[House Hearing, 113 Congress]
[From the U.S. Government Printing Office]




 EXAMINING THE LABOR DEPARTMENT'S PROPOSED REFORMS TO THE FECA PROGRAM

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

                                HEARING

                               before the

                 SUBCOMMITTEE ON WORKFORCE PROTECTIONS

                         COMMITTEE ON EDUCATION
                           AND THE WORKFORCE

                     U.S. House of Representatives

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

             HEARING HELD IN WASHINGTON, DC, JULY 10, 2013

                               __________

                           Serial No. 113-27

                               __________

  Printed for the use of the Committee on Education and the Workforce






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                COMMITTEE ON EDUCATION AND THE WORKFORCE

                    JOHN KLINE, Minnesota, Chairman

Thomas E. Petri, Wisconsin           George Miller, California,
Howard P. ``Buck'' McKeon,             Senior Democratic Member
    California                       Robert E. Andrews, New Jersey
Joe Wilson, South Carolina           Robert C. ``Bobby'' Scott, 
Virginia Foxx, North Carolina            Virginia
Tom Price, Georgia                   Ruben Hinojosa, Texas
Kenny Marchant, Texas                Carolyn McCarthy, New York
Duncan Hunter, California            John F. Tierney, Massachusetts
David P. Roe, Tennessee              Rush Holt, New Jersey
Glenn Thompson, Pennsylvania         Susan A. Davis, California
Tim Walberg, Michigan                Raul M. Grijalva, Arizona
Matt Salmon, Arizona                 Timothy H. Bishop, New York
Brett Guthrie, Kentucky              David Loebsack, Iowa
Scott DesJarlais, Tennessee          Joe Courtney, Connecticut
Todd Rokita, Indiana                 Marcia L. Fudge, Ohio
Larry Bucshon, Indiana               Jared Polis, Colorado
Trey Gowdy, South Carolina           Gregorio Kilili Camacho Sablan,
Lou Barletta, Pennsylvania             Northern Mariana Islands
Martha Roby, Alabama                 John A. Yarmuth, Kentucky
Joseph J. Heck, Nevada               Frederica S. Wilson, Florida
Susan W. Brooks, Indiana             Suzanne Bonamici, Oregon
Richard Hudson, North Carolina
Luke Messer, Indiana

                    Juliane Sullivan, Staff Director
                 Jody Calemine, Minority Staff Director
                                 ------                                

                 SUBCOMMITTEE ON WORKFORCE PROTECTIONS

                    TIM WALBERG, Michigan, Chairman

John Kline, Minnesota                Joe Courtney, Connecticut,
Tom Price, Georgia                     Ranking Member
Duncan Hunter, California            Robert E. Andrews, New Jersey
Scott DesJarlais, Tennessee          Timothy H. Bishop, New York
Todd Rokita, Indiana                 Marcia L. Fudge, Ohio
Larry Bucshon, Indiana               Gregorio Kilili Camacho Sablan,
Richard Hudson, North Carolina         Northern Mariana Islands
                                     Suzanne Bonamici, Oregon




















                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on July 10, 2013....................................     1

Statement of Members:
    Courtney, Hon. Joe, ranking member, Subcommittee on Workforce 
      Protections................................................     3
        Prepared statement of....................................     4
    Walberg, Hon. Tim, Chairman, Subcommittee on Workforce 
      Protections................................................     1
        Prepared statement of....................................     2

Statement of Witnesses:
    Seabury, Seth A., Ph.D., University of Southern California...    24
        Prepared statement of....................................    26
    Sherrill, Andrew, Director of Education, Workforce and Income 
      Security, U.S. Government Accountability Office............    22
        Prepared statement, Internet address to..................    24
    Steinberg, Gary, Director, Office of Workers' Compensation 
      Programs (acting), U.S. Department of Labor................    15
        Prepared statement of....................................    16
    Szymendera, Scott, analyst in disability policy, 
      Congressional Research Service.............................     6
        Prepared statement of....................................     8

Additional Submissions:
    Mr. Courtney:
        Additional submissions:
            Kelley, Colleen M., national president, National 
              Treasury Employees Union, prepared statement of....    50
            Excerpts from GAO report, ``Federal Employees' 
              Compensation Act: Percentages of Take-Home Pay 
              Replaced by Compensation Benefits,'' Internet 
              address to.........................................    51
            Report, ``Adequacy of Earnings Replacement in 
              Workers' Compensation Programs,'' National Academy 
              of Social Insurance study panel on benefit 
              adequacy, excerpts from............................    52
            Slide presentation, ``Long-Term FECA Recipients: 
              Equitable Transition to the Retirement Years,'' 
              U.S. Office of Personnel Management................    56
            Table: ``FY 2012 Cases Created by State''............    61
        Questions submitted for the record to:
            Mr. Sherrill.........................................    62
            Mr. Steinberg........................................    65
    Mr. Sherrill, response to questions submitted for the record.    63
    Mr. Steinberg, response to questions submitted for the record    66
 
                    EXAMINING THE LABOR DEPARTMENT'S
                  PROPOSED REFORMS TO THE FECA PROGRAM

                              ----------                              


                        Wednesday, July 10, 2013

                     U.S. House of Representatives

                 Subcommittee on Workforce Protections

                Committee on Education and the Workforce

                             Washington, DC

                              ----------                              

    The subcommittee met, pursuant to call, at 10:01 a.m., in 
room 2175, Rayburn House Office Building, Hon. Tim Walberg 
[chairman of the subcommittee] presiding.
    Present: Representatives Walberg, Kline, DesJarlais, 
Rokita, Hudson, Courtney, and Bonamici.
    Also present: Representative Miller.
    Staff present: Katherine Bathgate, Deputy Press Secretary; 
Owen Caine, Legislative Assistant; Ed Gilroy, Director of 
Workforce Policy; Benjamin Hoog, Legislative Assistant; Marvin 
Kaplan, Workforce Policy Counsel; Nancy Locke, Chief Clerk; 
Donald McIntosh, Professional Staff Member; Brian Newell, 
Deputy Communications Director; Krisann Pearce, General 
Counsel; Molly McLaughlin Salmi, Deputy Director of Workforce 
Policy; Nicole Sizemore, Deputy Press Secretary; Alissa 
Strawcutter, Deputy Clerk; Tylease Alli, Minority Clerk/Intern 
and Fellow Coordinator; Jody Calemine, Minority Staff Director; 
John D'Elia, Minority Labor Policy Associate; Daniel Foster, 
Minority Fellow, Labor; Eunice Ikene, Minority Staff Assistant; 
Richard Miller, Minority Senior Labor Policy Advisor; Michele 
Varnhagen, Minority Chief Policy Advisor/Labor Policy Director; 
Michael Zola, Minority Deputy Staff Director; and Mark 
Zuckerman, Minority Senior Economic Advisor.
    Chairman Walberg. A quorum being present, the subcommittee 
will come to order.
    Good morning and welcome, to our guests. We appreciate you 
being here. We have, I believe, assembled a distinguished panel 
of witnesses and thank you all for joining us this morning.
    Today's hearing is part of an effort that began last 
Congress to improve the Federal Employees' Compensation Act. In 
2011 the house passed with strong bipartisan support--and I 
note that: bipartisan support--a package of reforms that would 
have strengthened FECA program significantly.
    Among other provisions, the bill would have improved 
administrative efficiency, modernized various benefits, and 
strengthened the overall integrity of the law. While the 
legislation did not become law, it still represents good public 
policy and reflects our commitment to addressing this issue in 
a bipartisan way.
    We recognized then, as we do now, that the bill passed by 
the House during the 112th Congress was simply a first step. 
Without a doubt more comprehensive changes are needed to ensure 
the FECA program is meeting the needs of workers and taxpayers.
    Toward that end, committee leaders asked the nonpartisan 
Government Accountability Office to examine proposals put 
forward by the Department of Labor. I am pleased to have 
representatives from both the GAO and the department with us 
this morning.
    The department's proposal would eliminate increased 
benefits for those employees with dependents, covert benefits 
to 50 percent of gross wages once an individual reaches 
retirement age, and implement a three-day waiting period before 
an individual can draw continuation-of-pay benefits. These are 
significant changes to the FECA program, which is why a careful 
review by the GAO was both necessary and appropriate.
    I will let the qualified experts describe in greater detail 
the GAO's findings. However, the report does make a couple 
things clear.
    First, the department's proposal would have a 
disproportionate impact on workers with dependents. Moving 
toward a single rate of wage loss compensation is worthy of 
consideration. However, we have to be mindful how this will 
affect federal employees with families, especially when their 
colleagues without dependents stand to gain financially.
    The second point the GAO report makes clear is that there 
are no easy answers. Fundamentally, we are talking about men 
and women who suffer an injury or illness while employed by the 
federal government. But as with any government program, there 
will be those who try to take advantage of the system.
    In an article entitled ``Experts Say Fraud Rampant in 
Federal Worker Disability Programs,'' the Washington Examiner 
reveals a program plagued by waste, abuse, and inefficiencies. 
This is not acceptable, especially at a time when our nation 
faces a severe debt crisis.
    Creating a program that prevents abuse by bad actors, 
reflects the realities of the 21st century, and provides 
adequate support to workers will require policymakers to make 
some tough choices, but we all agree maintaining the status quo 
is not an option. We have a responsibility to federal workers 
and federal taxpayers to create a stronger program, and I look 
forward to the work that lies ahead. I am hopeful that in the 
coming weeks and months we can build on the bipartisan efforts 
that took place in the last Congress.
    With that, I will now recognize the senior Democratic 
member of the subcommittee, Representative Joe Courtney, for 
his opening remarks.
    [The statement of Chairman Walberg follows:]

           Prepared Statement of Hon. Tim Walberg, Chairman,
                 Subcommittee on Workforce Protections

    Good morning and welcome to our guests. We have assembled a 
distinguished panel of witnesses and thank you all for joining us this 
morning.
    Today's hearing is part of an effort that began last Congress to 
improve the Federal Employees' Compensation Act. In 2011 the House 
passed with strong bipartisan support a package of reforms that would 
have strengthened the FECA program. Among other provisions, the bill 
would have improved administrative efficiency, modernized various 
benefits, and strengthened the overall integrity of the law. While the 
legislation did not become law, it still represents good public policy 
and reflects our commitment to addressing this issue in a bipartisan 
way.
    We recognized then--as we do now--that the bill passed by the House 
during the 112th Congress was simply a first step. Without a doubt more 
comprehensive changes are needed to ensure the FECA program is meeting 
the needs of workers and taxpayers. Toward that end, committee leaders 
asked the nonpartisan Government Accountability Office to examine 
proposals put forward by the Department of Labor. I am very pleased to 
have representatives from both GAO and the department with us this 
morning.
    The department's proposals would eliminate increased benefits for 
those employees with dependents, convert benefits to 50 percent of 
gross wages once an individual reaches retirement age, and implement a 
three day waiting period before an individual can draw continuation-of-
pay benefits. These are significant changes to the FECA program, which 
is why a careful review by the GAO was both necessary and appropriate.
    I will let the qualified experts describe in greater detail the 
GAO's findings. However, the report does make a couple things clear. 
First, the department's proposal would have a disproportionate impact 
on workers with dependents. Moving toward a single rate of wage loss 
compensation is worthy of consideration. However, we have to be mindful 
how this will affect federal employees with families, especially when 
their colleagues without dependents stand to gain financially.
    The second point the GAO report makes clear is that there are no 
easy answers. Fundamentally, we are talking about men and women who 
suffer an injury or illness while employed by the federal government. 
But as with any government program, there will be those who try to take 
advantage of the system. In an article entitled ``Experts say fraud 
rampant in federal worker disability program,'' the Washington Examiner 
reveals a program plagued by waste, abuse, and inefficiencies. This is 
not acceptable, especially at a time when our nation faces a debt 
crisis.
    Creating a program that prevents abuse by bad actors, reflects the 
realities of the 21st century, and provides adequate support to workers 
will require policymakers to make some tough choices, but we all agree 
maintaining the status quo is not an option. We have a responsibility 
to federal workers and federal taxpayers to create a stronger program, 
and I look forward to the work that lies ahead.
    I am hopeful that in the coming weeks and months we can build on 
the bipartisan efforts that took place in the last Congress. With that, 
I will now recognize the senior Democratic member of the subcommittee, 
Representative Joe Courtney, for his opening remarks.
                                 ______
                                 
    Mr. Courtney. Thank you, Mr. Walberg. Good morning.
    And good morning to all the witnesses, and thank you for 
being here today.
    And I want to thank you, Mr. Chairman, for calling this 
hearing to discuss the Federal Employees' Compensation Act, or 
FECA.
    FECA has been the governing statute providing benefits for 
federal civilian workers injured or killed on the job since 
1916. Not only does it provide compensation for lost wages, 
medical care, and vocational rehabilitation, but it also 
ensures that disabled workers are not impoverished while their 
claims are being processed by continuing their pay for 45 days 
following an injury.
    This committee has primary jurisdiction over workers' 
compensation laws and it has overseen and repeatedly improved 
FECA since 1949.
    At the outset it is worth noting some of the key principles 
which underpin this law. First, workers and their families 
should be no worse off, and no better off, than if the worker 
had not been injured or made ill in the course of their federal 
service. Those who are disabled from their work on behalf of 
the American people should not be forced to bear any of that 
cost.
    Second, since workers surrender their right to bring tort 
claims against the government for work-related injuries, they 
need to be fairly compensated in a timely manner with benefits 
administered in a non-adversarial manner. Civilian workers from 
all three branches of government are and should be treated 
equally under FECA, whether they are firefighters, overseas 
food inspectors, law enforcement officers, or postal workers.
    This hearing follows a bipartisan effort by this committee 
in the last Congress, the 112th Congress, to enact consensus 
reforms that improved program integrity, modernized benefits 
that have not been updated since 1949, expanded the 
availability of medical providers, and provided civilian 
federal workers who are injured in a zone of armed conflict 
with an additional 90 days to receive pay while they receive a 
FECA claim. These reforms were reported out of committee in 
July 2011 as the Federal Workers' Compensation Modernization 
and Improvement Act, H.R. 2465, and passed the House by voice 
vote in November of 2011, which is no mean feat in the 112th 
Congress or the 113th Congress. Regrettably, however, this 
legislation was not adopted by the Senate.
    Mr. Chairman, I hope that bill will serve as a foundation 
on which to build a bipartisan reform effort moving forward.
    Today's hearing will review the Department of Labor's 
proposal to, quote--``redesign,'' benefits under FECA. DOL's 
proposal reduces the compensation rate for permanently disabled 
workers at retirement age, reduces benefits for those with 
families, and lowers the cap on benefits for widows and orphans 
of federal workers killed on the job.
    In July 2011, this committee jointly asked the Government 
Accountability Office to assess whether injured workers in the 
Federal Employee Retirement System would wind up worse off 
under the DOL's proposal than if they worked a full career and 
had never been injured. In late 2012, GAO issued three reports 
covering impacts to federal workers, postal workers, and 
partially disabled workers.
    Included in these reports was the finding that cutting FECA 
benefits for permanently disabled workers at retirement age 
would leave them with 31 percent to 35 percent less than the 
median benefit package they would have earned if they had never 
been injured. To date, the Department of Labor has not modified 
its proposals in response to these GAO reports.
    I hope today's hearings will explore GAO's findings and 
help us understand whether we can expect any changes to the 
Department of Labor's proposal.
    Again, I want to thank the witnesses for their preparation 
and extend my appreciation for those who have had to travel a 
long distance to be with us at this hearing.
    I yield back the balance of my time.
    [The statement of Mr. Courtney follows:]

 Prepared Statement of Hon. Joe Courtney, Ranking Member, Subcommittee 
                        on Workforce Protections

    Chairman Walberg, thank you for calling this hearing today to 
discuss the Federal Employees' Compensation Act, or FECA.
    FECA has been the governing statute providing benefits for federal 
civilian workers injured or killed on the job since 1916. Not only does 
it provide compensation for lost wages, medical care, and vocational 
rehabilitation, but it also ensures that disabled workers are not 
impoverished while their claims are being processed, by continuing 
their pay for 45 days following an injury. This Committee has primary 
jurisdiction over workers' compensation laws, and has overseen and 
repeatedly improved FECA since 1949.
    At the outset, it is worth noting some the key principles which 
underpin this law:
     First, workers and their families should be no worse off, 
and no better off, than if the worker had not been injured or made ill 
in the course of their federal service. Those who are disabled from 
their work on behalf of the American people should not be forced to 
bear any of that cost.
     Second, since workers surrender their right to bring tort 
claims against the government for work-related injuries, they need to 
be fairly compensated in a timely manner, with benefits administered in 
a non-adversarial manner.
     Civilian federal workers from all three branches of 
government are and should be treated equally under FECA, whether they 
are firefighters, overseas food inspectors, law enforcement officers, 
or postal workers.
    This hearing follows a bipartisan effort by this Committee in the 
112th Congress to enact consensus reforms that improved program 
integrity, modernized benefits that had not been updated since 1949, 
expanded the availability of medical providers, and provided civilian 
federal workers who are injured in a zone of armed conflict with an 
additional 90 days to receive pay while they file a FECA claim. These 
reforms were reported out of Committee in July 2011 as the Federal 
Workers' Compensation Modernization and Improvement Act, H.R. 2465, and 
passed the House by voice in November 2011. Regrettably, this 
legislation was not adopted by the Senate.
    Mr. Chairman, I hope that bill can serve as a foundation upon which 
to build a bipartisan reform effort going forward.
    Today's hearing will review the Department of Labor's proposal to 
``redesign'' benefits under FECA. DOL's proposal reduces the 
compensation rate for permanently disabled workers at retirement age, 
reduces benefits for those with families, and lowers the cap on 
benefits for widows and orphans of federal workers killed on the job.
    In July 2011, this Committee jointly asked the Government 
Accountability Office to assess whether injured workers in the Federal 
Employee Retirement System would wind up worse off under the DOL's 
proposal than if they had worked a full career and never been injured. 
In late 2012, GAO issued three reports covering impacts to federal 
workers, postal workers and partially disabled workers. Included in 
these reports was the finding that cutting FECA benefits for 
permanently disabled workers at retirement age would leave them (median 
disabled workers) with 31% to 35% less than the median benefit package 
they would have earned if they had never been injured.
    To date, the Department of Labor has not modified its proposals in 
response to these GAO reports. I hope today's hearing will explore 
GAO's findings and help us understand whether we can expect any changes 
to the Department of Labor's proposal.
    I want to thank the witnesses for their preparation, and extend my 
appreciation for those who had to travel a long distance to be with us 
at this hearing.
    I yield back the balance of my time.
                                 ______
                                 
    Chairman Walberg. I thank the gentleman.
    Pursuant to committee rule, all members will be permitted 
to submit written statements to be included in the permanent 
hearing record; and without objection the hearing record will 
remain open for 14 days to allow statements, questions for the 
record, and other extraneous material referenced during the 
hearing to be submitted in the official hearing record.
    It is now my pleasure to introduce our distinguished panel 
of witnesses.
    Mr. Scott Szymendera is from the Congressional Research 
Service in Washington, D.C. and is not a stranger to this 
committee.
    Mr. Gary Steinberg is the acting director of the Office of 
Workers' Compensation Programs at the U.S. Department of Labor 
in Washington, D.C.
    Welcome.
    Mr. Andrew Sherrill is the director of education, 
workforce, and income security at the U.S. Government 
Accountability Office in Washington, D.C.
    And welcome.
    Dr. Seth Seabury is the longest-traveling member of this 
panel, is an associate professor in the Department of Emergency 
Medicine at the University of Southern California's Keck School 
of Medicine in Los Angeles, California.
    Welcome.
    Before I recognize each of you to provide your testimony 
let me briefly explain our lighting system. Green, yellow, red. 
You know the rule on that.
    Five minutes of testimony. The yellow comes on with a 
minute remaining; seek to wrap it up as quickly as possible. 
And when the red light comes on cut it off as quickly as 
possible.
    We will have opportunity to ask questions. The same will be 
held for our committee members and we will have opportunity to 
ask those 5 minutes of questions.
    And so now let me recognize Mr. Szymendera for your opening 
comments?

STATEMENT OF SCOTT SZYMENDERA, CONGRESSIONAL RESEARCH SERVICE, 
                    U.S. LIBRARY OF CONGRESS

    Mr. Szymendera. Thank you.
    Chairman Walberg, Ranking Member Courtney, and members of 
the subcommittee, my name is Scott Szymendera and I am an 
analyst at the Congressional Research Service. Thank you for 
inviting CRS to testify before the Subcommittee on Workforce 
Protections on the Federal Employees' Compensation Act, the 
workers' compensation system for federal employees administered 
by the Department of Labor.
    The FECA program began in 1916 and has not been 
significantly amended since 1974. The testimony of CRS today 
will focus on two provisions of the Department of Labor's FECA 
reform proposal: the elimination of augmented compensation for 
dependents coupled with an increase in the base rate of 
compensation, and the creation of a lower benefit rate for 
workers who receive benefits after reaching retirement age.
    Under current law, the basic benefit rate used to determine 
the amount of a person's FECA compensation is two-thirds of the 
worker's pre-disability wage. However, if the worker has any 
dependent children or a spouse the worker is eligible for 
augmented compensation, bringing the total rate of compensation 
to 75 percent of the worker's pre-disability wage.
    The Department of Labor's proposal would eliminate 
augmented compensation in cases in which a worker has a 
dependent child or spouse. In addition, the proposal would 
raise the basic benefit level for all workers regardless of 
whether or not they have any dependents or a spouse to 70 
percent of the worker's pre-disability wage.
    In the majority of state workers' compensation systems the 
basic permanent total disability benefit is two-thirds of a 
worker's wage at the time of disability. Currently, 38 states 
and the District of Columbia, as well as the federal Longshore 
and Harbor Workers' Compensation Act, have total disability 
benefit rates that are set at this level. The FECA augmented 
compensation rate of 75 percent is higher than that paid by any 
comparable state workers' compensation system except Texas, 
which also has a 75 percent benefit rate.
    When comparing benefit levels between the FECA program and 
other workers' compensation programs it is important to also 
consider the maximum benefits available to workers. Every 
workers' compensation system has a limit on the amount of 
weekly or monthly compensation that any given beneficiary may 
receive.
    The maximum FECA benefit is based on 75 percent of the GS-
15 Step 10 pay rate without any locality adjustments, whereas 
state maximums are generally based on state average wages. 
Thus, the maximum available benefits under FECA are greater 
than under any state workers' compensation program or under the 
federal Longshore and Harbor Workers' Compensation Act.
    Under current law, FECA benefits for permanent total 
disability are payable for the duration of the worker's 
disability or for his or her lifetime. Benefits under FECA, 
unlike federal pension benefits, are not subject to taxation.
    In addition, FECA beneficiaries covered by the Federal 
Employees Retirement System may not contribute to either Social 
Security or the Thrift Savings Plan while receiving FECA 
benefits. Thus, these employees, especially those who were 
permanently disabled early in their federal careers, may only 
be entitled to low Social Security benefit amounts and may have 
low TSP balances to draw from upon retirement.
    Permanent total disability benefits under FECA have always 
been payable for the duration of disability or the life of the 
worker. However, as part of the 1949 FECA amendments Congress 
required the FECA program administrator to review the wage-
earning capacity of all beneficiaries upon reaching age 70 and 
granted the administrator the authority to reduce a worker's 
benefits upon reaching age 70 if, in the opinion of the 
government, the worker's wage-earning capacity had been reduced 
because of age independent of his or her disability. This 
provision was removed by the 1974 FECA amendments.
    The Department of Labor's proposal would create a new 
conversion entitlement benefit for FECA beneficiaries who reach 
Social Security, full retirement age, and have received FECA 
benefits for at least 1 year. The conversion entitlement 
benefit would be set at 50 percent of the worker's pre-
disability wage and, like all FECA disability benefits, would 
be exempt from taxation.
    In 39 states and under the federal Longshore and Harbor 
Workers' Compensation Act, workers' compensation benefits for 
permanent total disabilities are paid for the duration of 
disability or the life of the worker. Thus, the FECA program is 
currently in line with the practices of a majority of the 
workers' compensation systems in the country.
    In the remainder of the states, benefits terminate after a 
set duration, when the worker reaches a certain age, or when 
total benefits paid reach a certain level. North Dakota is the 
only state that currently converts a worker's benefit to a 
lower benefit at retirement age.
    This concludes the testimony of the Congressional Research 
Service. I will be happy to answer any questions that the 
subcommittee may have.
    [The statement of Mr. Szymendera follows:]

 Prepared Statement of Scott Szymendera, Analyst in Disability Policy, 
                     Congressional Research Service

    Chairman Walberg, Ranking Member Courtney, and Members of the 
subcommittee: My name is Scott Szymendera and I am an analyst at the 
Congressional Research Service (CRS). Thank you for inviting CRS to 
testify before the Subcommittee on Workforce Protections on the Federal 
Employees' Compensation Act (FECA), the workers' compensation system 
for federal employees administered by the Department of Labor.
    Since 1916, federal employees have been protected from economic 
losses associated with employment-related injuries and illnesses and 
their families have been protected in cases of employment-related 
deaths by FECA. My testimony today will focus on two provisions of the 
Department of Labor's FECA reform proposal: the elimination of 
augmented compensation for dependents coupled with an increase in the 
base rate of compensation; and the creation of a lower benefit rate for 
workers who receive benefits after reaching retirement age.\1\
Brief Overview of FECA\2\
    In FY2012, there were 97,238 new, non-denied FECA cases created.\3\ 
Of these cases, 48,967 involved lost time from work and 48 were cases 
of workplace fatalities.\4\ During FY2012 the FECA program paid $3.025 
billion in benefits, including over $1.956 billion in disability 
compensation, $929 million in medical and vocational rehabilitation 
services, and $140 million in survivors benefits.\5\
            Statutory and Regulatory Authorities
    The FECA program is authorized in statute at 5 U.S.C. Sec. Sec.  
8101 et seq. Regulations implementing FECA are provided at 20 C.F.R. 
Sec. Sec.  10.00-10.826. The FECA program is administered by the 
Department of Labor, Office of Workers Compensation Programs (OWCP).
            Program Financing
    Benefits under FECA are paid out of the federal Employees' 
Compensation Fund. This fund is financed by appropriations from 
Congress, which are used to pay current FECA benefits and which are 
ultimately reimbursed by federal agencies through the chargeback 
process.
    The administrative costs associated with the FECA program are 
provided to the Department of Labor through the appropriations process. 
In addition, the United States Postal Service and certain other 
government corporations are required to pay for the ``fair share'' of 
the costs of administering benefits for their employees.
            Employees Covered by FECA
    The FECA program covers all civilians employed by the federal 
government, including employees in the executive, legislative, and 
judicial branches of the government. Both full-time and part-time 
workers are covered as are most volunteers and all persons serving on 
federal juries. Coverage is also extended to certain groups including 
state and local law enforcement officers acting in a federal capacity, 
Peace Corps volunteers, students participating in Reserve Officer 
Training Corps programs, and members of the Coast Guard Auxiliary and 
Civil Air Patrol.
            Conditions Covered by FECA
    Under FECA, workers' compensation benefits are paid to any covered 
employee for any disability or death caused by any injury or illness 
sustained during the employee's work for the federal government. There 
is no list of covered conditions nor is there a list of conditions that 
are not covered. However, conditions caused by the willful misconduct 
or intoxication by alcohol or any other drug of the employee are not 
covered by FECA.
            FECA Claims Process
    All FECA claims are processed and adjudicated by OWCP. Initial 
decisions on claims are made by OWCP staff based on evidence submitted 
by the claimant and his or her treating physician. The law also permits 
OWCP to order a claimant or beneficiary to submit to a medical 
examination from a doctor contracted to the federal government. An 
employee dissatisfied with a claims decision may request a hearing 
before OWCP or that OWCP review the record of its decision. A final 
appeal can be made to the Employees' Compensation Appeals Board (ECAB). 
The decision of the ECAB is final, cannot be appealed, and is not 
subject to judicial review.
    In general, a claim for disability or death benefits under FECA 
must be made within three years of the date of the injury or death. In 
the case of a latent disability, such as a condition caused by exposure 
to a toxic substance over time, the three-year time limit does not 
begin until the employee is disabled and is aware, or reasonably should 
be aware, that the disability was caused by his or her employment.
FECA Compensation Benefits
            Continuation of Pay
    In the case of a traumatic injury, an employee is eligible for 
Continuation of Pay for up to 45 days.\6\ Continuation of pay is paid 
by the employing agency and is equal to 100% of the employee's rate of 
pay at the time of the traumatic injury. Since continuation of pay is 
considered salary and not compensation, it is taxed and subject to any 
deductions normally made against the employee's salary.
            Partial Disability
    If an employee is unable to work full-time at his or her previous 
job, but is able to work either part-time or at a job in a lower pay 
category, then he or she is considered partially disabled and eligible 
for the following compensation benefits:
     if the employee is single and without dependents, a 
monthly benefit equal to two-thirds of the difference between the 
employee's pre-disability and post-disability monthly wage; or
     if the employee has a spouse or at least one dependent, a 
monthly benefit equal to 75% of the difference between the employee's 
pre-disability and post-disability monthly wage.
    The compensation benefits paid for partial disability are capped at 
75% of the maximum basic pay at rate GS-15 (GS-15, Step 10), are not 
subject to federal taxation, and are subject to an annual cost-of-
living adjustment.
            Scheduled awards
    In cases in which an employee suffers a permanent partial 
disability, such as the loss of a limb, he or she is entitled to a 
scheduled benefit which pays benefits for a set period of time provided 
in statute or regulation.\7\ The scheduled benefit is in addition to 
any other partial or total disability benefits received and an employee 
may receive a scheduled award even if he or she has returned to full-
time work.
            Total Disability
    If an employee is unable to work at all, then he or she is 
considered totally disabled and eligible for the following compensation 
benefits:
     if the employee is single and without dependents, a 
monthly benefit equal to two-thirds of the employee's pre-disability 
monthly wage; or
     if the employee has a spouse or at least one dependent, a 
monthly benefit equal to 75% of the employee's pre-disability monthly 
wage.
    The compensation benefits paid for total disability are capped at 
75% of the maximum basic pay at rate GS-15 (GS-15, Step 10), are not 
subject to federal taxation, and are subject to an annual cost-of-
living adjustment.\8\ Benefits are payable until it is determined that 
the employee is no longer totally disabled and may continue until the 
employee's death.
            Death
    If an employee dies on the job or from a latent condition caused by 
his or her employment, the employee's survivors are eligible for the 
following compensation benefits:
     if the employee's spouse has no children, then the spouse 
is eligible for a monthly benefit equal to 50% of the employee's 
monthly wage at the time of death;
     if the employee's spouse has one or more children, then 
the spouse is eligible for a monthly benefit equal to 45% of the 
employee's monthly wage at the time of death and each child is eligible 
for a monthly benefit equal to 15% of the employee's monthly wage at 
the time of death, up to a maximum family benefit of 75% of the 
employee's monthly wage at the time of death.
    Special rules apply in cases in which an employee dies without a 
spouse or children or with only children or a spouse remarries after 
the death of the worker. Benefits for a child end at age 18, or age 23 
if the child is still in school. A child's benefits continue for life 
if the child is disabled and incapable of self-support.
    The compensation benefits paid for death are capped at 75% of the 
maximum basic pay at rate GS-15 (GS-15, Step 10), are not subject to 
federal taxation, and are subject to an annual cost-of-living 
adjustment.\9\
FECA Medical Benefits
    Under FECA, all medical costs, including medical devices, therapies 
and medications, associated with the treatment of a covered injury or 
illness are paid for, in full, by the federal government. Generally, a 
beneficiary may select his or her own medical provider and is 
reimbursed for the costs associated with transportation to receive 
medical services. A FECA beneficiary who is blind, paralyzed, or 
otherwise disabled such that he or she needs constant personal 
attendant care may receive an additional benefit of up to $1,500 per 
month.
            Vocational Rehabilitation
    The Secretary of Labor may direct any FECA beneficiary to 
participate in vocational rehabilitation, the costs of which are paid 
by the federal government. While participating in vocational 
rehabilitation, the beneficiary may receive an additional benefit of up 
to $200 per month. However, any beneficiary who is directed to 
participate in vocational rehabilitation and fails to do so may have 
his or her benefit reduced to reflect his or her increased wage earning 
capacity that likely would have resulted from participation in 
vocational rehabilitation.
            Department of Labor's FECA Reform Proposal
    The Department of Labor has proposed a package of reforms to the 
FECA program intended to improve the return-to-work rate and 
rehabilitation of injured federal workers; update the FECA benefit 
structure; and modernize the program which has not been significantly 
amended since 1974.\10\ Included in the Department of Labor's reform 
proposal are the following two provisions that, if enacted, would make 
significant changes to the structure of disability benefits paid by the 
FECA program:
    1. elimination of augmented compensation for dependents and the 
creation of a new uniform basic benefit rate of 70% of the worker's 
pre-disability wage; and
    2. conversion of FECA beneficiaries to a new benefit rate of 50% of 
the workers' pre-disability wage upon reaching Social Security full 
retirement age.\11\
    My testimony will focus on these two provisions.
Elimination of Augmented Compensation and Creation of a New Uniform 
        Basic Benefit Rate
            Current Law
    Under current law, the basic benefit rate used to determine the 
amount of a person's FECA compensation is two-thirds (66.67%) of the 
workers' pre-disability wage. However, if the worker has any dependent 
children or a spouse, the worker is eligible for augmented compensation 
in the amount of 8.33% of his or her pre-disability wage bringing the 
total rate of compensation to 75% of the worker's pre-disability wage. 
In the case of a total disability, a worker's benefit is equal to 
either of these two basic benefit amounts (66.67% or 75%) and in the 
case of a partial disability; the amount of benefits is a percentage of 
either of these two basic benefit amounts.
            Legislative History
    The FECA basic benefit rate of two-thirds of a worker's pre-
disability wage was part of the original FECA statute enacted in 
1916\12\ and was based on state workers' compensation laws in place at 
the time. In its report on the legislation, the House Judiciary 
Committee stated that the FECA benefit rates were ``in line with the 
best precedents found in State compensation acts'' especially those in 
Massachusetts, New York, and Ohio.\13\
    Augmented compensation for workers with dependents or spouses was 
added to the FECA program as part of the Federal Employees' 
Compensation Act Amendments of 1949, P.L. 81-357. In their reports on 
the 1949 amendments, both the House Education and Labor Committee and 
the Senate Labor and Public Welfare Committee stated that augmented 
compensation for workers with dependents or spouses would recognize the 
``greater need'' of disabled employees with dependents than single 
employees and would ``serve to prevent families from falling behind 
financially during the crisis occasioned by industrial injury.''\14\ In 
addition, both the House and Senate committees cited the existence of 
augmented compensation for dependents in state workers' compensation 
laws as justification for this provision.\15\
            Proposed Change
    The Department of Labor's proposal would eliminate augmented 
compensation in cases in which a worker has a dependent child or 
spouse. In addition, the proposal would raise the basic benefit level 
for all workers, regardless of whether or not they have any dependents 
or a spouse, to 70% of the worker's pre-disability wage.
Comparison to Other Workers' Compensation Programs
            Basic Benefit Rate
    In the majority of state workers' compensation systems, the basic 
permanent total disability benefit is two-thirds of a worker's wage at 
the time of disability. Currently, 38 states and the District of 
Columbia have total disability benefit rates that are set at this 
level.\16\ In addition, benefits under the federal Longshore and Harbor 
Workers' Compensation Act are also set at two-thirds of the pre-
disability wage.\17\ New Hampshire's benefit rate is 60% of the 
worker's pre-disability wage.
    Currently, four states have total disability benefit rates that are 
based on pre-disability or average wages that exceed the two-thirds 
standard. In New Jersey and Oklahoma, benefits are paid at 70% of the 
worker's wage at the time of injury whereas benefits in Texas are based 
on 75% of the worker's average wage.\18\ In Ohio, benefits are paid at 
72% of the pre-disability wage for the first 12 weeks, and then are 
reduced to the standard two-thirds rate.
    Six states--Alaska, Connecticut, Iowa, Maine, Michigan, and Rhode 
Island--base benefits on net, rather than gross wages. It is generally 
not possible to compare these benefits to FECA benefits because of 
differences in tax rates that affect net income. In Washington, the 
basic benefit rate ranges between 60% and 75% of wages and the value of 
certain employee-provided benefits at the time of injury depending on 
the number of dependents.
    Because of the augmented compensation provision of the FECA 
program, beneficiaries with dependents, including spouses, may receive 
total disability benefits at a rate of 75% of their pre-disability 
wages. No state pays augmented compensation for dependents, and the 75% 
benefit rate is higher than that paid by the federal Longshore and 
Harbor Workers' Compensation Act or any comparable state workers' 
compensation system except Texas.
    The uniform basic FECA benefit rate of 70% of the worker's pre-
disability wage proposed by the Department of Labor would be higher 
than the basic benefit rates in 39 states, the District of Columbia, 
and under the federal Longshore and Harbor Workers' Compensation Act; 
equal to the basic benefit rates in New Jersey and Oklahoma; and lower 
than the basic benefit rates in Texas and for the first 12 weeks of 
benefits in Ohio.
            Maximum Benefits
    When comparing benefit levels between the FECA program and other 
workers' compensation programs, it is important to also consider the 
maximum benefits available to workers. Every workers' compensation 
system has a limit on the amount of weekly or monthly compensation that 
any given beneficiary may receive. Because of these benefit maximums, 
some workers may not receive the full benefits that they would 
otherwise be entitled to based solely on their pre-disability income 
level. When comparing maximum benefits available, it is important to 
note that while these are the maximum benefits available, the 
individual benefits available to each claimant are based on that 
claimant's individual circumstances and pre-disability wage and that 
absent additional data, it is not possible to estimate the number of 
claimants in FECA program or any other workers' compensation system 
whose benefits are reduced because they reach the program's maximums.
    The maximum FECA benefit is based on 75% of the GS-15, Step 10 pay 
rate, without any locality adjustments, whereas state maximums are 
generally based on state average wages or the worker's own pre-
disability wage. For 2013, the annual salary at GS-15, Step 10, is 
$129,517, whereas the average federal salary for the executive branch 
in December 2012 was $76,913.\19\ Thus, the maximum FECA benefit under 
the current system is higher than it would be if the FECA system based 
its maximum benefit level on average wages as is the case in the 
majority of the states.
    The maximum FECA benefit, when calculated on a per-week basis is 
$1,868 which is higher than the current maximum weekly benefit 
available in any state or under the federal Longshore and Harbor 
Workers' Compensation Act. For example, the maximum weekly benefit for 
non-federal workers in the District of Columbia is based on 100% of the 
District's average weekly wage and is currently $1,416, or 
approximately 76% of the FECA maximum.\20\ In Mississippi, the state 
with the lowest maximum benefit for permanent total disability, the 
maximum weekly benefit is based on two-thirds of the state's average 
weekly wage and is currently $449.12, or 24% of the FECA maximum.\21\ 
In Texas, the only state that matches the augmented FECA compensation 
level of 75% of a workers' pre-injury wage, the weekly maximum for 
permanent total disability benefits (referred to as Lifetime Income 
Benefits in Texas) is based on 100% of the state's average weekly wage 
and is currently $818, or 44% of the FECA maximum.\22\
Conversion of Benefits at Retirement Age
            Current Law
    Under current law, FECA benefits for permanent total disability are 
payable for the duration of the worker's disability, or for his or her 
lifetime. There is no maximum duration of FECA benefits and workers are 
given the option of converting from FECA to their federal employee 
retirement system, but are not required to do so.
    Benefits under FECA, unlike federal pension benefits, are not 
subject to taxation. In addition, FECA beneficiaries covered by the 
Federal Employees' Retirement System (FERS) may not contribute to 
either Social Security or the Thrift Savings Plan (TSP) while receiving 
FECA benefits.\23\ Thus, these employees, especially those who were 
permanently disabled early in their federal careers, may only be 
entitled to low Social Security benefit amounts and may have low TSP 
balances to draw from upon retirement.\24\
    Because the cost of FECA benefits are charged back to each 
employee's host agency, the costs of providing FECA benefits to 
employees after they likely would have retired from the federal 
government is borne by those employees' host agencies and must be paid 
annually out of those agency's budgets. Unlike in the case of federal 
retirement benefits, there is no cost-sharing by the employees 
themselves who pay a portion of their federal retirement through 
payroll contributions.
            Legislative History
                            1949 amendments
    Permanent total disability benefits under FECA have always been 
payable for the duration of disability or the life of the worker. 
However, as part of the 1949 FECA amendments, Congress required the 
FECA program administrator to review the wage-earning capacity of all 
beneficiaries upon reaching age 70 and granted the administrator the 
authority to reduce a worker's benefits upon reaching age 70 if, in the 
opinion of the government, the worker's wage-earning capacity had been 
reduced because of age, independent of his or her disability.
    This provision was opposed by several representatives from federal 
employee organizations who testified before the House Education and 
Labor Committee that such a provision was inconsistent with the 
mandatory federal employee retirement age of 70 in place at the time 
and could cause undue hardships to workers who, because of their 
disabilities, had not been able to reach their full earning potential 
or who had reduced pensions because of many years of limited or no 
earnings.\25\ In addition, the Department of Labor testified in 
opposition to this provision and stated:
    Workmen's compensation is not supposed to be predicated upon the 
financial needs of an employee depending upon the particular stage of 
life through which he is passing. It is predicated on the basis of his 
lost wage-earning capacity at the time he suffered the disability, and 
this compensation is, and should be, completely unrelated to his 
longevity. Moreover, simple justice, it seems to me, would require that 
a worker whose income has been reduced for a period of time, who may 
have been denied the opportunity because of his injury to augment his 
wages through promotions, should not be further penalized in his later 
years by a downward revision of his disability payments. Moreover, the 
wage-earning capacity of an employee may have been considerably greater 
in his later years had he not been injured than it was at the time of 
the accident, so that a recomputation on the basis of what he was 
actually earning, when injured, rather than on the basis of his 
probable wage-earning capacity, would hardly constitute a fair and 
equitable mode of determining the benefits to be paid a disabled worker 
after he has attained the age of 70.\26\
                            1974 amendments
    The provision requiring that FECA benefits be reviewed and 
permitting FECA benefits to be reduced after a beneficiary reached age 
70 to account for the reduced earning capacity that may come with age 
independent of any disability was removed by the Federal Employees' 
Compensation Act Amendments of 1974, P.L. 93-416. In its report on the 
1974 amendments, the Senate Committee on Labor and Public Welfare 
provided the following justification for eliminating the reduced 
benefit provision:
    The Committee finds that such a review places an unnecessary burden 
on both the employees receiving compensation and the Secretary. 
Further, the fact that an employee reaches 70 has no bearing on his or 
her entitlement to benefits and is considered discriminatory in the 
Committee's opinion.\27\
            Proposed Change
    The Department of Labor's proposal would create a new ``Conversion 
Entitlement Benefit'' for FECA beneficiaries who reach Social Security 
full retirement age and have received FECA benefits for at least one 
year. The Conversion Entitlement Benefit would be set at 50% of the 
worker's pre-disability wage and like all FECA disability benefits 
would be exempt from taxation. According to the Department of Labor, 
the goal of this new benefit is to more closely align FECA benefits 
after retirement age to benefits that would be paid under the federal 
retirement systems and remove the often significant financial incentive 
to employees to remain in the FECA program after retirement age.\28\ 
Under this proposal, FECA beneficiaries would retain the right to 
choose between remaining in the FECA program with the reduced 
Conversion Entitlement Benefit, or leaving the FECA program and 
receiving their federal retirement benefits.
            Comparison to Other Workers' Compensation Systems
    In 39 states and under the federal Longshore and Harbor Workers' 
Compensation Act, workers' compensation benefits for permanent total 
disabilities are paid for the duration of disability or the life of the 
worker.\29\ Thus, the FECA program is currently in line with the 
practices of a majority of the workers' compensation systems in the 
country.
    In three states--Indiana, North Carolina,\30\ and South Carolina--
and the District of Columbia, workers' compensation benefits for 
permanent total disabilities terminate after a set number of weeks of 
benefit receipt. For example, in Indiana, benefits are terminated after 
500 weeks. In four additional states--Florida, Montana, Tennessee, and 
West Virginia--benefits terminate when the beneficiary reaches an age 
provided in statute, such as age 75 in Florida. Benefits in Kansas are 
terminated once a beneficiary has received a total lifetime amount of 
benefits and termination in Mississippi comes either after a set number 
of weeks or after a total amount of benefits has been received. 
Benefits in Georgia are paid for the duration of disability only in 
cases of catastrophic injuries. In other cases, such as occupational 
illnesses, benefits terminate after 400 weeks.
    North Dakota is the only state that converts a worker's benefit to 
a lower benefit at retirement age. In North Dakota, once a worker 
reaches Social Security full retirement age, his or her workers' 
compensation disability benefits are terminated and replaced with an 
``Additional Benefit Payable'' that ranges from 5% of the worker's 
previous benefit for workers who were disabled for less than three 
years to 50% of the previous benefit for workers who were disabled for 
more than 30 years.\31\ The Additional Benefit Payable is payable for a 
length of time equal to the length of time that the worker received 
workers' compensation benefits.
                                endnotes
    \1\ For additional information on the Department of Labor's FECA 
reform proposal see Department of Labor, FY2014 Congressional Budget 
Justification, Office of Workers' Compensation Programs, Overview, 
February 2013, pp. 4-5; and U.S. Congress, House Committee on Education 
and the Workforce, Subcommittee on Workforce Protections, Reviewing 
Workers' Compensation for Federal Employees, 112th Cong., 1st sess., 
May 12, 2011, H.Hrg. 112-22 (Washington: GPO, 2011), statement of Gary 
Steinberg. For an analysis of the Department of Labor's FECA reform 
proposal see U.S. Government Accountability Office, Federal Employees' 
Compensation Act: Analysis of Proposed Program Changes, GAO-13-108, 
October 2012.
    \2\ For a more complete overview of the FECA program see CRS Report 
R42107, The Federal Employees' Compensation Act (FECA): Workers' 
Compensation for Federal Employees, by Scott Szymendera; and U.S. 
Congress, House Committee on Education and the Workforce, Subcommittee 
on Workforce Protections, Reviewing Workers' Compensation for Federal 
Employees, 112th Cong., 1st sess., May 12, 2011, H.Hrg. 112-22 
(Washington: GPO, 2011), statement of Scott Szymendera.
    \3\ The number of new non-denied FECA cases includes all new 
injury, illness, and fatality cases submitted to the Department of 
Labor, less any denied cases. The Department of Labor reports a total 
of 115,697 new FECA cases created in FY2012 [Department of Labor, 
Office of Workers' Compensation Programs, Division of Federal 
Employees' Compensation: About our Program, http://www.dol.gov/owcp/
dfec/about.htm].
    \4\ Department of Labor, Occupational Safety and Health 
Administration, Federal Injury and Illness Statistics for Fiscal Year 
2012, http://www.osha.gov/dep/fap/statistics/fedprgms--stats12--
final.html.
    \5\ Department of Labor, Office of Workers' Compensation Programs, 
Division of Federal Employees' Compensation: About our Program, http://
www.dol.gov/owcp/dfec/about.htm.
    \6\ Certain groups, including federal jurors, Peace Corps 
volunteers, and Civil Air Patrol members, are not eligible for 
continuation of pay. Employees of the United States Postal Service must 
satisfy a three-day waiting period before becoming eligible for 
continuation of pay.
    \7\ The list of FECA scheduled benefits are provided in statute at 
5 U.S.C. Sec.  8107(c) and in regulation at 20 C.F.R. Sec.  10.40(a).
    \8\ Currently 21 states, the District of Columbia, and the federal 
Longshore and Harbor Workers' Compensation Act provide some form of a 
cost-of-living adjustment to permanent total disability benefits.
    \9\ The personal representative of the deceased may also be 
eligible for reimbursement of certain costs associated with terminating 
the deceased employee's formal relationship with the federal 
government, funeral expenses, and costs associated with shipping a body 
from the place of death to the employee's home. In addition, any 
employee killed while working with the military in a contingency 
operation is also entitled to a special gratuity payment of up to 
$100,000 payable to his or her designated survivors and employees of 
certain agencies such as the State Department may be eligible for 
additional death gratuities administered by their agencies for deaths 
that occur overseas.
    \10\ U.S. Congress, House Committee on Education and the Workforce, 
Subcommittee on Workforce Protections, Reviewing Workers' Compensation 
for Federal Employees, 112th Cong., 1st sess., May 12, 2011, H.Hrg. 
112-22 (Washington: GPO, 2011), statement of Gary Steinberg.
    \11\ The Social Security full retirement age ranges from 65 for 
persons born in 1937 or earlier to 67 for persons born in 1960 or 
later. For additional information on the full retirement age see CRS 
Report R41962, Fact Sheet: The Social Security Retirement Age, by Gary 
Sidor.
    \12\ Federal Employees' Compensation Act, P.L. 64-267.
    \13\ U.S. Congress, House Committee on the Judiciary, Compensation 
of Government Employees Suffering Injuries While on Duty, report to 
accompany H.R. 15316, 64th Cong., 2nd sess., May 11, 1916, H. Rept. 64-
678 (Washington: GPO, 1916), pp. 7-9.
    \14\ U.S. Congress, House Committee on Education and Labor, 
Amendments to Federal Employees' Compensation Act, report to accompany 
H.R. 3141, 81st Cong., 1st sess., June 6, 1949, H. Rept. 81-729 
(Washington: GPO, 1949), p. 9; and U.S. Congress, Senate Labor and 
Public Welfare, Amendments to Federal Employees' Compensation Act, 
report to accompany H.R. 3141, 81st Cong., 1st sess., August 4, 1949, 
S. Rept. 81-836 (Washington: GPO, 1949), p. 19.
    \15\ At the time of this legislation, 10 states and the Territory 
of Alaska provided some sort of augmented compensation to disability 
benefits in cases in which workers had dependents [Department of Labor, 
State Workmen's Compensation Laws as of October 1, 1948, Bulletin No. 
99, Washington, DC, October 1948, p. 20].
    \16\ Workers' Compensation Research Institute and International 
Association of Industrial Accident Boards and Commissions, Workers' 
Compensation Laws as of January 2012, Cambridge, MA, March 2012, Table 
5.
    \17\ For additional information on the Longshore and Harbor 
Workers' Compensation Act see CRS Report R41506, The Longshore and 
Harbor Workers' Compensation Act (LHWCA): Overview of Workers' 
Compensation for Certain Private-Sector Maritime Workers, by Scott 
Szymendera.
    \18\ In Texas, most private-sector employers may opt out of the 
workers' compensation system, but in doing so forfeit their protection 
from civil suits for workplace injuries, illnesses, and deaths.
    \19\ Information on the GS-15 salary rate taken from the website of 
the Office of Personnel Management (OPM) at http://www.opm.gov/policy-
data-oversight/pay-leave/salaries-wages/2013/general-schedule/gs.pdf. 
Information on average federal salary taken from the OPM FedScope 
system online at http://www.fedscope.opm.gov/.
    \20\ District of Columbia Department of Employment Services, 
Workers' Compensation FAQ's, http://does.dc.gov/node/192372.
    \21\ Mississippi Workers' Compensation Commission, Mileage, Weekly 
Maximum and Lifetime Disability Rates, http://www.mwcc.state.ms.us/faq/
--rates.asp#2013.
    \22\ Texas Department of Insurance, State Average Weekly Wage 
(SAWW) / Maximum and Minimum Weekly Benefits, http://www.tdi.texas.gov/
wc/employee/maxminbens.html.
    \23\ P.L. 108-92, enacted in 2003, increased the FERS basic annuity 
from 1.0% of the individual's high-three years of average pay to 2.0% 
of high-three average pay for the duration of the period when the 
worker received FECA benefits. For additional information on this 
provision see CRS Report RS22838, Disability Retirement for Federal 
Employees, by Katelin P. Isaacs.
    \24\ For additional information on FERS see CRS Report 98-810, 
Federal Employees' Retirement System: Benefits and Financing, by 
Katelin P. Isaacs. For additional information on the relationship 
between FECA and federal retirement systems see U.S. Government 
Accountability Office, Federal Employees' Compensation Act: Analysis of 
Proposed Program Changes, GAO-13-108, October 2012.
    \25\ U.S. Congress, House Committee on Education and Labor, Special 
Subcommittee, Federal Employees' Compensation Act Amendments of 1949, 
hearing on H.R. 3191 and companion bills, 81st Cong., 1st sess., April 
11-13 and May 2, 1949.
    \26\ Ibid., statement of John W. Gibson.
    \27\ U.S. Congress, Senate Committee on Labor and Public Welfare, 
Federal Employees' Compensation Act of 1970, report to accompany H.R. 
13781, 93rd Cong., 2nd sess., August 8, 1974, S. Rept. 93-1081 
(Washington: GPO, 1974), p. 7.
    \28\ U.S. Congress, House Committee on Education and the Workforce, 
Subcommittee on Workforce Protections, Reviewing Workers' Compensation 
for Federal Employees, 112th Cong., 1st sess., May 12, 2011, H.Hrg. 
112-22 (Washington: GPO, 2011), statement of Gary Steinberg.
    \29\ Workers' Compensation Research Institute and International 
Association of Industrial Accident Boards and Commissions, Workers' 
Compensation Laws as of January 2012, Cambridge, MA, March 2012, Table 
5.
    \30\ In North Carolina benefits can be extended beyond 500 weeks if 
it is determined that the worker has sustained a total loss of wage-
earning capacity.
    \31\ N.D. Cent. Code Sec.  65-05-09.4. There is an exception to 
this provision for workers who can prove that they are not entitled to 
Social Security or any other type of retirement benefit.
                                 ______
                                 
    Chairman Walberg. I thank you.
    Mr. Steinberg, recognize you for your 5 minutes?

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

    Mr. Steinberg. Thank you, sir.
    Chairman Walberg, Ranking Member Courtney, and committee 
members, I appreciate the opportunity to meet with you again to 
discuss the Federal Employees' Compensation Act. On behalf of 
Acting Secretary Harris I would like to share a set of balanced 
proposals that would enhance our ability to assist 
beneficiaries to return to work, provide a more equitable array 
of benefits, and generally modernize the program.
    Almost 97 years ago Congress enacted FECA to provide 
workers' compensation coverage to all federal employees and 
their survivors for disability or death due to a work-related 
injury. The faces of FECA include the postal worker who is hurt 
when her mail truck is hit driving and delivering the mail, the 
FBI agent who is killed in the line of duty, the VA nurse who 
hurts her back while lifting a patient, and the U.S. Forest 
Service firefighter who is injured while fighting a wildfire.
    DOL's Office of Workers' Compensation Programs, OWCP, works 
hard to administer this non-adversarial program fairly, 
objectively, and efficiently. We seek to continuously improve 
quality and service delivery to our customers, enhance internal 
and external communications, and reduce cost to the taxpayers. 
This is fundamental to the achievement of our mission to 
protect the interests of workers who become injured or ill on 
the job, their families, and their employers by making timely, 
appropriate, and accurate decisions on claims, providing prompt 
payment of benefits, and helping injured workers return to 
gainful employment as early as is feasible.
    We have made significant strides in disability management 
that has resulted in significant reduction in the average 
number of work days lost from the most serious injuries. Over 
the last 10 years the average number of work days lost due to 
serious injuries has declined by over 20 percent, producing an 
annual savings of $53 million. Our administrative costs are 
only 5 percent of the total program cost, far below the average 
of all states' health insurance programs, which is over 11 
percent.
    To further improve FECA we have made a comprehensive set of 
recommendations to Congress. I wish to highlight some today.
    To help injured employees return to work we request 
authority to start vocational rehabilitation activities without 
waiting until the injury is deemed permanent in nature and a 
mandate to develop a return-to-work plan with claimants early 
in the rehabilitation process. These 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.
    We also suggest changes to the benefit structure. For 
example, the payment of schedule awards for the loss or loss of 
use of a limb, one's sight or hearing, is often very 
complicated and thus often delayed. We think that these awards 
should be paid by DOL concurrently with wage loss compensation, 
made more rapidly, and to be fair, should be calculated at a 
uniform level for all federal employees. We also propose to 
increase benefit levels for burial expenses and facial 
disfigurement.
    Under current law, the majority of injured workers receive 
wage replacement at 75 percent of their salary, tax free and 
COLAed. This rate is higher than the take-home pay of many 
federal workers who are working each day and this can serve as 
an obstacle to the department's efforts to encourage every 
worker to overcome their injuries and to go back to work.
    We therefore recommend shifting the benefit level for all 
new claimants to 70 percent. Paying a non-retirement age 
beneficiaries at a single 70 percent rate would also simplify 
the process for both claimants and OWCP by eliminating the 
continuing need to obtain and validate documentation regarding 
dependent eligibility. A single rate would be simpler and more 
equitable and would produce significant savings to the 
taxpayers.
    To provide equity to other federal employees we also 
recommend establishing a lower conversion rate for 
beneficiaries beyond Social Security retirement age which would 
more closely mirror OPM retirement rates. It should be noted 
that we recommend these changes be prospective in nature, not 
retrospective.
    My written testimony outlines other important provisions 
that would streamline and improve the program.
    In summary, while FECA is the model workers' compensation 
system, it does have limitations that need to be addressed. The 
reforms that we suggest today are not new. They have been 
proposed by both current and previous administrations.
    They are careful; they are balanced; they are well 
researched; and they reflect good government while producing a 
10-year savings of over $500 million. These changes will bring 
the program into the 21st century.
    Thank you again for the opportunity to meet with you today. 
I will be pleased to answer any questions that you may have.
    [The statement of Mr. Steinberg follows:]

  Prepared Statement of Gary Steinberg, Director, Office of Workers' 
        Compensation Programs (Acting), U.S. Department of Labor

    Chairman, Ranking Member, and Members of the Subcommittee: Thank 
you for inviting me to this important hearing today. As you know, the 
Department of Labor's (DOL) Office of Workers' Compensation Programs 
(OWCP) administers a number of workers' compensation programs, 
including the Federal Employees' Compensation Act (FECA) program, which 
covers 2.7 million Federal and Postal workers and is one of the largest 
self-insured workers' compensation systems in the world.
    I appreciate the opportunity to discuss legislative reforms to FECA 
that would enhance our ability to assist FECA beneficiaries to return 
to work, provide a more equitable array of FECA benefits, and generally 
modernize the program and update the statute. Almost 97 years ago, on 
September 7, 1916, Congress enacted FECA to provide comprehensive 
Federal workers' compensation coverage to all Federal employees and 
their survivors for disability or death due to an employment injury or 
illness. FECA's fundamental purpose is to provide compensation for wage 
loss and medical care, facilitate return to work for employees who have 
recovered from their injuries, and pay benefits to survivors. The faces 
of FECA beneficiaries include the Postal worker whose mail truck is hit 
while he is delivering mail, the Federal Bureau of Investigation (FBI) 
agent injured or killed in the line of duty, and the Department of 
Veterans Affairs nurse who hurts her back while lifting patients. All 
of these employees will receive benefits provided by this Act.
    Since FECA has not been significantly amended in almost 40 years, 
there are areas where the statute could be improved. Thus, we have 
developed a number of proposals to reform and maintain FECA as the 
model workers' compensation program for the twenty-first century and 
adopt best practices in State systems, while producing potential cost 
savings of more than $500 million over a 10-year period on a government 
wide basis. After briefly discussing the current status of the FECA 
program, I am pleased to outline possible changes to the statute for 
consideration.
    Many of the proposals are based on the results of internal studies, 
the Government Accountability Office (GAO), the DOL Inspector General, 
as well as discussions with the Office of Personnel Management and 
other partner and stakeholder organizations over the past 30 years. 
Over the past few years, we have shared these proposed changes with 
staff of this and other Congressional committees and various outside 
parties, such as representatives of Federal employee unions and members 
of the disability community.
FECA today
    Benefits under the FECA are payable for both traumatic injuries 
(injuries sustained during the course of a single work shift) and 
occupational disease due to sustained injurious exposure in the 
workplace. If OWCP's review of the evidence determines that a covered 
employee has sustained a work-related medical condition, the FECA 
program provides a wide variety of benefits, including payment for all 
reasonable and necessary medical treatment; compensation to the injured 
worker to replace partial or total lost wages (paid at two-thirds of 
the employee's salary or at three-fourths if there is at least one 
dependent); a monetary award in cases of permanent impairment of limbs 
or other parts of the body; medical and vocational rehabilitation 
assistance in returning to work as necessary; and benefits to survivors 
in the event of a work-related death.
    FECA benefits are based upon an employee's inability to earn pre-
injury wages, with no time limit on wage loss benefit duration as long 
as the work-related condition or disability continues; the amount of 
compensation is based upon the employee's salary up to a maximum of GS-
15 Step 10. More than 70% of FECA claimants are paid at the augmented 
(three-fourths) level. As workers' compensation benefits, they are 
generally tax free; long-term benefits are escalated for inflation 
after the first year of receipt, however, the program is not designed 
to compensate for missed career growth resulting from employment 
interruptions due to injury.
    FECA is a non-adversarial system administered by OWCP. While 
employing agencies play a significant role in providing information to 
OWCP and assisting their employees in returning to work, the 
adjudication of FECA claims is exclusively within the discretion given 
to the Secretary of Labor by statute and is statutorily exempt from 
court review.
    Claimants are provided avenues of review within OWCP through 
reconsideration and hearing as well as an appellate forum, the 
Employees' Compensation Appeals Board (ECAB), a quasi-judicial 
appellate board within DOL, completely independent of OWCP.
    FECA benefits are paid out of the Employees' Compensation Fund and 
most are charged back to the employee's agency. During the 2012 
chargeback year, which ended on June 30, 2012, the Fund paid more than 
$2.1 billion in wage-loss compensation, impairment, and death benefits 
and another $901.9 million to cover medical and rehabilitation services 
and supplies. These totals include outlays for non-chargeable costs for 
war risk hazards that total $54.5 million, primarily for overseas 
Federal contractor coverage under the War Hazards Compensation Act 
(WHCA). Benefits paid have remained relatively stable at these levels 
for the past 10 years, with the exception of war risk hazard payments. 
In addition, the administrative costs to manage the program have 
consistently averaged a very modest 5% of total outlays.
Maintaining program integrity
    OWCP actively manages the FECA program so that benefits are 
properly paid. After a case is accepted as covered, OWCP monitors 
medical treatment for consistency with the accepted condition--if more 
than a very brief disability is involved, OWCP often assigns a nurse as 
part of our early nurse intervention program to assist with the 
worker's recovery and facilitate the return-to-work effort. If 
disability is long-term, but the claimant can work in some capacity, a 
vocational rehabilitation counselor may be assigned to the case.
    Once a claim is accepted for ongoing, periodic payments, injured 
workers are required to submit medical evidence to substantiate 
continued disability (either annually or on a two or three year 
schedule for those less likely to regain the ability to work). In those 
situations where it is unlikely that a claimant may return to work due 
to their work related medical condition, eligible claimants may elect 
OPM disability or retirement benefits.
    Those injured workers who choose to remain in the FECA program must 
cooperate with OWCP-directed medical examinations and vocational 
rehabilitation, accept suitable employment if offered, and annually 
report earnings and employment (including volunteer work) as well as 
the status of their dependents and any other government benefits. OWCP 
claims staff carefully review these submissions and can require 
claimants to be examined by outside medical physicians to resolve 
questions on the extent of disability or appropriateness of medical 
treatment such as surgery. OWCP also conducts monthly computer matches 
with the Social Security Administration (SSA) to identify FECA 
claimants who have died so that payments can be terminated to avoid 
overpayments. OWCP is also working with the Department of Labor's 
Employment and Training Administration (ETA) to provide current FECA 
claimant lists to State Unemployment Agencies to help them address 
their offset requirements.
    In addition, OWCP has conducted program evaluation studies to 
identify areas for process and policy improvements. I noted earlier 
some of our case processing improvements. Based on the resulting 
recommendations and our claims experience, we have also improved how 
the program approaches disability management and return to work. The 
program's early nurse intervention and quality case management 
initiatives are particularly noteworthy as the program evolves to 
reflect a renewed focus on return to work. Under the Protecting Our 
Workers & Ensuring Reemployment (POWER) initiative, we have partnered 
with the Occupational Safety and Health Administration (OSHA) and other 
federal agencies to improve timely filing of claims and reduce the 
number and severity of injuries. By speeding the average time it takes 
for federal employees to return to work after an injury, OWCP saves the 
government millions of dollars just in the first year of the injury; 
this also helps avoid placing them on long term disability status, 
which can last much longer.
    OWCP continually employs a variety of strategies available within 
the confines of the FECA to strengthen the program. For FY14, OWCP has 
requested increased funding to further enhance FECA program integrity. 
This dedicated funding will be utilized to establish an operation which 
will identify areas of improper payment vulnerability, develop 
strategies for preventing improper payments, and enhance our payment 
recapture program to recover overpayments due to error or fraud in 
compensation payments.
A history of performance
    Under most circumstances FECA claims are submitted by employees to 
their employing agency, which completes the agency information required 
on the form and forwards the claim to OWCP. Over the past 5 years, an 
average of 125,000 new injury and illness claims were filed annually 
and processed by OWCP. The acceptance rate for new injury claims in 
2012 was 86%. Ninety percent (90%) were submitted within program 
timeliness standards of 10 working days and approximately 97% were 
processed by OWCP within program timeliness standards, which vary 
depending on the complexity of the injury.
    Fewer than 17,000 of the accepted claims per year involve a 
significant period of disability. Eighty-five percent (85%) of these 
claimants return to work within the first year of injury and 91% return 
to work by the end of the second year. Due in part to OWCP's efforts to 
return injured employees to work, less than 2% of all new injury cases 
remain on the long-term compensation rolls two years after the date of 
injury. Currently, approximately 45,000 injured workers receive long 
term ongoing disability benefits for partial or total wage loss, which 
they receive every four weeks.
    FECA reform
    As I have discussed, OWCP has made significant administrative and 
technical changes to improve the administration of FECA. These changes 
were legally permissible within the existing statutory framework and 
have had a demonstrable effect in advancing our progress. The current 
FECA reform proposal embodies certain reforms that can only be gained 
through statutory amendment that transforms FECA into a model twenty-
first century workers' compensation program, increasing equity and 
efficiency while reducing costs.
    These amendments fall within three categories:
     Return to Work and Rehabilitation
     Updating Benefit Structures
     Modernizing and Improving FECA
Return to work and rehabilitation
    The proposal that we have crafted for consideration would provide 
OWCP with enhanced opportunities to facilitate rehabilitation and 
return to work while simultaneously addressing several disincentives 
that may adversely impact timely return to work by applying a new set 
of benefit rates prospectively to new injuries and new claims for 
disability occurring after enactment of the FECA amendments.
    We propose additional statutory tools that would enhance OWCP's 
ability to return injured workers to productive employment. While OWCP 
currently has the authority under FECA to provide vocational 
rehabilitation services and to direct permanently injured employees to 
participate in vocational rehabilitation, our proposal removes the 
permanency limitation in the statute to make clear that such services 
are available to all injured workers and that participation in such an 
effort is required. It is generally accepted and consistent with our 
experience that the earlier the claimant is involved in a vocational 
rehabilitation and a Return-to-Work program, the greater likelihood of 
a successful and sustained return to work post injury.
    The proposal would amend FECA to explicitly allow for vocational 
rehabilitation, where appropriate, as early as six months after injury. 
It provides OWCP the authority to require injured claimants unable to 
return to work within six months of their injury to participate with 
OWCP in creating a Return--to-Work Plan where appropriate. The Return-
to-Work Plan would generally be implemented within a two-year period. 
This provision would send a strong signal to all Federal workers, 
whether injured or not, that the Federal government as a model employer 
is committed to doing everything it can to return employees to work as 
early as possible.
    Our proposal would also amend FECA to provide permanent authority 
for what we call Assisted Reemployment. Assisted Reemployment is a 
subsidy designed to encourage employers to choose qualified 
rehabilitated workers whom they might otherwise not hire. Since 
disabled Federal workers with skills transferable to jobs within the 
general labor market may in some cases prove difficult to place, 
Assisted Reemployment is designed to increase the number of disabled 
employees who successfully return to the labor force by providing wage 
reimbursement to potential employers. Recent DOL appropriations bills 
gave OWCP the authority to provide up to three years of salary 
reimbursement to private employers who provide suitable employment for 
injured federal workers. Because most Federal employees desire 
continued employment with the Federal government, our proposal to 
expand this program to the Federal sector would significantly increase 
its appeal and effectiveness, especially for those less likely to 
return to work without additional supports. We are working closely with 
OPM, DOL's Office of Disability Employment Policy (ODEP), and our 
partner agencies to actively seek re-employment opportunities for 
Federal workers who become disabled as a result of work-related 
injuries or illnesses. These provisions would assist with that effort 
and comport with and support the President's Executive Order 13548 to 
increase hiring of individuals with disabilities in the Federal 
government. Under this proposal, OWCP would reimburse, in part, the 
salaries paid by Federal agencies that hire workers with work-related 
injuries.
    Return to work following an injury is often a difficult, painful 
process, requiring physical, mental and emotional adjustments and 
accommodations. If a workers' compensation system contains 
disincentives to return to work, that difficult transition back to work 
will occur more slowly, or in some cases, not at all. Where the medical 
evidence of ability to work is ambiguous and returning to work would 
require an employee to overcome significant physical limitations, these 
disincentives will exact a high price. That high price means a more 
costly program, lost productivity to the employing agency, and, for the 
workers themselves, disrupted lives and diminished self-esteem.
    As currently structured, FECA creates direct disincentives to 
return to work in two significant ways. The first and most far-reaching 
is that while the basic rate of FECA compensation, 66\2/3\%, is 
comparable to most state systems, the majority of Federal employees 
receive an augmented benefit, 75%, reflecting at least one dependent. 
Few state systems provide any augmentation for dependents, and none 
approaches the Federal level.
    As outlined in GAO's 2012 report on the FECA, specifically the 
``Analysis of Proposed Changes on USPS Beneficiaries,'' there is no 
consensus on the appropriate wage replacement rate for workers' 
compensation programs and such decisions involve balancing goals of 
benefit adequacy and incentives to return to work. We therefore suggest 
amending the FECA such that all claimants receive compensation at one 
uniform level of 70%. This compensation adjustment would reduce 
disincentives to return to work, respond to equity concerns, and 
significantly simplify administration by greatly reducing documentation 
requirements for claimants and eliminating potential overpayments that 
can occur due to changes in dependency status. At this level, 
compensation would remain quite adequate. A similar rate reduction is 
also proposed in death claims.
    A second significant disincentive to return to work is created by 
the disparity that exists between the level of retirement benefits, 
provided by the OPM, received by most Federal employees and the level 
of long-term FECA benefits for retirement age FECA recipients. Under 
current law, the thousands of long-term FECA beneficiaries who are over 
normal retirement age have a choice between Federal retirement system 
benefits and FECA benefits, but they overwhelmingly elect the latter 
because FECA benefits are typically far more generous. OPM informs us 
that the average Federal employee retiring optionally on an immediate 
annuity under the Civil Service Retirement System will receive about 
60% of their ``high-three'' average salary, most of which is taxable, 
compared to a tax free 75% or 66.66% FECA benefit. The newer Federal 
Employees' Retirement System is designed to provide a comparable level 
of retirement replacement income from the three parts of its structure. 
Because returning to work could mean giving up a FECA benefit in favor 
of a lower OPM pension amount at eventual retirement, injured workers 
may have an incentive to consciously or unconsciously resist 
rehabilitation and, in certain cases, may adhere to the self-perception 
of being ``permanently disabled.'' In any event, the considerable 
difference between FECA benefits and OPM retirement benefits results in 
certain FECA claimants receiving far more compensation in their post-
retirement years than if they had completed their Federal careers and 
received normal retirement benefits like their colleagues. This 
disparity also suggests that a statutory remedy is needed.
    The Administration's proposal would provide claimants with a 
``Conversion Entitlement Benefit'' upon reaching regular Social 
Security retirement age (and after receiving full benefits for at least 
one year) that would reduce their wage-loss benefits to 50% of their 
gross salary at date of injury (with cost of living adjustments), but 
would still be tax free.
    As the GAO report referenced numerous times, the FECA, like all 
workers' compensation programs in general, is not designed to 
compensate for missed career growth due to employment interruptions due 
to injury; however, this proposed conversion benefit more closely 
parallels a regular retirement benefit, as opposed to a full wage-loss 
benefit, so that FECA recipients are not overly advantaged in their 
retirement years compared to their non-injured counterparts on OPM 
retirement. An injured worker receiving this retirement level 
conversion benefit would no longer be subject to several of the 
sanction provisions outlined in the FECA, such as forfeiture for 
failure to report earnings or the requirement to seek/accept suitable 
employment or participate in vocational rehabilitation. Even at this 
reduced rate, however, an injured worker would still be required to 
substantiate continuing injury-related disability or face suspension of 
compensation benefits.
Updating benefit structures
    We also propose a number of changes to the current FECA benefit 
structure. One relates to the schedule award provision, which is 
designed to address the impact of impairment on an individual's life 
function, such as the loss of vision, hearing, or a limb. Impairment is 
permanent, assessed when an individual reaches maximum medical 
improvement, and is based upon medical evidence that demonstrates a 
percentage of loss of the affected member. Each member, extremity or 
function is assigned a specific number of weeks of compensation and the 
employee's salary is used to compute his or her entitlement to a 
schedule award. This payment structure results in considerable 
disparities in compensation: For example, a manager is paid far more 
than a letter carrier for loss of a leg even though the impact on the 
letter carrier may in reality be far more severe. In that instance, a 
GS-15 would receive twice what a GS-7 receives for the same loss of 
ability to get around, engage in recreational activities, etc., for 
this permanent impairment.
    Paying all schedule awards at the rate of 70% of $53,639 
(approximate equivalent of the annual base salary of a GS 11 Step 3) 
adjusted annually for inflation would certainly be more equitable.
    Similarly, allowing injured workers to receive FECA schedule award 
benefits in a lump sum concurrently with FECA wage loss benefits for 
total or partial disability would provide a more equitable benefits 
structure for claimants. The current process is complicated and 
convoluted, often leaving injured workers frustrated and confused. It 
also can generate substantial unnecessary administrative burdens, as 
schedule award payments cannot be paid concurrently with FECA wage-loss 
benefits. To avoid the concurrent receipt prohibition some eligible 
claimants may elect OPM disability or retirement benefits, which they 
are allowed to receive for the duration of a schedule award. When the 
schedule award expires, they may elect to return to the more 
advantageous FECA wage-loss benefits. While they are collecting OPM 
benefits, OWCP and employing agency efforts to assist the employee in 
returning to work are stymied. In addition to switching to OPM benefits 
during the period of a schedule award, claimants can also switch back 
and forth between benefit programs over the life of a claim. As a 
result of these overly complex provisions and benefit streams, 
claimants sometimes do not return to work as early or as often as they 
could. By allowing concurrent receipt of these benefits, the claimant 
is timely compensated for the loss to the scheduled member and the 
incentive to switch back and forth between OPM and OWCP benefits for 
this reason is eliminated. This allows a return-to-work or vocational 
rehabilitation effort to continue uninterrupted, thereby improving the 
chances of a successful return to employment. The expansion and 
enhancement of this benefit is a vital part of our reform proposal that 
was not addressed in the GAO's analysis. Allowing for the concurrent 
receipt of and establishing a uniform pay rate for schedule awards will 
serve to protect the income security of long term injured federal 
workers, and can mitigate against the consequences of lost career 
growth especially for those who are at lower grade levels and are 
injured early in their careers.
    Finally, this proposal increases benefit levels for funeral 
expenses and facial disfigurement, both of which have not been 
significantly updated since 1949, to bring FECA in line with increases 
in other workers' compensation statutes.
Modernizing and improving FECA
    Because FECA has not been amended in almost 40 years, updates are 
needed to modernize and improve several provisions of the statute. One 
such change was made several years ago but only applied to workers 
employed by the U. S. Postal Service (USPS)--the imposition of an 
upfront waiting period. In order to discourage the filing of claims for 
minor injuries that resolve very quickly, state workers' compensation 
programs generally impose a waiting period before an injured worker is 
entitled to wage-loss compensation. Because of the way in which the 
1974 amendments to FECA adding the ``Continuation of Pay'' provisions 
were drafted, the waiting period under FECA for traumatic injuries was 
effectively moved after the worker has received 45 days of 
``Continuation of Pay,'' thus defeating the purpose of a waiting 
period. The Postal Enhancement and Accountability Act of 2006 amended 
the waiting period for Postal employees by placing the three-day 
waiting period immediately after an employment injury; we suggest 
placing the three-day waiting period immediately after an employment 
injury for all covered employees.
    Another longstanding concern addressed by the proposal relates to 
the application of FECA subrogation provisions to claims. Workers' 
compensation systems generally provide that when a work-related injury 
is caused by a negligent third party the worker who seeks damages from 
that third party must make an appropriate refund to the workers' 
compensation system. As a result of the way in which the 1974 
``Continuation of Pay'' provision was drafted, OWCP cannot include 
amounts paid for Continuation of Pay in calculating the total refund to 
OWCP when a recovery is received by a FECA beneficiary from a third 
party. OWCP seeks authority to include these amounts.
    OWCP also seeks the authority to match Social Security wage data 
with FECA files. While the SSA collects employment and wage information 
for workers, OWCP presently does not have authority to match that data 
to identify individuals who may be working while drawing FECA benefits. 
OWCP currently is required to ask each individual recipient to sign a 
voluntary release to obtain such wage information. Direct authority 
would allow automated screening to ensure that claimants are not 
receiving salary, pay, or remuneration prohibited by the statute or 
receiving an inappropriately high level of benefits.
    This proposal would also increase the incentive for employing 
agencies to reduce their injury and lost time rates. Currently the USPS 
and other agencies not funded by appropriations must pay their ``Fair 
Share'' of OWCP administrative expenses, but agencies funded by 
appropriations are not required to do so. Amending FECA to allow for 
administrative expenses to be paid out of the Employees' Compensation 
Fund and included in the agency chargeback bill would increase Federal 
agencies' incentive to reduce injuries and more actively manage return 
to work when injuries do occur.
    To improve access to medical care, we suggest a provision that 
would increase the authority and use of Physicians' Assistants and 
Nurse Practitioners. We suggest amending FECA to allow Physicians' 
Assistants and Nurse Practitioners to certify disability during the 
Continuation of Pay period so that case adjudication is not delayed and 
treatment can be provided more rapidly. The provision allowing 
Physicians' Assistants and Nurse Practitioners to certify disability 
during the Continuation of Pay period would also reduce the burden of 
disability certifications in war zone areas because access to a 
physician may be even more limited in these circumstances.
    To further address injuries sustained in a designated zone of armed 
conflict, FECA should be amended to provide Continuation of Pay for 
wage loss up to 135 days for such injuries. This increase from the 
standard 45 days would allow additional flexibility for claims handling 
in these challenging areas and is an outgrowth of a cooperative effort 
with OPM, the Department of State and the Department of Defense to 
address the needs of deployed civilian employees.
Conclusion
    This proposal provides a fair and reasonable resolution to the 
disincentives and inadequacies that have arisen within the current FECA 
statute. Since any FECA reform should be prospective only, it would 
apply to new injuries and new claims of disability after enactment. 
Injured workers currently in receipt of disability benefits would see 
no changes in their benefit level. We believe that our proposals, if 
adopted in their entirety, would allow all federal employees and 
federal agencies to embrace and adopt a more pro-active and progressive 
attitude about return to work and disability employment, and avoid any 
unfair interruption of existing benefits. Even with this prospective 
approach, cost savings are estimated to be in excess of $500 million 
over a 10-year period government-wide.
    The FECA program is at a critical juncture. We have done our best 
to keep the program current and responsive to the changing world we 
live in through administrative, technological and procedural 
innovations and investments. Without these statutory reforms, OWCP's 
best efforts may yield some further gains. However, we cannot overcome 
the fundamental disincentives in the current law and achieve the 
breakthrough improvements that we know are possible within the FECA 
program which will allow FECA to maintain its status as a model of 
workers' compensation programs.
    The federal workforce comprises dedicated, hard working women and 
men who are committed to serving the public. OWCP is fully committed to 
ensuring that all injured workers receive the medical care and 
compensation they deserve, as well as the assistance needed to return 
to work when able to do so. FECA reform will enable OWCP to achieve 
those goals more effectively.
    Mr. Chairman, I would be pleased to answer any questions that you 
or the other members of the Committee may have.
                                 ______
                                 
    Chairman Walberg. Thank you. Appreciate it.
    Mr. Sherrill, we recognize you now for your 5 minutes of 
testimony?

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

    Mr. Sherrill. Chairman Walberg, Ranking Member Courtney, 
and members of the subcommittee, I am pleased to be here today 
to discuss the findings from several of GAO's recently issued 
reports on the potential effects of proposed changes to benefit 
levels in the FECA program.
    Under the current program, total disability beneficiaries 
with an eligible dependent are compensated at 75 percent of 
gross wages at the time of injury, and those without are 
compensated at 66.66 percent. Benefits are adjusted for 
inflation and they are not taxed nor subject to age 
restrictions. Some policymakers have raised questions about the 
level of FECA benefits, especially compared to federal 
retirement benefits.
    My testimony today summarizes our findings in three areas: 
first, potential effects of the proposals to compensate total 
disability FECA beneficiaries at a single rate of either 70 
percent or 66.66 percent; second, potential effects of the FECA 
proposal to reduce FECA benefits to 50 percent of applicable 
wages at full Social Security retirement age for total 
disability beneficiaries; and three, how partial disability 
beneficiaries might fare under the proposed changes.
    Our analyses focused on individuals covered under the 
Federal Employees Retirement System, or FERS, which covered 
about 85 percent of the federal workforce in 2009. We conducted 
simulations comparing FECA benefits to the income--either take-
home pay or retirement benefits--that a total disability 
beneficiary would have had absent an injury.
    Our methodology matched FECA beneficiaries to uninjured 
federal workers with similar characteristics and we used actual 
data on the uninjured workers' earnings and retirement 
benefits. In addition, we conducted seven case studies of 
partial disability beneficiaries.
    Our simulations comparing FECA benefits to take-home pay 
for total disability beneficiaries found that current FECA 
benefits replaced about 88 percent of the 2010 take-home pay 
for Postal Service beneficiaries and about 80 percent for non-
postal beneficiaries. Proposals to set initial FECA benefits at 
a single compensation rate regardless of the presence of 
dependents would reduce these wage replacement rates by several 
percentage points.
    We also found that wage replacement rates under the current 
FECA program are slightly higher for beneficiaries with 
dependents but that under the single rate compensation 
proposals they would be higher for beneficiaries without 
dependents, and the differences would be greater. This reflects 
the fact that FECA benefits are not taxed, where as wages are, 
allowing individuals with dependents to keep a greater portion 
of their earnings and have greater take-home pay.
    Our simulations comparing FECA and FERS found that under 
the current FECA program the median FECA benefit package is 
higher than the median 2010 FERS benefit package and that under 
the proposed FECA reduction at retirement age the 2010 packages 
would be roughly equal. However, the first annuitants we 
analyzed had a median federal career of 16 to 18 years, which 
is far less than the average of about 30 years under the older 
civil service retirement system.
    Recognizing that we had not captured a mature retirement 
system and had likely understated future benefits of workers 
with 30-year careers, we simulated a mature FERS system, 
reflecting future benefits of workers with 30-year careers. 
This provided us with a basis for assessing the potential 
benefits of the proposed change on future FECA beneficiaries, 
which is the focus. We found that in a mature FERS system the 
median FECA benefit package under the proposed change would be 
from 22 to 35 percent less than the median FERS retirement 
package.
    Partial disability beneficiaries are fundamentally 
different from total disability beneficiaries, as they have 
received reduced FECA benefits based on a determination of 
their earning capacity. Our seven case studies of partial 
disability beneficiaries show that how they might fare under 
the proposed FECA changes can vary considerably based on their 
individual circumstances, such as their earning capacity and 
actual level of earnings.
    For example, among our case studies, those beneficiaries 
with high earnings capacities may elect to retire under FERS 
and would likely not be affected by the proposed FECA reduction 
at retirement age because their potential retirement benefits 
were substantially higher than their current or proposed 
reduced FECA benefit levels. In contrast, those beneficiaries 
with low earning capacities had potential retirement benefits 
that were lower than their current FECA benefits and the 
proposed FECA reduction at retirement age would reduce their 
FECA benefits.
    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 
federal duties. Our simulations incorporated the kind of 
approaches used in the literature on assessing benefit adequacy 
for workers' compensation programs, such as taking account of 
missed career growth. We assessed the proposed changes by 
simulating the level of take-home pay or retirement benefits 
FECA beneficiaries would have received if they had not been 
injured, which provides a realistic basis for assessing how 
beneficiaries may be affected.
    However, it is important to note we did not recommend any 
particular level of benefit adequacy. As policymakers assess 
proposed changes to FECA benefit levels they will implicitly be 
making decisions about what constitutes an adequate level of 
FECA benefits before and after they reach retirement age.
    Thank you very much and I would be happy to answer any 
questions.
    [The statement of Mr. Sherrill may be accessed at the 
following Internet address:]

                http://www.gao.gov/assets/660/655812.pdf

                                ------                                

    Chairman Walberg. Thank you for your testimony.
    Dr. Seabury, recognize you now for your 5 minutes?

STATEMENT OF DR. SETH SEABURY, ASSOCIATE PROFESSOR, DEPARTMENT 
 OF EMERGENCY MEDICINE, KECK SCHOOL OF MEDICINE, UNIVERSITY OF 
                      SOUTHERN CALIFORNIA

    Dr. Seabury. Chairman Walberg, Ranking Member Courtney, and 
members of the subcommittee, thank you for the opportunity to 
meet with you today to discuss reforms to the FECA system. My 
name is Seth Seabury and I am an associate professor in the 
Department of Emergency Medicine and the Leonard D. Schaeffer 
Center for Health Policy and Economics at the University of 
Southern California.
    Throughout my career I have worked on and led numerous 
studies of the adequacy of workers' compensation benefits for 
disabled workers. I am here today to discuss the potential 
effects of two proposed changes to the FECA program: the 
adoption of a single replacement rate for all workers, and the 
proposed reduction in benefits for workers at retirement age.
    The Labor Department argues that these will help improve 
return to work and restore equity to the system. However, I 
have reviewed the GAO analyses of these proposals and I believe 
they raise some serious questions about how they would affect 
disabled workers.
    First, the GAO analysis shows the proposed shift to a 
single rate would reduce benefits for most injured workers. 
Perhaps surprisingly, changing the system to apply the same 
rate to all workers would actually make benefits less 
equitable. That is, the effective replacement rate after taxes 
would be consistently higher for workers with no dependents 
after the change.
    An alternative approach could attain a given level of 
adequacy while making benefits more equitable by targeting 
post-tax as opposed to pre-tax replacement rates. This could be 
done by directly targeting replacement rates based on spendable 
income, as is done in some states, or a simpler change making a 
replacement rate proportional to the number of dependents.
    The GAO also found that reducing FECA benefits at 
retirement age would lower the income for total disability 
beneficiaries. There is some question over the methods they 
used because the GAO estimated the long-term impact of an 
injury on a worker's career growth and future earnings. They 
did this even though FECA, like other workers' compensation 
systems, calculates benefits using only pre-injury earnings.
    But in my opinion, estimating the potential earnings over a 
worker's career is the only way to get an accurate picture of 
the economic impact of a disabling injury. Let me explain.
    Benefit adequacy is measured by how much of the income that 
someone loses because of an injury is actually replaced by 
benefits. By definition, how much you lose from an injury is 
the difference between what you would have made had you not 
been injured and what you actually did make.
    For most people, income doesn't stay the same over time. 
Workers experience employment opportunities that offer higher 
wages, but these opportunities can be lost or delayed by a 
disabling injury.
    Ignoring disruptions like these will provide potentially a 
misleading account of the true economic impact of an injury. 
This is important for understanding the generosity of benefits 
as well as the incentives of workers.
    Of course, we can't actually observe what someone would 
have made if they weren't injured. This is something that we 
have to estimate.
    The GAO analyses compared what FECA beneficiaries actually 
made to the earnings of uninjured workers who are otherwise 
similar. That is, they had the same age, the similar job, et 
cetera. This approach has been widely used by myself and others 
to evaluate workers' compensation policy in state systems, and 
the National Academy of Social Insurance declared it the 
preferred approach for assessing the adequacy of disability 
benefits.
    Applying these methods, the GAO found that the loss in 
career growth and retirement savings meant the retirement-age 
FECA beneficiaries had benefits that were comparable to or 
lower than what they would have received in the Federal 
Employee Retirement System if they worked a full career without 
getting injured. This means that reducing FECA benefits at 
retirement age could significantly reduce retirement income for 
most of these beneficiaries. However, it is true that some 
workers might earn more under FECA, but more analysis could be 
done to identify which workers would benefit more and design a 
more targeted response.
    These changes have been proposed at least in part to 
improve return to work for disabled workers. It is true that if 
reducing benefits motivated return to work we would expect the 
additional income from working to offset the lower benefits. 
Improving return to work is a vital policy goal, but it is 
unclear whether or by how much these benefit changes that are 
proposed would actually lead to improvements in return to work.
    The current system already reduces benefits for workers who 
are deemed to have recovered to the point that they have some 
capacity for work. If this reduction is insufficient to cause 
them to work it is unclear how much additional effect reducing 
their benefits at retirement age would have.
    In general, more evidence is needed on this issue and more 
evidence is needed on the adequacy of FECA benefits for 
partially disabled workers.
    This concludes my testimony. I would be happy to answer any 
questions.
    [The statement of Dr. Seabury follows:]

             Prepared Statement of Seth A. Seabury, Ph.D.,
                   University of Southern California

    Chairman Walberg, Ranking Member Courtney and Members of the 
Subcommittee on Workforce Protections of the Education and the 
Workforce Committee: Thank you for the opportunity to appear before you 
today. My name is Seth Seabury, and I am an Associate Professor of 
Research in the Department of Emergency Medicine in the Keck School of 
Medicine and the School of Pharmacy at the University of Southern 
California. I am also a Fellow at the Leonard D. Schaeffer Center for 
Health Policy and Economics. Prior to coming to USC, I was a senior 
economist at the RAND Corporation and the Associated Director of the 
RAND Center for Health and Safety in the Workplace. I have studied 
policy issues surrounding the compensation of work related injuries 
throughout my career. I have worked on and led a number of studies in 
California that have evaluated the efficiency, equity and adequacy of 
workers' compensation benefits and have influenced several reform 
efforts.
    I am appearing before you today to discuss the implications of 
proposed changes to the Federal Employees' Compensation Act (FECA), the 
system for compensating federal employees for work-related injuries. In 
particular, there are two changes to FECA total and partial disability 
benefits that have been proposed by the Department of Labor (DOL) that 
are at issue:
     A change to the benefit schedule that would set benefits 
at a single rate of 70% of applicable wages at the time of injury, as 
opposed to the current system that uses separate rates of 75% and 66\2/
3\% for workers with and without at least one dependent, respectively.
     A mandatory reduction in benefits from the initial FECA 
rate to 50% of the applicable earnings (adjusted for inflation) once 
workers reach full Social Security retirement age.
    To prepare for this hearing, I have reviewed the GAO report 
``Federal Employees Compensation Act, Analysis of Proposed Program 
Changes'' (GAO-13-108) and the two follow up reports (GAO-13-142R and 
GAO-13-143R), as well as the report ``Federal Employees Compensation 
Act: Benefits for Retirement-Age Beneficiaries'' (GAO-12-309R). I have 
also reviewed the testimony from the Subcommittee on Workforce 
Protection's May 12, 2011 hearing ``Reviewing Workers' Compensation for 
Federal Employees,'' and a slide presentation created by the United 
States Office of Personnel Management (OPM) titled ``Long-Term FECA 
Recipients, Equitable Transition to the Retirement Years.'' My 
testimony is based on my reading of these sources, a number of 
additional works that I cite below, and my accumulated experience in 
the area of workers' compensation.
    The key points of my testimony can be summarized as follows:
     The GAO reports estimate the long-term lost income that 
injured workers experience as a result of their injuries, including 
lost career growth, when assessing the adequacy of FECA benefits. This 
approach is widely believed to provide the best measure of benefit 
adequacy and is consistent with the methods that have been used in 
prior work in the area.
     Based on the GAO's findings, the DOL proposal makes FECA 
benefits less adequate and also less equitable, in the sense that 
workers without dependents will have more of their income replaced than 
those that do. Making the system more equitable requires adjustments 
that are designed to equalize after-tax (as opposed to pre-tax) 
replacement rates.
     The GAO's analysis shows that when lost career growth is 
considered, most workers earn less under FECA than what their normal 
retirement benefit would have been after a 30 year career had they not 
been injured. Reducing benefits at retirement age would thus worsen the 
adequacy of FECA benefits for most retirement-age beneficiaries.
     More work is needed to understand which workers might 
receive higher benefits at retirement age under FECA, and whether this 
has an impact on their incentives to return to sustained employment 
after an injury.
    My testimony is organized as follows. I first discuss some criteria 
that can be used to evaluate changes in workers' compensation benefits. 
I then outline some of the challenges of accurately measuring the 
economic effects of workplace injuries and some of the research that 
has addressed this issue. I then discuss the two proposed changes, in 
the context of these criteria, based on the GAO analysis. Finally, I 
offer some concluding thoughts and recommendations.
Criteria for evaluating workers' compensation policy
    The purpose of providing income replacement benefits through FECA, 
as in state workers' compensation systems, is to compensate workers for 
the lost income they suffer as a result of work-related injuries. While 
on the surface this is a straightforward objective, there are inherent 
challenges that arise in designing a system that provides these 
benefits in a fair and efficient manner. As a result, there have been 
many instances in state systems where public concern about how well the 
system is working has prompted legislative reform. However, such 
reforms often involve trading off the interests of competing agents. 
Thus, to understand the tradeoffs involved in any given policy 
proposal, it is important to have a clearly defined set of criteria 
with which to evaluate it.
    For this testimony, I refer to four separate criteria that have 
been applied to evaluate changes in workers' compensation programs:
     Adequacy
     Equity
     Affordability
     Efficiency
    I discuss each of these in turn. I spend the most time on benefit 
adequacy, because that is the criterion that is most central to the 
debate over the evaluation of the proposed FECA changes. However, the 
others are also relevant, so I provide a definition and a brief 
description of each.
    Note that for these comments I am focusing on the application of 
these criteria solely to income benefits. Workers' compensation 
typically provides for other forms of benefits, such as medical care 
and vocational rehabilitation services, but these are unaffected by the 
two proposed changes at issue here.
            Adequacy
    Prior to the adoption of workers' compensation programs in the 
early part of the 20th Century, compensation for work related injuries 
was limited to the tort system.\1\ Injured workers were entitled to 
full compensation for damages suffered as a result of their injuries, 
but only in the cases where they could demonstrate negligence on the 
part of employers. Like other torts, when the defendants (employers) 
were held liable, workers were entitled to full compensation of all 
damages suffered as a result of their injuries. This included 
noneconomic and economic damages, and possibly punitive damages. 
Economic damages in tort cases can cover a broad range of current and 
future damages, including factors such as expected future lost wages, 
medical costs and costs of attendant care or caregiving expenses. 
Workers' compensation was adopted as a carve-out from the tort system 
that provided no-fault compensation to injured workers. These benefits 
represented a compromise in which workers received benefits with 
greater certainty but only at reduced levels. Workers' compensation 
benefits offered no compensation for noneconomic damages and only 
partial compensation for lost wages, and none of the other economic 
costs related to an injury.
    Because workers' compensation benefits provide only limited 
compensation, there has historically been intense interest in 
monitoring the system performance to ensure that the benefits reach 
minimum thresholds of compensation levels. The 1972 Report of the 
National Commission on State Workmen's Compensation Laws (the National 
Commission Report) provides the most comprehensive evaluation of the 
design of state workers' compensation programs.\2\ The National 
Commission Report primarily relied on the adequacy and equity criteria 
to evaluate workers' compensation benefit programs. Benefit adequacy 
refers to the extent to which the benefits that are paid replace the 
income that is lost.
    The adequacy of benefits is typically measured through the 
replacement rate of lost income. For temporary disability benefits, the 
standard for adequacy is generally held to be a replacement rate of 
two-thirds replacement of lost pre-tax income or 80% of after-tax 
income.\2,3\ For permanent disability benefits, there is less of a 
consensus about what the target replacement rate should be, though two-
thirds of lost income is usually held up as a benchmark.\3,4\
    Note the distinction between the statutory replacement rate, which 
is the legislated fraction of pre-injury wages a worker receives 
(usually two-thirds), and the effective replacement rate, which is the 
portion of lost income that is actually replaced. For the purposes of 
this testimony, I will refer to the effective replacement rate unless I 
specify otherwise.
            Equity
    Equity refers to the idea that workers in similar conditions with 
similar injuries should be treated similarly. From the standpoint of 
compensating workers for lost earnings, this means that workers with 
similar injuries should have similar replacement rates. The equity 
criterion, as it has been applied in practice by the states, does not 
require that workers necessarily receive the same dollar amounts in 
compensation. For instance, higher wage workers will tend to have 
greater dollar value of losses (conditional on other factors) and so 
they will receive more benefits on average. Nor does it require that 
everyone have exactly the same replacement rate. State systems 
routinely cap the total benefits at some fixed dollar value (usually 
tied to the state average weekly wage). This means that, all else 
equal, higher wage workers will have lower replacement rates the more 
their expected earnings exceed the statutory cap. Similarly, the 
presence of benefit floors means that, all else equal, the lowest wage 
workers will receive the highest replacement rates. Both of these 
represent deviations from a stricter definition of equity, probably 
reflecting a more general concept of perceived fairness.
    Note that the estimated replacement rate of lost income can be used 
to evaluate the equity of workers' compensation income benefits. That 
is, workers' compensation benefits are equitable if workers with the 
same expected losses have approximately the same replacement rate of 
lost income.\5,6\
            Affordability
    The affordability criterion refers to the cost of the workers' 
compensation system. An affordable system is one that all parties--
employers, workers, and the public--can afford without serious adverse 
consequences.\6\ This can refer to both the actual cost of the benefits 
themselves as well as the cost of administering them. The 
administrative costs of workers' compensation benefits in state systems 
have generally been considered quite high.\7,8\ The administrative 
costs in FECA as reported by the DOL are much lower than is usually 
found in state systems (administrative costs in FECA are 5%, while 
administrative costs for privately insured employers in state systems 
average more than three times that amount)\8\.
    Note that there is often a direct conflict between making a system 
more adequate and making it more affordable. Holding expected losses 
constant, we make workers' compensation benefits more adequate by 
increasing them, but this makes the system less affordable. However, 
interventions that reduce expected losses, such as promoting the 
adoption of employer-based return to work programs, can serve the dual 
aim of making a system more affordable and more adequate.\9,10\ 
Additionally, improvements in administrative efficiency can lower the 
overhead cost of delivering benefits, which makes the system more 
affordable without hurting its adequacy.
            Efficiency
    Broadly defined, I use the term efficiency to incorporate the 
indirect costs associated with workers' compensation benefits. This 
includes behavioral effects such as disincentives to return to work. 
For example, a workers' compensation system is more efficient if it 
achieves a given level of adequacy without creating adverse work 
incentives. Efficiency can also incorporate factors such as 
administrative delay or the levels of disputes. Other factors such as 
incentives for injury prevention--by employers and workers--can also be 
included here. While not all of these are easily measured, the impact 
of any given reform proposal on the efficiency of benefits could 
represent a significant portion of the total social costs or benefits 
of the proposal.
Measuring the economic impact of workplace injuries
    Both the adequacy and equity criteria described above require some 
measure of the replacement of lost income. Probably the most 
challenging part of measuring income replacement is defining and 
measuring ``lost income.'' A simple way to compute lost income is to 
compare what someone was making at the time of injury to what they make 
afterwards. However, for most people income changes over time. This can 
be positive if individuals get promoted and advance in their careers, 
as is most often the case with younger workers. Or wages can decline if 
individuals are fired, if they cut back on hours, or if they retire, as 
will be increasingly likely as workers age. In either case, simply 
comparing what someone made before they were injured and what they made 
after an injury provides a misleading picture about the impact of the 
injury on income.
    We illustrate the challenge of evaluating the impact of injuries on 
lost income with Figure 1.\11\ Figure 1 illustrates the hypothetical 
losses from a permanently disabling workplace injury. The solid line 
represents the actual income that the worker earns from his or her job. 
The dashed line represents the worker's ``potential'' earnings--the 
earnings that a worker would have received in the absence of an injury. 
Prior to the date of injury, the potential earnings and actual earnings 
are the same. However, at the date of injury, the worker's actual 
earnings decline while the potential earnings continue to increase, 
reflecting the worker's increasing experience in the labor market.
    At the time of injury, the worker receives no earnings for some 
time while recovering from the injury. In this example, at some point, 
the worker returns to work, perhaps in some modified capacity. In this 
hypothetical example that is shown in the figure, the worker returns at 
lower earnings than prior to injury. The worker recovers earnings over 
time, as the wages converge closer to what they would have been absent 
the injury. In this example, at the end of the observed period the 
worker makes more than she made prior to the injury, but not as much as 
she would have made if she had not been injured.
    The shaded area in the figure represents the total lost income over 
the period after the injury. The fraction of these losses that is 
replaced by workers' compensation benefits is equal to the replacement 
rate of lost income. However, the figure also highlights the challenge 
of measuring lost income. Whereas wages received while the workers' 
actual earnings (the solid line in Figure 1) are readily observable, 
the potential earnings represented by the dashed line are unobservable 
for any individual and must be estimated.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    In order to get an accurate assessment of the long-term economic 
consequences of an injury, we need to compare what an individual 
actually makes to what he or she would have made in the absence of an 
injury. Since this is a counterfactual that is unknowable in the sense 
that it cannot be directly observed, it must be estimated. Researchers 
have combined data on workers' compensation claims linked to 
information on earnings to estimate losses dating back to the 1960s. 
This research was described more completely in the 2004 NASI report, 
but I will summarize it here.\3\ The earlier studies used the pre-
injury earnings of injured workers and estimated potential earnings by 
projecting expected earnings using aggregate trends in earnings.\12-15\ 
This approach is limited by the assumption that average earnings growth 
for injured workers mirrors aggregate trends, ignoring possible 
differences between injured and uninjured workers.
    Starting in the late 1990s, researchers began using more advanced 
empirical methods to estimate potential earnings. These studies used a 
quasi-experimental design that compared the earnings of injured workers 
to a sample of uninjured control subjects before and after the date of 
injury. As long as the selected control workers have expected earnings 
in the post-injury period that are approximately equal to the expected 
earnings of injured workers, on average this method will produce 
unbiased estimates of earnings losses. Past studies have primarily 
relied on one of two criteria to identify control workers.\16\ The 
first is to use workers who were injured but with minimal severity and 
little time out of work (e.g., medical only injuries).\17-19\ The other 
commonly used approach is to match injured workers to workers who were 
never injured, but who worked at the same firm and had very similar 
earnings to the injured workers prior to the injury.\4,20,21\
    In their reports, the GAO used matching to estimate the lost 
earnings of FECA beneficiaries. The GAO matched FECA beneficiaries to 
observably similar federal employees who weren't injured. What the 
injured workers would have made absent an injury was estimated by the 
actual earnings of the injured workers' matched, uninjured controls. 
Taking the difference between the average value of what matched, 
uninjured workers made and what injured workers made provides an 
estimate of expected wage loss for the FECA beneficiaries in the sample 
(note that this approach is only valid over large enough samples, not 
for a single individual).
    With an estimate of earnings loss in hand, it is then possible to 
assess benefit adequacy by dividing total workers' compensation 
benefits by total earnings losses over some fixed period of time. This 
ratio is the estimated fraction of lost income that is replaced by 
workers' compensation benefits. This approach has been termed the 
``wage loss'' approach to evaluating benefit adequacy. The National 
Academy of Social Insurance (NASI) argued that this approach is the 
preferred approach for assessing the adequacy of disability 
benefits.\3\
    Because the process for estimating replacement rates generally 
requires linking state administrative workers' compensation benefits to 
state unemployment insurance information, these estimates have only 
been conducted for a comparatively small set of states. Berkowitz and 
Burton (1987) were, the first to conduct such a study, and they 
compared replacement rates in Wisconsin, Florida and California.\7\ 
Using more recent estimation techniques and data sources, a series of 
studies have estimated losses in states such as California, New Mexico, 
Washington, Wisconsin and Oregon. In general, replacement rates fall 
well below the standard definitions of adequacy. In a comparison of 
these five states, the estimated pre-tax replacement rate ranged from 
29% to 46% of lost income over a 10-year period post-injury. Even 
accounting for the favorable tax status of benefits, these findings 
have consistently shown that benefit adequacy is a significant problem 
in the states.
Proposal to reimburse workers at a single rate
    Currently, FECA offers two different statutory replacement rates: 
two-thirds for injured workers who have no dependents and 75% for those 
who have at least one dependent. This is a departure from the standard 
model of workers' compensation that has been adopted in state system, 
which rarely offers differential compensation based on the number of 
dependents. The DOL proposes to set compensation at a single rate of 
70% of pre-tax income, regardless of the number of dependents.
    To construct their replacement rate estimates, the GAO matched 
injured workers to uninjured workers with similar pre-injury 
characteristics. They also conducted a number of specification checks 
that appear to verify that they have high quality matches. This is 
important, because for the matching estimator to work well, the income 
of the matched control workers must be close proxies for the expected 
income for injured workers (assuming they had never been injured).
    The GAO found that this proposal would reduce the after-tax 
replacement of lost income by a modest amount overall (from 80% to 77% 
for non-postal employees), due to the fact that a majority of employees 
currently qualify for the higher rate. However, the proposed change to 
a single rate also appears to have some implications for the equity of 
benefits. According to the GAO, currently the system favors 
beneficiaries with a dependent by a modest amount (approximately 3.5% 
for the median worker). This difference is less than the approximate 
7.3% difference in the statutory replacement rates because the absence 
of dependents implies a higher tax rate, so workers without dependents 
receive a higher effective replacement rate given a fixed statutory 
rate. However, under the proposed change to a single statutory rate, 
the lower tax rates of workers with a dependent imply that the change 
will result in workers without a dependent having a 5.8% higher 
replacement rate than workers with dependents. Thus, the reform will 
change the system from being skewed towards workers with dependents to 
being more skewed towards workers without.
    Subsequent analyses by the GAO studied the implications of moving 
to the single 70% rate for postal workers, and moving to a single rate 
of two-thirds replacement of pre-tax, pre-injury wages (as proposed by 
the Senate). Postal employees generally had higher replacement rates 
before the change (88% before the change, reduced to 84%), but the 
pattern of moving towards a system that is comparatively more generous 
to workers with dependents to one that is more generous to those 
without was essentially the same. The Senate proposal of moving to a 
two-third replacement rate for all workers had the same impact on 
benefit equity, but lowered the overall median replacement rate even 
more (to 73% for non-postal employees and 80% for postal employees).
    The implications of these findings for the DOL single rate policy 
proposal are mixed. On the one hand, the proposal does lead to a net 
decline in benefit adequacy, in terms of a lower replacement rate. The 
effect is fairly modest, though it is more pronounced under the 
Senate's proposed reduction to a single two-thirds rate for all 
workers. It also reduces the after-tax rate below the 80% level 
recommended by the National Commission Report--though the statutory 
rate is higher than the standard used by NASI.
    Because there is a net reduction in benefits, moving to the single 
rate would produce net savings. Thus, one could attempt to justify a 
decline in adequacy on the basis that it makes the system more 
affordable. But there appears to be little argument for making the 
changes based on equity. In fact, the GAO reports that the change 
actually makes the benefits less equitable, because the current system 
corrects for the differences in tax rates across the two groups. To 
make the benefits more equitable would require adjusting the system 
according to the after-tax replacement of lost income as opposed to the 
pre-tax replacement (for example, by directly targeting replacement 
rates of ``spendable'' income as is done in some states, or by 
adjusting the statutory pre-tax rate proportionally to the number of 
dependents).
Proposal to reduce benefits at retirement age
    The second proposal suggested by the labor department is to reduce 
the FECA benefit to 50% once individuals reach their full Social 
Security retirement age. The DOL argues that this is necessary because 
the current system provides an incentive to injured workers to avoid 
returning to work. The argument for this is based on the OPM slide deck 
that indicated workers would receive higher benefits under FECA than 
under the Civil Service Retirement System (CSRS), a finding that was 
confirmed by the GAO (GAO-12-309R). Early return to sustained 
employment after an injury is something that is generally considered 
good for workers and good for employers,\9\ so if the system created 
significant work disincentives this would be a serious concern.
    The comparison between FECA and the CSRS is of limited utility, 
however, since the proposed legislative changes are prospective and the 
vast majority of current federal employees (90%) are now covered by 
FERS. Given that employees covered by CSRS represent a small and 
shrinking share of the federal workforce, the GAO analyzed the 
differences between employee compensation under FECA and FERS. One of 
the key challenges of making this comparison is that the FERS system is 
relatively new (covering federal employees beginning January 1, 1984), 
and there are no beneficiaries who have worked a full 30-year career 
covered by and retiring under FERS. Thus, the GAO conducted a 
simulation that compares the FECA benefits to FERS benefits at normal 
retirement age after a 30-year career. Under this simulation, FECA 
benefits were approximately equal to or less than FERS benefits, 
depending on what assumption was made about employee contributions to 
the Thrift Savings Plan (TSP). In this case, under the reductions at 
retirement proposed by DOL, workers receive less under FECA than what 
they would have received after working a 30 year career and retiring 
under FERS (35% less for non-postal employees and 29% less for postal 
employees, assuming 10% contribution to TSP). From the GAO analysis it 
appears clear that most workers who would have worked a full career and 
contributed to their retirement at a reasonable level over that time 
would not do better under FECA compared to FERS. This suggests that 
reducing FECA benefits from their current levels would likely reduce 
the adequacy of benefits for FECA recipients over retirement age.
    This analysis is more complicated when considering the implications 
for workers with partial disabilities. This is because workers with 
partial disabilities are compensated differently under FECA. FECA 
benefits for the partially disabled are designed to reflect an injured 
worker's ability to work. Workers who have recovered from their injury 
and are deemed to have some capacity to work receive long-term FECA 
benefits based on their lost earnings capacity. The process for 
determining lost earnings capacity is based on whether a worker finds 
post-injury employment and whether this employment is deemed 
commensurate with their ability to work. This means that the difference 
between FECA and FERS benefits depends on the actual work history of 
the permanent disability claimants. The GAO considered several case 
studies, and in these case studies there were some workers appear to 
have higher benefits under FECA than FERS, but those are also the 
workers who have the lowest earning capacity and thus would be able to 
save or contribute little to retirement during their working years. 
More generally, most workers with partial disabilities already receive 
lower benefits than they would with a total disability, even if their 
circumstance was otherwise identical, and the DOL proposal would lower 
these benefits even more.
    As far as return to work incentives, the implications here appear 
mixed. In general, this is only an issue for workers with partial 
disabilities (that is, workers who are totally disabled lack the 
ability to work regardless of incentives). It is true that cutting FECA 
benefits at retirement age could provide these workers with additional 
incentives to return to work. However, FECA benefits for workers with 
partial disabilities who are deemed to have sufficient earnings 
capacity are already reduced. Thus, it is unclear how much affect 
further reducing benefits on retirement age would have on these 
workers' labor supply decisions.
    Ultimately, there appears to be a lack of sufficient evidence about 
which workers might receive higher benefits from FECA under FERS, and 
how much their work incentives would actually be affected by this 
difference. In particular, it is unclear how adequate FECA compensation 
is for partially disabled workers with different levels of perceived 
loss in earnings capacity. A more detailed and analysis of the 
relationship between FECA compensation, lost earnings capacity and 
long-term replacement rates of lost income for partially disabled 
workers should be considered.
Summary and conclusions
    The GAO provides convincing evidence that, on net, shifting to a 
single rate would reduce benefit adequacy while possibly reversing and 
exacerbating the disparity in compensation between workers with and 
without dependents. If the goal of this policy proposal is to make 
compensation more equitable, some alternative approach should be 
considered that focuses more on equalizing post-tax replacement rates. 
The GAO also found that the adequacy of FECA benefits vary considerably 
across individuals, though that is likely to be true in any 
compensation system. Benefits under FECA do appear much more adequate 
than those under state systems, even after the DOL change. However, 
that is due in large part because state systems have generally been 
found to fall considerably below standard definitions of adequacy for 
permanent disability compensation.
    The DOL provisions to reduce FECA benefits at retirement age would 
also lead to a net reduction in the generosity of FECA. The implication 
of this reduction on the adequacy of benefits depends on whether or not 
the long-term impact of earnings on employment and career growth are 
accounted for. Failing to account for career growth, FECA benefits 
appear generous relative to FERS and a reduction would make 
compensation across the two systems more equitable. However, lost 
career advancement is a real consequence of disabling workplace 
injuries, and once that is accounted for, the DOL reduction could 
result in workers facing substantially lower income in their retirement 
years than they would have experienced absent their injury. Justifying 
this on the basis of eliminating inefficient work disincentives would 
seem to require more evidence than is currently available about the 
extent to which the current system is actually deterring permanently 
disabled workers from re-entering the labor market. Further study on 
this issue and on the adequacy of FECA benefits for partially disabled 
workers is warranted.
    In terms of the GAO analysis, one of the centers of the dispute 
seems to be whether we should consider the long-term impact of injuries 
on potential earnings--or career growth--when assessing different 
policy proposals. In general, there is a tradeoff in workers' 
compensation between benefit adequacy and the affordability and 
efficiency of the system. When choosing between different policies and 
balancing this tradeoff, it is important to have a full and complete 
understanding of the impacts on both sides of this ledger. Most 
previous work in this area has generally accepted that to fully 
understand benefit adequacy it is necessary to estimate the expected 
post-injury wage path of injured workers.
                               references
    \1\ For a more detailed account of the history of workers' 
compensation, including a discussion of who benefited and who lost, see 
``Fishback, Price V., and Shawn Everett Kantor. The Adoption of 
Workers' Compensation in the United States 1900-1930. No. w5840. 
National Bureau of Economic Research, 1996.''
    \2\ National Commission on State Workmen's Compensation Laws. The 
Report of the National Commission on State Workmen's Compensation Laws. 
Washington, DC: US Government Printing Office; 1972.
    \3\ National Academy of Social Insurance. Adequacy of Earnings 
Replacement in Workers' Compensation Programs. Kalamazoo, MI: W.E. 
Upjohn Institute for Employment Research; 2004.
    \4\ Peterson MA, Reville RT, Stern RK, Barth PS. Compensating 
permanent workplace injuries: a study of the California system. Santa 
Monica, CA: RAND Corporation; 1998. MR-920-ICJ.
    \5\ Bhattacharya J, Neuhauser F, Reville RT, Seabury SA. Evaluating 
Permanent Disability Ratings Using Empirical Data on Earnings Losses. 
Journal of Risk and Insurance. 2010; 77(1):231-260.
    \6\ Reville RT, Seabury SA, Neuhauser F, Burton JF, Greenberg MR. 
An evaluation of California's permanent disability rating system. Santa 
Monica, CA: RAND Corporation; 2005. MG-258-ICJ.
    \7\ Berkowitz M, Burton Jr JF. Permanent Disability Benefits in 
Workers' Compensation. Kalamazoo, MI: W.E. Upjohn Institute for 
Employment Research; 1987.
    \8\ Sengupta I, Reno V, Burton JF, Jr. Workers' Compensation: 
Benefits, Coverage and Costs, 2009. Washington, DC: National Academy of 
Social Insurance; 20011.
    \9\ Seabury S, Reville R, Williamson S, et al. Workers' 
Compensation Reform and Return to Work: The California Experience. 
Santa Monica, CA: RAND Corporation; 2011.
    \10\ McLaren CF, Reville RT, Seabury SA. How Effective are Employer 
Return to Work Programs?2010. WR-745-CHSWC.
    \11\ Much of this discussion is taken from Seabury et al. (2010), 
which in turn builds on previous RAND studies on the topic.
    \12\ Cheit EF. Injury and Recovery in the Course of Employment: 
Wiley; 1961.
    \13\ Johnson WG, Cullinan PR, Curington WP. The adequacy of 
workers' compensation benefits. Research Report of the 
Interdepartmental Workers' Compensation Task Force. 1978; 6:95-121.
    \14\ Ginnold R. A follow-up study of permanent disability cases 
under Wisconsin workers' compensation. Research Report of the 
Interdepartmental Workers' Compensation Task Force. 1979; 6.
    \15\ Berkowitz M, Burton JF. Permanent disability benefits in 
workers' compensation. Kalamazoo, MI: W.E. Upjohn Institute for 
Employment Research; 1987.
    \16\ Either approach can work in theory, but they hinge on 
different assumptions. The evidence is mixed on whether the results are 
affected by different matching techniques.
    \17\ Biddle J. Estimation and analysis of long term wage losses and 
wage replacement rates of Washington State workers' compensation 
claimants, Appendix F. In: Welch E, ed. Performance audit of the 
Washington State workers' compensation system. Olympia, WA: Joint 
Legislative Audit and Review Committee; 1998.
    \18\ Boden LI, Galizzi M. Ecnomic consequences of workplace 
injuries and illnesses: Lost earnings and benefit adequacy. American 
Journal of Industrial Medicine. 1999; 36(5):487-503.
    \19\ Boden LI, Galizzi M. Income losses of women and men injured at 
work. Journal of Human Resources. 2003; 38(3):722.
    \20\ Reville RT. The Impact of a Permanently Disabling Workplace 
Injury on Labor Force Participation and Earnings. In: Haltiwanger J, 
and Haltiwanger, Julia Lane, ed. The Creation and Analysis of Linked 
Employer-Employee Data: Contributions to Economic Analysis. Amsterdam, 
London, and New York: Elsevier Science, North-Holland; 1999.
    \21\ Crichton S, Stillman S, Hyslop D. Returning to Work from 
Injury: Longitudinal Evidence on Employment and Earnings. Industrial & 
Labor Relations Review. 2011; 64(4):7.
                                 ______
                                 
    Chairman Walberg. Thank you.
    And I thank each of the panel members for your testimony.
    I recognize myself for 5 minutes of questioning.
    And, Mr. Steinberg, I want to start with you and ask you to 
directly respond to GAO's findings and to elaborate on the 
basis for the department's proposals, specifically with respect 
to the proposal to set a uniform benefit rate.
    Do you have any concerns with maintaining a level of equity 
between individuals with and without dependents? And with 
respect to the proposal to reduce benefits at retirement age, 
do you have any concerns with the adequacy of benefits at 
retirement age for an individual who experiences an injury 
early in his or her career?
    Mr. Steinberg. Thank you, sir.
    Chairman Walberg. Your microphone.
    Mr. Steinberg. Thank you.
    We respect the work that is done by our colleagues in GAO 
over the last decade. We have worked closely with them to 
analyze this particular issue.
    We note that their report predominantly focuses on wage 
replacement rate but it doesn't address the comprehensive 
package that has been proposed. And the reality is, from our 
perspective, that each of the components need to be--they need 
to be reviewed and they need to be looked at in a balanced way.
    The wage loss change--the reductions--are only one 
dimension. There are other dimensions which actually enhance 
the situation for a beneficiary.
    With respect to the study, as my colleague indicated, they 
provided no consensus on appropriate rates, nor did they 
provide specific recommendations. They didn't suggest that the 
70 percent rate was inappropriate; they suggested that there 
are different options. And we agree that there certainly can be 
different options, but based on our analysis we believe that 70 
percent is a proper rate.
    They failed to respect--to address the issue of return to 
work and the implications that return to work can have both in 
terms of the liability to the organizations as well as to the 
individual.
    Lastly, they did not address the issue of the schedule 
award, and the schedule award is part of our balanced proposal 
that provides compensation for those individuals that have a 
permanent loss of functionality. That should be viewed as part 
of the comprehensive package. It is an investment, once 
received, that the individual can use to prepare for their 
future, and the study does not reflect that.
    The study does acknowledge the fact that the reduction at 
retirement level will bring the level closer to the FERS level.
    Let me talk now a little bit about our process. We have 
consulted extensively with OPM, with GAO, with the I.G. 
community, with our partner agencies. We have looked closely at 
the states, as well.
    I think, as you have heard from all the panel members, that 
FECA program is the most generous of all. And as Dr. Seabury 
indicated, even with the changes that we propose, our rates 
will still be more generous than any of the state programs.
    The 70 percent level reflects a midpoint between the 66.66 
and the 75 percent. Even at 70 percent it will be greater than 
the vast majority of the states. And we believe that it is fair 
and we do not believe that it is going to harm any of the 
claimants.
    With respect to the retirement level, we consulted 
extensively with OPM. We studied the CSRS program. We also 
studied the FERS program, which is coming to a level of 
maturity. And based on our analysis, OPM confirmed the fact 
that the 50 percent tax-free level that we propose equates to 
the levels for CSRS and they indicated that they have designed 
FERS, which is a more complicated program, to roughly come to 
the same level as CSRS.
    Chairman Walberg. In respect to time, let me move on.
    Mr. Seabury, your testimony discusses the techniques GAO 
used to estimate the missed future earnings of FECA 
beneficiaries. However, as GAO notes in its report, FECA was 
not designed to account for missed career growth. Your 
testimony also notes that inherent unknowability is, in 
predicting an individual's actual future career path.
    So in your opinion, how should policymakers approach GAO's 
findings, given FECA's benefits were not designed to increase 
at a rate comparable to career growth?
    Dr. Seabury. So FECA, like other workers' compensation 
benefits, are not designed to incorporate--they are not 
designed to reflect career growth in the benefit levels. 
However, I don't think that that means that we shouldn't 
consider that career growth when evaluating the impact of the 
policy on workers.
    This is true for considering the adequacy of benefits but 
also for understanding workers' incentives. If I have the 
capacity to work but choose not to I am missing out on that 
potential career growth. So not only--by not focusing on a 
career growth, not only am I making, potentially, benefits look 
more adequate than they actually are, I am also potentially 
making the incentive problem look worse than it actually is.
    So I think that we need to incorporate these estimates of 
career growth in order to best understand how the system is 
affecting workers on many dimensions.
    Chairman Walberg. Thank you.
    My time is expired.
    I recognize my friend, the ranking member, Mr. Courtney?
    Mr. Courtney. Thank you, Mr. Chairman.
    And, Mr. Sherrill, again, listening to Mr. Steinberg a few 
minutes ago, who talked about the way DOL tried to consult with 
all the different agencies--OPM, GAO, CRS, et cetera--in terms 
of this retirement proposal that they have come forward with--
again, maybe they consulted with you or reviewed your report, 
but again, looking at your report, when I read it it certainly, 
you know, seemed to suggest that in many instances disabled 
workers would clearly be worse off with the, you know, the 
proposal to reduce benefits at retirement age than if they had 
worked 30 years and then retired under FERS.
    And again, it appears that their core objection is that GAO 
should not have accounted for the lost career growth in its 
comparison because workers' compensation benefits are not 
adjusted to account for lost promotional opportunities. So I 
just want to run through a couple questions with you, if I 
could.
    First, what is the relevance of accounting for lost career 
growth and what is your response to DOL's position?
    Mr. Sherrill. Well, it is important to account for missed--
sorry--it is important to account for missed career growth in 
doing these kinds of benefit adequacy studies because that 
provides the most realistic assessment and readily 
understandable assessment of how people would fare under the 
program compared to where they would have--what they would have 
had in the absence of an injury. This is the kind of approach 
that is commonly used in the literature to do that--to do these 
kind of benefit adequacy studies.
    Mr. Courtney. And that is the approach that you took in 
your analysis.
    Mr. Sherrill. That is the approach that we took.
    Mr. Courtney. And is your approach consistent with OPM, in 
terms of what they recommend in terms of how to analyze this?
    Mr. Sherrill. When OPM did briefing slides on these 
proposed changes one of the things they reiterated was that in 
considering changes at retirement age it is important to look 
at that in the context of what workers would have had if--had 
they not been injured--what their retirement package would have 
done. That is consistent with what we did.
    Mr. Courtney. Okay. And in terms of outside, you know, 
credible, neutral sources, you know, is the methodologies that 
you used follow the recommendation of the National Academy of 
Social Insurance?
    Mr. Sherrill. Yes. We are consistent with the matching 
methodology, taking income--missed income career growth that 
they recommend.
    Mr. Courtney. And in fact, I mean, DOL had previously 
argued that GAO needed to account for lost promotional 
opportunities when evaluating the adequacy of FECA benefits. Is 
that also correct in the past?
    Mr. Sherrill. That is right. We had done a 1998 report on 
FECA, looking at wage replacement rates where we had not 
factored it in because of limited data at that time. Labor, in 
its comments, took issue with that and said that the wage 
replacement rates would have been higher if we had factored in 
missed promotions.
    Mr. Courtney. So do you have any explanation for why the 
department has changed its views?
    Mr. Sherrill. I wouldn't speculate on that. I----
    Mr. Courtney. Okay.
    Well, Okay, Mr. Steinberg, maybe you can help us, then, 
answer that question. It is just, I mean, obviously, you know, 
what we just heard was that some of these other sources that 
you say the department consulted with clearly have a different 
approach than what you described this morning.
    Mr. Steinberg. I can't speak to the position 15 years ago, 
but what I can comment on is that in the GAO report that Mr. 
Sherrill referenced GAO indicated that they did not believe 
that promotional or career growth should be calculated in 
because it was speculative in nature and, therefore, extremely 
difficult to predict what the growth of an individual would be.
    We have looked at all federal workers' compensation 
programs, four of which we, I oversee. We also looked at all of 
the state programs. None of the state programs nor the federal 
programs reflect a career growth potential.
    From an academic perspective it is certainly something that 
can be looked at, but we don't believe that it should be nor 
has it ever been part of the compensation package for a 
workers' comp program.
    If you look at it from a practical perspective, it is very 
difficult to predict what the career path of an individual 
would be. One person may be a superstar. We don't know that. 
One person may be very satisfied working at a GS-7 level and 
not anticipate any career growth.
    Lastly, there may be an individual who is on a performance 
plan and is likely going to be removed from their position. Now 
calculating a career potential we believe would be speculative 
and inappropriate.
    Mr. Courtney. Well, except, I mean, FECA, under its present 
design, is not--I mean, no one is, like, using a, you know, 
inventor of Google kind of career path. I mean, this is still a 
very, you know, moderate, modest system that is in place right 
now.
    So, you know, I mean, looking at it from a real practical 
standpoint, to use your own language, I mean, we heard earlier 
that, you know, somebody who is disabled at a relatively young 
age--you know, that FBI worker or that firefighter that you 
described--you know, who is not paying into Social Security, I 
mean, their benefit level at age 65 is going to be, you know, 
definitely suppressed as a result of that life-changing event. 
So from their practical standpoint, you know, converting this 
system to what you are proposing, I mean, really has a very 
negative impact and again, really kind of takes away what, on 
balance most workers can expect to have at least some step up 
over time, particularly when it is at a young age when the 
disability occurs.
    Mr. Steinberg. I would respond to that in two ways.
    One, we have a COLA. The reality is for the last 3 years 
working federal employees have not received a cost-of-living 
increase; yet the individuals on workers' comp have received an 
increase. And we think that is extremely important and that 
obviously should continue.
    Never has there been a factor for career growth, again, 
because we can't anticipate that.
    I think to look at it from the converse, our goal is to get 
people back to work just as quickly as we can. We work to get 
early diagnosis, early treatment, early rehabilitation, and 
then help them find the right job.
    What we have found in talking with the I.G. and talking 
with other partner agencies is that the increased level of the 
benefit at 75 percent as well as if there was to be included a 
career growth factor, then that would be a disincentive for 
people going through the activities of getting healthy and 
going back to work, and I think we want to avoid any 
disincentives.
    Chairman Walberg. The gentleman's time is expired.
    And now I recognize Dr. DesJarlais for your 5 minutes?
    Mr. DesJarlais. Thank you, Mr. Chairman.
    Thank you all for appearing today.
    Dr. Seabury, we will start with you first. Your testimony 
notes that one way to make benefits more equitable between 
beneficiaries with and without dependents could be to target 
wage replacement rates on spendable or after-tax income as 
opposed to pre-tax gross wages, as is used in the FECA program.
    First, can you explain how this target would work in 
practice? And then can you also elaborate on the potential 
benefits and costs of this approach?
    Dr. Seabury. Well, I think there are different ways you 
could try to accomplish this in practice, and I would want to 
refer to some of the actual details in the state systems to 
give you the details on how you would actually implement a 
system, but the idea is to focus on rather than looking at the 
share of your pre-tax, pre-injury earnings that is replaced--
they target two-thirds of that--some states have focused on, 
say, 80 percent of spendable income, so they try to evaluate 
your spendable income in the pre-injury period and set a 
varying benefit level to target the after-tax replacement rate.
    I think in terms of the costs and benefits, that could be 
potentially a more difficult system to administer so I think 
that would be one of the more--part of the potential costs. The 
benefit would be increased equity.
    I think one of the things that was actually somewhat 
surprising to me and very interesting to me about the GAO's 
reports was showing how a single pre-tax replacement rate 
creates this inherent inequity in the system between workers 
with and without dependents, or reverses the existing one and 
exacerbates it. So I thought that was interesting and so you 
would be able to avoid that kind of inequity with focusing on 
after-tax replacement rates.
    I do think, you know, there are ways to try and implement a 
system and make it simpler to administer while still trying to 
attain those benefits.
    Mr. DesJarlais. Thank you.
    Mr. Steinberg, I note in your testimony it stresses that 
the entirety of your reform proposal is intended to improve the 
FECA program. Of course, the majority of the focus of today's 
hearing is on the two major benefit proposals.
    Are there any other proposals we should be considering that 
are intended to work with the two benefit proposals or are 
closely related to those proposals and serving to improve the 
FECA program?
    Mr. Steinberg. [Off mike.]
    Mr. DesJarlais. Could you turn your microphone on?
    Mr. Steinberg. That is twice now. I apologize.
    This proposal has been fairly stable over the last several 
years. As I indicated in my testimony, it has been provided by 
previous administrations and this administration.
    The general components of the proposal, which I have 
described as comprehensive, broad in nature, yet not sweeping 
in change, have been consistent. And again, it is addressing 
multiple dimension of improving return to work, providing an 
increased level of equity, and streamlining and modernizing the 
program, sir.
    Mr. DesJarlais. Okay. Thank you.
    Mr. Szymendera, your testimony notes that additional or 
augmented benefits for workers with dependents was added to 
FECA in the 1940s. At that time some 10 states also provided 
for a type of augmented compensation. However, your testimony 
further notes that today most state provides augmented 
compensation for dependents.
    Can you discuss the move away from augmented compensation 
for dependents at the state level?
    Mr. Szymendera. Well, to be honest, CRS has not looked so 
much at the history of state developments as much as we have 
looked at the history of the FECA program. It was noted that, 
interestingly, in 1949 when they added the--when they added the 
augmented compensation, one of the reasons they said they were 
doing it was to be consistent with the states. And so we went 
back to the laws in place in 1949 and found only 10 states, and 
none--you know, none today.
    You know, as to why states have moved away from that, I 
don't know. One of the things that has been cited by the 
Department of Labor both here and in other forms is augmenting 
compensation for dependents can be difficult because they are 
changing when a child reaches 18, no longer a dependent; there 
are some provisions if the child is permanently disabled him or 
herself. So there are some administrative difficulties that may 
be present there.
    But that would be--absent any research into why those 
specific states moved away, it would be--it would really be 
speculation.
    Mr. DesJarlais. All right, thank you.
    And, Mr. Sherrill, I did have a question for you but my 
time is about to expire so I am sure we will get to you.
    Thank you. I will yield back.
    Chairman Walberg. I thank the gentleman.
    Now I recognize the gentleman from California, Mr. Miller?
    Mr. Miller. Thank you, Mr. Chairman, and thank you very 
much for holding this hearing.
    Dr. Seabury, DOL seems to be making an argument that 
somehow there is a--sort of a significant disincentive to 
return to work when you compare FECA benefits with the OPM 
data. Do you see this or is there--what other evidence is there 
to suggest that that is either the case or it isn't the case?
    Dr. Seabury. Well, it is true that FECA benefits are in 
general more generous than state systems, as we have heard, 
so--and there is evidence out there that increasing benefits 
can have a modest effect on return to work incentives.
    Mr. Miller. Do we see these people not returning to work at 
a very different rate than state programs, or----
    Dr. Seabury. Actually, you know, I would have to--I haven't 
seen a direct comparison. My impression is that return to work 
in the FECA program actually seems reasonably good but I would 
have to see some more empirical evidence on that.
    Mr. Miller. Has either Labor or GAO looked at this?
    Has Labor looked at this?
    Mr. Steinberg. Again, our findings are from observations 
from our claims examiners, observations from the I.G. community 
that we work with, and other partner agencies who share with us 
that they do have problems--and again, we don't think that this 
is a rampant issue. There are some people within the 
community----
    Mr. Miller. Well, if it is rampant I assume we would be all 
holding a different hearing at the moment. I want to know if it 
is enough evidence to base upon the conclusions that you 
arrived at as to that somehow this benefit would drive people 
not to return to work.
    Mr. Steinberg. Yes, it can. What we have seen is that with 
the benefit being higher at 75 percent and remaining that level 
at retirement age, we believe that that is a disincentive to 
people going back to work.
    Mr. Miller. You believe that. I am just trying to find out 
how you base that belief.
    Mr. Steinberg. Again, that is from discussions that we have 
had with our partner agencies, with the I.G. community that has 
investigated particular cases and have discovered that an 
individual will, if you will, will not participate in a 
vocational rehabilitation program and will find other reasons 
to stay on the workers' comp program because it is very 
generous.
    So to suggest that we have empirical analysis----
    Mr. Miller. It is an element of human nature that just 
expresses itself when you are injured.
    Mr. Steinberg. Yes, sir.
    Mr. Miller. And so what, if you take away support for their 
dependents and you lower the overall benefit you will drive 
them to work?
    Mr. Steinberg. Well again, the proposal to reduce the 
benefit is two-fold. One is a matter of equity, that in many 
situations we have individuals who are on workers' comp who are 
receiving more than their colleagues who are working. And then 
the second factor is the disincentive, the fact that there are 
certain situations where an individual would rather stay at 75 
percent tax free than to go back to work. So we believe both it 
is a matter of equity and fairness----
    Mr. Miller. Well, let's talk about the people that decide 
that is not the case and they need the 75 percent to provide 
the wherewithal for their families.
    Mr. Steinberg. Well again, we believe that--and as GAO has 
concluded--the change from 75 percent to 70 percent will have 
fairly limited impact on the majority of individuals. The study 
fails to reflect the fact that many are dual-income families 
and the fact that the individual is out of work but yet still 
receiving in this case a 70 percent benefit is still 
sufficient, and again, is still more than their colleagues and 
the people who are working.
    Mr. Miller. Why would we give anything to people who are 
dual--families if their spouses are making a lot of money? 
Wouldn't we say, ``Well, that is good enough. You don't get 
anything.''
    Mr. Steinberg. Again, we don't factor those types of things 
into the----
    Mr. Miller. But you just did.
    Mr. Steinberg. I am sorry?
    Mr. Miller. You just did. You make an assumption about some 
are dual workers so this really won't harm them; they don't 
need this. Well, let's assume the spouse is making a million 
dollars a year. This is about the injured worker, isn't it?
    Mr. Steinberg. This is about the injured worker but it is 
also about the ability of the injured worker to----
    Mr. Miller. Do we have an incomes test then--a family 
income test?
    Mr. Steinberg [continuing]. To have wage replacement that 
is reflective of what their salary was.
    Mr. Miller. Do we have an incomes test----
    Mr. Steinberg. Do they have an----
    Mr. Miller [continuing]. So we know how well the spouse is 
doing so maybe we can pay them less?
    Mr. Steinberg. We don't do that analysis, sir.
    Mr. Miller. Yes, you did. You did it when you decided you 
were going from 75 to 70 percent because in some cases people 
won't go back to work and one of the reasons they might not go 
back to work is they are in a dual-income family.
    Mr. Steinberg. No, no, no. I am not----
    Mr. Miller. Does it make a difference if they are in a low-
income dual-income family or a high-income dual----
    Mr. Steinberg. No. I am not suggesting that that is the 
reason for the reduction on the rate, sir. I am saying that 
that is now the work environment. When these rates----
    Mr. Miller. Well, let's go back and we will read the 
testimony because I think you did suggest that that is the 
reason.
    Mr. Steinberg. I am sorry?
    Mr. Miller. I said we will go back and read the testimony 
because I think we will see that you did suggest that that is 
the reason. I am just trying to find out what is based on fact 
and what is based upon assumptions, and how we disallow or 
allow based upon those assumptions.
    Mr. Steinberg. Well again, two points. One, the based on 
fact is the matter of equity with individuals who are working 
who are not injured. And a matter of going from 75 percent to 
70 percent is a matter of fact and a matter of equity, and that 
has been--and that has been studied.
    The issue of the disincentive, as you indicated, sir, is 
human nature, but it is something that we have observed, and 
our partner agencies have observed the fact that people are 
more comfortable staying at that rate. The I.G. community has 
come to--has observed that as well, sir.
    Mr. Miller. I think most studies suggest that the American 
worker is driven to go to work. Kind of opposite most other 
countries. But anyway----
    Chairman Walberg. The gentleman's time is expired, I am 
afraid.
    And now I recognize the distinguished chairman of the 
Education and Workforce Committee, Mr. Kline?
    Mr. Kline. Thank you, Mr. Chairman, for the hearing.
    Thank the witnesses for attending.
    As you can tell, there is some considerable interest here 
in this committee on this issue. As Chairman Walberg pointed 
out, we passed some legislation out of this committee and the 
House in the last Congress to address some of these issues and 
we were--we called for the report--the GAO report--and the 
input from the distinguished folks on this panel as we move 
forward.
    There are other committees, certainly, in the Congress and 
in the House that are looking at this issue, sometimes in 
connection with other departments, Postal Service, and so 
forth. So it is an issue that has to be addressed and we need 
to understand it, and so I am very grateful for all of you here 
and your testimony and the work you have done and the research 
and in your reports as well as your testimony.
    Mr. Szymendera, your testimony--and again, thank you for 
your work for CRS and GAO. We depend very heavily on the work 
that you guys do, so thank you for that. But your testimony 
notes the choice FECA beneficiaries can make at retirement age 
to remain on FECA or leave the FECA program and receive federal 
retirement benefits.
    What other benefits could a FECA beneficiary be eligible 
for example, FERS disability, retirement, Social Security 
disability? And what issues should be considered in terms of 
how FECA benefits can coordinate with, mesh with these other 
benefits?
    Mr. Szymendera. Well, there are several benefits that a 
FECA beneficiary could be eligible for. You mentioned Social 
Security disability benefits. If any workers' comp beneficiary, 
whether they are FECA or in a state workers' comp, is also 
eligible for Social Security disability, their combined FECA 
benefit plus the Social Security disability benefit cannot 
exceed 80 percent of their pre-disability wage, and that is the 
same for state workers' comp beneficiaries, as well. There is 
an offset mandatory in the Social Security Act for people who 
receive both workers' compensation and Social Security 
disability insurance.
    Once a FECA beneficiary reaches retirement age and they 
have to make this election--do I stay on FECA or do I go to 
FERS or CSRS or another--as you know, there are other smaller 
federal employee retirement systems, as well--there is also to 
be considered the possibility of what is going to be their 
level of Social Security retirement benefits. As you know, 
under the FERS system--when Congress created the FERS system, 
when they moved away from CSRS, Social Security is a key 
component of that system, as is the Thrift Savings Plan.
    And so I think when employees make that decision they have 
to look at how much their FERS annuity would be, how much they 
intend to receive from Social Security, which they should be 
somewhat aware of with information from the Social Security 
Administration that Congress requires them to provide, and 
then, of course, how much is in their TSP account, and that 
would play a role. If they go to retirement age and there is, 
you know--they are at the very, very low end because of all 
that income, then you are looking at a program like 
Supplemental Security Income, SSI, which is administered by the 
Social Security Administration, which could then provide an 
additional benefit--an income benefit to them, as well.
    And then, of course, in other cases, as the Department of 
Labor has mentioned multiple times, for example, FBI agent or 
federal firefighters--they are eligible for public safety 
officer benefits, which I believe is over $250,000 lump sum 
from the Department of Justice; that is in addition. Several 
agencies such as the State Department have annuities for 
employees killed overseas; that gets added to that, as well.
    So it can get a little bit complicated depending on the 
circumstances of the individual employee.
    Mr. Kline. Thank you. I would say it is--not that it can 
get complicated, it just got complicated in listening to that.
    I was going to ask for some comment from Dr. Seabury, as 
well, but I see my--on the same subject, but I see the light is 
rapidly moving toward red.
    So thank you very much, again, to all the panelists for 
your testimony and for your participation.
    And I yield back the balance of my time.
    Chairman Walberg. I thank the gentleman.
    And I now recognize Mr. Hudson for your 5 minutes of 
questioning?
    Mr. Hudson. Thank you, Mr. Chairman.
    And thank the panel for your testimony today.
    I would like to start with Mr. Szymendera.
    Could you briefly discuss the policy considerations 
surrounding the treatment of benefits before and after 
retirement age? Specifically, what considerations may account 
for a workers' compensation system that continues benefits past 
retirement age? What policy rationale may account for different 
treatment of benefits at retirement age?
    Mr. Szymendera. I think it ultimately really is a 
fundamental question of workers' compensation that goes back, 
in the case of FECA, to the beginning of the program in 1916 
and the beginning of workers' compensation in the years before 
that, and that is, what is the role of workers' compensation? 
Is it simply year-to-year wage loss?
    If that is the argument, that all workers' compensation is 
supposed to do is replace year-to-year wages, then I think a 
logical argument can be made that when a person reaches a 
certain age--retirement age--there are no wages to replace. 
They wouldn't be working otherwise. Now, that age differs for 
different people. People retire at different--but we could--
Congress could set an age, as they have set a full retirement 
age for Social Security. That is one argument.
    If you argue that, no, workers' compensation is more than 
that. It is intended to provide a benefit to a worker who was 
hurt at work under the assumption that the employer has a 
responsibility to provide a safe workplace, which Congress 
established in 1970 with the Occupational Safety and Health 
Act, for example, and this person went to work and got hurt, 
irregardless of fault, it is the employer's responsibility.
    And there are all sorts of costs involved in becoming 
permanently disabled--not only lost wages but other costs. If 
you say that the goal, then, of FECA is to replace as much as 
possible all of those costs and provide for that worker who, 
remember, cannot sue the employer, and if they sue a third 
party has to essentially give back, under the subrogation 
rules, that money to FECA, then I think it becomes harder to 
make the argument logically that benefits should be cut off at 
a certain point because a person remains permanently disabled 
into their 60s, 70s, 80s, however long; they have lost lifetime 
earning capacity; and they may have incurred other costs that 
are associated with disability, not to mention other things 
that would be compensated in the tort system, such as pain and 
suffering.
    Remember, as Department of Labor mentioned, the postal 
worker in the car accident. The postal worker in the car 
accident is limited under FECA to what he or she can receive 
different than the private citizen in the car accident, who may 
well endure tort claim, receive money for pain and suffering, 
punitive damages against the offending party that would be 
paid. None of that is available under workers' compensation.
    And so if you feel workers' compensation is more than just 
year-to-year wage loss then I think it becomes more difficult, 
logically, to justify a cutoff at a certain age. This is a 
debate that really goes back to the beginning of workers' 
compensation and it is a debate that Congress took up in 1949 
when they decided to implement a mandatory review at 70.
    They didn't cut off benefits at 70 but they implemented a 
mandatory review. And it is a debate that Congress revisited in 
1974 when they rescinded the mandatory review.
    These same arguments that I have just made and the same--
many of the same issues we are discussing today were discussed 
in--if you look at the hearing record in 1949 and in 1974 and, 
of course, in recent Congresses. And so it really comes down to 
what Congress wants as the fundamental goals of this program, 
and I think that ultimately would guide where the policy would 
go in regards to benefits after retirement.
    Mr. Hudson. Thank you for that.
    Mr. Steinberg, just to clarify for the record, is DOL 
intending to incorporate any of the GAO findings into its 
proposals?
    Mr. Steinberg. I am sorry, sir. We don't have a timeline 
for submitting a legislative proposal. However, in terms of the 
findings of the GAO study, we do not believe that we should 
change the proposal that we have.
    To build on my colleague's points, again, I think the 
difference between our program and most of the states' programs 
is that this is a lifelong benefit as long as the individual 
still has that work-related injury or illness. There is no cap 
either from a time dimension or from a dollars and cents 
perspective.
    We believe that is our obligation to protect the federal 
worker, so there are no changes that we propose as a result of 
the study by GAO.
    Mr. Hudson. Thank you for that.
    And I am interested in this discussion we have had sort of 
over the incentive to return to work, and so I would like to 
maybe discuss with you briefly here how the FECA program is 
working to reduce injured employees' time away from work and 
return employees to work. Can you explain in some detail the 
program's goals and----
    Chairman Walberg. The gentleman's time is expired.
    Mr. Hudson. I will submit that in writing. Thank you.
    Chairman Walberg. I now recognize the gentleman from 
Indiana, Mr. Rokita?
    Mr. Rokita. Well, I thank the chairman and I thank the 
witnesses for your testimony today.
    Mr. Steinberg, could you answer the congressman's question?
    Mr. Steinberg. I can, and I can proudly answer that. We 
have extensive focus on return to work.
    I think in years past workers' compensation programs were 
typically seen as a wage loss replacement program, and yes, our 
program does provide that and it is a hallmark of our program 
to have a very generous level. But we have spent a significant 
amount of time focusing on return to work.
    We have put in place a disability management program where 
we have staff nurses; they work with field nurses. We try to 
get to the claimant as early as we can to make sure that they 
get diagnosed, they get into early treatment, and they get into 
early rehabilitation.
    Those are some of the proposals that I talked about in my 
testimony to permit us to engage in vocational rehabilitation 
before the injury is identified as permanent in nature, which 
is typically 6 months. We believe that if we can begin 
vocational rehabilitation and put in place a rehabilitation 
return to work plan earlier in the process we have a much 
higher probability of returning the individual to work.
    Our statistics are terrific: 85 percent of those 
individuals with serious injuries that are out of work for more 
than 45 days go--85 percent go back to work within one year and 
92 percent go back within 2 years. Of the approximately 120,000 
cases we receive each year only about 2,000 of them go on our 
periodic rolls at the end of the 2-year period, and I think to 
a large extent that is because of our interventions.
    Mr. Rokita. Thank you, Mr. Steinberg.
    I also witnessed the spirited exchange that Congressman 
Miller had with you. Do you have anything to add to that?
    Mr. Steinberg. Well again, I think it is important to point 
out that OWCP, the Department of Labor, we take terribly 
seriously our responsibility to protect injured workers. I 
think this is being unfortunately portrayed as an intent to 
harm federal employees, and that certainly is not the intent. 
What we have done is an analysis of the rates that we have and 
the rates that the states have. We have also talked with OPM in 
terms of what retirement rates should be and we believe that we 
have proposed a slight reduction in rates--not major changes, 
but a slight reduction in rates that provide a level of 
fairness and equity between the injured worker and the non-
injured worker.
    Mr. Rokita. Okay. Thank you, Mr. Steinberg.
    Mr. Sherrill, is it my--am I pronouncing that right?
    Thank you.
    Quick question for you--maybe not so quick. Your testimony 
notes that in the prior report from 1998----
    Mr. Sherrill. Yes.
    Mr. Rokita [continuing]. GAO analyzed the adequacy of the 
FECA benefits by comparing benefits to take-home pay at the 
time of injury.
    Mr. Sherrill. Yes.
    Mr. Rokita. The current report compares benefits to take-
home pay an employee would have had absent an injury.
    Mr. Sherrill. That is right.
    Mr. Rokita. First, can you briefly elaborate on the 
different methodology used in each report? And then also, as we 
consider policies in this area, what do you think are the 
merits and drawbacks of each methodology?
    Mr. Sherrill. The 1998 report basically answered the 
question of to what extent do the FECA benefits support the 
person in maintaining the standard of living they would have 
had at the point of injury, and so it factored in wage 
increases--sort of average wage increases for the federal 
workforce over time--factored that into the analysis.
    The work that we have done here with improved methods, 
access to additional data sources, factored in what would the 
person's missed career growth have been because we matched them 
to a very closely matched counterpart. And so it really gave a 
sense of, you know, how adequate are the FECA benefits with 
respect to what they would have otherwise received in terms of 
federal wages and salary.
    Mr. Rokita. So an improvement, this later methodology over 
the earlier one?
    Mr. Sherrill. Yes. Because in the past it was--the data 
offered were not available to really get a sense of how people 
would really be affected and to assess the counterfactual in 
the absence of being injured what would have been the case, but 
now we have better data, better methods to do that kind of 
analysis.
    Mr. Rokita. Thank you.
    And the last two witnesses, while I have some time.
    Dr. Seabury, anything to add and--along the lines of the 
questions that I asked--in 30 seconds?
    Dr. Seabury. Yes, 30 seconds. I just would like to confirm, 
I do think the approach to using the matching approach is an 
improvement. I think that a distinction needs to be made 
between what is used to calculate benefits versus assessing the 
effect of a policy change on workers, and so I think to capture 
the actual effect of the policy change on workers you need to 
consider the lost career growth because that is a very real 
consequence of a workplace injury that should be factored in.
    And with return to work, I think the real challenge with 
return to work is there is this--there is an assumption that--
or it is an unknown how much of the workers who are on long-
term disability currently have the capacity to work but aren't 
choosing to because of financial incentives, and I think it is 
just not clear. There is not enough evidence to say how big a 
share that is.
    And so I think the biggest concern with some of the policy 
proposals is that the DOL proposals to get people back to work 
are great, and including increased rehabilitation, but we don't 
know who is--how that is going to affect the people who don't 
get back after those policy changes are in----
    Mr. Rokita. Thank you.
    Apologies to Mr. Szymendera. My time is expired.
    Chairman Walberg. I thank the gentleman.
    And now I recognize the gentlelady from Oregon, Ms. 
Bonamici.
    Ms. Bonamici. Thank you very much, Mr. Chairman. I 
apologize for not being here for the testimony but I did review 
it in advance. I was in a committee markup.
    I want to thank the chairman and the ranking member for 
putting together this bipartisan hearing on such an important 
topic. Our public servants are great assets to our country and 
deserve a workers' compensation program that ensures that they 
are no worse off and no better off than if they hadn't been 
injured or made ill on the job.
    Mr. Steinberg, I am sure you are aware that bills have been 
proposed in the House to reform the Postal Service, and at 
least one of those includes a provision that would take postal 
workers out of FECA and instead have the Postal Service 
administer its own program. On top of that, it would force 
workers above retirement age into retirement benefits rather 
than keeping them in FECA.
    So this proposal is concerning to me, among others. What is 
the administration's position on removing Postal Service 
workers from FECA?
    Mr. Steinberg. Well, the administration's proposal does not 
propose a separate system for postal employees but recommends 
system-wide reforms for all federal employees. We believe that 
the proposals that we will put forward will benefit all 
agencies.
    I will point out that the Postal Service is about 45 
percent of our customer base, so obviously they will benefit 
from the changes that we are putting forward. The President's 
budget does not either put forward a proposal to separate the 
workers' comp program and put it with the Postal Service.
    We believe that creating a separate system would be 
extremely complex; it would be extremely expensive; it would be 
very labor intensive; it would require a substantial and 
entirely new infrastructure to be established by the Postal 
Service. Much of the work would likely be contracted out as 
opposed to being performed by federal employees, as it 
currently is today.
    We think it will be significantly more expensive. As I 
indicated in my testimony, our administrative costs are 5 
percent of the program.
    The best of the state programs is at about 11 percent. That 
is the average. And we would project that the cost of the 
Postal Service doing this would be at least double the 
administrative cost for us doing that.
    Another concern would be that establishing a system--a 
separate system could raise equity issues if benefit levels 
were different or if their processes were different. Again, we 
believe that our proposal will have a positive impact on the 
Postal Service, and I believe the administration believes that 
this is how we should move forward.
    Ms. Bonamici. So I can infer, then, that the administration 
opposes a separate system?
    Mr. Steinberg. The administration has not proposed a 
separate system----
    Ms. Bonamici. That they oppose a separate system for postal 
workers.
    Mr. Steinberg. Again, the administration has not 
specifically addressed this. This is something new that has 
been discussed. I have not had conversations with the 
administration specifically on that.
    What I can say is that the administration supports these 
changes and believes that these changes are the right way to 
move forward and will benefit the----
    Ms. Bonamici. Thank you.
    Mr. Steinberg [continuing]. The Postal Service.
    Ms. Bonamici. And you mentioned states. I know benefits 
vary from state to state. Oregon, for example, provides 
permanent disability for life, a maximum of $1,064 per week.
    But is FECA generally consistent with the majority of 
states with regard to maintaining permanent disability benefits 
through retirement age without a reduction? How many other 
programs provide benefits without reduction past retirement----
    Mr. Steinberg. I am sorry. Could you repeat the latter part 
of the question?
    Ms. Bonamici. Yes. How many other programs provide benefits 
without reduction past retirement age?
    Mr. Steinberg. Oh. Many of the programs are actually capped 
in terms of time and then capped in terms of dollars. We tend 
to be the only program that continues on for the life of the 
individual. So I can't provide that comparison right now.
    Ms. Bonamici. Thank you. I will follow up.
    And I have a question for Mr.--I hope I say your name 
right--Szymendera. Was I close?
    Mr. Szymendera. Yes. Szymendera, yes.
    Ms. Bonamici. Szymendera.
    Your testimony notes that FECA beneficiaries covered by the 
Federal Employees Retirement System may not contribute to 
either Social Security or the Thrift Savings Plan while 
receiving FECA benefits. As a result, employees, especially 
those who are permanently disabled early in their careers, may 
end up with smaller Social Security benefits and low TSP 
balances on retirement.
    So what are the implications of putting into place a 
general age-based test for FECA benefits? Would this be 
inconsistent with the purpose of a compensation law that is 
designed to make workers whole if they are permanently 
disabled?
    Mr. Szymendera. Thank you. First, if you don't mind, let 
me--I can address that first question you asked the Department 
of Labor, and that is currently 39 states pay benefits for the 
duration of disability or the life of the worker, as does FECA, 
as does the federal Longshore and Harbor Workers' Compensation 
Act. One additional state pays only in catastrophic--some of 
the state laws can get very complicated, but the general rule--
the general answer would be 39 states----
    Ms. Bonamici. Thank you very much.
    Mr. Szymendera. So FECA is consistent with the majority.
    Now, as to your question--and I think it is, as I mentioned 
before, it gets to this idea of what is the overall intent of 
the program. FERS relies on three components. Two of those 
components are Social Security and TSP. If you have a worker 
injured, especially at a young age, they are not going to be 
able to build up the balance in TSP, possibly, or have the 
Social Security to rely on; they and so they are really going 
to rely primarily only on the third, is annuity.
    It gets ultimately to what is the goal of the program. If 
it is just year-to-year wage loss then you say, ``Well, a 
person at retirement age wouldn't be working anyway.'' If it is 
we are trying to make this worker to some degree whole because 
of an injury that occurred in the workplace and we believe the 
employer--in this case the federal government--has a 
responsibility to do that, then I think you do have to consider 
the fact that you may have a worker with two of the three 
components of the retirement system that may be very low TSP 
balance and a low amount from Social Security.
    Ms. Bonamici. Thank you very much.
    I see my time has expired. Thank you, Mr. Chairman.
    Chairman Walberg. Thank the gentlelady.
    And again, thank you to the panel for your answers, for 
your experience, and what you shared with us today.
    I now recognize the ranking member for closing comments?
    Mr. Courtney. Thank you, Mr. Chairman.
    And the panelists, excellent testimony and I think it is 
going to give us a great record as we move forward considering, 
again, the possibility of a bill that hopefully will be as 
bipartisan and successful in the House as last year.
    And I really want to, again, salute Mr. Szymendera for the 
great historical perspective that you added to this hearing. 
You know, it is important, I think, to remember that worker 
compensation law, which, you know, a first-year law student is 
instructed was set up and there was a tradeoff. People gave up 
their right to access the civil justice system, which provides, 
again, a much broader array of benefits than what, again, the 
firefighter or the FBI agent who is injured on duty can 
collect.
    And that is why, frankly, you know, looking at the 
administration's proposal--which again, I think only North 
Dakota is the only state that was cited in the CRS report that 
converts the benefit at retirement age--in my opinion would put 
the system, you know, as an outlier, to say the least. I mean, 
Connecticut--I will toot my own horn here--allows for, again, a 
benefit that extends beyond retirement and no conversion in 
terms of the calculation of the benefit. And to me that is 
consistent with that tradeoff.
    So again, this hearing, I think, is going to help us really 
understand better the implications of the proposal that the 
department has come forward with.
    GAO has informed us that DOL's proposal to cut benefits at 
retirement age for totally disabled workers will leave the 
median worker in the FERS system in many instances worse off 
than if they had worked a full career and not been injured. 
This finding applies to both executive branch workers as well 
as postal workers.
    GAO's findings raise troubling concerns about the merits of 
DOL's proposal, as it violates a basic principle underpinning 
FECA, which is to ensure that workers are made whole if they 
are injured on the job. The bottom line is no one should be 
better off or worse off than if they had not been injured.
    And this applies to federal law enforcement injured in the 
line of duty, firefighters protecting life and property, prison 
guards keeping our community safer, letter carriers injured in 
an accident. And as a matter of equity and the interests of 
avoiding more bureaucracy, it makes little sense to remove 
postal workers or any other group from FECA and create a 
separate program, which again, I think hopefully is a consensus 
point here this morning.
    We have learned from our witnesses that GAO uses a 
mainstream approach in assessing benefit adequacy. In response 
to GAO's findings I would urge the Department of Labor to 
reevaluate its proposal.
    I am aware that some are advocating approaches that would 
jettison core principles underpinning FECA and simply cut 
without regards to the impact on disabled workers who must rely 
on FECA as their exclusive remedy. Therefore--and I think 
hopefully all of us agree--our approach to reform should always 
be data-driven.
    With the additional GAO data in hand I hope that we can 
continue our bipartisan efforts that were launched in the last 
112th Congress that includes giving DOL tools to better improve 
program integrity, increasing the number of workers who will be 
rehabilitated and resume work at the federal agencies, to 
modernize obsolete benefits and increase the cost effectiveness 
of medical delivery by utilizing physician assistants and nurse 
practitioners to deliver treatment.
    Mr. Chairman, in closing I would move that the committee 
include a statement from the National Treasury Employees Union 
and three other documents regarding GAO's assessment of the DOL 
proposal be placed in the record. And again, I want to thank 
you for organizing this outstanding hearing. And I yield back 
the balance of my time.
    [The information follows:]

      Prepared Statement of Colleen M. Kelley, National President,
                   National Treasury Employees Union

    Chairman Walberg, Ranking Member Courtney and Members of the 
Subcommittee on Workforce Protections, the National Treasury Employees 
Union (NTEU) appreciates the opportunity to offer this statement to the 
Subcommittee as it considers the important matter of Workers' 
Compensation in the federal sector. NTEU represents over 150,000 
federal employees at 31 agencies. Our members perform every type of 
work for the American public from Customs and Border Protection 
Officers, to mailroom workers at the Treasury Department, and Food and 
Drug Administration scientists working in laboratories at home or on 
assignment inspecting products in India and China. These public 
servants show up for work each day expecting to perform their important 
duties diligently and professionally in service to their country and 
then safely return home to their families. Nevertheless, some will 
suffer workplace injuries that make it impossible for them to return to 
work for short or long periods of time and, regrettably, in some cases 
to never be able to return to work at all due to permanent injury or 
even death.
    Workers' Compensation insurance is a recognition of the 
responsibility of employers and society to take care of those injured 
in the workplace. It was our nation's first social insurance program. 
Today, Workers' Compensation stands as an important protection for the 
benefit of all Americans. Almost 98% of the workforce is covered by 
workers' compensation insurance.
    In 1916, five years after Wisconsin led the nation in passing the 
first state Workers Compensation law, Congress moved to enact a program 
to insure the federal government's own employees as well as railway, 
longshoremen and other harbor workers. The Kern-McGillicudy Act 
developed the program we now know as the Federal Employees Compensation 
Act (FECA).
    FECA is one of the most important programs for federal workers. 
This program provides federal employees with workers' compensation 
coverage for injuries and diseases sustained while performing their 
duties. The program seeks to provide adequate benefits to injured 
federal workers while at the same time limiting the government's 
liability strictly to workers compensation payments. Payments are to be 
prompt and predetermined to relieve employees and agencies from 
uncertainty over the outcome of court cases and to eliminate wasteful 
litigation. Efficient government is advanced by a civil service that is 
expected to have the highest levels of professionalism and competency 
and in turn is fairly compensated and treated with dignity and respect. 
There is no greater disrespect to human dignity than to have to suffer 
injury from an unsafe workplace or from employer negligence.
    NTEU welcomes a review of the FECA program, while always keeping in 
mind this is an issue of human dignity. We believe such a review should 
be broad and comprehensive. By that, we mean that it should never start 
or be rigidly limited to benefit payments. Instead the first principle 
should be making the federal workplace safe by actions to move us 
towards the goal of no worker coming to work with the possibility it 
will be his last day on the job because of a workplace injury. NTEU has 
worked with Republican and Democratic administrations on this goal and 
we are ready to continue those efforts.
    However, I want to state our strong opposition to insurance benefit 
cuts, particularly for those employees who came to work one day ready 
to serve their country but suffered a workplace injury that resulted in 
them never being able to return. We are most concerned about proposals 
for a forced retirement provision. An employee who is injured on the 
job and unable to work receives FECA payments equal to 67% of wages at 
the time of injury (a slightly higher amount if he has family 
obligations). This reduction in income makes it impossible for an 
injured employee to fund a retirement plan. Once workplace injured 
workers are on FECA, they receive no further retirement credits or 
contribution matches, nor are they able to make elective contributions 
to the Thrift Savings Plan. This holds true for Social Security as well 
as the federal retirement programs. Forcing a worker at retirement age 
to give up regular FECA benefits and live on the income from retirement 
savings put aside up until his or her worklife was interrupted by an on 
the job injury would cause grave economic hardship to many disabled 
employees.
    NTEU would also oppose elimination of the family benefit that is 
now a feature of FECA. Because FECA benefits are not taxed, the family 
allowance does little more than create some equity between the after 
tax income a worker with dependents and one without would have if not 
injured. However, we are open to the idea of a gradation of the 
benefits based on family size.
    Let me close by stating that NTEU very much wants to work with this 
subcommittee or any other policymaker to find ways to reduce the costs 
of the FECA program. As I have said, our belief is the best way to do 
so is not by reducing benefits or denying claims but by preventing the 
occurrence of injuries.
    NTEU is committed to a safe and healthy federal workplace where 
employees are less likely to ever suffer the injuries that lead to FECA 
claims. Our union has also been one of the strongest forces for 
innovation in the federal workplace, often working with management on 
bold new programs and sometimes dragging management forward over their 
reluctance. We have received reports from our members about management 
resistance or disinterest in light duty assignments, alternative 
worksites, disability accommodations and other actions that could allow 
FECA recipients to return to work. A change in management practices and 
culture is needed. I don't expect this is something Congress can fully 
legislate, but the first step is to end the myth that able bodied 
workers are receiving FECA payments and accept the fact that many 
injured workers would like to return to work and could do so with 
opened minded and innovative agency practices. Further, NTEU is willing 
to work with policymakers to improve program integrity methods. While 
we have not seen much evidence that FECA beneficiaries are fraudulently 
receiving other government benefits such as Social Security or 
Unemployment Insurance, there could be improved safeguards to verify 
this is not happening. We strongly believe these are the types of 
reforms that should be explored before Congress moves to cut these 
social insurance benefits to injured federal workers.
    Thank you for this opportunity to present NTEU's views.
                                 ______
                                 
    [GAO report, ``Federal Employees' Compensation Act: 
Percentages of Take-Home Pay Replaced by Compensation 
Benefits,'' excerpts from cover and pages 41-44, April 1998, 
may be accessed at the following Internet address:]

                  http://gao.gov/assets/230/226220.pdf

                                ------                                



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



                                         FY 2012 CASES CREATED BY STATE
                                              [Includes DC, et al]
----------------------------------------------------------------------------------------------------------------
             State                Cases          State         Cases         State         Cases
----------------------------------------------------------------------------------------------------------------
AK.............................      559  MD................     4429  SC...............     1140  .............
AL.............................     1796  ME................      613  SD...............      459  .............
AR.............................      819  MI................     2861  TN...............     1941  .............
AZ.............................     3610  MN................     1569  TX...............     9055  .............
CA.............................    13829  MO................     1956  UT...............     1367  .............
CO.............................     2300  MS................     1261  VA...............     4529  .............
CT.............................     1125  MT................      744  VT...............      245  .............
DC.............................      558  NC................     2835  WA...............     3854  .............
DE.............................      299  ND................      298  WI...............     1967  .............
FL.............................     5404  NE................      604  WV...............      718  .............
GA.............................     3880  NH................      557  WY...............      313  .............
HI.............................      969  NJ................     2732  AA...............        5  U.S. Armed
                                                                                                    Forces,
                                                                                                    America
IA.............................      941  NM................     1279  AS...............        2  American
                                                                                                    Samoa
ID.............................      686  NV................      903  AE...............      286  U.S. Armed
                                                                                                    Forces,
                                                                                                    Europe
IL.............................     4407  NY................     6185  AP...............       70  U.S. Armed
                                                                                                    Forces,
                                                                                                    Pacific
IN.............................     1706  OH................     2917  GU...............       72  Guam
KS.............................      841  OK................     1513  MP...............        4  Northern
                                                                                                    Mariana
                                                                                                    Islands
KY.............................     1292  OR................     1685  PR...............      872  Puerto Rico
LA.............................     1465  PA................     4601  VI...............       34  Virgin
                                                                                                    Islands
MA.............................     2023  RI................      374
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                                 ______
                                 
    Chairman Walberg. I thank the gentleman. And without 
objection, those will be placed in the record.
    I would concur with your statements to a great degree, as 
well. I think the fact that we passed in the last Congress a 
bipartisan proposal and did it on voice vote out of the chamber 
was significant, and I think it was significant for many 
reasons, but because it provided some updating to a law that we 
felt was necessary and we could agree to.
    We certainly want our federal employees to be cared for. We 
certainly respect what they do and, when injured in the line of 
duty, we are responsible for providing care. Just want to make 
sure that that care is adequate, that it doesn't give 
unnecessary incentive or additional incentive to bad actors but 
also recognize that the overwhelming majority of our workforce 
who are injured have legitimate needs and that those needs are 
met.
    The provisions that we did not include in the last bill 
simply came from the fact that we didn't have a full 
understanding of what was needed.
    And so, Mr. Sherrill, I thank the GAO for providing the 
information in a report that we requested to come to us.
    I also appreciate, Mr. Steinberg, your passionate defense 
of your position, of Department of Labor's position. I don't 
see that as discouraging at all. I think you ought to defend 
the position and I think in doing so you provided, at least for 
me, some more questions, along with some appreciation for 
decisions that were made.
    As has been already stated, Mr. Szymendera, the history 
lesson that we received was helpful, and to know for a fact 
that we, with our employees, rank very well with state workers, 
and I think in turn have taken many considerations related to 
the private sector, as well.
    In lieu of the fact that those of us who would like to see 
a down-sizing of the whole federal government in many ways, and 
yet not seeing that happening overnight, I think my 
distinguished colleague would agree, as well, we have to take 
these considerations in for our employees. And so, not knowing 
with any certainty that the legislation that we offered last 
term and passed here in the House, whether that will be offered 
again in the form that it was, at the very least we know that 
with the information gained today we can look to expand it to 
add additional changes that might be necessary, might be 
perceived bipartisanly, as very important to go forward with.
    And so I appreciate your testimony today. I appreciate the 
attention of the committee, the number of members that were 
here. And I think I can safely state that this will bear some 
benefit down the road.
    And so, seeing that there is no further business to come 
before the committee, the committee stands adjourned.
    [Questions submitted for the record and their responses 
follow:]

                                             U.S. Congress,
                                     Washington, DC, July 30, 2013.
Andrew Sherrill, Director,
Education, Workforce and Income Security Issues, Government 
        Accountability Office, 441 G Street, NW, Washington, DC 20548.
    Dear Mr. Sherrill: Thank you for testifying at the July 10, 2013 
Subcommittee on Workforce Protections hearing entitled, ``Examining the 
Labor Department's Proposed Reforms to the FECA Program.'' I appreciate 
your participation.
    Enclosed are additional questions submitted by committee members 
following the hearing. Please provide written responses no later than 
August 14, 2013, for inclusion in the official hearing record. 
Responses should be sent to Owen Caine of the committee staff, who can 
be contacted at (202) 225-7101.
    Thank you again for your contribution to the work of the committee.
            Sincerely,
                                     Tim Walberg, Chairman,
                             Subcommittee on Workforce Protections.
               questions from congressman courtney (ct-2)
    1. The Department of Labor (DOL) testified that the Federal 
Employees' Compensation Act (FECA) should be amended to impose a 3-day 
waiting period before the receipt of wage loss benefits. DOL contends 
it was needed ``in order to discourage the filing of claims for minor 
injuries that resolve very quickly.'' Currently, the waiting period 
under FECA for traumatic injuries begins after the worker has received 
45 days of Continuation of Pay, except for the U.S. Postal Service 
workers. In 2006, Congress amended the waiting period for Postal 
Service employees by placing the three-day waiting period immediately 
after an employment injury (P.L. 109-435). Postal workers can either 
use available sick leave vacation pay, if available, or simply go 
without pay. The Committee of Education and the Workforce asked GAO to 
assess this proposed change in a July 2011 letter.
    a) What are GAO's findings? Based on the 6 years of experience with 
the US Postal Service, is there evidence that changing the waiting 
period would produce savings for non postal workers, if it were 
adopted?
    2. At the hearing, DOL objected to GAO's use of lost career growth 
in evaluating what a worker would have earned if they had not been 
injured. However, your testimony stated that in 1998 the DOL argued 
that the GAO needed to account for lost promotional opportunities 
(e.g., lost career growth) when evaluating the adequacy of FECA 
benefits.
    (a) Is it correct that DOL has reversed its position? Did they put 
this in writing?
    (b) Did DOL provide GAO with data or evidence to justify this 
change?
    (b) What is the impact on wage replacement rates from accounting 
for lost career growth: would it increase or decrease the wage 
replacement rate?
    3. The GAO's report Federal Employees' Compensation Act: Benefits 
for Retirement Age Beneficiaries (February 2012), which compared FECA 
benefits with Civil Service Retirement System (CSRS ) benefits for 
those who had worked various length careers. That report found that 
FECA benefits were about 7% greater than CSRS retirement benefits for 
an individual who worked a 30-year career.
    (a) In the February 2012 report, did the GAO account for lost 
career growth in the same way that it did in its subsequent reports 
which looked at the Federal Employee Retirement System (FERS)?
    (b) Did DOL object to GAO's use of lost career growth in that 
report?
    (c) To your knowledge, is the only time that DOL objected to GAO's 
use of lost career growth is when GAO found that FECA benefits were on 
a par with or less than the median FERS benefit package?
                                 ______
                                 
                                               GAO,
                                              441 G St. NW,
                                   Washington, DC, August 14, 2013.
Hon. Tim Walberg, Chairman,
Subcommittee on Workforce Protections, Committee on Education and the 
        Workforce, House of Representatives.
    Dear Mr. Chairman: This letter responds to your July 30, 2013 
request that we address questions submitted for the record related to 
our statement at the July 10, 2013 Subcommittee on Workforce 
Protections hearing entitled, ``Examining the Labor Department's 
Proposed Reforms to the FECA Program.'' The enclosure provides our 
responses which are based on previously issued products.
    If you have any questions or would like to discuss the responses, 
please contact me at (202) 512-7215 or sherrilla@gao.gov.
            Sincerely yours,
                                 Andrew Sherrill, Director,
                  Education, Workforce, and Income Security Issues.

Enclosure.

     Mr. Sherrill's Response to Questions Submitted for the Record

               questions from congressman courtney (ct-2)
    1. The Department of Labor (DOL) testified that the Federal 
Employees' Compensation Act (FECA) should be amended to impose a 3-day 
waiting period before the receipt of wage loss benefits. DOL contends 
it was needed ``in order to discourage the filing of claims for minor 
injuries that resolve very quickly.'' Currently, the waiting period 
under FECA for traumatic injuries begins after the worker has received 
45 days of Continuation of Pay, except for the U.S. Postal Service 
workers. In 2006, Congress amended the waiting period for Postal 
Service employees by placing the three-day waiting period immediately 
after an employment injury (P.L. 109-435). Postal workers can either 
use available sick leave vacation pay, if available, or simply go 
without pay. The Committee of Education and the Workforce asked GAO to 
assess this proposed change in a July 2011 letter.
    a. What are GAO's findings? Based on the 6 years of experience with 
the US Postal Service, is there evidence that changing the waiting 
period would produce savings for non postal workers, if it were 
adopted?

    As we indicated on page 22 of our October 2012 report that analyzed 
proposed FECA program changes, available data do not allow for analysis 
of any related cost savings that may have resulted from the change in 
the waiting period for U.S. Postal Service employees before receiving 
wage loss benefits.\1\
---------------------------------------------------------------------------
    \1\ GAO, Federal Employees' Compensation Act: Analysis of Proposed 
Program Changes, GAO-13-108 (Washington, D.C.: October 26, 2012).

    2. At the hearing, DOL objected to GAO's use of lost career growth 
in evaluating what a worker would have earned if they had not been 
injured. However, your testimony stated that in 1998 the DOL argued 
that the GAO needed to account for lost promotional opportunities 
(e.g., lost career growth) when evaluating the adequacy of FECA 
benefits.
    a. Is it correct that DOL has reversed its position? Did they put 
this in writing?
    b. Did DOL provide GAO with data or evidence to justify this 
change?
    c. What is the impact on wage replacement rates from accounting for 
lost career growth: would it increase or decrease the wage replacement 
rate?

    a. In its comments on our 1998 report on percentages of take-home 
pay replaced by FECA benefits, the Department of Labor (Labor) 
expressed concern that we did not take account of missed promotions. 
Labor wrote, in part, that it is almost certain that some percentage of 
injured workers would have received promotions, thus lowering their 
replacement rate.\2\
---------------------------------------------------------------------------
    \2\ GAO, Federal Employees' Compensation Act: Percentages of Take-
Home Pay Replaced by Compensation Benefits, GAO/GGD-98-174 (Washington, 
D.C.: August 1998).
---------------------------------------------------------------------------
    We noted in our October 2012 report (GAO-13-108) that the 
availability of additional data and improved methods allowed us to 
present an assessment of the adequacy of benefits that included career 
growth. In its oral comments on the FECA reports we issued from October 
to December 2012,\3\ Labor emphasized that FECA was not designed to 
account for missed career growth, which we noted in our work. In the 
specific instance in which Labor provided written technical comments--
for GAO-13-143R--the comments did not pertain to the role of missed 
career growth in our analysis.
---------------------------------------------------------------------------
    \3\ 213 GAO-13-108; GAO, Federal Employees' Compensation Act: 
Analysis of Proposed Changes on USPS Beneficiaries, GAO-13-142R 
(Washington, D.C.: November 26, 2012); GAO, Federal Employees' 
Compensation Act: Effects of Proposed Changes on Partial-disability 
Beneficiaries Depend on Employment After Injury, GAO-13-143R 
(Washington, D.C.: December 7, 2012).
---------------------------------------------------------------------------
    b. Labor did not provide us with any such data or evidence.
    c. We noted in our October 2012 report (GAO-13-108) that wage 
replacement rates that do not account for missed career growth capture 
the degree to which a beneficiary is able to maintain his or her pre-
injury standard of living, and wage replacement rates that account for 
missed career growth capture the degree to which a beneficiary is able 
to maintain his or her foregone standard of living. Accounting for 
missed career growth results in a lower wage replacement rate, as 
compared to not accounting for missed career growth.

    3. The GAO's report Federal Employees' Compensation Act: Benefits 
for Retirement Age Beneficiaries (February 2012), which compared FECA 
benefits with Civil Service Retirement System (CSRS) benefits for those 
who had worked various length careers. That report found that FECA 
benefits were about 7% greater than CSRS retirement benefits for an 
individual who worked a 30-year career.
    a. In the February 2012 report, did the GAO account for lost career 
growth in the same way that it did in its subsequent reports which 
looked at the Federal Employee Retirement System (FERS)?
    b. Did DOL object to GAO's use of lost career growth in that 
report?
    c. To your knowledge, is the only time that DOL objected to GAO's 
use of lost career growth is when GAO found that FECA benefits were on 
a par with or less than the median FERS benefit package?

    a. In the February 2012 report, GAO accounted for missed career 
growth in its comparison of FECA beneficiaries and their similar non-
injured annuitant counterparts, who were matched based on various 
characteristics.\4\ The methodology was similar, but not identical, to 
that used for the subsequent reports comparing FECA to FERS for full 
disability beneficiaries; both methodologies took into account missed 
career growth.
---------------------------------------------------------------------------
    \4\ GAO, Federal Employees' Compensation Act: Benefits for 
Retirement-Age Beneficiaries, GAO-12-309R (Washington, D.C.: February 
6, 2012).
---------------------------------------------------------------------------
    b. No. Labor's comments on our February 2012 report (GAO-12-309R) 
did not raise any concerns with our use of missed career growth.
    c. In its oral comments on our October 2012 report, Labor stated 
that FECA was not designed to account for missed career growth. These 
comments pertained to our findings related to wage replacement rates as 
well as our findings related to the comparison of FECA and FERS.
                                 ______
                                 
                                             U.S. Congress,
                                     Washington, DC, July 30, 2013.
Gary A. Steinberg, Acting Director,
Office of Workers' Compensation Programs, U.S. Department of Labor, 200 
        Constitution Avenue, NW, Washington, DC 20210.
    Dear Mr. Steinberg: Thank you for testifying at the July 10, 2013 
Subcommittee on Workforce Protections hearing entitled, ``Examining the 
Labor Department's Proposed Reforms to the FECA Program.'' I appreciate 
your participation.
    Enclosed are additional questions submitted by committee members 
following the hearing. Please provide written responses no later than 
August 14, 2013, for inclusion in the official hearing record. 
Responses should be sent to Owen Caine of the committee staff, who can 
be contacted at (202) 225-7101.
    Thank you again for your contribution to the work of the committee.
            Sincerely,
                                     Tim Walberg, Chairman,
                             Subcommittee on Workforce Protections.
               questions from congressman courtney (ct-2)
    1. GAO's December 7, 2012 report, Federal Employees' Compensation 
Act: Effects of Proposed Changes on Partial Disability Beneficiaries 
Depend on Employment After Injury, found that the percentage of new 
partial disability beneficiaries receiving benefits based on 
constructed earnings rose from 36 percent in 2004 to 63 percent in 
2011. Beginning in 2009, the percentage of new beneficiaries receiving 
benefits based on constructed earnings exceeded those receiving 
benefits based on actual earnings.
    a. What is the percentage of partial disability cases receiving 
constructed wage loss earnings 2012 (as compared with those receiving 
actual wages)?
    b. What changes in DOL policy or practice contributed to the rate 
nearly doubling in 7 years? Please describe these new polices or 
practices.
    c. The U.S. Postal Service implemented a National Reassessment 
Process in 2009 which resulted in light duty work being withdrawn and 
the partially disabled worker being notified that there is no work 
available. To what extent has this U.S.P.S. policy contributed to the 
increase in the number of cases where partial disability benefits are 
based on constructed earnings as opposed to actual earnings?
    2. Your testimony stated that ``fewer than 17,000 of the accepted 
claims per year involve a significant period of disability. Eighty-five 
percent (85%) of these claimants return to work within the first year 
of injury and 91% return to work by the end of the second year.'' How 
does this return to work rate compare with state workers' compensation 
and the Longshore and Harbor Workers Act?
    3. GAO's report Federal Employees' Compensation Act: Case Examples 
Illustrate Vulnerabilities That Could Result in Improper Payments or 
Overlapping Benefits (April 2013) identified cases where claimants were 
receiving overlapping Unemployment Insurance (UI) and FECA benefits. 
While overlap is permissible in some cases, in others the state needs 
to apply an offset against UI benefits. GAO recommended that DOL assess 
cost effective ways to share data with states such as the National 
Directory of New Hires.
    (a) What steps is DOL taking to implement this GAO recommendation?
    (b) What other tools or authorities does the DOL need to improve 
program integrity?
                                 ______
                                 

     Mr. Steinberg's Response to Questions Submitted for the Record

    Dear Chairman Walberg: Thank you for the opportunity to testify 
before the subcommittee during your hearing ``Examining the Labor 
Department's Proposed Reforms to the FECA Program.'' I have received 
the committee's additional questions and appreciate the opportunity to 
provide additional information.

    1. GAO's December 7, 2012 report, Federal Employees' Compensation 
Act: Effects of Proposed Changes on Partial Disability Beneficiaries 
Depend on Employment After Injury, found that the percentage of new 
partial disability beneficiaries receiving benefits based on 
constructed earnings rose from 36 percent in 2004 to 63 percent in 
2011. Beginning in 2009, the percentage of new beneficiaries receiving 
benefits based on constructed earnings exceeded those receiving 
benefits based on actual earnings.
    (a) What is the percentage of partial disability cases receiving 
constructed wage loss earnings 2012 (as compared with those receiving 
actual wages)?
                                 answer
    The Department of Labor's (DOL) Office of Workers' Compensation 
Programs (OWCP) issued 793 loss of wage earning capacity decisions in 
2004 and 716 in 2012. Of these, approximately 35 percent of the 
decisions issued in 2004 were based on constructed earnings and 
approximately 66 percent of the decisions issued in 2012 were based on 
constructed earnings.

    (b) What changes in DOL policy or practice contributed to the rate 
nearly doubling in 7 years? Please describe these new policies or 
practices.
                                 answer
    Under 5 U.S.C. Sec.  8115, FECA requires a proportional reduction 
of compensation for those claimants who are only partially disabled; 
this reduction is accomplished through the use of their actual earnings 
or the use of a constructed position that fairly and reasonably 
represents that employee's earning capacity. Any constructed position 
which forms the basis of a wage earning capacity determination must be 
one that the claimant is vocationally and medically qualified to 
perform and that position must be found reasonably available in the 
employee's commuting area. Thus, some employees who in previous years 
might have been reemployed by their agencies are now found to be only 
partially disabled. Ifthere are positions that are reasonably available 
in their commuting area that they can perform, they are subject to DOL 
determining that they are only partially disabled based upon a 
constructed position.
    While DOL cannot quantify the extent to which any specific changes 
in policy or practice may have caused or contributed to the finding 
cited in the GAO study 13-143R, it appears that a number of internal 
and external factors may have influenced this finding. OWCP's 
disability management process, under which substantial efforts are made 
to return every worker to gainful employment (including both early 
intervention strategies such as field nurse services and vocational 
rehabilitation services), is much more robust than it was in 2004. 
OWCP's case management processes have been automated and improved 
substantially in the last several years. Finally, it is also clear that 
some employing agencies within the Federal government--particularly the 
United States Postal Service--currently have less ability to create new 
positions for workers who have suffered a disability and are unable to 
return to their previous positions, but retain their ability to earn a 
wage in a different position.

    (c) The U.S. Postal Service implemented a National Reassessment 
Process in 2009 which resulted in light duty work being withdawn and 
the partially disabled worker being notified that there is no work 
available. To what extent has this U.S.P.S. policy contributed to the 
increase in the number of cases where partial disability benefits are 
based on constructed earnings as opposed to actual earnings?

                                 answer
    For the same periods listed above, approximately 24 percent of the 
decisions issued on Postal claims in 2004 were based on constructed 
earnings, compared to approximately 78 percent of those issued in 2012. 
The increase in constructed wage loss claims is higher than the overall 
average change in similar OWCP determinations for all other agencies. 
It is possible that the change in policy by the USPS was a contributing 
factor in this disparity. However the USPS has notified OWCP that the 
NRP ended on January 31, 2011. Because of this, the policy will not be 
a factor moving forward.

    2. Your testimony stated that ``fewer than 17,000 of the accepted 
claims per year involve a significant period of disability. Eighty-five 
percent (85%) of these claimants return to work within the first year 
of injury and 91% return to work by the end of the second year.'' How 
does this return to work rate compare with state workers' compensation 
and the Longshore and Harbor Workers Act?
                                 answer
    OWCP does not have jurisdiction over state programs and does not 
collect data on state workers' compensation programs to compare with 
our own return to work success. Additionally, since the Longshore and 
Harbor Workers' Compensation Act, 33 U.S.C. Sec. Sec.  901--950 
primarily involves the provision of benefits by private insurers, OWCP 
does not currently track return to work outcomes for these claimants.

    3. GAO's report Federal Employees' Compensation Act: Case Examples 
Illustrate Vulnerabilities That Could Result in Improper Payments or 
Overlapping Benefits (April 2013) identified cases where claimants were 
receiving overlapping Unemployment Insurance (UI) and FECA benefits. 
While overlap is permissible in some cases, in others the state needs 
to apply an offset against UI benefits. GAO recommended that DOL assess 
cost effective ways to share data with states such as the National 
Directory of New Hires.
    (a) What steps is DOL taking to implement this GAO recommendation?
                                 answer
    OWCP has met with the Department of Labor's Employment and Training 
Administration, Office of Unemployment Insurance. That office already 
has a data sharing platform with the states and OWCP is working with 
them to share FECA program data with those states where offset of FECA 
is required. This will be done utilizing the existing infrastructure.

    (b) What other tools or authorities does the DOL need to improve 
program integrity?
                                 answer
    OWCP employs a variety of strategies available within the FECA to 
strengthen the program, including internal and external audits. For 
Fiscal Year 2014, OWCP has requested $3.6 million to further enhance 
FECA program integrity. This dedicated funding would be utilized to 
establish an operation which will further assist in identifying areas 
of improper payment vulnerability, developing strategies for preventing 
improper payments, and enhancing our payment recapture program to 
recover overpayments due to error or fraud in compensation payments. In 
addition, our legislative proposal seeks authority to obtain Social 
Security earnings information without having to obtain a release from 
the claimant.
    Thank you again for the opportunity to provide additional 
information regarding the FECA program.
                                 ______
                                 
    [Whereupon, at 11:23 a.m., the subcommittee was adjourned.]