[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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        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.
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    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.
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    \1\ The prepared statement of Mr. Krohm appears in the appendix on 
page 74.
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    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.
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    \1\The chart referenced by Mr. Krohm appears on page 78.
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    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.]


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