has 
generally rejected increasing taxes to help strengthen Social Security, 
I ask that you explain DOL and PBGC suggesting a dramatic revenue 
enhancement through increases in PBGC premiums?
    The Administration's PBGC proposal requests Congress to transfer 
its premium setting authority to the PBGC Board of Directors. The Board 
would then establish the premium rates needed to fund PBGC liabilities. 
Please describe how and when the Administration consulted with 
employers, employees, unions and employer organizations in the 
formulation of its recommendations? Under your proposal, how would the 
PBGC incorporate public input and comments into the rate setting 
process and how would you assure employers and employees adequate 
transparency in the rate setting? Please describe the PBGC Board plans 
to seek input from Congress as it sets future PBGC premiums and to 
provide proper accountability to Congress for increases in PBGC 
premiums.
    How many defined benefit plans does the DOL anticipate will 
terminate over the next five years? How many new defined benefit plans 
does DOL anticipate being set up in the same period?
    The PBGC can finance its deficit in two ways--return on invested 
assets or higher premiums imposed on plan sponsors. Over the last 
several years, the PBGC has unilaterally reduced the equity exposure in 
its portfolio so that it could minimize fluctuations in its own funded 
status. In so doing, they have ``locked in'' the equity losses from the 
early part of this decade, and concurrently reduced their expected 
long-term return on invested assets. In taking this action, has the 
PBGC unilaterally shifted their investment risk onto plan sponsors in 
the form of permanent, long-term premium increases?
    In measuring its liability, the PBGC has historically used an 
interest rate that is well below market rates. What would the PBGC's 
deficit be using the corporate bond interest rate that Congress enacted 
last year on a temporary basis? What would the PBGC deficit be using 
the Administration's own suggested yield curve methodology? Would the 
PBGC have a surplus if it assumed that its assets earned the same 
investment rate of return that the Administration projects individuals 
would earn in private accounts under the President's Social Security 
reform model?
    Predictability is, of course, vital for business planning. Under 
the Administration's proposal how would an employer know at least two 
or 3 years ahead what its contributions are likely to be? While 
businesses can purchase contracts to ease some market risks the only 
choice they have regarding PBGC's funding rules is to divert cash from 
operations. Can you respond to employers' concerns about the volatility 
of proposed funding requirements?
    What modeling have you done on the effect of eliminating smoothing 
of pension contributions on business planning and the economy? What is 
the expected impact of your proposals if we return to an environment of 
higher interest rates? For example, if your rules had been in effect 
during the early to mid-eighties, what minimum and maximum funding 
requirements would be required?
    The Administration's proposals would require some employers to make 
much larger pension contributions starting right away. What modeling 
has the Administration done to determine how many companies would not 
be able to meet those sudden increases in cash flow demand? Explain how 
your modeling anticipates changes to the level of corporate 
bankruptcies as a direct result of this proposal. Explain actions that 
you will be taking to make sure that your reform proposals will not 
force some of the ``probables'' into ``definite problems'' for the 
PBGC.

                               Response:

    In addition to reforming the funding rules to accurately measure 
plan liabilities and assets, to ensure adequate funding, and to improve 
the timeliness and completeness of disclosures to workers and the 
government, the Administration's single-employer defined benefit 
pension reform proposal would ensure the fiscal integrity of the 
pension insurance system.
    The pension insurance system, overseen by the PBGC, is funded 
through premiums paid by pension plans, not through taxpayer funds. The 
current premium structure does not reflect the true risk of a plan 
terminating with insufficient assets to pay benefits and can be 
manipulated to avoid payment of risk-based premiums. The 
Administration's plan will reform the premium structure to reflect more 
accurately the cost of the program and to shift the emphasis to risk-
based premium funding.
    The premium structure is composed of two components, a flat-rate 
premium and a variable-rate premium. The flat rate premium under 
current law has not been changed since 1991, when the rate of $19 per 
participant was established. Our proposal would update this rate to 
reflect the growth in wages over the past 14 years, setting it at $30. 
The flat rate will be indexed to wage growth going forward using the 
same index used to update the PBGC maximum guaranty limit.
    Certain underfunded plans must also pay a variable-rate premium 
under current law. A plan at the ``full-funding limit,'' measured on 
the basis of a plan's vested current liability, is exempt from paying 
any variable rate premium even if that plan has significant unfunded 
vested current liability. Despite record plan underfunding in recent 
years, less than 20 percent of participants were in plans that paid a 
variable-rate premium to PBGC last year. Some of the companies that 
have presented the largest claims against PBGC have avoided paying 
variable-rate premiums for years prior to termination. Bethlehem Steel 
was a poor credit risk for many years and its plans were substantially 
underfunded for many years prior to the plan termination. Bethlehem 
presented a claim of $3.7 billion after having paid no variable-rate 
premium for any year after 1997.
    The Administration's proposal would eliminate the full funding 
limit exception so that all underfunded plans would be required to pay 
a risk-based premium, based on the plan's unfunded at-risk or ongoing 
liability. The premium rate per dollar of underfunding will be reviewed 
and revised periodically by the PBGC Board, which will allow for 
significant flexibility in balancing the objectives of raising revenue 
and maintaining reasonable rates.
    The budget numbers for the Administration's proposal reflect a 
risk-based premium rate of $8-- $9 per $1,000 of underfunding, not $136 
per $1,000. This assumes that all underfunding is assessed, that the 
flat-rate reforms are enacted, and that premium revenues are sufficient 
to cover expected future claims and to amortize our $23 billion deficit 
over 10 years. Of course, plans could always choose to avoid paying the 
risk-based premiums by reducing their underfunding and lowering the 
risk they present to the insurance system.
    Our latest estimates are that an additional roughly $14 billion in 
flat rate and risk-based premiums would be collected under the proposal 
from 2006-2010, with the objective of restoring the single-employer 
pension insurance system to fiscal health in 10 years.

                                 
