[Senate Hearing 112-246]
[From the U.S. Government Publishing Office]
S. Hrg. 112-246
EXAMINING THE FEDERAL WORKERS'
COMPENSATION PROGRAM FOR
INJURED EMPLOYEES
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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
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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
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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
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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.
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\1\ The prepared statement of Ms. Griffin appears in the appendix
on page 27.
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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.
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\1\ The prepared statement of Mr. Steinberg appears in the appendix
on page 31.
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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.
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\1\ The prepared statement of Mr. Sherrill appears in the appendix
on page 45.
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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.]
A P P E N D I X
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