    [Senate Hearing 112-246]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 112-246

                         EXAMINING THE FEDERAL WORKERS'

                            COMPENSATION PROGRAM FOR

                               INJURED EMPLOYEES
    =======================================================================

                                    HEARING

                                   before the

                      OVERSIGHT OF GOVERNMENT MANAGEMENT,

                         THE FEDERAL WORKFORCE, AND THE

                       DISTRICT OF COLUMBIA SUBCOMMITTEE

                                     of the

                                  COMMITTEE ON

                             HOMELAND SECURITY AND

                              GOVERNMENTAL AFFAIRS

                              UNITED STATES SENATE

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 JULY 26, 2011

                                   __________

             Available via the World Wide Web: http://www.fdsys.gov

           Printed for the use of the Committee on Homeland Security
                            and Governmental Affairs

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    20402-0001

            COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                   JOSEPH I. LIEBERMAN, Connecticut, Chairman
    CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
    DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
    THOMAS R. CARPER, Delaware           SCOTT P. BROWN, Massachusetts
    MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
    MARY L. LANDRIEU, Louisiana          RON JOHNSON, Wisconsin
    CLAIRE McCASKILL, Missouri           ROB PORTMAN, Ohio
    JON TESTER, Montana                  RAND PAUL, Kentucky
    MARK BEGICH, Alaska                  JERRY MORAN, Kansas

                      Michael L. Alexander, Staff Director
                   Nicholas A. Rossi, Minority Staff Director
                      Trina Driessnack Tyrer, Chief Clerk
                Joyce Ward, Publications Clerk and GPO Detailee

      OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE, AND THE
                       DISTRICT OF COLUMBIA SUBCOMMITTEE

                       DANIEL K. AKAKA, Hawaii, Chairman
    CARL LEVIN, Michigan                 RON JOHNSON, Wisconsin
    MARY L. LANDRIEU, Louisiana          TOM COBURN, Oklahoma
    MARK BEGICH, Alaska                  JERRY MORAN, Kansas

                    Lisa M. Powell, Majority Staff Director
                            Kata C. Sybenga, Counsel
                   Rachel R. Weaver, Minority Staff Director
                   Sean D. Kennedy, Professional Staff Member
                          Aaron H. Woolf, Chief Clerk

                                C O N T E N T S

                                     ------
    Opening statement:
                                                                       Page
        Senator Akaka................................................     1

                                   WITNESSES
                             Tuesday, July 26, 2011

    Hon. Christine Griffin, Deputy Director, U.S. Office of Personnel
      Management.....................................................     3
    Gary Steinberg, Acting Director, Officer of Workers Compensation
      Programs, U.S. Department of Labor.............................     5
    Andrew Sherrill, Director, Education, Workforce, and Income
      Security, U.S. Government Accountability Office................     7
    Joseph Beaudoin, President, National Active and Retired Federal
      Employees Association..........................................    14
    Ronald Watson, Consultant, National Association of Letter
      Carriers, AFL-CIO..............................................    15
    Gregory Krohm, Executive Director, International Association of
      Industrial Accident Boards and Commissions.....................    17

                         Alphabetical List of Witnesses

    Beaudoin, Joseph:
        Testimony....................................................    14
        Prepared statement...........................................    59
    Griffin, Hon. Christine:
        Testimony....................................................     3
        Prepared statement...........................................    27
    Krohm, Gregory:
        Testimony....................................................    17
        Prepared statement...........................................    74
    Sherrill, Andrew:
        Testimony....................................................     7
        Prepared statement...........................................    45
    Steinberg, Gary:
        Testimony....................................................     5
        Prepared statement...........................................    31
    Watson, Ronald:
        Testimony....................................................    15
        Prepared statement...........................................    67

                                    APPENDIX

    Questions and responses for the record from:
        Christine Griffin............................................    82
    Background.......................................................    92
    Statement for the Record from:
        Colleen M. Kelley, National Treasury Employees Union.........    96
        Federal Managers Association.................................   102
        Federal Law Enforcement Officers Association.................   109
        David C. Williams, Inspector General, United States Postal
          Service....................................................   113
        Lisa M. McManus, CCS Holdings................................   125

                         EXAMINING THE FEDERAL WORKERS

                    COMPENSATION PROGRAM FOR INJURED WORKERS

                                  ----------

                             TUESDAY JULY 26, 2011

                                     U.S. Senate,
                  Subcommittee on Oversight of Government
                         Management, the Federal Workforce,
                                and the District of Columbia,
                          of the Committee on Homeland Security
                                            and Governmental Affairs,
                                                        Washington, DC.
        The Subcommittee met, pursuant to notice, at 2:15 p.m., in
    room SD-342, Dirksen Senate Office Building, Hon. Daniel K.
    Akaka, Chairman of the Subcommittee, presiding.
        Present: Senator Akaka.

                   OPENING STATEMENT OF SENATOR AKAKA

        Senator Akaka. This hearing will come to order. Aloha and
    thank you all for being here today as the Subcommittee examines
    the Federal Employees Compensation Act (FECA) which provides
    compensation to Federal employees injured on a job and the
    various proposals to change or reform the program.
        As the largest employer in the country, the Federal
    Government takes seriously its obligation to protect its
    employees and make them whole when they are injured at work.
    Nearly a century ago, workers' compensation benefits were
    enacted to help fulfill this commitment to workers and avoid
    costly litigation.
        FECA provides Federal employees with work-related injuries
    or illnesses with lost wages, medical care for the injury or
    illness, and vocational rehabilitation (VR) services to help
    them return to work. One of FECA's core principles is that
    workers and their families should be no better or worse off
    than they would have been had the worker not been injured.
        Today we will be reviewing a number of legislative
    proposals intended to modernize and improve this important
    Federal program. Some of the proposals contain common-sense
    reforms to modernize the program. For instance, as more
    civilian employees are serving in dangerous areas, such as Iraq
    and Afghanistan, we must ensure that they receive appropriate
    benefits if they are injured.
        To that end, the Administration has proposed providing
    those injured while deployed overseas in a zone of armed
    conflict, additional time to file a claim with their full pay
    continued and would ensure that employees injured in a
    terrorist attack while off-duty would receive FECA benefits.
        Additionally, the Labor Department (DOL) has requested
    access to Social Security wage information to verify FECA
    recipients' earnings as a check against improper payments and
    fraud. I am also pleased with the Administration's focus on
    improving return-to-work programs and providing injured workers
    the support they need to re-enter the workforce.
        My friend, Senator Collins, has introduced a bill that
    would transfer disabled FECA recipients from FECA into the
    Federal retirement system automatically at retirement age. I
    have deep concerns that this would create a substantial and
    unfair income reduction for many elderly disabled FECA
    recipients.
        Recipients' retirement annuities would be based on their
    salary and years of service at the time of their injuries. The
    bill does not provide any adjustment to account for normal
    career progression that these injured employees miss out on.
    Worse, as drafted, benefits for some employees would not even
    be adjusted for inflation, which, in some cases, could be
    decades of inflation.
        The large majority of Federal employees who are covered by
    the Federal Employee Retirement System (FERS) would face an
    even more drastic drop in pay. Unlike the Civil Service
    Retirement Service (CSRS), which provides a defined benefit
    pension, FERS divided Federal employees retirement annuity into
    three parts, Social Security, the Thrift Savings Plan (TSP),
    and a reduced Federal pension.
        Congress explicitly considered Social Security and the TSP
    to be essential elements of retirement under FERS, but FECA
    recipients are not permitted to participate in the TSP and do
    not accrue additional Social Security benefits. With a low FERS
    annuity, little or no TSP savings, and a low Social Security
    benefit, many of these disabled FECA recipients could be
    impoverished if forced to transition to FERS.
        Any proposal that significantly reduces benefits at
    retirement will need substantial work. We must ensure that
    proposals to change FECA are fair and do not create undue
    hardships for employees who are permanently disabled because of
    an injury or illness sustained at work. This critical program
    has not been significantly updated in almost 40 years, and I
    think it deserves a closer look.
        I thank each of our witnesses for being here today and look
    forward to hearing from each of you about this program, the
    various reform proposals, and how these proposals will impact
    Federal employees. I look forward to hearing from our first
    panel of witnesses and welcome you here.
        Ms. Christine Griffin, the Deputy Director of the Office of
    Personnel Management (OPM), Mr. Gary Steinberg, Acting Director
    of the Office of Workers' Compensation Programs (OWCP) at the
    U.S. Department of Labor, and Mr. Andrew Sherrill, Director of
    Education, Workforce, and Income Security at the U.S.
    Government Accountability Office (GAO).
        I want to take a moment to acknowledge Ms. Griffin's
    service, since I understand that she will soon be leaving OPM,
    and this will be her last time testifying before this
    Subcommittee. We are going to miss her.
        Over the past few years, Ms. Griffin has shown tremendous
    commitment to improving all aspects of employment in the
    Federal Government. I am grateful to her for her work with this
    Subcommittee, especially on hiring reform and improving
    opportunities and accommodations for people with disabilities.
        It is with great appreciation, Ms. Griffin, that I say,
    mahalo nui loa, thank you very much, for your years of valuable
    service with OPM and I wish you success in your future
    endeavors.
        Ms. Griffin. Thank you, Senator.
        Senator Akaka. It is the custom of this Subcommittee to
    swear in all witnesses and I ask you just to raise your hands.
        Do you swear that the testimony you are about to give
    before this Subcommittee is the truth, the whole truth, and
    nothing but the truth, so help you God?
        Ms. Griffin. I do.
        Mr. Steinberg. I do.
        Mr. Sherrill. I do.
        Senator Akaka. Thank you. Let it be noted for the record
    that the witnesses answered in the affirmative.
        Before we start, I want you to know that your full written
    statements will be made part of the record, and I would also
    like to remind you to please limit your oral remarks to 5
    minutes. Ms. Griffin, will you please proceed with your
    statement?

      STATEMENT OF CHRISTINE M. GRIFFIN,\1\ DEPUTY DIRECTOR, U.S.
                     OFFICE OF PERSONNEL MANAGEMENT

        Ms. Griffin. Thank you for the opportunity, Senator, and
    thank you for your kind remarks. Thanks for the opportunity to
    testify today regarding OPM's views on retirement issues
    related to FECA reform proposals. I will defer to the
    Department of Labor on the details of broader FECA reform.
    However, I am here to discuss OPM's support of a workers'
    compensation system that is equitable to employers and
    employees and our efforts to improve the Federal employment of
    individuals with disabilities.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Ms. Griffin appears in the appendix
    on page 27.
    ---------------------------------------------------------------------------
        The current workers' compensation system provides a
    reasonable benefit comparable to an employee's income when they
    were able to work. When an employee reaches retirement age,
    however, FECA benefits, in many instances, are more generous
    compared to what the employee would receive as a retiree.
    Therefore, the vast majority of long-term FECA claimants remain
    on the FECA rolls well past retirement age.
        To address the retirement equity issue, DOL and Senator
    Susan Collins have offered two different reform proposals.
    Labor's proposal contains a conversion benefit that would
    reduce the retirement-eligible FECA claimant's benefits to 50
    percent of their gross salary at the date of the injury. This
    reduction would be closer to what their retirement benefit
    would have been after a career of service. It also has the
    advantage of simplicity and uniformity of coverage.
        The President's Fiscal Year budget request estimates that
    it would result in a cost savings of more than $400 million
    over 10 years. Senator Collins' proposal, S. 261, would take
    retirement-eligible individuals off the compensation rolls and
    place them onto the retirement rolls. OPM has strong concerns
    and believes that Labor's approach represents a more fair and
    equitable treatment.
        Senate 261 would require a system change for FECA
    claimants. At Social Security retirement age, FECA benefits
    would stop, if the individual were eligible for a retirement
    annuity, under CSRS or FERS. For FERS enrollees, employees and
    employers do not make retirement contributions, including into
    Social Security or TSP while an employee is receiving workers'
    comp benefits.
        In addition, S. 261 would provide for retirement based only
    upon employment performed before an employee's injury. These
    two issues combined could result in many individuals
    experiencing extreme financial hardship with very small
    annuities and without health benefits. Another unintended
    consequence is that individuals with the least amount of
    service at the time of their injury and who would not meet
    annuity requirements would not be subject to S. 261, and
    therefore, would receive much higher benefits than injured
    employees with more service.
        While the conversion concept applies to all claimants
    regardless of their retirement system, S. 261 only applies to
    employees covered by CSRS and FERS. However, there are numerous
    retirement systems that cover Federal employees such as the
    Foreign Service or Federal Reserve. To fully cover all
    individuals the system change concept would require that these
    retirement plans be amended.
        Senate 261 could be amended to provide a more equitable
    change from the workers' comp program to a retirement system,
    but it would be very complicated. Equity would require a
    retirement benefit comparable to what the individual would have
    received had their employment not been interrupted by an injury
    or illness.
        This would require a formula for adjusting service credit
    and annual salary. It also would be necessary to address the
    loss of Social Security and TSP for the compensation period.
    Additionally, each Federal retirement system that covers
    individuals under FECA would have to be modified based upon its
    particular benefit provisions.
        While the conversion concept would require only minimal
    administrative resources for implementation, the system change
    concept would require major changes utilizing substantial
    resources.
        One year ago today, in fact, President Obama signed an
    Executive Order (EO) to increase Federal employment of
    individuals with disabilities, and in February I testified
    before the Subcommittee about OPM's efforts in this area. OPM
    partners with agencies across the Federal Government, including
    OWCP, to provide training on the Executive Order, recruitment
    strategies, reasonable accommodation policies and procedures.
        Agencies are making strides toward the President's goal of
    hiring more people with disabilities over the next 5 years.
    And, in fact, just last week, Gary and I held a joint meeting
    at OPM with all of the individuals who are implementing the
    plans at their agencies, as well as all of the workers' comp
    return-to-work POWER initiative representatives, to make sure
    that they were aware that there are opportunities for people
    who want to return to work, they can, and we can accommodate
    them.
        In conclusion, OPM supports the Administration's efforts to
    reform FECA in an equitable and fair manner. We welcome the
    opportunity to work with the Subcommittee to address our
    concerns. Thank you.
        Senator Akaka. Thank you very much, Ms. Griffin. Mr.
    Steinberg, will you please proceed with your statement?

      STATEMENT OF GARY STEINBERG,\1\ ACTING DIRECTOR, OFFICE OF
        WORKERS' COMPENSATION PROGRAMS, U.S. DEPARTMENT OF LABOR

        Mr. Steinberg. Thank you, Chairman Akaka. I appreciate the
    opportunity to discuss the Federal Employees' Compensation Act
    today. On behalf of Secretary Solis, I would like to share a
    set of balanced proposals that would enhance her ability to
    assist beneficiaries to return to work, provide a more
    equitable array of benefits, and generally modernize the
    program.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Steinberg appears in the appendix
    on page 31.
    ---------------------------------------------------------------------------
        Almost 95 years ago, Congress enacted FECA to provide
    workers' compensation coverage to all Federal employees and
    their survivors for disabilities or death due to work-related
    injuries or illness. The faces of FECA include the postal
    worker who is hurt when his mail truck is hit while delivering
    the mail, the Federal Bureau of Investigation (FBI) agent
    injured or killed in the line of duty, and the Veterans Affairs
    (VA) nurse who hurts her back while lifting patients.
        DOL's Office of Workers' Compensation Programs has worked
    hard to administer the program fairly, objectively, and
    efficiently. We seek to continuously improve the quality and
    service delivery to our customers, enhance internal and
    external communication, and reduce costs to the taxpayer.
        We have made major strides in disability management that
    have resulted in significant reductions in the average number
    of work days lost from the most serious injuries. Over the last
    10 years, the average number of days lost due to serious
    injuries has declined by over 20 percent, producing an annual
    savings of over $53 million.
        Our administrative costs are only 5 percent of the total
    program cost, well below the average of all State self-
    insurance programs which is over 11 percent. To further improve
    FECA, we have made comprehensive recommendations to Congress. I
    wish to highlight some of those major recommendations now.
        To help injured employees return to work, we request
    authority to start vocational rehabilitation activities without
    waiting until an injury is deemed permanent in nature. We seek
    a mandate to develop a return-to-work plan with claimants early
    in the rehabilitation process, and the authority to deploy an
    assisted reemployment program with Federal agencies, similar to
    the program we have successfully implemented with the private
    sector companies.
        The proposed changes will also have a positive impact on
    the government's ability to achieve the President's Executive
    Order on hiring individuals with disabilities as well as
    protecting our workers and ensuring reemployment, the POWER
    initiatives.
        We also suggest changes to the benefit structure. For
    example, the payment of schedule awards for loss or loss of use
    of a limb, of one's sight or hearing is often complicated and,
    thus, often delayed. Although not intended as replacement for
    economic loss, payments are based on the employee's salary. So
    a letter carrier who has a knee impairment is compensated at
    less than half of her GS-15 manager for the very same injury.
        We think these awards should be paid by DOL concurrently
    with wage loss compensation made more rapidly, and to be fair,
    they should be calculated at a uniform level for all employees.
    We also propose to increase benefit levels for burial expenses,
    as well as facial disfigurements.
        Under current law, the majority of injured workers receive
    wage replacement at 75 percent of their salaries, tax-free, and
    Cost of Living Adjusted (COLA'ed). This rate is higher than the
    take-home pay of many Federal workers, and can serve as an
    obstacle to the Department's efforts to encourage workers to
    make that hard and sometimes painful effort to overcome their
    injuries and return to work.
        We, therefore, recommend shifting the benefit level, for
    the majority of claimants, to 70 percent rather than 75
    percent. To provide equity with other Federal employees, we
    also recommend establishing a lower conversion rate for
    beneficiaries beyond retirement age, which would more closely
    mirror OPM's retirement rate. Both changes would be prospective
    in nature.
        In addition, elements of the statute need to be changed
    significantly to further reduce processing time. For example,
    the current statute increases the compensation rate for anyone
    with a dependent from the standard 66 and two-third rate to a
    rate of 75 percent. Paying all non-retirement age beneficiaries
    at 70 percent would simplify the process by eliminating the
    continuing need to obtain and validate documents regarding
    dependent eligibility.
        A single rate would be simpler and more equitable and would
    significantly reduce and provide savings to the taxpayer. This
    change alone, over a 10-year period, would produce a $500
    million savings. My written testimony outlines other important
    provisions that would streamline and improve the program.
        In summary, while FECA is a model workers' compensation
    system, it has limitations that need to be addressed. The
    reform we suggest today is not new. It has been proposed by the
    current and previous Administrations. We believe it is careful,
    balanced, reflective of good government, and would bring the
    program into the 21st century. Thank you again for the
    opportunity to talk with you today and I look forward to
    answering any questions you have.
        Senator Akaka. Thank you for your statement, Mr. Steinberg.
    Mr. Sherrill, would you please proceed with your statement?

         STATEMENT OF ANDREW SHERRILL,\1\ DIRECTOR, EDUCATION,
    WORKFORCE, AND INCOME SECURITY, U.S. GOVERNMENT ACCOUNTABILITY
                                 OFFICE

        Mr. Sherrill. Thank you, Chairman Akaka. I am pleased to be
    here today to discuss issues related to potential changes to
    FECA, which provides critical wage loss compensation and other
    benefits to Federal employees who are unable to work due to
    injuries sustained on the job.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Sherrill appears in the appendix
    on page 45.
    ---------------------------------------------------------------------------
        Concerns have been raised that Federal employees on FECA
    receive benefits that may be more generous than under the
    traditional retirement system and that the program may
    incentivize individuals to remain on the rolls well beyond
    retirement age.
        Over the last 30 years, there have been numerous proposals
    to change FECA, and more recent options for revising the
    program for older beneficiaries are similar to those that we
    have discussed in prior work. My statement today discusses
    stakeholder views surrounding previous proposals for change and
    policy questions and issues that still merit consideration
    today in crafting legislation to change benefits for older
    beneficiaries.
        In 1996, we reported that a perception among many that
    older FECA beneficiaries were receiving overly generous
    benefits had generated two types of proposals to change
    benefits once individuals reached retirement age. The first
    type would convert FECA benefits to Federal retirement benefits
    at retirement age. A bill recently introduced in the Congress
    includes a similar approach requiring FECA recipients to retire
    upon reaching Social Security age.
        A second type of proposal involves converting FECA wage
    loss benefits to a FECA annuity. The Department of Labor has
    recently proposed a similar change that would reduce FECA
    benefits for retirement-age recipients to 50 percent of their
    gross salary at the time of injury.
        In our past work, we have noted that proponents for change
    felt that reforms were necessary to control escalating costs
    and to ensure benefit equity. Those in opposition were
    concerned that benefit reductions would cause economic
    hardships, reduce incentives for employers to manage claims or
    develop safer work environments, and that age discrimination
    posed a possible legal challenge.
        In soliciting views from various experts and stakeholders,
    we identified a number of issues that merit consideration in
    crafting legislation to change benefits for older FECA
    beneficiaries. In going forward, Congress may wish to consider
    the following questions as it addresses current reform
    proposals.
        First, how would benefits be computed? For some proposals,
    as in the FECA annuity option, calculating the FECA benefits
    may be fairly simple. One issue for a FECA annuity option is
    whether it should be designed to achieve a certain benchmark,
    for example, to approximate a taxable retirement annuity.
        Converting FECA benefits to a retirement benefit may be
    more complex as it could involve varying retirement benefits
    depending upon the specific provisions, the different
    retirement systems, and the individual's circumstances. For
    example, consideration of more complex adjustments may be
    necessary to address extended time out of the workforce and
    other variables.
        Second, which FECA beneficiaries would be affected and
    should some workers be exempt under some proposals such as
    those already on the rolls or those who are ineligible for
    Federal retirement?
        Third, what criteria would initiate a benefit change? Would
    age or retirement eligibility alone trigger events or would you
    need secondary criteria such as a delayed transition period for
    those at or near retirement age who may recently have been
    injured, but still have strong prospects for recovery and
    return to work?
        Fourth, how would other benefits be treated such as
    survivor and medical benefits under a reform system and who
    would administer the benefits?
        And finally, the critical question of how would benefits be
    funded. The FECA annuity option likely would remain funded
    under the traditional FECA charge-back system. In contrast,
    converting FECA benefits to retirement benefits may result in
    funding shortfalls for the retirement benefits and warrant
    consideration of alternative funding options.
        In conclusion, FECA continues to play a vital role in
    providing compensation to Federal employees who are unable to
    work because of injuries sustained while performing their
    duties. Prior and current reform proposals continue to raise a
    number of important issues with implications for both
    beneficiaries and Federal agencies responsible for
    administering the program.
        While not exhaustive, the analytical framework and
    questions posed in our prior report are still relevant today
    and can help all stakeholders and interested parties better
    understand the program complexities and key issues to consider
    as they move forward in assessing specific proposals for
    change.
        As you may know, we have ongoing work examining various
    issues related to FECA benefits for older beneficiaries, but
    are not yet at the stage of having preliminary findings and we
    look forward to working with both labor and OPM as we move
    forward with those analyses. That concludes my statement. I
    would be happy to answer any questions.
        Senator Akaka. Thank you very much for your statements. My
    first question is for Mr. Sherrill. Your testimony discusses
    GAO work from 1996----
        Mr. Sherrill. Correct.
        Senator Akaka [continuing]. That looked at similar
    proposals to reduce benefits to FECA recipients who were over
    retirement age. As your statement notes, many of the same
    questions raised by that report have not been answered and
    remain relevant today. I am especially interested in your
    testimony on how benefits will be calculated and funded under a
    retirement conversion proposal like S. 261. Could you please
    elaborate on the complexities of calculating and funding
    retirement benefits under such a conversion?
        Mr. Sherrill. Certainly. Let me first talk about the
    calculation of the benefits. The first issue is whether or not
    to make any adjustments for people with regard to their
    retirement benefits, and if you make adjustments, you could
    treat the time on FECA as if the beneficiary had actually
    worked, either by giving credit for years of service or
    increasing the salary base depending on wage increases or
    inflation.
        Another question is whether you make any adjustments for
    foregone contributions to TSP or Social Security, whether you
    factor those in to provide protections or adjustments. So a
    number of different issues along those lines.
        With regard to the funding of retirement benefits, to the
    extent that there are shortfalls in the amount that agencies
    and individuals have contributed, if we are going to provide
    retirement benefits, there are different options to consider.
    One would be to have agencies pay lump sum payments at
    conversion for these new retirement benefits. That may be
    costly.
        Another option is to have agencies pay as you go, where
    they would make annual payments for these retirement benefits.
    There is also the option of having the agency and the employee
    continue retirement contributions before conversion, in order
    to provide additional sources of funding for this as well. Thus
    there are a lot of different factors to be considered.
        Senator Akaka. Thank you for that response. Ms. Griffin, in
    your testimony, you mentioned that moving retirement age FECA
    recipients over to the Federal retirement system could not only
    dramatically reduce their monthly payments, but also leave some
    of them without health insurance. Why is that? And is there
    some way to ensure that disabled employees do not lose their
    health coverage?
        Ms. Griffin. Well, not if we want to convert them over into
    retirement as S. 261 suggests because individuals are only
    entitled to continue health care benefits in retirement if they
    retire immediately after separation from employment, and these
    folks will all be in sort of a Catch 22 where they will already
    be out of the system by the time they retire. So they will not,
    by law, be eligible for health benefits.
        Senator Akaka. I see. Mr. Steinberg, if FECA recipients
    were transferred to the Federal retirement system from FECA,
    how would this change impact their other FECA benefits such as
    benefits for medical costs resulting from their injuries?
        Mr. Steinberg. They would still be eligible to receive the
    compensation for the medical costs. The point that concerns us
    even more is the fact that many of these individuals who have
    achieved retirement age still have the capacity to return to
    work and we are working with them in terms of vocational
    rehabilitation. We are working with them in terms of treatment
    of their injuries and illnesses.
        We believe we have the opportunity to help them return to
    work. If they were to move to the OPM retirement rolls, we
    would preclude that opportunity. So we will continue to support
    with the other benefits, but again, I think the big cost is the
    fact that we have lost the return to work opportunity for these
    individuals.
        Senator Akaka. Thank you. Ms. Griffin, your statement
    briefly mentions that under S. 261, FECA recipients who
    concurrently apply for FERS disability would have their first
    benefit adjusted for additional service time and, hence, the
    average salary, while others would not. Would you please
    discuss why that is, as well as why a formula to adjust length
    of service and salary would be necessary if FECA recipients
    were transferred to Federal retirement programs?
        Ms. Griffin. And this is, as you said, under FERS?
        Senator Akaka. Yes.
        Ms. Griffin. Well, the FERS system, because it is more
    complicated than the CSRS, we have the TSP contribution as well
    as the Social Security piece. Those contributions will not be
    made while the person is out on workers' comp. So those folks
    will really be in a more difficult situation under S. 261 if
    they are then converted over into retirement. Is that what you
    were asking?
        Senator Akaka. Yes. Thank you. Mr. Steinberg, as you know,
    under S. 261, FECA recipients who are not eligible for FERS or
    CSRS could remain on FECA at retirement age. This means that
    employees, with just a few years of service, might receive
    dramatically higher lifetime benefits than those who served
    long enough to vest in the pension system.
        In contrast, the Administration proposal would apply
    uniformly to all FECA recipients. Will you please discuss why
    you propose to standardize benefits at retirement age and
    discuss any concerns you have with converting to Federal
    retirements?
        Mr. Steinberg. The question is very insightful. The reality
    is that there are three different cohorts of individuals that
    would be affected. I think, as Ms. Griffin has characterized,
    you have the individuals who have not worked for the government
    long enough to be eligible for CSRS or FERS. They would stay on
    FECA. Under our proposal, they would receive 50 percent of
    their salary at the time of their injury.
        The individuals who just exceed the threshold have had very
    little opportunity to contribute to their retirement plan, both
    Social Security, FERS, as well as the Thrift Savings Plan, so
    they would be the ones impacted the most and be in a rather
    dire strait.
        The third category is those individuals who have worked a
    large portion of their career become injured. They would have a
    fair amount of investment, but still, there would be a
    difference between the 50 percent, or currently the 75 percent,
    and where they would likely be given their FERS contributions.
        We believe that the standard rate is fair, it is equitable,
    it brings the injured individual at retirement age to a level
    that far more closely equates to the retirement level of their
    colleagues who have worked their entire career, whether it is
    CSRS or FERS.
        Senator Akaka. Thank you. Ms. Griffin, from your testimony,
    it sounds like there would be a number of complicated
    administrative challenges to converting FECA recipients to the
    Federal retirement system. OPM already struggles with delays in
    retirement processing and has been increasing its retirement
    staffing. Would OPM need additional resources and staff to deal
    with these new administrative burdens?
        Ms. Griffin. Absolutely. Not only would we need more staff,
    but the changes to the computer systems--I mean, we are
    currently having difficulty modernizing the system as it is. To
    then further complicate it with these changes to all the
    different systems that exist would cause, I think, great
    difficulty and a fair amount of resources to actually
    implement.
        Senator Akaka. Ms. Griffin, the Department of Labor has
    indicated that reducing the FECA benefit to 50 percent at
    retirement age will give a FECA recipient a benefit comparable
    to what they would have received at retirement had they been
    able to continue working.
        If Congress considers reducing the FECA benefits at
    retirement age, it is essential to ensure that the conversion
    is fair and does not leave disabled elderly employees worse off
    financially than they would have been if they had not been
    injured. Has OPM compared retirement benefits at different pay
    levels in both FERS and CSRS to the proposed reduced FECA
    benefit?
        Ms. Griffin. It is actually difficult. We looked at this
    and it is actually difficult to do a real straight comparison
    because there are a lot of variables that are unknown such as
    whether somebody is contributing to TSP and how much they are
    contributing and those types of things what is taxable and what
    is not.
        But if you do sort of a rough look at people at different
    levels, you really do see that there is a comparable way of
    approaching this by exactly what Department of Labor is
    proposing, looking at what they would end up with at 50 percent
    of what they were earning, what their high three would be
    before they actually went out on workers' comp.
        And we think it is actually quite fair. But there are the
    variables, and we can provide something to you that does a
    rough estimate and we have that here, but there really are
    variables such as income tax and Social Security and the TSP
    contribution.
        Senator Akaka. Well, thank you for that. I would ask you to
    please provide your analysis----
        Ms. Griffin. OK. We could do that.
        Senator Akaka [continuing]. For the Committee. Thank you.
    Mr. Steinberg, an important difference between the
    Administration's proposal and S. 261 is that the
    Administration's proposal would apply the changes in benefit
    rates only to new injuries and new claims, while S. 261 would
    retroactively apply to past injuries.
        Will you please discuss why the Administration proposed
    only prospective benefit changes as well as any concerns you
    would have with retroactive changes?
        Mr. Steinberg. We believe that the prospective approach
    provides a level of fairness and equity. The individuals have a
    sense of expectation. At this point we have a large number of
    individuals who are on our rolls that have planned for that
    level as they move into the older spectrum of age.
        Changing things immediately would cause a hardship to them,
    or have the potential to cause a hardship for them. Individuals
    who are currently Federal employees, understanding that the
    rate will be lowered and should they become injured or ill, as
    soon as they joined our rolls, they would understand that this
    would be their level of wage replacement once they achieve
    retirement.
        They would be in a better position to be able to plan for
    their retirement given that circumstance. Again, as Christine
    has indicated, they are not in a position to be able to
    contribute to Social Security, to FERS, and to Thrift Savings.
    This is what they rely on. This will allow them to much better
    prepare for their future.
        Senator Akaka. Thank you. Mr. Sherrill, your testimony
    raises an interesting issue about some possible unintended
    consequences of S. 261. For instance, you note that someone
    over retirement age who gets injured at work could be forced
    into retirement even though they might otherwise have been able
    to recover and quickly return to work.
        Will you please elaborate why this would occur, as well as
    any thoughts you have on how it could be avoided?
        Mr. Sherrill. This relates back to the issue that Mr.
    Steinberg talked about, which is the importance of focusing on
    the return to work of older beneficiaries when that is a
    possibility, and I earlier made reference to the idea of
    whether it would be appropriate to have secondary criteria to
    deal with such cases.
        If the primary criteria would be that there should be a
    change or a conversion at the retirement age, you would be
    concerned also about people who might be close to that, maybe
    recently injured, but do have a potential to return to work.
        So you might want to consider a provision to have them
    transition to retirement or to a different benefit either at
    retirement age or, for example, after 5 years of FECA benefits
    or so that there would be opportunities for them to have return
    to work activities and to get back into employment.
        Senator Akaka. Thank you. Ms. Griffin, I appreciate this
    Administration's focus on improving Federal employment
    opportunities for people with disabilities. I believe you
    deserve a lot of credit for providing leadership on this issue.
    Both Administration witnesses touched on this topic, but I
    would like you to elaborate on how the renewed focus on
    improving FECA return-to-work outcomes dovetails with the
    President's other disability initiatives.
        Ms. Griffin. Well, as I mentioned in my testimony, a year
    ago today, we are celebrating the anniversary of not only the
    21st anniversary of the Americans with Disabilities Act (ADA),
    but also the signing of the Executive Order to increase Federal
    employment of people with disabilities.
        In that Executive Order, the President, I think, was smart
    enough to include a provision in there that talks about
    returning people to work, recognizing that we do have people
    who, from time to time, do go out because of an injury, but
    because we are actually saying that we can employ--we actually
    have the technology to employ the most severe people with
    disabilities in the Federal Government, who have the skills
    that we need to do certain jobs.
        And we can accommodate them and we have an amazing system
    for the Computer/Electronics Accommodations Program (CAP),
    which is over housed at the Department of Defense (DOD), but
    provides accommodations for all employees in the Federal
    Government. So we are recognizing that we can bring the most
    severe--people with the most severe disabilities into the
    Federal Government who can do a great job and we can
    accommodate them. We have the technology to do that.
        So there is, I think, with this Executive Order, a
    recognition that maybe some of these people do not have to go
    out in the first place because we can actually talk to them
    about how we can accommodate them, but more importantly, when
    they do have to go out, we can bring them back easily because
    we can accommodate them as well.
        And so, this dovetails beautifully and we have been working
    closely together, really going across the country, talking to
    Federal audiences and people with disabilities about this
    Executive Order and about the ability to hire people, but also
    return people to work that are out on workers' comp.
        The technology is amazing. It changes almost, it seems
    like, on a monthly basis and we are able to do great things
    with veterans with disabilities, people with disabilities
    overall, and our own Federal workers' comp claimants to get
    them back to work and accommodate them.
        Senator Akaka. Thank you. Mr. Steinberg, your proposals
    asks that the Department have authority to access Social
    Security wage information to help reduce fraud by those who are
    working while still collecting FECA benefits. It is very
    important that personal Social Security information is
    protected, and because of that, access to it always has been
    very limited.
        My question is, how would this information sharing work and
    what safeguards would be in place to ensure this personal
    information is secure?
        Mr. Steinberg. Senator Akaka, I was at the Department of
    Veterans Affairs when we had the data breach, so I am only too
    aware of the importance of protecting sensitive information,
    personally identifiable information (PII), health care
    information and so forth. But we have the responsibility to
    adhere to the Privacy Act. All of our individuals, all of our
    employees are well-trained and well-versed in the requirements
    associated with the Privacy Act.
        The same holds true for our interaction with the other
    Federal agencies. We have memorandum of understandings (MOUs)
    with them that also require them to protect information. What
    we are looking for here is the opportunity to move forward and
    gather information from the Social Security Administration
    (SSA) in an expedient manner. Right now, we have to ask
    permission of each claimant to go to SSA and have access to
    their earnings information.
        If we are afforded the opportunity to do that
    automatically, it eliminates the time of going and asking
    permission. It reduces the amount of time to then go forward to
    SSA. We will have an automatic ability to have access to that
    information. So again, we are able to evaluate situations of
    potential fraud, we are able to do it far quicker, but again,
    rest assured, we understand the Privacy Act requirements and we
    enforce that.
        Senator Akaka. Well, I want to thank you very much. To this
    panel, your statements have been valuable. It will help us move
    forward and be as fair as we can. I want to thank you very much
    for being here today and helping us do this. So thank you very
    much for coming and for your testimony.
        I would ask that our second panel of witnesses come
    forward. On our second panel this afternoon, we have Mr. Joseph
    Beaudoin, President of the National Active and Retired Federal
    Employees Association (NARFE); Mr. Ronald Watson, Consultant
    for the National Association of Letter Carriers (NALC); and Dr.
    Gregory Krohm, Executive Director of the International
    Association of Industrial Accident Boards and Commissions
    (IAIABC).
        It is the custom of this Subcommittee to swear in all
    witnesses, and I would ask all of you to please stand and raise
    your right hand.
        Do you solemnly swear that the testimony you are about to
    give this Subcommittee is the truth, the whole truth, and
    nothing but the truth, so help you God?
        Mr. Beaudoin. I do.
        Mr. Watson. I do.
        Mr. Krohm. I do.
        Senator Akaka. Thank you. Let it be noted for the record
    that the witnesses answered in the affirmative.
        Let me also remind all of you that although your oral
    statement is limited to 5 minutes, your full written statements
    will be included in the record.
        Mr. Beaudoin, please proceed with your statement.

    STATEMENT OF JOSEPH BEAUDOIN,\1\ PRESIDENT, NATIONAL ACTIVE AND
                 RETIRED FEDERAL EMPLOYEES ASSOCIATION

        Mr. Beaudoin. Mr. Chairman, I am Joseph A. Beaudoin,
    President of NARFE. Thank you for the opportunity to testify.
    As you consider legislative reforms to FECA, I urge you to
    pursue common sense reforms that improve program efficiency,
    achieve cost savings, and improve fairness without reducing the
    basic compensation provided to those employees unfortunate
    enough to suffer a debilitating injury or illness as a result
    of their public service.
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        \1\ The prepared statement of Mr. Beaudoin appears in the appendix
    on page 59.
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        Current proposals by Senator Susan Collins and the DOL to
    reduce benefits for FECA recipients at retirement age do not
    adequately take into account the disadvantages faced by
    employees unable to work because of a work-related injury,
    leaving them worse off in terms of income.
        I will now discuss the current proposals. S. 261, the
    Federal Employees Compensation Reform Act introduced by Senator
    Collins, would move FECA recipients to the retirement system at
    full Social Security retirement age. This presents multiple
    issues.
        First, there is no provision to adjust upwards the average
    highest 3 years of salary to account for wage inflation. FECA
    recipients also will have lost the ability to increase their
    salary through raises and promotions. At the very least, they
    should receive an adjustment based on the Employment Cost
    Index, or another wage inflation indicator, to the average
    highest 3 years of salary for purpose of computing their
    annuity.
        Second, FECA recipients may not receive credit for years of
    service for the time between when they became injured and when
    they turned 62. Third, FERS-covered FECA recipients lose the
    ability to invest in a Thrift Savings Plan and receive matching
    contributions from their agencies.
        Finally, FERS-covered employees may have a reduced Social
    Security benefit because they are unable to earn quarterly
    credits used to calculate Social Security benefit payments. The
    net effect of the transition to the retirement system mandated
    by S. 261, as written, would be reductions in benefits for many
    FECA recipients.
        We would like to thank Senator Collins for demonstrating a
    willingness to work with us and maintaining an open dialog with
    respect to FECA reforms.
        Next, the DOL proposes to reduce FECA recipients' basic
    compensation benefit to 50 percent of their gross salary at the
    date of injury, still tax-free, when they reach full Social
    Security retirement age.
        While this proposal provides a retirement level income
    closer to that of current retirees, it still does not fully
    account for disadvantages faced by FECA recipients, notably for
    many of the same reasons S. 261 does not foregone raises and
    promotions, lost matching contributions, and reduced Social
    Security benefits. While the framework of DOL's proposal offers
    more economic security than S. 261's, it still short-changes
    FECA recipients.
        Last, H.R. 2465, the Federal Workers' Compensation
    Modernization and Improvement Act, provides a fairer, more
    considered approach to reform that achieves cost savings
    without reducing the basic benefits paid to employees who
    suffer a debilitating injury as a result of their public
    service.
        The legislation combines much needed adjustments to
    compensation for the worst case injuries and illnesses and
    common sense measures that should improve the processing of
    claims and reduce improper payments and save money. H.R. 2465
    represents a model of the best path to reform, one that will
    achieve cost saving and improve fairness and garners broad,
    bipartisan support.
        In conclusion, current proposals to take money away from
    individuals who are irrefutably unable to work because they
    were injured as a result of their public service, fail a basic
    fairness test. If those individuals had the choice, they would
    be healthy and working and preparing for a retirement of
    choice, rather than of necessity. FECA reforms need not and
    should not sacrifice basic principles of fairness in the name
    of achieving cost savings.
        Mr. Chairman, I want to thank you for inviting us to
    testify today.
        Senator Akaka. Thank you very much, Mr. Beaudoin. Mr.
    Watson, will you please proceed with your statement?

    STATEMENT OF RONALD WATSON,\1\ CONSULTANT, NATIONAL ASSOCIATION
                      OF LETTER CARRIERS, AFL-CIO

        Mr. Watson. Good afternoon, Chairman Akaka.
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        \1\ The prepared statement of Mr. Watson appears in the appendix on
    page 67.
    ---------------------------------------------------------------------------
        Senator Akaka. Good afternoon.
        Mr. Watson. I am pleased to testify today on behalf of the
    nearly 290,000 members of the National Association of Letter
    Carriers. Thank you for the invitation.
        NALC welcomes the prospect of reform to the Federal
    Employees Compensation Act, provided that it does not result in
    unfair harm to the injured workers the Act was designed to
    protect. In our view, some of the proposed reforms meet this
    test; others do not. For instance, there is a proposal to level
    wage loss compensation to 70 percent for all injured workers.
        Proponents argue that 75 percent tax-free often exceeds the
    pre-injury take-home pay, and thus creates a return-to-work
    disincentive that needs to be eliminated. We disagree with
    that. A 1998 GAO report examined FECA wage loss compensation,
    measured as a percentage of pre-injury take-home pay. One
    analysis indicated about 10 percent of claimants received
    compensation that exceeded pre-injury take-home pay, and that
    10 percent consisted of only the highest paid employees.
        Moreover, significantly, the analysis excluded all
    claimants who had established wage earning capacity
    determinations. Thus, the argument that wage loss compensation
    often far exceeds pre-injury take-home pay seems unsupported.
        Additional points are relevant in assessing return-to-work
    disincentives. Loss of benefits is one. Generally, workers are
    motivated by benefits as well as pay when making employment
    decisions. FECA beneficiaries lose significant benefits. Upon
    placement in a leave-without-pay status by an employing agency,
    lost benefits include annual leave, sick leave, TSP advantages,
    over-time opportunities, promotion prospects, and other pay
    increase potentials.
        After separation by the employing agency, additional lost
    benefits include Social Security credits for FERS employees,
    CSRS and/or FERS annuity credits, higher health benefit plan
    rates, higher basic Federal Employee Group Life Insurance
    (FEGLI) rates for postal employees, loss of step increases, and
    loss of union-negotiated contractual protections.
        These losses are substantial. We believe there is no need
    to reduce the current 75 percent rate to address perceived
    return-to-work disincentives. Instead, there is a need to
    address OWCP policies that may foster disincentives for
    employing agencies to return injured employees to work.
        Since 2007, the Postal Service National Reassessment
    Program (NRP) has resulted in the withdrawal of thousands of
    previously provided limited duty jobs. The NALC has
    aggressively challenged many of those withdrawals through our
    contractual grievance arbitration system.
        These are cases involving injured workers who are able to
    do some work and want to work, even though most are receiving
    OWCP wage loss compensation. Despite the availability of
    limited duty work, they are not allowed to work by the Postal
    Service.
        An example: It involved a letter carrier who had injured
    his foot on the job. OWCP authorized surgery. A chronic
    infection of the bone resulted from that surgery. As a result,
    he was medically restricted to very little walking. He could
    not deliver a route, but he could stand and sort mail. For many
    years, the Postal Service accommodated him.
        Then local management withdrew that limited duty job and
    placed him on leave without pay (LWOP). The sorting work he had
    been doing was reassigned to temporary employees. He began
    receiving wage loss comp from OWCP, but he also immediately
    filed a grievance to get his job back with the Postal Service,
    and he never stopped fighting until he succeeded in that.
        The argument that the 75 percent compensation rate creates
    a disincentive for return to work is wholly inconsistent with
    the NALC's recent experience, which includes hundreds and
    hundreds of injured letter carriers fighting to get their jobs
    back.
        Mr. Chairman, that concludes my testimony. Thank you for
    the opportunity and I welcome any questions that you may have.
        Senator Akaka. Thank you very much, Mr. Watson. Dr. Krohm,
    will you please proceed with your statement?

       STATEMENT OF GREGORY KROHM,\1\ Ph.D., EXECUTIVE DIRECTOR,
      INTERNATIONAL ASSOCIATION OF INDUSTRIAL ACCIDENT BOARDS AND
                              COMMISSIONS

        Mr. Krohm. Good afternoon, Chairman Akaka. It is a pleasure
    to be here. I am the Executive Director of the International
    Association of Industrial Accident Boards and Commissions. My
    organization, founded in 1914 at the inception of workers'
    compensation in this country, has existed for the purpose of
    educating and networking with our member States to develop
    better workers' compensation systems.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Krohm appears in the appendix on
    page 74.
    ---------------------------------------------------------------------------
        So it is a pleasure to be here to talk about State workers'
    compensation. That will be the focus of my remarks. I am not
    here to testify on any particular legislative proposal, but to
    offer some insights that my member states in the United States'
    workers' compensation systems, have learned through the years.
        I would like to begin by comparing and contrasting State
    benefits with some FECA program benefits, again, just for the
    sake of information only. I will begin with medical payments.
    Medical payments are very similar across the States. They
    provide medical care, as necessary, to cure and relieve the
    consequences of a work injury or illness, so a wide variety of
    licensed medical providers can provide the care. The injured
    worker is not subject to co-payments or balanced billing.
        So in that respect, in many respects, it is similar to the
    FECA program. States differ, however, very widely on the
    employer's or employee's rights to manage the care and how it
    is delivered to them in their choice of medical providers. As I
    understand it, FECA allows the claimant unlimited choice of
    medical providers and does not have guidelines or treatment
    protocols similar to what many States have. This seems to me to
    be a difference.
        Temporary disability, temporary total disability (TTD)
    benefits are the second most common form of claimants in State
    workers' compensation. It is, by far, the most uniform type of
    indemnity benefit paid by States. Generally, States pay 66\2/3\
    percent of pre-injury wages. Four States pay a larger
    percentage; Texas, New Jersey, and Oklahoma pay 70 percent; and
    Ohio pays 72 percent.
        There are four States that have a different formula based
    on, quote, spendable or after-tax income. TTD is usually paid
    for the length of disability or until maximum medical
    improvement is achieved, although some States, not a few, have
    weekly limits ranging in the area of 100 to 700 weeks as a
    higher limit on how many weeks of TTD can be paid.
        TTD is usually capped about somewhere around the State
    average weekly wage (SAWW), and this is adjusted in some
    States, plus or minus 25 percent. The income continuation
    feature of FECA is without any counterpart in State workers'
    compensation. Now, it is true that some private sector
    employers offer sick leave benefits and short-term disability
    insurance that would ease the cash-flow crunch of an injured
    worker for that disability waiting period that is almost always
    imposed in State workers' compensation, usually in the range of
    3 to 8 days of a waiting period.
        An unusual feature of FECA is the increase in percentage of
    wage replacement from 66\2/3\ to 75 percent for cases where
    there is at least one dependent. This would be very unusual, in
    fact non-existent, in State programs, to have that much of a
    benefit adjustment in the TTD payment for a dependent.
        Permanent partial disability (PPD) benefits are a very,
    very large percentage of the payout in State workers'
    compensation. And in fact, for all permanent disability
    payments for the State using a country-wide number, claims with
    permanent disability constitute only about 38 percent of all
    claims in State work comp systems, but generate 80 percent of
    the indemnity payouts. So they are a very large percentage of
    the indemnity payouts in State systems.
        PPD payments, in State systems are based on scheduled
    benefits or unscheduled benefits, scheduled benefits being a
    specific amount of indemnity is paid for the loss of use of a
    body part or a bodily system, and unscheduled benefits are
    based on some other form of assessment of impairment, usually
    made by a medical doctor, usually using the American Medical
    Association (AMA) impairment guidelines.
        Twenty-nine States pay impairment based on--the PPD rates
    would be based on something very similar to the TTD rate, and
    other States adjust that rate by age, occupation, or other
    factors, the severity of injury, perhaps. And 45 States place
    limits on the number of weeks payable or the total dollars
    payable for PPD.
        PPD, as a general rule, is very different across the
    States. It is one of the peculiarities of the State workers'
    compensation system, that they have not been able to agree on
    any degree of uniformity on how to compensate for permanent
    partial disability.
        Permanent total disability (PTD) is, again, very difficult
    to summarize across States. There is much variation. As of
    2010, 33 States offered lifetime permanent total disability
    payments similar to FECA. Twenty-one had some form of automatic
    or formula-based cost of living escalator, not always as
    uniform and automatic as FECA's.
        And many States eliminate permanent total disability
    benefits if the claimant resumes gainful employment. I should
    also add to my testimony that many States, in lieu of permanent
    disability payments, settle the--the responsible payer will
    settle the case with a lump sum negotiated settlement. So many
    cases of severe permanent disability never end up as a
    permanent total case. They are settled out with a lump sum
    payment. That degree of settlement with a lump sum payment
    varies widely by State.
        So there are significant differences between the State
    programs and FECA. By way of comparison, I have provided in my
    prepared testimony some statistics prepared by the National
    Council on Compensation Insurance (NCCI), which I will not read
    here but provided for your information only.
        Next I would like to touch upon an issue that often arises
    in State workers' compensation, the relationship between
    benefit design and claim duration and cost. There is
    significant evidence that the richness of a disability benefit
    will affect claiming behavior. The richer the benefits--richer
    benefits are often associated with more positively--more
    positive or larger claiming behavior or duration of indemnity.
        This should not be a surprise to us because it seems only
    natural that if the cost of reporting a work injury and staying
    out of work becomes higher, more claims will not be reported
    and/or the injured worker will come back to work more quickly.
        For example, a case that I was familiar with when I worked
    with plumbing contractors, it was very clear that small
    plumbing contractors had very few workers' compensation claims,
    at least in normal construction periods, because plumbers could
    make a lot more money even working injured, hurt, very hurt in
    some cases, than reporting the claim because there was just
    more money to be made as a plumber than there was on workers'
    compensation. So as the expression goes, they would play hurt.
        I provided in my testimony a chart\1\ taken from a 2010
    National Council on Compensation report on benefit features in
    37 States and the median days of disability for lost time
    claims.
    ---------------------------------------------------------------------------
        \1\The chart referenced by Mr. Krohm appears on page 78.
    ---------------------------------------------------------------------------
        I have looked at that chart, I have studied it carefully,
    as I have in many other contexts studied these particular
    benefit design features, and I must say I cannot see an easy
    correlation between things like the cap on TTD payments and the
    percentage of State average weekly wage that one might get in
    TTD payments, or, even for that matter, the days of the waiting
    period, whether 3, 5, 7 or 8. I cannot see an easy relationship
    between those benefit design features and the disability
    duration days.
        Now, I earlier said that benefit design does make a
    difference. I firmly believe that. Incentives do count, they do
    matter. But it is not an easy relationship. The National
    Council on Compensation Insurance often does studies at the
    request of State governments for their actuaries to make
    considered opinions as to how benefit design changes are going
    to affect claiming behavior.
        They not only consider historic relationships and the
    objective facts of past claims, but they also try to bring into
    their consideration estimates of behavioral changes in
    claimants, both in terms of frequency of claiming behavior and
    the duration of their time away from work.
        Senator Akaka. Dr. Krohm, will you please----
        Mr. Krohm. So I only add that to my testimony to say that
    I----
        Senator Akaka. Dr. Krohm, will you please summarize your
    statement.
        Mr. Krohm. Pardon me, please?
        Senator Akaka. Will you please summarize your statement?
        Mr. Krohm. OK. I will then go into my final part of my
    comments which is to state a strong plea, if you will, for the
    importance of disability management. From everything I can see,
    OWCP does place emphasis on disability management return-to-
    work. I think this is a very important component of workers'
    compensation.
        It is a difficult thing to achieve. There is no easy
    formula on disability management and return-to-work. It
    requires a lot of coordination and hard work, but those efforts
    of coordination and hard work are well worth it because it is
    good for injured workers to be returned to work, presumably
    their pre-injury employer, as soon as possible.
        I am firmly convinced that it is in the best interest of
    workers; it improves their health. The therapeutic healing
    benefits of return-to-work are pretty well-established, and I
    think it is a very important feature to controlling cost in
    workers' compensation. With that, I will conclude my testimony.
        Senator Akaka. Thank you very much, Dr. Krohm. Mr. Beaudoin
    and Mr. Watson, you both expressed some concerns with proposals
    to change the FECA benefit structure, but a willingness to
    support reforms that are fair to the injured workers that FECA
    was designed to protect. You both have members who were hurt
    serving this country and who rely on workers' compensation
    benefits.
        Would you please elaborate on how you believe these
    proposals could impact disabled employees who are unable to
    work after a work-related illness or injury, and what must be
    done to ensure fairness? Mr. Beaudoin.
        Mr. Beaudoin. Yes, sir. We believe that the Senate Bill
    261, as it is proposed, will cause problems with our workers.
    No. 1, it is a failure to account for disadvantages faced by
    FECA recipients. There are no adjustments of highest 3-year
    salary to account for wage inflation, so their income can never
    grow.
        They are not credited for years of service between the time
    they got injured and when the retirement age of 62 arrives.
    Again, there is no--they cannot grow in their income. The Civil
    Service Retirement System disability annuities do not increase
    for credit for service.
        The recipients lose the matching contributions to the TSP,
    which again affects their future income, present and future
    income, and since they cannot work, they cannot get Social
    Security or gain more Social Security benefits so that their
    wages pretty much freeze. But under the present system, it is
    fairer than the Senate Bill 261.
        We do believe that the House Bill 2465 is a much better
    bill for us or for the government to be using.
        Senator Akaka. Thank you. Mr. Watson?
        Mr. Watson. Yes. The NALC also agrees that House Bill 2465
    encompasses fair reform measures. Regarding the major reduction
    to benefits proposals that we have seen, one I already
    discussed and that is the reduction to 70 percent for most
    employees, in payment of wage loss compensation, and regarding
    another major proposal to reduce wages at retirement age, both
    found in S. 261, and also in the OWCP's proposal to convert
    OWCP benefits to 50 percent at retirement age.
        We believe that the case has not been made for either one
    of those reductions. Clearly, S. 261 would wreak a horrible
    effect on certain employees, employees who were hurt early in
    their career and only had a few years vested in FERS
    retirement, for instance. Those employees would be devastated
    financially by S. 261.
        But even the other proposal to reduce benefits to 50
    percent at Social Security retirement age, we do not believe
    the case has been made to do that. Usually when proponents of
    that reduction argue, they argue that, Well, CSRS employees,
    the average CSRS retirement computes to about 60 percent of
    what they were earning when they retired.
        And then they compare that with the 75 percent tax-free.
    But the fact is that most Federal employees today are not
    covered by CSRS. The latest statistic I saw was 17 percent. So
    83 percent of employees are covered by FERS. There is a recent
    Congressional Research Service (CRS) study on FERS retirement
    rates that shows that--and, of course, FERS is a three-part
    retirement. There is the FERS annuity, there is Social
    Security, and then there is the Thrift Savings Plan.
        That CRS study showed that moderate placement into TSP for
    a career of only 5 percent at a nominal return rate of 6
    percent, that would result in a typical FERS employee receiving
    about 82 percent, or even more, as their total retirement when
    you add up the Social Security component, the FERS annuity
    component, and then what you can buy in an annuity with that
    TSP.
        And so, that old CSRS 60 percent rate does not seem to me
    to--that is not what people are going to be facing. If they
    contribute to the TSP and compensation on FECA benefits cannot
    do that, they are going to have much higher return rates. And
    so, we do not believe that the case has been made for the
    reduction to 50 percent. We do not believe it is fair.
        Senator Akaka. Well, let me followup to a question with
    both of you. The Administration's proposal to apply benefit
    changes only to future injuries and workers' compensation
    claims, while S. 261, as drafted, would apply retroactively to
    FECA recipients injured in the past, what are your views
    specifically on the issue of retroactivity?
        Mr. Beaudoin. I am sorry. Were you asking me, sir? I
    thought you were asking Mr. Watson.
        Senator Akaka. Mr. Beaudoin.
        Mr. Beaudoin. I am sorry. We feel it is very unfair right
    now because if we look at the younger workers, they are the
    ones that are going to be affected the most. The elderly
    workers or the ones that are in retirement, the effect on them
    will be not as great as the effect on the younger workers.
        But unless the people that are disabled at a young age can
    increase their retirement benefits by either being able to
    contribute with the matching contributions of TSP, or they
    can--you index their salaries, or allow them to--their salaries
    to grow, if S. 261 was put into effect, some of our members
    would be on poverty. They would not be able to pay their bills
    and they would go on welfare. They just would not have the
    income to live a normal life.
        Senator Akaka. Mr. Watson.
        Mr. Watson. The idea of making a requirement to move to
    retirement at a certain age, Social Security age, or to reduce
    OWCP benefits at that age, in theory, the idea that those
    changes would be prospective rather than retroactive, is more
    fair, would be more fair for the reasons I believe Mr.
    Steinberg testified to, to make it prospective because then
    people could plan for it.
        However, when you look at the OWCP's proposal, on the one
    hand, it is prospective to a degree, but there are, if you read
    the language of their proposal closely, you can see that there
    are circumstances where they would bring in people. So it is
    not completely prospective. It is only partially prospective.
        But even still, with OWCP's proposal, here is what the
    effect would be. It would not be retroactive so it would not
    apply to all of those CSRS retirees who average 60 percent, but
    it would apply to all the FERS employees who might be more
    reasonably and fairly looking at an 80 or 90 percent
    replacement rate. So it does not make any sense.
        Senator Akaka. Thank you. Dr. Krohm, I understand that the
    majority of States have workers' compensation benefits that are
    similar to FECA in that they are payable for the duration of
    the disability with no reduction at retirement age.
        Do you know if any of these States have considered
    reductions at retirement age, and why they have opted to
    continue coverage for the life of a permanently disabled
    recipient?
        Mr. Krohm. As I said, 33 percent of the--it should be 33
    States have lifetime benefits. I have seen no discussion of any
    of those States changing that, and I have been looking at State
    laws pretty carefully since about 2000. There has been no
    discussion of that. It just seems to be a very settled part of
    the law in those States.
        Senator Akaka. Mr. Watson, your testimony indicates that
    NALC members who are on FECA generally want to return to work
    if they can.
        Mr. Watson. Yes.
        Senator Akaka. And will even fight for a limited duty job
    when it is taken away. What barriers have you seen for
    returning to work, both at the Postal Service and, more
    generally, in the current FECA program? And do you believe the
    Administration's reform proposals would improve return-to-work
    outcomes for your members?
        Mr. Watson. I think that the Postal Service makes decisions
    based on financial calculations, so that in the past, it has
    been our experience or our belief that the Postal Service
    calculated a typical injured employee is paid 75 percent wage
    loss compensation. OWCP has about a 5 percent overhead rate and
    they charge the Postal Service.
        So the Postal Service paid 80 percent to have a guy sit at
    home. And as a result of that, we believe the Postal Service
    calculated it is better for us to get some work, even if the
    guy, for instance, a letter carrier, he cases his route, he
    goes out and delivers it. He has a leg injury. Now he cannot
    walk very much, and so all he can do is limited duty. He can
    only do part of his job, and maybe even then he is not as
    efficient as he used to be or perhaps as some others.
        But the Postal Service used to calculate, since we are
    going to pay 80 percent anyway of the guy's salary, we might as
    well get some work out of him and have him work. We will pay
    him 100 percent, but he will be here at work and we can assign
    him limited duties. That is the way it used to be.
        We believe they made a different calculation now and it
    flowed right from their transformation plan in 2002. The Postal
    Service made this big plan way back then, big, big blue book,
    and one of the parts of the plan was to make an agreement with
    OWCP to have vocational rehabilitation of employees that was
    very condensed.
        And so, what they hoped for, what they planned for with
    that was to have employees who were found by OWCP to be
    vocational rehabilitated, and so a wage earning capacity would
    be placed on them. And what that means is, the FECA does not
    provide for 75 percent of your date of injury salary. That is
    not what it says. It provides for 75 percent of your date of
    injury salary minus your remaining capacity to earn wages.
        And so what we find OWCP doing now is sometimes, many
    times, they will say to a letter carrier who is not provided
    limited duty by the Postal Service, we are going to help you
    find a job as a customer service rep for 3 months, and at the
    end of that period, we are going to determine that the job of
    customer service rep is available in your commute area and it
    pays $10 an hour, so you have a $400-a-week remaining wage
    earning capacity.
        Once they do that, OWCP no longer pays 75 percent of the
    date of injury salary. They pay 75 percent of the date of
    injury salary minus that ability to earn those wages, and that
    is true if the individual is able to obtain that employment or
    not. And we believe that is the calculation the Postal Service
    has made, and we think that is a major impediment to our
    efforts to allow employees who are injured on the job at the
    Postal Service to continue their careers in the Postal Service.
    It is that kind of thing that we are facing and dealing with.
        The other part of your question, Chairman Akaka, was what
    about the Administration's proposals. We think that reductions
    in benefits such as to 70 percent and reductions at the
    retirement age, that those reductions of the cost to an
    employing agency like the Postal Service are only going to
    increase the incentives of employers to not provide limited
    duty work. And so, we are concerned about many of those
    proposals.
        Senator Akaka. Thank you, Mr. Watson. Mr. Beaudoin, I would
    like to hear your thoughts on this as well. In your experience,
    do your members who are on FECA generally want to return to
    work and when they are able to their job, their old job, or to
    a more limited job duty? Do you think the reforms in the
    Department of Labor's proposal will help improve return-to-work
    incentives?
        Mr. Beaudoin. Chairman Akaka, the workers or the members
    that we have would definitely like to return to work if they
    were able to so that they can increase in their retirement,
    they can have dignity, they can be model citizens. But in the
    Department of Labor proposal, there is a significant reduction
    in retirement age benefits for all recipients.
        And as we talked about before, the proposal fails to take
    into account disadvantages faced by the FECA recipients and
    that is, as we talked about also, the loss of ability to
    increase salary through raises and promotions and the loss of
    the contribution to TSP, and the recipients have lost the
    Social Security benefits.
        But if I could, I would like to give you an example of one
    of our members who has experienced a problem. This lady began
    working as a seasonal temporary employee for the Postal Service
    in 1993 and became a career employee in 1998. Fifteen years on
    the job with repetitive motions and continual heavy lifting
    left her with a serious back injury resulting in immobility,
    severe pain, and inability to work.
        At the time of her injury, she was about 41 years old,
    earned about $53,300 a year, or $4,441 a month. Her FECA
    benefit on that salary is about $2,931 per month, but a FERS
    retirement annuity for a high three salary of $53,300 on 15
    years of service is only $666 per month.
        Even if she were to receive credit for years of service for
    time out of work between the ages of 41 and 62, her annuity
    would only be about $1,758 per month, a significant reduction
    from her FECA benefit. Furthermore, she has little savings in
    her Thrift Savings Plan, only $12,000, hardly enough to make a
    serious contribution to her retirement age.
        Her injury causes her enough pain and discomfort and losing
    her FECA benefits would cause even more. We do not believe that
    Senate Bill 261 should be considered because of the loss of
    wages that she will experience, as well as others.
        Senator Akaka. Thank you. Mr. Watson, the Administration
    proposed expanding an authority to reimburse employers that
    provide suitable employment to injured Federal workers, to
    allow reimbursement to Federal agencies that hire these
    workers. Do you believe this proposal would help open a broader
    range of opportunities for your members who are able to return
    to work?
        Mr. Watson. We have very serious misgivings about that
    proposal. We are certainly in favor of broadened opportunities,
    but we are afraid that the actual effect of this proposal would
    be to encourage the Postal Service to withdraw limited duty job
    offers even more, and that is for a couple of reasons.
        One of the major concerns we have with this proposal that
    DOL has made includes--well, the proposal includes a provision
    that allows the office to begin to require vocational
    rehabilitation services after 6 months, even if the injured
    worker has not yet fully recovered as much as they are going to
    recover from the injury.
        So currently, the law regarding the FECA provisions
    regarding vocational rehabilitation only require an employee to
    undergo and cooperate with it once they have reached maximum
    medical improvement (MMI), once they have recovered, once their
    disability is determined to be permanent.
        And so, the proposal of the DOL is to include requiring
    employees to do vocational rehabilitation, even though they
    have not reached that MMI point. And the problem with that is
    that there are restoration rights that employees have right
    now. It is based in the FECA and the implementing regulations
    are found at 5 C.F.R. 353, and those restoration provisions
    hold that if an employee totally recovers within 1 year or if
    they reach MMI within 1 year, then their rights to restoration
    to employment with the employer at the time of the injury are
    much greater than if they reach those points after 1 year.
        And so, this proposal is potentially going to result in
    letter carriers being required to undergo vocational
    rehabilitation; that is to say, get ready for a different job
    when they very well may have restoration rights within the
    Postal Service if they do reach MMI or fully recover within 1
    year.
        So we are afraid what that is going to do is encourage the
    Postal Service to do even more of what it has been doing, which
    is not providing limited duty to injured letter carriers. We
    are very concerned about that.
        Senator Akaka. Thank you very much. This question is for
    the panel and I would like to begin with Dr. Krohm. So before
    we close this hearing, I would like to give each of you the
    opportunity to discuss any additional thoughts or highlight
    what you believe are the most important issues we should keep
    in mind as we consider reforms to FECA. We will now start with
    Dr. Krohm.
        Mr. Krohm. Thank you. Well, as we have heard, incentives
    can be tricky, they matter, they matter for both employees and
    they matter for both--and the employer. Getting them right
    requires hard work, but I think it is worth the effort because
    getting the injured worker back to work, preferably with the
    pre-injury employer, preferably in a job situation as close as
    possible to their pre-injury employment, is the way to go.
        It is the gold standard for the best State systems that I
    know of, and I think it probably would apply just as well to
    the FECA program. Vocational rehabilitation is a good idea. It
    is necessary at times, but it would not be my first choice. It
    would be getting the injured worker back to work on light duty,
    modified duty with the pre-injury employer as soon as possible.
        Absent any medical restriction to the contrary, that could
    be the day after injury. There is no arbitrarily long waiting
    period that should be used to get the injured worker back to
    work at their pre-injury employer.
        Senator Akaka. Thank you. Mr. Watson.
        Mr. Watson. Yes, I agree with Mr. Krohm that it is very
    important that injured workers have the opportunity to return
    to work as soon as medically called for, and ideally with the
    employer at the time of injury. I believe that is very
    important. And I think in order to achieve that goal, there are
    two things that could be done, now that we are dealing with
    FECA reform, and that is to address two very major issues.
        One is the issue of loss of wage-earning capacity
    determination, sometimes called Wage-Earning Capacity (WEC).
    The two terms mean the same thing. That is a major, major issue
    for us.
        What we have is letter carriers who have had a loss of
    wage-earning capacity determination made based on a limited
    duty job in the Postal Service which is later withdrawn and
    then, because of that WEC determination, they receive no
    benefits from OWCP, none. They get nothing. They have no pay
    from the Postal Service, they have no benefits from OWCP. They
    lose their health benefit plan.
        That is happening and that needs to be addressed. And I
    think we have an opportunity to do that since we are discussing
    FECA reform.
        And the other related issue that I think we could try and
    address is the responsibilities of employing agencies to
    provide work for injured workers. There is very little in the
    FECA right now regarding that. The implementing regulations,
    such as they are, are found in 5 C.F.R. 353, and I think that
    we could do a lot of good by addressing those. Thank you.
        Senator Akaka. Thank you. Mr. Beaudoin.
        Mr. Beaudoin. Chairman Akaka, the Federal workers who
    participate in FECA would do anything to turn back the clock
    and be working without injury. But that is not their reality.
    That is why the least we can do for the trauma they have
    suffered is compensate them fairly.
        We have looked at Senate Bill 261. We feel that is a start,
    but a start in the wrong direction. We have looked at the DOL
    and DOL has some good things in it, whereas, they would look
    into the fraud, look into the improper payments, but again,
    that is not as good as the House bill.
        Also, the House Committee on Education and Workforce
    requested a report from the GAO to study the impact of the DOL
    proposal on FECA recipients. We strongly request that they wait
    and consider that GAO report before moving forward with any
    type of legislation.
        But the present House bill, H.R. 2465, is the most fairest
    method there is for our injured workers and members who are on
    FECA, and we would request that one be the model that your
    Committee starts to work from and then expand upon it. Thank
    you.
        Senator Akaka. Well, thank you very much, Mr. Beaudoin. I
    want to thank our witnesses today for your thoughts and your
    recommendations. I look forward to continuing to work with my
    colleagues and with all of you to make changes to improve FECA
    while ensuring that those with work-related injuries and
    illnesses are treated fairly and receive the benefits they
    deserve.
        The hearing record will remain open for 2 weeks for Members
    to submit any additional statements or questions or for members
    of the public who wish to submit additional written testimony.
    What you have done today will certainly help us as we continue
    to work on this legislation and we want to continue working
    with you, as I said, to keep it fair and to give our workers
    what they deserve. So thank you very much again. This hearing
    is now adjourned.
        [Whereupon, at 3:54 p.m., the hearing was adjourned.]

                                A P P E N D I X

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