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23–914 2005

PRESIDENT’S FISCAL YEAR 2006 BUDGET FOR THE 

U.S. DEPARTMENT OF LABOR 

HEARING 

BEFORE THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED NINTH CONGRESS 

FIRST SESSION 

MARCH 16, 2005 

Serial No. 109–3 

Printed for the use of the Committee on Ways and Means 

( 

ii 

COMMITTEE ON WAYS AND MEANS 

BILL THOMAS, California, Chairman 

E. CLAY SHAW, JR., Florida 

NANCY L. JOHNSON, Connecticut 

WALLY HERGER, California 

JIM MCCRERY, Louisiana 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

JIM NUSSLE, Iowa 

SAM JOHNSON, Texas 

ROB PORTMAN, Ohio 

PHIL ENGLISH, Pennsylvania 

J.D. HAYWORTH, Arizona 

JERRY WELLER, Illinois 

KENNY C. HULSHOF, Missouri 

RON LEWIS, Kentucky 

MARK FOLEY, Florida 

KEVIN BRADY, Texas 

THOMAS M. REYNOLDS, New York 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

BOB BEAUPREZ, Colorado 

MELISSA A. HART, Pennsylvania 

CHRIS CHOCOLA, Indiana 

CHARLES B. RANGEL, New York 

FORTNEY PETE STARK, California 

SANDER M. LEVIN, Michigan 

BENJAMIN L. CARDIN, Maryland 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

WILLIAM J. JEFFERSON, Louisiana 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

RAHM EMANUEL, Illinois 

ALLISON H. GILES, Chief of Staff 

JANICE MAYS, Minority Chief Counsel 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 

iii 

C O N T E N T S 

Page 

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

WITNESS 

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

(1) 

PRESIDENT’S FISCAL YEAR 2006 BUDGET FOR 

THE U.S. DEPARTMENT OF LABOR 

WEDNESDAY, MARCH 16, 2005 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:36 a.m., in room 

1100, Longworth House Office Building, Hon. Bill Thomas (Chairman of the Committee) presiding. 

[The advisory announcing the hearing follows:] 

2 

ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–1721 

March 09, 2005 

No. FC–5 

Thomas Announces Hearing on 

President’s Fiscal Year 2006 Budget 

for the U.S. Department of Labor 

Congressman Bill Thomas (R–CA), Chairman of the Committee on Ways and 

Means, today announced that the Committee will hold a hearing on the President’s 

fiscal year 2006 budget for the U.S. Department of Labor. The hearing will take 

place on Wednesday, March 16, 2005, in the main Committee hearing room, 

1100 Longworth House Office Building, beginning at 10:30 a.m. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from the Honorable Elaine Chao, Secretary, U.S. Department of 

Labor. However, any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for 

inclusion in the printed record of the hearing. 

BACKGROUND: 

On February 2, 2005, President George W. Bush delivered his State of the Union 

address, in which he discussed several legislative initiatives. The President provided 

the details of these proposals on February 7, 2005, in his fiscal year 2006 budget, 

as submitted to the Congress. 

In announcing the hearing, Chairman Thomas stated, ‘‘This hearing will allow us 

to examine the President’s proposals to help workers prepare for, find, and retain 

good jobs. We look forward to Secretary Chao’s testimony.’’ 

FOCUS OF THE HEARING: 

The focus of the hearing will be on U.S. Department of Labor proposals in the 

President’s fiscal year 2006 budget within the Committee’s jurisdiction. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘109th Congress’’ from the menu entitled, 

‘‘Hearing Archives’’ (http://waysandmeans.house.gov/Hearings.asp?congress=17). Select the hearing for which you would like to submit, and click on the link entitled, 

‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, completing all informational forms and clicking ‘‘submit’’ on the 

final page, an email will be sent to the address which you supply confirming your 

interest in providing a submission for the record. You MUST REPLY to the email 

and ATTACH your submission as a Word or WordPerfect document, in compliance 

with the formatting requirements listed below, by close of business Wednesday, 

March 30, 2005. Finally, please note that due to the change in House mail policy, 

the U.S. Capitol Police will refuse sealed-package deliveries to all House Office 

Buildings. For questions, or if you encounter technical problems, please call (202) 

225–1721. 

3 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. 

The Committee will not alter the content of your submission, but we reserve the right to format 

it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response 

to a request for written comments must conform to the guidelines listed below. Any submission 

or supplementary item not in compliance with these guidelines will not be printed, but will be 

maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons, and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone and fax numbers of each witness. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://waysandmeans.house.gov. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

f 

Chairman THOMAS. May I ask our guests and staff to find 

seats, please? Good morning. Today, we welcome U.S. Department 

of Labor Secretary Elaine Chao, as we continue to examine the Administration’s fiscal year 2006 budget. Madam Secretary, as always, thank you for coming. We look forward to your testimony in 

terms of continued efforts to grow the economy to ensure that our 

Nation’s economic infrastructure reflects current and future needs 

and that we are providing jobs for those who desire them. 

Since your last appearance, our economy has continued to expand, and the Chair believes it is in large part due to our work together to provide timely tax relief and politics encouraging further 

growth in trade. In 2004, the Gross Domestic Product growth was 

4.4 percent. That is much higher than the historic 3.1 percent and 

a record since 1999. Solid economic expansion has led to job growth 

and wage increases. In the last year, the U.S. economy created 

nearly 2.4 million new jobs, while wages and salaries rose 5.2 percent during the same time. It is a clear indication as we examine 

jobs and the economy that today’s economy is different than earlier 

American economies. Those of us who focused on this when we 

were not in the Congress remember the classic Humphrey-Hawkins 

legislation which stated as its goal full employment. Full employment under that legislation was an unemployment rate of 6 percent. We have been under that if, in fact, that would be the definition for full employment, which shows you how much the economy 

has changed. Meanwhile, it is important to note that the economy 

recovered from the 2001 recession. This Congress made generous 

temporary extended unemployment benefits available to Americans 

4 

as they transitioned into new jobs. That assistance, I believe, was 

well-timed, and it served its purpose. By January of 2005, more 

than 142 million people were working in the United States, which 

is, of course, an all-time record. 

Clearly, our economy is strong, but we need to keep it that way. 

The President has talked and will continue to focus on Social Security. The first baby boomers will be retiring in less than 3 years, 

and an aging society needs a different economic structure than our 

earlier one. It is essential that Congress focus on the broader issue 

of retirement security, including pension protections. Pensions are 

a major part of retirement for millions of Americans, and we must 

make sure that the programs are viable for the future. The President has put forward a reform proposal, and the Committee is 

ready to examine that and other ideas that anyone, including Members, may bring forward. We look forward to hearing more about 

your comprehensive pension reform and the Administration’s plans 

to have the best-trained, most diverse and most innovative workforce in the world. With that, I would recognize the gentleman from 

New York, the Ranking Member, for any statement he would wish 

to make. 

Mr. RANGEL. Thank you, Mr. Chairman. I join with you in welcoming the distinguished Security of Labor to this Committee, and 

I agree with you that as a trustee of the Social Security fund, we, 

too would be interested in your views, as is the President, in terms 

of how we can make certain that the trust fund is solvent so that 

young people can have the same form of confidence in the Social 

Security system as the older people have already had. In addition 

to that, soon, perhaps, we might have to review the Central American Free Trade Agreement (CAFTA), and I understand your office 

is in the process of reviewing the international labor standards and 

other issues that would assist us in making a determination. In 

connection with your role as trustee, I assume there is supposed to 

be some type of a Trustees’ Report that the Congress is expected 

to receive. If you could share with us when we could look at that, 

it is good. 

I hope I have an opportunity to concentrate on your programs to 

put our veterans back to work. There has been a sharp increase in 

the number of veterans who have found that they have been unable 

to convert their military occupation skills into civilian skills, and 

we notice that the budget does not provide for an increase in that 

number. Also, in our inner cities, as a Member of the Congressional 

Black Caucus, while we have the most productive workforce in the 

world, we have a public school system that in my area, 50 percent 

of the kids do not go to school, or they drop out of school, and those 

who do get out of school, there is very little relationship between 

their training and the market, and so, we have a 50 percent unemployment rate—we have a 50 percent unemployment rate among 

the minorities in the City of New York, and we are going through 

a building boom. We have problems with the developers and problems with the unions, racist problems. So, knowing that all of this 

comes within your domain, it would be very helpful if we can get 

your views on those things. Thank you, Mr. Chairman. 

5 

Chairman THOMAS. I thank the gentleman. It is my pleasure 

to present to the Committee the Honorable Elaine Chao, Secretary, 

U.S. Department of Labor. 

Mr. MCDERMOTT. Mr. Chairman, may I ask unanimous consent to enter some remarks in the record at this point? 

Chairman THOMAS. Without objection, any Member who may 

have written opening statements can be placed in the record. 

Mr. MCDERMOTT. Thank you. 

[The prepared statement of Mr. McDermott follows:] 

Opening Statement of The Honorable Jim McDermott, a Representative in 

Congress from the State of Washington 

Good morning, Ms. Chao. Thank you for coming before the committee again today. 

I’ve read your testimony and it covers a number of important issues that affect the 

lives and the economic security of millions of American workers from the unemployment insurance program, to worker training, trade adjustment assistance, our pension system and our health care system. With great interest I look forward to working with Chairman Herger to hold hearings on your proposals to the Unemployment 

Insurance program, a program vital to the stability and strength of our economy 

and crucial for families with unemployed workers. 

I hope that the proposals in the President’s Budget have been developed in cooperation with State Governors and legislatures. It seems too many of the Administration’s ideas have not gone through such a process in the past. This committee 

needs to continue to look at ways to strengthen the Unemployment Insurance program to ensure that it meets the needs of today’s economy and today’s workforce. 

Ironically, for reasons I can not understand, many low wage workers do not qualify 

for benefits under the Unemployment Insurance program when they lose their jobs 

simply because their wages are low, not because they haven’t been working full 

time. We’ve seen that the triggers currently in law designed to extend the duration 

of unemployment benefits during an economic recession and times of high unemployment simply do not work. We need to work together to update these triggers. 

We need to ensure that part time workers, a growing segment of our workforce, are 

not denied unemployment benefits simply because of their part time status. This is 

especially important for women—working moms, whether they’re married or not. 

And, we need to make sure that employers are not inappropriately classifying employees as contract workers in order to avoid paying unemployment taxes and payroll taxes. 

Under current law the IRS isn’t even allowed to issue regulations on this issue 

despite the fact that we know tens of millions of tax dollars are going uncollected 

because of employer fraud. But overall, Secretary Chao, our workforce is challenged 

like never before because of globalization. Because of the democratization of information, of services, of capital and of labor. We need to look beyond programs that 

simply address the symptoms of a challenged workforce, such as unemployed workers. We need to find ways to prevent these workers from losing their jobs to begin 

with. When someone applies for trade adjustment assistance, or unemployment compensation, it’s already too late. We’ve already failed. They’re out of work, and an 

employer has downsized. We need to ensure that our workers, and the employers 

that rely on them, have the access to continuing education and job training while 

they’re still employed, so that workers and employers alike stay competitive in a 

growingly competitive economy. 

Chairman THOMAS. I will tell the Secretary of Labor that any written statement 

she may have will be made a part of the record, and you can address the Committee 

in any way you see fit with the time you have. 

f 

STATEMENT OF THE HONORABLE ELAINE L. CHAO, 

SECRETARY, U.S. DEPARTMENT OF LABOR 

Ms. CHAO. Thank you very much, Mr. Chairman. I will make 

it short. I am delighted to be here today to discuss the President’s 

budget. The President’s budget will enable the Department of 

Labor to continue to build upon its precedent-setting record of enVerDate Aug 31 2005 13:08 Apr 28, 2006 Jkt 049200 PO 00000 Frm 00009 Fmt 6633 Sfmt 6602 E:\HR\OC\23914.XXX 23914
6 

forcing our worker protection laws, and we will implement bold 

new training programs and initiatives that will help us deliver 

more training opportunities to America’s workforce. The proposed 

reforms to our Work Force Investment Act (WIA) will enable us to 

serve more individuals and also achieve even better results. To 

summarize, the President’s fiscal year 2006 budget for the Department of Labor increases resources for each of the Department’s 

principal enforcement agencies. 

In fiscal year 2006, the Department of Labor will continue to enhance worker safety and health, will continue to set new records 

in protecting workers’ pay, benefits, and union dues. We will also 

take further steps to strengthen the reemployment rights of veterans, and in addition, the Department will seek to increase access 

to quality health care for workers and their families through initiatives such as association health plans. To convey a sense of where 

we are going, let me just talk for a second about where we have 

been. In the course of the last 4 years, worker fatalities have fallen 

to record lows. Just since 2001, workplace fatalities for Hispanic 

workers have been reduced by 11.6 percent. Fatalities in mining 

operations have dropped to the lowest points since the records were 

first kept in 1910. 

This Administration’s commitment to ensuring America’s retirement security is also reflected in the fourth record year of monetary results. In fiscal year 2004, the Employees’ Benefits Security 

Administration (EBSA) achieved more than $3 billion in monetary 

results for workers’ retirement and health plans, and this is a 121- 

percent increase over the previous year. The Department of Labor 

has also made significant efforts to improve worker training programs. The President’s initiatives, including the High Growth Job 

Training Initiative, the Community College Initiative, and reforms 

to the WIA are focused upon helping workers train for and also 

find jobs in sectors of the economy that are fast growing and experiencing a shortage of workers, and these are also good paying jobs. 

To ensure a sound safety net for those who lose their jobs, we 

have proposed a new $40 million strategy to help ensure the integrity of the unemployment insurance trust funds. This will increase 

the number of eligibility interviews at one-stop career centers and 

strengthen efforts to detect and also prevent an increasing trend in 

identity thefts. Several other legislative initiatives important to 

this Committee are associated with this year’s budget submission 

as well. The first one is that the President has called for reform 

of our Nation’s pension guarantee system. This Administration has 

taken the initiative on this issue before the situation receives crisis 

proportions. The problems of single employer private sector pension 

underfunding and the annual deficits at the Pension Benefit Guaranty Corporation (PBGC) cannot continue. It is not sustainable, 

and we will jeopardize the retirement security of over 34 million 

American workers who depend upon defined benefit plans. 

Second, the WIA reauthorization that was just passed by the 

House allows Governors and local leaders, officials, more flexibility 

to respond to the needs of their States and also to local areas of 

need. We want to go a step further and bring all workers into the 

mainstream training system, which will further effectively connect 

hard to serve individuals with employers. The WIA-plus consoliVerDate Aug 31 2005 13:08 Apr 28, 2006 Jkt 049200 PO 00000 Frm 00010 Fmt 6633 Sfmt 6602 E:\HR\OC\23914.XXX 23914
7 

dated grant proposal would permit the consolidation of over five 

other job training programs, including Trade Adjustment Assistance (TAA) at the option of State governors. This would also create 

a single funding stream that would be more flexible, less costly to 

run and in the end better serve workers. 

Finally, the Administration has also proposed restructuring the 

debt of the Black Lung Disability Trust Fund. Without restructuring the debt in this trust fund, which reached $8.7 billion already at the end of last year, we will continue to grow, and the 

fund will never be solvent. It is not possible to mention every Department of Labor program and initiative that merits the Committee’s attention in the very brief opening statement, but I would like 

to note that even in an era of budget realities that require tough 

choices, which we all face, this budget continues to provide a strong 

array of protections and services for America’s workers. So, Mr. 

Chairman, I have got a written statement also which I will submit 

for the record, and I will be glad now to answer any questions that 

you or other Members of the Committee may have. 

[The prepared statement of Ms. Chao follows:] 

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

Labor 

Good morning. Chairman Thomas and distinguished members of the Committee, 

thank you for inviting me to testify. I am pleased to have the opportunity to discuss 

the President’s Fiscal Year (FY) 2006 Budget proposal, which includes initiatives to 

reduce improper payments and enhance the integrity of the Federal-State Unemployment Insurance (UI) system, strengthen funding for single-employer pension 

plans, improve our Trade Adjustment Assistance (TAA) program, reform our job 

training programs, refinance the Black Lung Disability Trust Fund’s debt, and improve access to health benefits through Association Health Plans. 

The President’s Economic Message 

The President has put forth an ambitious agenda to ensure that America’s economy remains the most prosperous in the world. To accomplish this, he has proposed 

a three-pillar strategy, which includes restraining spending by the Federal Government; working with Congress to pass legislation that promotes economic growth; 

and reforming government institutions so that they can meet the realities of our 

new century. 

To confront the great challenges that will determine the quality of life for our children and grandchildren and to prepare Americans for jobs of the 21st Century, the 

President has called for a series of actions. One of these is to reform our workforce 

training programs. Technology and globalization are transforming America’s economic landscape; therefore, the President is committed to providing American workers with the opportunity to obtain the skills they need to succeed. President Bush 

believes we must ensure that every adult, especially low- and middle-income Americans, has access to quality skills training. By working together, we can reform the 

current workforce training system to eliminate duplication and waste, double the 

number of people trained through major Workforce Investment Act (WIA) grant programs, prepare workers for high-demand occupations, and provide better services for 

our workforce. 

The President’s FY 2006 Budget Request 

The total FY 2006 Budget request for the Department of Labor is $54.5 billion, 

which reflects a $4.3 billion projected increase in mandatory spending. Before addressing Unemployment Insurance and Trade Adjustment Assistance programmatic 

issues, I would like to comment briefly on the President’s FY 2006 Budget request 

for these two programs. The Budget request includes $2.6 billion in discretionary 

funding for grants to States for UI administration. This includes an increase of $30 

million for states to address the very serious issue of identity theft and an increase 

of $10 million to continue an effort begun this year to ensure that UI beneficiaries 

are meeting reemployment goals by connecting with the local One-Stop Career Centers. Through the prevention, detection, and recovery of improper benefit payments, 

we estimate that the $40 million discretionary request for these initiatives will 

8 

produce mandatory outlay savings for the Unemployment Trust Fund (UTF) in 2006 

of up to $330 million. 

The total UI discretionary request for FY 2006 is $40.5 million below the funding 

level enacted for FY 2005 due to lower UI claims workload. These funds are sufficient to finance the States’ efforts in processing 18.8 million initial UI claims and 

collecting State payroll taxes from 7.3 million employers. 

The FY 2006 Budget request includes $966.4 million for the Trade Adjustment Assistance (TAA) and Alternative Trade Adjustment Assistance (ATAA) programs, of 

which $259 million is allocated for TAA training, out-of-area job search and relocation allowances and related state administration. This funding request will allow 

the Department of Labor to provide States with funding for training, income support, and job search and relocation allowances for an estimated 80,000 dislocated 

workers who were impacted by international trade. In addition, we have implemented a number of key management reforms that are allowing us to more effectively operate the TAA and ATAA programs so workers can get the assistance they 

need. 

Status of Current UI Integrity Initiatives 

Thanks in large part to quick action by this Committee last year on the ‘‘SUTA 

Dumping Prevention Act of 2004,’’ an important initiative to strengthen State unemployment tax integrity is now underway. That legislation requires States to close 

loopholes that some employers have used to pay less than their fair share of State 

unemployment taxes. States are expected to enact conforming legislation this year 

and have already begun to investigate cases of SUTA dumping that are illegal 

under their current statutes. This Act also provided States with an important new 

tool to quickly detect and prevent overpayment of benefits; State UI agencies have 

access to the National Directory of New Hires to identify individuals who went back 

to work but continued to claim UI benefits. The Department is working closely with 

the Office of Child Support Enforcement at the Department of Health and Human 

Services to establish communications systems, develop the technical specifications, 

and put required data safeguards in place for States to begin accessing the National 

Directory of New Hires data. 

Legislative Proposals to Strengthen Financial Integrity of UI Programs 

As you know, the UI program plays a vital role in America’s workforce investment 

system by providing temporary income support to eligible workers who have lost 

their jobs through no fault of their own. UI helps the unemployed bridge the financial gap between jobs. 

For FY 2006, the Administration proposes a set of amendments to Federal law 

that will strengthen the integrity of the UI system. These amendments will give 

States access to new tools and resources to: (1) prevent, detect, and collect benefits 

that were paid to individuals who were not entitled to them; (2) collect delinquent 

taxes from employers; and (3) upgrade aging State information technology systems. 

Since 1987, States have investigated a small but statistically valid sample of 

weekly payments taken from the three to four million paid claims each week. Data 

from these investigations permit us to estimate the amount of benefits that are improper—both overpaid and underpaid. About 95% of all of these improper payments 

are overpayments. Most overpayments result from claimants failing to meet statutory eligibility requirements, such as searching for work or returning to work and 

continuing to claim benefits. In 2003, overpayments were estimated to be $3.8 billion, or just over 9% of the nearly $41 billion in State UI payments that year. States 

detected about $1.2 billion of these and recovered $504 million. We believe that our 

FY 2006 Budget proposals will enable States to reduce significantly overpayments 

and increase the amount of overpayments that are recovered. 

1. Use 5% of Recovered Overpayments for Benefit Payment Control Activities 

States’ efforts to reduce and recover overpayments are limited by the amount of 

administrative funding available. Currently, Federal law requires that all recoveries 

of overpayments go into the State’s unemployment trust fund, to be withdrawn only 

to pay UI benefits. We propose boosting resources available to States to pursue integrity activities by permitting them to use a portion of those recovered funds to 

deter, detect, and collect overpayments. States may specify the amount—up to 5%— 

of overpayment recoveries to be used exclusively for these purposes. This would provide a new source of funds for States to use to reduce fraudulent and improper payments, giving them the resources they need to expand their efforts. This proposal 

is estimated to yield a net savings of $229 million over 10 years. 

9 

2. Allow Collection Agencies to Retain Up to 25% of Recovered Overpayments 

Currently States are reluctant to use private collection agencies, primarily because they would have to divert UI administrative grants from other services to pay 

the collection agency costs. We propose permitting States to allow collection agencies 

to retain a limited portion—up to 25%—of the fraud overpayments and delinquent 

employer taxes they recover. States would be expected to first exhaust their established means of collecting overpayments and delinquent taxes before engaging such 

collection agencies. To prevent abusive or unfair tactics, any State contract with a 

collection agency must specify certain safeguards, including that the collection agency follow the Fair Debt Collection Practices Act. We anticipate a net savings of $369 

million over 10 years by allowing this additional method of collection of overpayments. 

3. Impose At Least 15% Fine on Overpayments 

All States impose monetary penalties on employers who pay their taxes late. However, most States do not impose monetary penalties on individuals who obtain benefits fraudulently. Penalties can serve as both a deterrent to overpayments and an 

incentive for repayment. We propose requiring States to impose a fine of at least 

15% of the overpayment on individuals who defraud the system. States’ use of the 

penalty funds would be limited to additional efforts in deterring, detecting, and collecting overpayments. Recently, the State of Washington imposed such a penalty 

and has seen a considerable increase in overpayment collections. We estimate that 

this proposal would yield a net savings for State UI programs of about $798 million 

over 10 years. 

4. Encourage Employer Response to State Requests 

Information provided by employers is essential in determining the eligibility of 

unemployed workers who file a claim for UI benefits. However, employers sometimes fail to respond to State queries about the reasons workers are separated from 

employment, and this can lead to improper UI payments to ineligible workers who 

quit their jobs without good cause, or were discharged for work-connected misconduct. Despite the administrative and benefit costs created by these mistakes, employers often do not bear any responsibility for the costs of these overpayments. Indeed, after an overpayment is established, States may relieve the employer of those 

benefit charges. We propose requiring States to impose benefit charges on employers 

for any UI benefits improperly paid as a result of their late or incomplete responses 

to State agencies, unless the non-response is due to a good faith error. This will encourage employers to respond promptly to State requests for information about their 

former workers and will generate an estimated $227 million in savings over 10 

years. 

5. Add Delinquent Overpayments to Debts Offset by Federal Tax Refunds 

About half of overpayments identified each year are not recovered. Under current 

law, individuals’ Federal income tax refunds are used to offset delinquent child support obligations, debts owed to Federal agencies, and State income tax debts. We 

propose adding delinquent UI overpayments to the list of debts that can be offset 

by Federal tax refunds. This would recover an estimated $3.1 billion in overpayments over 10 years. 

Legislative Proposal for Infrastructure Loans 

An additional legislative proposal is designed to address another UI program 

need: updating information technology (IT) infrastructure. State UI programs require large and complex benefit and tax processing systems, and service delivery by 

telephone relies heavily on telecommunications hardware and software. Aging IT 

systems present a significant risk to States. Older systems are also more difficult 

and costly to maintain. However, not all States have an effective funding mechanism available to replace and enhance aging technology components. 

We propose allowing States to borrow funds from the Unemployment Trust Fund 

in order to replace/update their UI IT systems, including using new technology to 

establish linkages with programs that offer reemployment services to UI beneficiaries. This proposal is similar to the current arrangement in that States can borrow from the Unemployment Trust Fund when their benefit accounts become insolvent. Borrowing States would be liable for repayment of principal and interest. By 

giving States the opportunity to address their IT needs, this proposal will promote 

timely and accurate benefit payment to unemployed workers, prevention and detection of improper benefit payments, and facilitation of reemployment. 

10 

Legislative Proposal to Strengthen Funding for Single-Employer Pension 

Plans 

The Bush Administration believes that the pension promises companies have 

made to their workers and retirees must be kept. Single-employer, private sector defined benefit pension plans cover 16 percent of the nation’s private workforce, or 

about 34 million Americans. The consequences of not honoring pension commitments are unacceptable—the retirement security of millions of current and future 

retirees is put at risk. 

However, the current system does not ensure that pension plans are adequately 

funded. As a result, pension promises are too often broken. 

Termination of plans without sufficient assets to pay promised benefits has a very 

real human cost. Many workers’ and retirees’ expectations are shattered, and, after 

a lifetime of work, they must change their retirement plans to reflect harsh, new 

realities. Underfunded plan terminations are also placing an increasing strain on 

the pension guaranty system. 

Increased claims from terminations of significantly underfunded pension plans 

have resulted in a record deficit in the single-employer fund of the Pension Benefit 

Guaranty Corporation (PBGC). For the fiscal year ending September 30, 2004, the 

PBGC reported a record deficit of $23.3 billion in that fund, more than double the 

year-earlier deficit of $11.2 billion. The increasing PBGC deficit and high levels of 

plan underfunding are themselves a cause for concern. More importantly, they are 

symptomatic of serious structural problems in the private defined benefit system. 

It is important to strengthen the financial health of the defined benefit plan system now. If significantly underfunded pension plans continue to terminate, not only 

will some workers lose benefits, but other plan sponsors, including those that are 

healthy and have funded their plans in a responsible manner, would likely be called 

on to pay far higher PBGC premiums. Underfunding in the pension system must 

be corrected now to protect worker benefits and to ensure taxpayers are not put at 

risk of being called on to pay for broken promises. 

The Administration has developed a reform package to improve pension security 

for workers and retirees, stabilize the defined benefit system, and avoid a taxpayer 

bailout of the PBGC. The President’s proposal is based on three main elements: 

First, the funding rules must be reformed to ensure that plan sponsors adequately 

fund their plans and keep their pension promises. The current system is ineffective 

and needlessly complex. The rules fail to ensure that many pension plans are, and 

remain, adequately funded. 

Second, disclosure to workers, investors and regulators about pension plans’ status must be improved. Workers need to have good information about the funding 

status of their pension plans to make informed decisions about their retirement 

needs and financial futures. Too often in recent years, participants have mistakenly 

believed that their pension plans were well funded, only to receive a rude shock 

when the plan was terminated without enough assets to pay all promised benefits. 

Regulators and investors also require more timely and accurate information about 

the financial status of pension plans than is provided under current law. 

Third, premium rates must be updated to reflect current costs and revised to more 

accurately reflect the risk of a plan defaulting on its promises and to help restore 

the PBGC to financial health. The current premium structure encourages irresponsible behavior by not reflecting a plan’s true level of risk. 

The proposal would strengthen the defined benefit system and restore solvency to 

the PBGC, so that the nation’s workers and retirees can be confident of the secure 

retirement they have worked for all their lives. 

Implementation of the Trade Adjustment Assistance Reform Act of 2002 

The Trade Adjustment Assistance (TAA) program is an integral part of the comprehensive workforce investment system. TAA helps workers dislocated due to foreign trade adjust to changing market conditions and shifting skills requirements. 

Many of these workers are being dislocated from jobs that are lost permanently 

from the domestic economy, requiring the skills of affected workers to be completely 

retooled. In many cases, this is complicated by mass layoffs or plant closures that 

occur in single-industry towns, which makes finding comparable employment in the 

same geographic area difficult. 

The TAA program should be a vital part of States’ workforce and economic development strategies in order to maximize opportunities for trade-affected workers. 

Under the TAA program, training opportunities that are designed to provide sustainable employment once completed are made available for trade-affected workers. 

However, training alone will not return a worker to the workforce. The Department 

has been proactive in encouraging the integration of the TAA program with the 

other parts of the workforce investment system, such as the Workforce Investment 

11 

Act’s Dislocated Worker program. Through a series of policy advisories and workforce forums delivered nationwide, the Department is emphasizing the importance 

of a seamless system that provides reemployment services financed by complementary programs and delivered by One-Stop Career Centers to trade-affected workers. 

Such services include assessment, counseling, career planning, job search, and 

placement services. 

Successfully integrating the TAA program into the workforce investment system 

becomes more critical as the Department implements a reengineered business model 

for making more timely determinations on trade petitions. Through this reengineering process we have been able to reduce the time it takes to process petitions to less than the statutory limit of 40 days. On average we process petitions 

in approximately 31 days. This reduced certification time allows workers to be able 

to access the full range of employment and training services available to them and 

quickly obtain new employment. 

Another major reform we have implemented is the distribution methodology for 

allocating TAA training funds to the States. Prior to our reform, these capped training funds were distributed on a ‘‘request’’ basis, meaning that States would request 

and be awarded monies throughout the fiscal year. We found that this provided little fiscal accountability for these funds as some States carried over excess funds 

while other States ran short. In fact, this approach caused an inequitable distribution of funds when comparing State funding levels to State TAA participant levels. 

Our current methodology distributes 75 percent of available TAA training funds 

at the beginning of each fiscal year to States based on their prior years’ TAA participant and training expenditures levels. We hold 25 percent of the funds in reserve 

to be distributed to States to respond to unanticipated needs that arise throughout 

the fiscal year. This change in the distribution methodology has assured that the 

limited training funds are being provided to the maximum number of TAA participants who need training services. In addition, we have focused on the leveraging 

of resources from among the State WIA Dislocated Worker formula grant program, 

the TAA program, and National Emergency Grants (NEG) to assure that trade-affected workers are getting the full array of reemployment resources, while promoting increased State fiscal and performance accountability. 

WIA Plus Consolidated State Grants 

I will now briefly discuss an important component of the President’s proposal for 

reforming job training programs and reauthorization of the Workforce Investment 

Act (WIA)—the WIA Plus Consolidated State Grants. The current system of Federal 

job training programs is too complex, involving multiple funding streams and various Federal, State and local bureaucracies. This has caused a duplication of effort 

and diverted resources that should be used to train workers for high-growth jobs. 

WIA Plus Consolidated State Grants build on the President’s call to consolidate four 

of our Department’s State training and employment programs: WIA Adults, WIA 

Dislocated Workers, WIA Youth, and the Wagner-Peyser Employment Services. 

In addition to the consolidation of those four funding silos, States will have the 

option to consolidate in this single grant their share of funds from several additional 

Federal job training programs that are currently administered by the Departments 

of Labor (Trade Adjustment Assistance training and certain programs providing 

services to veterans), Education (Adult Education and Vocational Rehabilitation 

State Grants) and Agriculture (Food Stamp Employment and Training). Federal resources for these other programs total more than $3.6 billion. Together with the Department of Labor’s core WIA consolidated grant, Governors could be provided with 

their State’s share of more than $7.5 billion in Federal employment and training 

resources through a single State grant. By consolidating programs, States will be 

empowered to train more workers; design a job training and service delivery system 

that trains workers for jobs in the 21st Century economy; rationalize the way they 

deliver workforce-related services; improve results; and reduce administrative overhead. 

In an increasingly competitive global economy, States must be able to quickly respond to economic downturns by having the increased flexibility to pull multiple job 

training programs and funding streams together. As an example, if a State or local 

area experienced a mass layoff, the WIA Plus Consolidated State Grant funds would 

provide the increased flexibility needed to design programs that correspond with 

current economic development and labor market needs, specific to their State economy. 

If a State decided to include Trade training resources in its WIA Plus Consolidated State Grant, trade-affected workers would obtain more seamless access to the 

important services not available under the Trade program. Workers will be able to 

get such services as job search assistance and career counseling, in addition to the 

12 

TAA services of job search and relocation allowances, occupational skills training, 

income support, and the Health Coverage Tax Credit. It is important to note that 

eligible trade participants would still have the same access to the capped training 

dollars as they do under current law. Moreover, trade-affected dislocated workers 

would continue to be able to receive Trade Readjustment Allowances (TRA) under 

the same conditions as current law because TRA would not be part of the WIA Plus 

Consolidated State Grant. 

For States choosing to consolidate Trade training funds, Governors would describe 

in their WIA Plus State Integration Plan how trade participants would be served 

under the WIA Plus Consolidated State Grant, including how services will be maintained to eligible workers. This will ensure that trade-displaced workers receive the 

training funds made available under current law. 

WIA Plus Consolidated State Grants will help streamline service delivery systems 

and shift excessive administrative costs towards providing additional training services. Ultimately, the proposed consolidation will ease administration since the State 

will be responsible for developing only one State Integration Plan, administering one 

funding stream and reporting on one set of performance measures. 

Restructuring the Black Lung Disability Trust Fund 

I also want to highlight the Administration’s proposal for legislation to restructure 

and eventually retire the debt of the Black Lung Disability Trust Fund (BLDTF). 

The BLDTF is facing a growing debt, which in Fiscal Year 2006 will exceed $9 billion. The Trust Fund’s revenues, which consist primarily of excise taxes on coal, are 

insufficient to repay the debt’s interest or principal. Under current conditions, this 

indebtedness will continue to grow, with the BLDTF never becoming solvent, even 

when benefit outlays have declined to a level approaching zero. 

To solve this problem, the Administration will propose legislation that will authorize a restructuring of the BLDTF debt; extend until the debt is repaid current 

BLDTF excise tax rates, which are set to decline in January 2014, and provide an 

estimated one-time net payment of $3.8 billion to compensate the General Fund of 

the Treasury for forgone interest payments. 

Legislative Proposal to Improve Access to Health Benefits 

The FY 2006 Budget also reiterates the Administration’s support for Association 

Health Plans legislation that would allow small businesses, civic, faith-based, and 

community associations, and others to pool together through their trade and professional associations to provide health benefits for workers and their families. By joining together, small businesses and other association members would benefit from 

similar economies of scale, uniform regulation and administrative efficiencies enjoyed by large employers and labor unions. Association Health Plan legislation is a 

key component of the President’s plan to improve access to quality, affordable health 

coverage for all Americans. 

Conclusion 

Thank you for the opportunity to describe our efforts to implement new strategies 

to improve the management of existing programs and fulfill our mandate to serve 

the American workforce. I look forward to working with the Committee on these 

issues. This concludes my remarks. I will be glad to respond to any questions you 

may have. 

f 

Chairman THOMAS. Thank you very much, Madam Secretary. 

Gentleman from Florida, the Chairman of the Trade Subcommittee, 

wish to inquire? 

Mr. SHAW. Yes, Mr. Chairman, and I would like to join with you 

in welcoming Secretary Chao before this Commission. She always 

makes a delightful witness, and we always learn from her. In your 

remarks, you mention the question of private pension funds and 

begin to full fund these plans, which I agree with, and I think it 

is a very good—I have a brother who is a retired United Airlines 

pilot, and he is very nervous about where his pension may be 

going. If it were a full funded pension plan, I do not think that 

there would be any great concern about it. I also worry very much 

about the largest pension fund, so-called fund, in the entire country 

13 

if not the entire world, and that is our Social Security system, 

which is totally unfunded except with indication of debt by the Federal Government to the Federal Government, which, in itself, is 

simply a statement that we owe an obligation, and it is not a real 

asset. Unfortunately, so many of our American people feel that 

there is cash in the system when we all know better that there is 

not. I would like to turn for just a moment to a question or a statement that Mr. Rangel made, and that is that in his City of New 

York that 50 percent of the minorities are unemployed. Do we have 

any targeted programs to the groups of high unemployment and 

the pockets of poverty that obviously exist that would create this 

type of unemployment? 

Ms. CHAO. Absolutely. First of all, the unemployment rate of 

New York State is about 6.5 percent—New York City is about 6.5 

percent. The national unemployment rate is about 5.4 percent. The 

entire workforce development system should be the resource that 

long-term unemployed workers or those who are hard to place 

workers should seek assistance and find a comforting place. What 

we are trying to do now is to improve the workforce development 

system. It is a wonderful system. The people who work in it are 

caring and compassionate, and they do a great job. We want to 

challenge ourselves to do better. Right now, the system, the onestop career center is a delivery system, but there are multiple funding streams which are very inflexible. So, for example, if you are 

a long-term dislocated worker, you may not be eligible for dislocated worker funding by definition of the statute. If WIA reauthorization were to occur, and greater flexibility were introduced, 

there would be more resources available to help the harder to place 

and the longer term unemployed. 

Mr. SHAW. Mr. Rangel also noted that even those who had education, that many of them were being educated for jobs that do not 

really exist. I know in my own district, in Palm Beach County, the 

Palm Beach Community College reaches out and communicates 

with the private sector so that they are sure that they are gearing 

the educational endeavors toward employment, which is tremendously important. Would you like to comment on that? 

Ms. CHAO. Well, the President has asked for $500 million last 

year and was funded about $200 million in his High Growth Job 

Training Program, which is a partnership with the community colleges. Community colleges do a great job of training workers seeking new opportunities in the workforce, and there are new jobs out 

there. We need to reskill workers who want to be reskilled, and the 

community colleges are partnering very nicely with the one-stop career centers. 

Mr. SHAW. Thank you. I yield back, Mr. Chairman. 

Chairman THOMAS. I thank the gentleman. Does the gentleman 

from New York wish to inquire? 

Mr. RANGEL. What specific programs, Madam Secretary, do you 

have for veterans, mature adults that find it very difficult to get 

into the job market? 

Ms. CHAO. We have been very focused on helping veterans who 

are returning to the civilian workforce—— 

Mr. RANGEL. What is the name of the program? 

14 

Ms. CHAO. We have the Disabled Veterans Opportunity Program (VDOP), we have the—— 

Mr. RANGEL. What does that mean? 

Ms. CHAO. It is disability—it is a program that puts counselors 

in one-stop career centers. 

Mr. RANGEL. No, no, ma’am. 

Ms. CHAO. Yes. 

Mr. RANGEL. I am a veteran. I am very emotional about this. 

Do you have any program that calls itself—— 

Ms. CHAO. We do. 

Mr. RANGEL. A veterans’ program? 

Ms. CHAO. Absolutely, we have a lot. 

Mr. RANGEL. What is the name of that program? 

Ms. CHAO. Will you hold on for a second, please? 

Mr. RANGEL. Yes, ma’am. 

Ms. CHAO. It is called the Disabled Veterans Opportunity Program, and it is part of the Veterans Employment Training Services 

(VETS). 

Mr. RANGEL. I am not talking about disabled veterans. I am 

talking about healthy veterans. I am not talking about veterans’ 

hospital type of programs. Just because you are a veteran does not 

mean you are disabled. We are talking about people who are coming out with low job skills who want to go to work. 

Ms. CHAO. Yes, we have a whole agency that is devoted to them. 

It is called the Veterans Employment—— 

Mr. RANGEL. That is what I am trying to find out, because I 

know you do not mean it is a veterans’ disability program, unless 

I misunderstand the word disability. 

Ms. CHAO. I thought that was your question. I am sorry. 

Mr. RANGEL. No, ma’am, I am not talking about crippled soldiers. 

Ms. CHAO. Okay. 

Mr. RANGEL. I am talking about veterans out looking for work. 

What is the name of their program if they are not disabled? 

Ms. CHAO. It is the VETS. 

Mr. RANGEL. What is the funding for that? 

Ms. CHAO. It is about $300 million. 

Mr. RANGEL. Well, that is not in the information I have. I am 

going to let someone else deal with that. I understand that from 

veterans groups that you did have a program that was in the $200 

million, that is the same funding as it was from last year, and that 

there has been a sharp increase in veterans, and so, therefore, a 

decrease in the service. So, I am sorry I got emotional with you, 

but I have got to find out more about that program. 

Ms. CHAO. There is no reduction in services at all. In fact, we 

have increased the budget. There are increases in service, and we 

have also focused on disabled veterans who are coming back. 

Mr. RANGEL. Well, I want to find out as much as I can about 

that. As a trustee from the Social Security system, do you have any 

idea when we expect to get a report? 

Ms. CHAO. There is a Social Security report that is going to 

come out on March 23, next Wednesday. 

Mr. RANGEL. All right; thank you. In view of the fact that we 

find a shift from private employers to defined contribution from deVerDate Aug 31 2005 13:08 Apr 28, 2006 Jkt 049200 PO 00000 Frm 00018 Fmt 6633 Sfmt 6602 E:\HR\OC\23914.XXX 23914
15 

fined benefits programs, do you think that the guaranteed benefits 

of Social Security are far more important than they were before in 

terms of retirement income? 

Ms. CHAO. There are three parts of anyone’s retirement security. There is personal savings, Social Security, and their employerprovided pension, if there is one. So, all are important. 

Mr. RANGEL. The guaranteed benefit, do you believe that this 

has been considered not a part of the risk of the other portions but 

a very important part of what someone should rely on that is guaranteed rather than the fluctuations of the market? 

Ms. CHAO. I think that Social Security, even when it was enacted, was never meant to be the sole source or the main source. 

Mr. RANGEL. No, ma’am, I am not talking about sole source. I 

am just saying that in terms of the risk of the other sources that 

they are guaranteed, that it is an anchor type of source. 

Ms. CHAO. Well, that is what the President is trying to maintain. He is trying to preserve the strength and the integrity of the 

Social Security system. 

Mr. RANGEL. Well, as a trustee, do you believe that the private 

accounts are guaranteed? 

Ms. CHAO. Do you mean the voluntary retirement accounts? 

Mr. RANGEL. Whatever you want to describe it. 

Ms. CHAO. I do not think it is private. After all, the government 

would be in charge of the management of it. 

Mr. RANGEL. The very personal freedom of choice accounts that 

the President is going to 60 cities in 60 days to advocate, those 

types of accounts? 

Ms. CHAO. I believe that is called the voluntary retirement accounts. 

Mr. RANGEL. The voluntary retirement accounts, are they guaranteed? 

Ms. CHAO. No, they would not be guaranteed, because it would 

only—— 

Mr. RANGEL. I understand. 

Ms. CHAO. Okay. 

Mr. RANGEL. We are on the same side. 

Ms. CHAO. Social Security is not guaranteed either. At this rate, 

it is going to go bankrupt. 

[Laughter.] 

Mr. RANGEL. Madam trustee, do you really believe that the 

funding that we get today as a benefit is as risky as funds that 

would be in a personal account? 

Ms. CHAO. I think the question now is we are all trying to understand what the problem is. 

Mr. RANGEL. We are all trying to understand what the President thinks the problem is, but I am trying to get an answer from 

you as do you believe that—— 

Ms. CHAO. The President thinks it is important to have a common understanding of the problem. From there, we can come and 

work together and come to some common solutions. 

Mr. RANGEL. Mr. Chairman, this Secretary is a very knowledgeable lady, but you are not helping in trying for us to get a better understanding of the problem, but I thank you for your efforts. 

16 

Chairman THOMAS. The gentleman’s time has expired. Does the 

gentleman from Michigan wish to inquire? 

Mr. LEVIN. Yes. Welcome. 

Ms. CHAO. Thank you. 

Mr. LEVIN. I read in the report last week that there may be 

hearings here on CAFTA and in the Senate after we return. A couple of years ago, we provided money to Labor, to the Department, 

to study how core labor standards, international labor standards, 

were being handled in a number of countries, and as a result of 

that, a report was commissioned by the International Labor Rights 

Fund to conduct an analysis in Central American countries. Their 

report was given to you I think now some years ago. We filed a request under the Freedom of Information Act (FOIA) in May of 2004 

to receive a copy of that report. When that was denied, we appealed it in October of 2004. It is now March of 2005. You have 

not yet responded to that appeal. Why not? 

Ms. CHAO. I am sorry if—first of all, I am not aware of that 

FOIA request. 

Mr. LEVIN. You are not aware of the FOIA request? 

Ms. CHAO. No, I am not, not that one, no. We receive thousands 

of FOIA requests. I will look into it. 

Mr. LEVIN. Are you aware of the report? 

Ms. CHAO. No, I am not. 

Mr. LEVIN. Is CAFTA coming up, do you think, this year? 

Ms. CHAO. We are involved—— 

Mr. LEVIN. Would you like it to come up this year? 

Ms. CHAO. I am afraid that is not my question to answer. I 

mean, that is not. I do not determine that. 

Mr. LEVIN. Do you have any preference? 

Ms. CHAO. This is an issue which it is up to the Congress, and 

it is up to the U.S. Trade Representative. 

Mr. LEVIN. Will you tell me when you will give me an answer? 

Ms. CHAO. I will go back this afternoon and find out what the 

status is. 

Mr. LEVIN. You will give me an answer as to when you are 

going to—do you usually not answer appeals when made by Members of Congress? 

Ms. CHAO. Of course not. 

Mr. LEVIN. So, this is October? How many months between October and March? Six. So, 6 months, is that your usual time lag 

in order to respond to FOIA requests from Members? 

Ms. CHAO. I would hope not, but I will look into it for you. 

Mr. LEVIN. Is there anybody behind you who has read that report? Would you ask them? 

Chairman THOMAS. If the gentleman would yield, while the 

Secretary is inquiring, the Chair intends, if it is all possible, to continue the hearing. The Chair understands there is a vote on an 

amendment, and then, there will likely be a recommit and final 

passage. So, the Chair will try to keep going through the 15-minute 

amendment vote, and then, we will have the discussion on the motion to recommit. So, if Members who are not readily next in line 

or want to go vote and come back, the Chair will try to maintain 

order and pick up people as they come and go so that they can 

have an opportunity to question the witness. 

17 

Mr. LEVIN. Okay. 

Chairman THOMAS. I thank the gentleman for yielding. 

Mr. LEVIN. Thank you. 

Ms. CHAO. What I have just been told is that the last time you 

inquired about this, the report was not finalized, it was not finished. 

Mr. LEVIN. Is it finished now? 

Ms. CHAO. It is done by the International Labor Affairs Bureau. 

We are going to have to go and ask. 

Mr. LEVIN. All right; you mentioned quickly, you said something 

about Social Security going, in your word, bankrupt. When do you 

say that is going to happen? 

Ms. CHAO. The President has always said—— 

Mr. LEVIN. No, no, when do you think it is going to happen? 

You are a trustee. What is the—— 

Ms. CHAO. I think the year was 2042 when the fund will become 

insolvent. 

Mr. LEVIN. Not bankrupt. 

Ms. CHAO. That is correct. 

Mr. LEVIN. So, you withdraw the word bankrupt? 

Ms. CHAO. That is correct. 

Mr. LEVIN. Thank you. 

Chairman THOMAS. The gentleman yields back the balance of 

his time. The gentlewoman from Connecticut wish to inquire? 

Mrs. JOHNSON. Thank you, Mr. Chairman and welcome, Secretary Chao. First of all, let me congratulate you on this proposal 

to allow States to merge the various job training grants. Five years 

ago, as Chairman of the Subcommittee on Human Resources of this 

Committee in combination with the Chairman of the parallel Committee in the Education and Labor Committee, we held a joint 

hearing, and we had President Clinton’s appointees beg us to do 

this. 

As one of the States that piloted the one-stop centers, I have 

been accosted by people who advise unemployed people saying I am 

sitting here doing nothing because there are no TAA people available. I could be helping other people who are unemployed. It is 

really outrageous that Congress has been unable to overcome their 

silo approach to problems and recognize that unemployed people 

need help. Our one-stops are terrific. The Department of Labor resources at the State level have become far more sophisticated in 

both training and what jobs they are training for, and so, I really 

thank you for your leadership on that grant issue. It passed without much comment on the House floor, at least in the House so far, 

you have gotten no credit for it, but I can tell you people have been 

pressing for this for years, and I want the record to note that you 

deserve credit for leadership in this regard. Now, my question goes 

to last year, we passed bipartisan antifraud legislation. How has 

the Department of Labor—this is in regard to employers paying the 

right amount of unemployment taxes—how has the Department of 

Labor worked with States to assure that these problems are addressed? 

Ms. CHAO. We understand very well how important our programs are, and we want to ensure that they are being used in a 

way that will optimize the beneficiaries’ needs, and so we indeed 

18 

have devoted about $30 million to ensuring that we minimize fraud 

and abuse of the program, and especially with identity theft increasing as well, it is very important that we focus on this problem. 

Mrs. JOHNSON. It certainly is, and I appreciate the Department’s healthy working relationships with our State Department of 

Labor. That has made a lot of things happen in a way that in the 

past they really have not. 

Mr. Chairman, I yield back the balance of my time, and I will 

go vote. 

Chairman THOMAS. I thank the gentleman. The gentleman 

from Louisiana, the Chairman of the Social Security Subcommittee 

wish to inquire? 

Mr. MCCRERY. Mr. Chairman, at this time, I do not have any 

questions, but I would like to reserve the opportunity to question 

later. 

Chairman THOMAS. The Chair, then, would indicate that the 

Committee would stand in recess, and the Chair cannot provide a 

specific time other than 5 minutes after the last vote, because we 

may, in fact, go through a series of procedural votes following this 

particular amendment. The Chair hopes to return no later than 

11:30 a.m. but five minutes after the close of the last vote. The 

Committee stands in recess. 

[Recess.] 

Chairman THOMAS. The Committee will reconvene. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. Welcome, Secretary Chao. According to a biennial report of the Bureau of Labor 

Statistics which comes out of your office, 5.3 million Americans 

were laid off their jobs that they held for more than 3 years between 2001 and 2003. Sixty-5 percent of those displaced workers 

had long work histories and were reemployed by 2004, so twothirds. Now, you have got one-third that did not make it. The majority of them were reemployed, lost wages as compared to their 

prior job, and one-third lost 20 percent or more of their previous 

earnings. That is your situation. 

Johns Hopkins University did a study with the National Science 

Foundation that the inflation adjusted incomes of families in the 

bottom fifth of the economy bounced up and down more than 25 

percent in the early seventies, but by the middle of this decade, 

those annual fluctuations doubled as much as 50 percent, from 47 

to 79. Real family growth income for the lowest fifth of households 

was 116 percent. It was 99 percent for the top fifth. Between 1979 

and 1998, the bottom fifth real family income decreased, decreased 

5 percent, and the top fifth increased by 40 percent. Now, that 

raises several questions about what is happening in our economy, 

and one of them is if you are unemployed, and you were making 

$18 an hour working for Boeing, and you suddenly are offered a 

$10 an hour job flipping hamburgers, why should I go take that 

$10 an hour job when I can wait, and maybe I will ultimately get 

a job that pays me something more than $10? It has been suggested that unemployment insurance to cushion that difference between what you used to make and what you make today is a good 

proposal. It would get people back to work quicker if they knew 

that they were going to be able to match their income, and in an 

ownership society—the President is all big about this ownership soVerDate Aug 31 2005 13:08 Apr 28, 2006 Jkt 049200 PO 00000 Frm 00022 Fmt 6633 Sfmt 6602 E:\HR\OC\23914.XXX 23914
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ciety business. How can you, in an ownership society, know where 

you are going to be if your income fluctuates by 50 percent? How 

do you buy a house? How do you buy a car? How do you fund your 

kids’ education, how do you anything when that is what is going 

on? So, the proposal to cushion that kind of fluctuation and take 

some of it out seems like a good proposal. Is the President willing 

to consider any such thing? 

Ms. CHAO. The President signed the richest TAA program in our 

country’s history. Currently now for a worker in Boeing, if they 

were dislocated, they are probably receiving 104 weeks of unemployment insurance, 104 weeks of training, 104 weeks of direct income support, 65 percent of their health care is taken care of, and 

there is wage insurance. If you are over the age of 50, and they 

get a new job that pays less than their old job, the government will 

come in and pay 50 percent of the differential. 

Mr. MCDERMOTT. Now, you are talking about people covered 

by the trade preference business. 

Ms. CHAO. Right. 

Mr. MCDERMOTT. How about somebody who is just out there 

working for a company, and they lose their job? It is not all from 

Boeing. It is not all related to trade. 

Ms. CHAO. That is right. 

Mr. MCDERMOTT. The loss of jobs in this country. What about 

all of the other people? 

Ms. CHAO. Well, let me respond to your concerns about wages. 

Hourly wages for production and nonsupervisory workers are up by 

about 3 percent in the past year. Hourly compensation in the form 

of the non-farm business sector is up by about 5.2 percent, and 

compensation, as measured by the Employment Cost Index, is up 

by about 6 percent overall. Having said that, there is a whole host 

of—that is what the Department of Labor is there for, is to help 

workers who have lost their jobs and to ensure that they have the 

counseling and the skills training that they need to be able to access good paying jobs in high growth industries. 

Mr. MCDERMOTT. Do you agree that people stay on unemployment longer than they might if they are only offered low-wage jobs? 

Ms. CHAO. About 50 percent of those who are on unemployment 

insurance get a job at about 9.3 weeks. 

Mr. MCDERMOTT. The others just hang on, waiting, hoping it 

will get better? 

Ms. CHAO. No, that is the average, and so, some are shorter, 

and others are longer, and we are very concerned about the longterm unemployed, which is why we are seeking reauthorization of 

workforce development, WIA, so that there is greater flexibility to 

allow Governors to have the access to different funding streams 

which are coming into their States. 

Mr. MCDERMOTT. Have you looked at all your proposals by 

talking to Governors and States about their unemployment programs? Have you got the Governors’ buy-off on all of the programs 

that are going to be proposed in this Congress? 

Ms. CHAO. The reauthorization of the WIA is currently ongoing, 

and so, it has been passed in some similar form by the House the 

previous 2 years, and the WIA-plus is a different and new form 

20 

which is our effort to continue to work with Congress to come up 

with new ideas, and so, that is currently being discussed. 

Mr. MCDERMOTT. That was not my question. My question was 

have you talked to the Governors? 

Ms. CHAO. Yes. 

Mr. MCDERMOTT. Have they registered anything—— 

Ms. CHAO. Yes, of course, we have talked to the governors and 

their staffs, yes. 

Mr. MCDERMOTT. They are all saying this is fine. 

Ms. CHAO. I think no, that is not true, of course; you know that. 

Mr. MCDERMOTT. Yes. 

Ms. CHAO. Some of them are learning more about the program, 

and we are just rolling it out now. 

Chairman THOMAS. The gentleman’s time has expired. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. 

Chairman THOMAS. Does the gentleman from Michigan wish to 

inquire? 

Mr. CAMP. Well, I do, thank you, Mr. Chairman, and thank you 

Secretary Chao, for being here today. I want to thank you for your 

continued efforts on behalf of displaced workers, particularly your 

personal responses to plant closings in my district, and I want to 

thank you for that. For the last couple of years, the Department 

of Labor has distributed TAA funds differently than in years past, 

and instead of receiving one lump sum, States are getting a smaller 

base payment up front, and then, throughout the year, they can reapply as their caseload requires or demands. I just have a couple 

of questions: how this is working for the Department, how it is 

working for the States, and I do want to thank you at least with 

respect to Michigan, the work that the Department has done with 

the State of Michigan, particularly in trying to develop the assumptions that determine these payments and working with the State 

on that. I wondered if you had any comments on that and what the 

pluses and minuses of this process might be. 

Ms. CHAO. The TAA program is one that we have worked very 

hard to make as effective as we can, and the statutory timetable 

is 40 days, and we have reduced that to about 31 days. So, there 

is a very quick turnaround. Second, as I mentioned, this is the richest program that our country has ever had, and it really enables 

workers who are seeking jobs to access high growth opportunities 

in sectors that again have high growth potential, and so, that is all 

done through the common delivery system, the one-stop career centers. Right now, for recipients, it is kind of confusing, because there 

are about nine different funding streams. So, the recipient has to 

be fairly sophisticated in understanding what government programs are available. It is our goal that the funding streams, on a 

voluntary basis, per State, be allowed to be merged so that the 

Governors would have an easier time accessing these funds, knowing what the total amount of the moneys are and using it as part 

of their economic development and workforce training purposes. 

Mr. CAMP. If those reapplication payments are received near the 

end of the fiscal year, what happens to those funds? Do those revert to the Department of Labor? Or can the State continue to distribute those funds? 

Ms. CHAO. We basically return it to the States. 

21 

Mr. CAMP. All right; and if the State receives a payment from 

the Department of Labor near the end of the Federal Government’s 

fiscal year, they get to keep that payment and continue to use that 

for any caseload, any out of work or displaced workers that they 

have. 

Ms. CHAO. Right. 

Mr. CAMP. I also want to ask just a brief question about the 

pilot program on the reemployment accounts. I realize that 21 

States received awards out of 22 that applied. I regret my own 

State of Michigan, which has the second-highest unemployment 

rate, did not apply for these. What is the Department of Labor 

doing to work with States to ensure that they are able to access 

all of these funds and benefits? 

Ms. CHAO. Well, first of all, these are all voluntary, so it really 

does depend on the Governors as to whether they want to have access to an additional pot of money that would be available to them, 

and this, again, would be targeted at the vulnerable, the especially 

difficult to place and the long-term unemployed. So, this is an additional pot of money that would be available, and we would hope 

that Governors would avail themselves of it. 

Mr. CAMP. All right; thank you very much. Thank you, Mr. 

Chairman. 

Chairman THOMAS. I thank the gentleman. Does the gentleman 

from Georgia, Mr. Lewis, wish to inquire? 

Mr. LEWIS of Georgia. Thank you very much, Mr. Chairman. 

Welcome, Madam Secretary, welcome. 

Ms. CHAO. Thank you. 

Mr. LEWIS of Georgia. How long have you been a trustee of the 

Social Security Trust Fund? 

Ms. CHAO. It is part of the responsibility of being the Secretary 

of Labor, so it is 2001. 

Mr. LEWIS of Georgia. So, you are serving your second term, beginning your second 4 years. 

Ms. CHAO. Whoever is the Secretary, yes, yes, I guess—it is not 

me particularly. It is whoever is the Secretary of Labor, Secretary 

of the Treasury, and Secretary of Health and Human Services.. 

Mr. LEWIS of Georgia. I understand that, Madam Secretary. I 

understand that very well. What is your understanding of the 

President’s proposed private accounts? How do you see this fitting 

into strengthening Social Security? 

Ms. CHAO. Well, we have got a baby boomer generation that is 

retiring. We will have an insolvent situation in 2042. Sixteen workers, as you well know, in 1950, supported one retiree. Now, we only 

have three workers supporting one retiree. So, to preserve the system, while it is not in crisis now, something has to be done. 

Mr. LEWIS of Georgia. Madam Secretary, is there such a thing 

as a Social Security Trust Fund? We have heard just a few days 

ago that no such thing really existed. I would like for you to elaborate. 

Ms. CHAO. No, it is a pay as you go system. It is a pay as you 

go system. 

Mr. LEWIS of Georgia. Can you tell me what do you mean by 

that? 

22 

Ms. CHAO. Basically, a person who goes to work has Social Security taxes taken from them, and then, that Social Security tax is 

used to support the retirement of someone who is retired. So, it 

takes about 16 workers—it took about 16 workers to support one 

retiree in 1950, and only—right now, there are about three workers, because we have a shrinking workforce. 

Mr. LEWIS of Georgia. Madam Secretary, as Secretary of Labor, 

I would like to know from you do you truly believe that Social Security is a significant source of income for retirees, workers, for retired workers, disabled workers, survivors? Does Social Security effect and assure some degree of independence and dignity for our 

seniors? What would people do without Social Security? 

Ms. CHAO. The President agrees with all of that, and he has 

never said to do without it. What he is trying to do is to maintain 

the system. 

Mr. LEWIS of Georgia. I want to know how you feel. 

Ms. CHAO. I feel the same way. 

Mr. LEWIS of Georgia. Really? 

Ms. CHAO. Yes, we need to preserve the system. That is what 

we are trying to do. 

Mr. LEWIS of Georgia. Do you think by privatizing the system 

is the best way to strengthen it and to preserve it for generations 

yet unborn? 

Ms. CHAO. Well, first of all, retirees and current retirees are not 

impacted. This is a voluntary program for young people if they so 

choose. 

Mr. LEWIS of Georgia. Have you been out campaigning for—— 

Ms. CHAO. No. 

Mr. LEWIS of Georgia. You have not spent part of the 60 days 

with the President? 

Ms. CHAO. Not yet. 

Mr. LEWIS of Georgia. You plan to do so? 

Ms. CHAO. Yes. 

Mr. LEWIS of Georgia. Thank you, Madam Secretary. 

Chairman THOMAS. I thank the gentleman. The gentleman 

from Kentucky, Mr. Lewis, wish to inquire? 

Mr. LEWIS of Kentucky. Yes, thank you, Mr. Chairman. Madam 

Secretary, welcome. It is good to see you here. Just following up on 

the Social Security question, if you do take the personal accounts 

off the table, as some have suggested, then, what is left to save Social Security for our kids and our grandkids? Yes, Social Security 

is great for my father who is 88 right now, and it is probably going 

to be great for me, because I am 58. But my daughter, who is 22, 

my son, who is 33, and a granddaughter who is 14, I want to look 

out for their interests for the future. If you take the personal accounts off the table, then, the only thing left for them would be increased taxes at a very significant rate, cutting benefits, means 

testing. We are looking at some pretty drastic measures if we do 

not look at personal accounts. I personally believe that we can basically ensure those personal accounts through the Social Security 

system as it is. So, I think if we do not look at personal accounts, 

then, we are asking our children to bear a burden that they are 

not going to be able to bear. Would you comment on that? 

23 

Ms. CHAO. Well, Congressman, you are exactly right. The 

choices are very tough. If, indeed, we do not think of a new way, 

a third way, we would be cutting benefits or increasing taxes. If 

you take a 30-year-old today, if the current system continues, they 

will experience a 27 percent cut in their benefits when they hit retirement. 

Mr. LEWIS of Kentucky. Yes. Thank you, Madam Secretary. 

Chairman THOMAS. The gentleman from California, Mr. Becerra, wish to inquire? 

Mr. BECERRA. Thank you, Mr. Chairman. Madam Secretary, 

thank you for being here with us. I appreciate your testimony. I 

would like to continue on the line of questioning regarding Social 

Security, but I would first like to make sure that I understood your 

responses to Mr. Levin with regard to the report that was done by 

the Department of Labor regarding labor standards and enforcement within Central American countries. That report, for which 

money was provided to the Department of Labor during the 2002 

fiscal year, and it apparently was done, and last year, a request 

was made by Mr. Levin through a Freedom of Information Act, 

which ultimately was denied by the Department. Are you going to 

be able to get back to him? I want to make sure I am clear on what 

your response was. You will be getting back to him? He has appealed the denial. He appealed that denial back in October, and 

you will be able to get back to him a response as to why you denied 

or what will happen with that report that was supposed to be published? 

Ms. CHAO. Of course. We respond to every question by the Committee. We have already done so. 

Mr. BECERRA. Thank you. I think he asked for a time line, and 

I am not sure if you are prepared to give a time line, but do you 

know more or less when he can expect to receive a response? 

Ms. CHAO. As soon as I get back to the office, I will take a look 

at this. 

Mr. BECERRA. I appreciate that very much. On Social Security, 

as one of the—what is it?—six trustees for Social Security and with 

the fiduciary financial responsibility to sustain the Social Security 

system, I am wondering if you can comment on a couple of things. 

You mentioned that Social Security is not guaranteed, and your 

quote was it is you said it is going bankrupt. First, I am wondering, if you can tell me—— 

Chairman THOMAS. Will the gentleman yield briefly? 

Mr. BECERRA. Yes. 

Chairman THOMAS. In the response to the gentleman from 

Michigan, the Secretary indicated that the word insolvent was 

what she was intending to use and, in fact corrected the record so 

that it would be insolvent. 

Mr. BECERRA. I appreciate that. 

Chairman THOMAS. I thank the gentleman. 

Mr. BECERRA. Thank you very much, Mr. Chairman. In terms 

of the guarantee, are you aware of any time in the 70 years that 

Social Security has paid out that it has not paid out the benefits 

that it has guaranteed to any individual who is retired? 

Ms. CHAO. No, we want to keep it that way. 

24 

Mr. BECERRA. So, when you say it is not guaranteed, is there 

some basis, factual basis, for you to make the statement, or did you 

mean that in the future, it might not be guaranteed? 

Ms. CHAO. The program is there. We want to make sure that 

the promises that the government has made to the worker is indeed going to be kept. 

Mr. BECERRA. When you said is not, I am wondering if you 

meant to say in the future will not be versus is not. Is not is 

present tense, and I am wondering if you are telling us, or you are 

saying that the system is not guaranteed. 

Ms. CHAO. The program will exist. We want to make sure that 

payments are forthcoming. 

Mr. BECERRA. Right, as they are today. 

Ms. CHAO. If there is a financial problem, then, the proceeds 

under the program are not guaranteed. 

Mr. BECERRA. As we go out and talk to the American public, 

is it fair for me to go out into the public and say that the Secretary 

of Labor says that Social Security is not guaranteed? 

Ms. CHAO. If something is not done about the Social Security 

system, payments under the Social Security program perhaps will 

not be guaranteed. That is going to be a problem. 

Mr. BECERRA. That does not quite answer the question, but I 

just wanted to make sure, because if I go around the country saying Secretary Chao has said that Social Security is not guaranteed, 

I am trying to make sure I am not misquoting you. 

Ms. CHAO. I think that you can say that the average 30-yearold today will have 27 percent of their benefit cut. 

Mr. BECERRA. If we do nothing. 

Ms. CHAO. If nothing is done about the Social Security system 

today. 

Mr. BECERRA. That is based on an actuarial projection of what 

might happen into the future. Would it be fair to say that if the 

actuarial projection of the trustees were to be the more optimistic 

projection that it could be that that 27-year-old will get 100 percent 

of his benefits? 

Ms. CHAO. Highly unlikely at this point. 

Mr. BECERRA. Is that not one of the projections that you, yourself, as a trustee have issued, that says that if we have growth 

rates that exceed 2 percent that that 27-year-old will get 100 percent of his benefits if we do nothing? 

Ms. CHAO. I am not aware of that. 

Mr. BECERRA. You are not aware of that report you issued? 

Ms. CHAO. No. I do not know what number you are referring to. 

Mr. BECERRA. Okay; your own report—as a trustee, you issue 

a report. 

Ms. CHAO. Yes, it is quite a thick report. 

Mr. BECERRA. Yes, it is a report that you issue, where you indicate based on what your demographers and your statisticians and 

your economists tell us that if we have growth rates that exceed 

2 percent, then, we may not have to do anything to Social Security, 

not that anyone is suggesting that, but we might not have to do 

anything, because growth rates would be enough to cover any 

shortfall that might exist for that 27-year-old when he retires. Are 

you familiar with that aspect of your report? 

25 

Ms. CHAO. I think it is very unsettling for workers and retirees 

to be faced with the uncertainties in their future payment streams, 

which is—they should not have to face uncertainty in their retirement. What we are trying to do is to make it more secure and stable for them. 

Mr. BECERRA. Thank you, Mr. Chairman. 

Chairman THOMAS. The gentleman’s time has expired. The 

Chair would indicate that when the term guarantee is used, you 

would think that could provide you a legal course of action to recover promises not delivered. The courts have said, however, that 

Social Security benefits are not guaranteed in the sense that you 

have an absolute right to them. Congress can, and, in fact, Congress has in the past changed the benefits and there is no guarantee that the benefits as currently proposed will, indeed be delivered if Congress chooses to change it, or on a pro rata basis, they 

would not be available. 

Mr. BECERRA. Mr. Chairman, if you would yield on that clarification, I think you are correct: Congress can change the law, but 

as the law currently exists, it is an entitlement and therefore is a 

guarantee unless there is a Congress that wishes to change it and 

no longer guarantee for those workers that they will receive what 

they have been promised. 

Chairman THOMAS. That is correct, and that is what Congress 

did in 1983 when it cut the benefits by extending the age and, in 

fact, delayed the cost of living increase. 

Mr. BECERRA. So, it would have to be an act of Congress. Members of Congress would have to affirmatively decide that. 

Chairman THOMAS. There would have to be a statute change, 

definitely a statute change, but that does not mean that you have 

a legal recourse. We are in the last few seconds on a vote on the 

motion to recommit. We will then have final passage. The Chair 

will now renew the statement that we will reconvene at 5 minutes 

after the last vote. The Committee stands in recess. 

[Recess.] 

Chairman THOMAS. The Committee will reconvene, and the 

Chair will indicate that Members have an additional half an hour 

if they so choose to inquire of the Secretary, and the Chair recognizes the gentleman from Washington. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. I ask unanimous 

consent to enter into the record a memo talking about the information that the Secretary gave us about the trade preference utilization in terms of raising incomes by 50 percent. I think the figures 

come from a very small database, and I would like to put that in 

the record. Thank you. 

Chairman THOMAS. Without objection. 

[The information follows:] 

Mr. Chairman, in response to my question about the need to help cushion the loss 

of wages for displaced workers who subsequently become reemployed in lower paying jobs, Secretary Chao responded that these workers may be covered by an existing program if they are over the age of 50. However, this program, known as Alternative Trade Adjustment Assistance (ATAA), provides a wage insurance subsidy to 

only a very small number of displaced workers who lose earnings upon reemployment. In fact, during its initial implementation, only 42 workers in the entire country participated in the program. This number stands in stark contrast to the millions of workers who are laid off and then find another job at lower wages. If we 

are serious about helping workers in transition from one job to another, a signifiVerDate Aug 31 2005 13:08 Apr 28, 2006 Jkt 049200 PO 00000 Frm 00029 Fmt 6633 Sfmt 6602 E:\HR\OC\23914.XXX 23914
26 

cantly more comprehensive effort is obviously needed. As part of the Trade Act of 

2002 (Pub. L. 107–210), Congress established a wage insurance program that is limited in scope, duration and resources. The Alternative Trade Adjustment Assistance 

program is a 5-year demonstration project that provides partial wage replacement 

to a strictly defined group of workers. While the Department of Labor has not publicly released data for FY2004, only 42 workers participated in the program in the 

first two months of its existence in FY2003. According to the President’s FY2006 

budget, only $5 million was expended on the program in FY2004. 

In order to qualify for the ATAA program, workers must be: (1) eligible for regular 

Trade Adjustment Assistance (meaning they lost their job for reasons related to 

trade); (2) be over age 50; (3) forgo the opportunity to participate in TAA-funded 

training, (4) have no easily transferable skills, (5) obtain reemployment within 26 

weeks after being laid off, and (6) earn a wage in their new job that is less than 

$50,000 and less than their previous wage. If a worker meets these criteria, the 

wage insurance program provides 50 percent of the difference between the participant’s pre- and post-layoff earnings up to a maximum of $10,000 over 2 years. According to the government Accountability Office (GAO), implementation of and participation in the wage insurance program has been extremely limited. Only 19 states 

implemented their wage insurance programs during 2003. Of the 1,962 approved 

TAA petitions in FY2003, only 60 included approved requests for the wage insurance program. The Department of Labor has not yet released data on implementation in FY2004. 

GAO cites several reasons for the lack of participation in the wage insurance program. States have been slow to implement the program, in part because of difficulty 

developing new payment systems for issuing workers’ checks. In addition, state officials and employers have found the wage insurance program eligibility criteria problematic. In order for workers to qualify for most benefits under the general TAA program, a petition must be submitted on their behalf either by the employer experiencing a layoff, a group of at least three affected workers, a union, or the state or 

local workforce agency. Unlike with other benefits, however, this petition must include a specific request for wage insurance in order for workers to be eligible for 

the program. Since most petitioners are not aware of all the forms of assistance 

available under TAA, this requirement prevents many eligible workers from participating in the wage insurance program. 

Another problematic eligibility requirement is that employers must confirm that 

their former employees lack easily transferable skills. It can be difficult for an employer to assess the skill levels of an entire group of affected workers, who may possess a diverse set of skills and skill levels. In addition, the Trade Act requires that 

to be eligible for the wage insurance program, workers must lack easily transferable 

skills, yet find reemployment within 26 weeks of layoff. These somewhat contradictory requirements exclude workers who can find reemployment quickly but at lower 

wages—the very workers who may be best served by a wage insurance benefit. In 

fact, the only workers who are likely to qualify for the benefit are those who take 

low-skill jobs at significant pay cuts, and for whom the $10,000 maximum subsidy 

falls short of compensating them for their wage loss. I hope the Department of 

Labor can improve the implementation of the ATAA program so more potentially 

eligible workers might benefit. However, the eligibility criteria for the program is 

such that it will always exclude the vast majority of workers who suffer earnings 

loss upon reemployment. Nevertheless, the program’s basic model of providing wage 

insurance is a step in the right direction. If we learn the right lessons of reducing 

limitations, obstacles and complexity, such a design might begin to provide meaningful assistance to the increasing number of displaced workers who suffer significant declines in earnings when they find a new job. 

Chairman THOMAS. The gentleman from North Dakota wish to 

inquire? 

Mr. POMEROY. I do, Mr. Chairman. Thank you. Madam Secretary, thank you for making yourself available and especially 

through these delays of votes. We appreciate it. Those of us on the 

bottom rung sometimes do not get to ask under these circumstances. We appreciate you hanging around. I have been taking 

a good look at your PBGC recommendations, and I just have a few 

questions on them. First, it looks like among the recommendations 

with PBGC, there is going to be a change in investment posture. 

27 

Can you describe it? This is not a trick question. It appears as 

though you are drawing down equity investment in PBGC. 

Ms. CHAO. This is not part of a legislative proposal. That is actually within the administrative purview of the PBGC. There is an 

advisory Committee which recommends that. 

Mr. POMEROY. Let me just think about this. Now, how does the 

governing structure of PBGC work? Who does the head of PBGC 

report to? 

Ms. CHAO. The Secretary of Labor is the Chairman of the 

PBGC. The Secretary of Commerce and Secretary of the Treasury 

are also involved. 

Mr. POMEROY. Okay; so, we have been talking about your Social Security trustee work. You are also chairman of the board of 

the PBGC. 

Ms. CHAO. That is correct, in an oversight capacity. 

Mr. POMEROY. The head of PBGC works for the Board, or does 

he work for the Department of Labor? 

Ms. CHAO. He works for the Board. Actually, it is independent. 

Mr. POMEROY. I want to get back to this investment issue. 

Ms. CHAO. Yes. 

Mr. POMEROY. What are you doing relative to equity investment going forward for PBGC? 

Ms. CHAO. PBGC, over the years, has tried to find out and determine through—— 

Mr. POMEROY. We have got about 3 minutes now, and you are 

not answering my question. Let me put it to you in a way that can 

be quickly answered: I understand that present equity investment 

posture for PBGC is about 30 percent, and I also understand that 

under the reform proposal, it is going to come down to about 15 

percent. Do you have knowledge about this matter? 

Ms. CHAO. That is incorrect. 

Mr. POMEROY. Okay; would you correct me? 

Ms. CHAO. This is an administrative matter within PBGC. It is 

made by the Investment Advisory Committee, which advises the 

PBGC. 

Mr. POMEROY. Is there going to be a reduction in the equity position for the PGBC? 

Ms. CHAO. There already has been. 

Mr. POMEROY. What is the dimension of it? 

Ms. CHAO. It has increased, it has decreased. Most recently, it 

has decreased. 

Mr. POMEROY. Under the present PBGC Board’s direction, and 

of course, the PBGC Board has authority over the PBGC Investment Board, is there a further reduction in the equity position anticipated? 

Ms. CHAO. No, there is not. 

Mr. POMEROY. What will be the ultimate equity position of the 

PBGC? Fifteen percent? 

Ms. CHAO. I think it is still about Twenty-eight to 30. 

Mr. POMEROY. Fifteen percent is the published figure. You are 

telling us today that there will be no change in moving out of equities for PBGC? 

Ms. CHAO. It depends on the market. If it goes up, it will go up. 

If it goes down, it goes down. 

28 

Mr. POMEROY. No, it also depends on investing strategy. Do 

you move it into fixed assets, or do you move it into equities? 

Ms. CHAO. Yes, and the Advisory Committee makes that decision. 

Mr. POMEROY. Well, it is my understanding that they are moving very dramatically into fixed assets. Are you saying that is incorrect? 

Ms. CHAO. Recently in the last few years, when the market was 

down, yes, they did, but in other years, they have moved up. 

Mr. POMEROY. What is anticipated going forward, nothing? 

Ms. CHAO. No. 

Mr. POMEROY. No change? 

Ms. CHAO. It is the advisory group’s recommendation. 

Mr. POMEROY. As Secretary of Labor and Chairman of the 

Board of PBGC, you are telling us that no change is anticipated in 

the equity holdings of PBGC. Is that your testimony this morning? 

Ms. CHAO. It depends on the market. If you understand the 

market—— 

Mr. POMEROY. No, it does not depend on the market. It depends upon the investment strategy. 

Ms. CHAO. No, we do not anticipate changing the investment 

strategy. 

Mr. POMEROY. Okay; thank you very much. The other proposals are also interesting. Now, I note in your testimony, you indicate that the reform proposal is to improve pension security for 

workers and retirees, stabilize the defined benefit pension system, 

and avoid a taxpayer bailout. Now, I notice the President’s budget 

anticipates $18 billion in higher premium revenue for coverage 

under PBGC; is that correct? 

Ms. CHAO. Yes. 

Mr. POMEROY. Now, it is also my understanding that the increases are 60 percent premium increases for funded plans and 

much steeper increases for underfunded plans; is that correct? 

Ms. CHAO. Will you repeat the question, please? 

Mr. POMEROY. It is my understanding that underfunded plans 

are going to have a hellacious—that is a pejorative term—it is my 

understanding that underfunded plans are going to have extraordinary premium increases. In fact, I have heard an analysis that 

in order to get the kind of revenue anticipated to reach $18 billion 

as contained in the President’s budget, premium increases for underfunded plans would go up potentially from $9 per $1,000 of 

underfunding to $136 of $1,000 of underfunding, a 1,400-percent 

increase. Is that correct? 

Ms. CHAO. No, that is not correct. 

Chairman THOMAS. The gentleman’s time has expired, and the 

Chair believes this would be an excellent question to have the Secretary and the Department respond in writing to the gentleman in 

terms of that analysis. 

Ms. CHAO. I would be glad to. 

Mr. POMEROY. I would be more than happy to, Mr. Chairman, 

because I believe extraordinary premium increases actually destabilize the entire pension fund system and PBGC as well. 

Chairman THOMAS. The Chair is interested in the response to 

the gentleman’s question. The gentleman from California, the 

29 

Chairman of the Subcommittee on Human Resources wish to inquire? 

Mr. HERGER. Thank you, Mr. Chairman. Madam Secretary, in 

the last Congress, we passed out of the Subcommittee I chair bipartisan legislation that was passed by the Congress and signed by 

the President calling on States to take stronger steps to ensure 

that all employers are paying their proper and fair share of unemployment taxes and not engaging in the abusive practice of State 

Unemployment Tax Acts (SUTA) (Social Security Act, 1935, 49 

Stat. 620) dumping. Could you tell us, please, maybe review for us 

how the States are implementing this legislation and how the Department of Labor is helping them prevent the type of abuses that 

brought this issue to our attention? 

Ms. CHAO. I would be more than glad to. We are obviously concerned about employers who are not carrying out their responsibilities, and the SUTA dumping initiative would certainly prevent unscrupulous employers from doing that. Six States already have enacted legislation. Two States have bills awaiting Governors’ signatures. Nine States’ bills passed one house of the State legislature, 

and 20 States have bills in Committees. Most legislatures were not 

in session when the law was enacted, and we anticipate that States 

will introduce and enact legislation by the required date. 

Mr. HERGER. Thank you, and can you tell us, are there any 

other measures that the current budget proposes to limit fraud and 

abuse involving unemployment benefits? 

Ms. CHAO. We are, of course, concerned about fraud and abuse, 

because we want to make certain that all the funds are going to 

help people who are really in need. With the increase in identity 

thefts also, we are very concerned about possible abuses, again, of 

the beneficiaries themselves under this program, so the President’s 

budget has proposed about an increase of $30 million to try to tackle this problem. 

Mr. HERGER. Thank you, Mr. Chairman. I yield back my time. 

Chairman THOMAS. I thank the gentleman. Does the gentlewoman from Ohio wish to inquire? 

Ms. TUBBS JONES. Mr. Chairman, thank you very much. Labor 

Secretary Chao, it is always good to see you here in our hearing 

room. How are you today, ma’am? 

Ms. CHAO. Thank you. 

Ms. TUBBS JONES. How are you today? 

Ms. CHAO. Fine, thank you. 

Ms. TUBBS JONES. Okay; good. As a woman and minority, you 

know how heavily women and minorities depend on Social Security 

as probably their largest or only retirement benefit. You are familiar with that, are you not, ma’am? 

Ms. CHAO. What was your point, ma’am? 

Ms. TUBBS JONES. The question is are you familiar with the 

fact that African-Americans and other minorities and women rely 

heavily on Social Security as a retirement benefit? 

Ms. CHAO. I am listening to you, ma’am. 

Ms. TUBBS JONES. You could not be. 

Ms. CHAO. No, I am. 

Ms. TUBBS JONES. The question is are you aware—— 

Ms. CHAO. I am now, because you have told me that. 

30 

Ms. TUBBS JONES. You were not before. 

Ms. CHAO. We can have a whole discussion about this, but 

please, go ahead. 

Ms. TUBBS JONES. Just please answer my question, ma’am. 

You are a member of the Social Security—— 

Ms. CHAO. I am aware that some believe that, yes. 

Ms. TUBBS JONES. That some believe it? 

Ms. CHAO. Yes. 

Ms. TUBBS JONES. You are a member of the Social Security 

Trustee Board, are you not? 

Ms. CHAO. Yes, ma’am, yes. 

Ms. TUBBS JONES. If you would turn around and talk to any 

of your employees in the back there, they all will—— 

Ms. CHAO. They are my colleagues. 

Ms. TUBBS JONES. Tell you that women and minorities heavily 

rely upon Social Security as a retirement benefit. 

Ms. CHAO. Yes. 

Ms. TUBBS JONES. Wow, it took us a long time to get to that 

point. Now, as a woman and minority and a member of the Social 

Security Trustee Board, what efforts are you making to assure 

women and minorities that Social Security will be a benefit that 

they can receive the guaranteed benefit that they are entitled to 

and paid into? 

Ms. CHAO. As an American, I am concerned about the retirement security of all Americans and the integrity of the system is 

at stake. The President is trying—— 

Ms. TUBBS JONES. Understand this, that you are blessed as a 

woman and a minority to be sitting on that trustee board. For 

women and minorities fighting for you to have that opportunity, 

Secretary Chao, you would not be there. So, my question is you are 

in the room at the table on behalf of those folks. What are you 

doing to assure women and other minorities that they have an opportunity to be assured of Social Security benefits? 

Ms. CHAO. By shoring up the financial integrity of the Social Security system going forward into the future. 

Ms. TUBBS JONES. What is your proposal to shore up Social Security going into the future? 

Ms. CHAO. I think it is important for us to have an understanding as to what the problem is, and together, we can—— 

Ms. TUBBS JONES. That is not my question. My question is 

what is your proposal for shoring up Social Security going into the 

future? 

Ms. CHAO. We are not looking for monologues, okay, we are 

looking for dialog, and I think it is very important for us to have 

dialog on this issue. 

Ms. TUBBS JONES. I did not ask about we. I said as a member 

of the Social Security trustee board, which you are, ma’am, what 

is your proposal? I am trying to have a dialog, and you are giving 

me crap in your answer. 

Ms. CHAO. I do not see why my proposal is that important, 

frankly. It is the Social Security proposal as put forth by the Administration. 

Ms. TUBBS JONES. I understand, but you are a trustee, are you 

not? 

31 

Ms. CHAO. Yes. 

Ms. TUBBS JONES. You understand what a trustee’s job is, do 

you not, ma’am? 

Ms. CHAO. I am very much aware—— 

Ms. TUBBS JONES. Because you have a fiduciary relationship—— 

Ms. CHAO. Of the fiduciary responsibilities. 

Ms. TUBBS JONES. Understanding the fiduciary relationship—— 

Ms. CHAO. Yes, and that is why this proposal as the President 

has put forward is very necessary. 

Ms. TUBBS JONES. What is it? What is the proposal? 

Ms. CHAO. The President has said retirees and current retirees 

are going to have their Social Security payments protected. It is a 

voluntary—— 

Ms. TUBBS JONES. What is it you are doing to shore up Social 

Security, ma’am, as a trustee? 

Ms. CHAO. If nothing is done, as I mentioned, going forward, if 

you take a look at the average 30-year-old today, if nothing is done 

with a declining population base, that worker is going to have their 

benefits cut by 27 percent. 

Ms. TUBBS JONES. You guarantee that all workers are going 

to have their benefits cut under whatever proposal you are talking 

about. Talk to me for a moment: do you agree that private accounts 

alone are not enough to cure the solvency of Social Security? 

Ms. CHAO. I think it is one of the proposals that is being put 

forward. 

Ms. TUBBS JONES. The question is are private accounts alone 

enough to cure the solvency of Social Security, Secretary Chao? 

Ms. CHAO. It is one of the solutions, yes. 

Ms. TUBBS JONES. Alone, it cannot cure the solvency. 

Ms. CHAO. I do not really see what the point is in—— 

Ms. TUBBS JONES. I know you do not see the point, because 

you do not want to answer the question. 

Ms. CHAO. No, not at all. 

Ms. TUBBS JONES. I am looking for an answer to my question 

in writing, Mr. Chairman. Thank you for the time. 

Chairman THOMAS. The gentleman from Florida wish to inquire? 

Mr. FOLEY. Happily. Thank you, Mr. Chairman. It is hard to 

answer a question on an aspect of saving Social Security if the 

other side will not even allow the debate to begin. The other side 

has refused to even talk about a personal account. They have said 

dramatically that if that conversation remains on the table, then, 

it is a non-starter. One of the biggest applauses I have heard recently at a townhall meeting, Democrat and Republican debating 

Social Security was when a college student said up and basically 

asked the question of our Democratic colleague that participated: 

what is the Democratic proposal? You do not seem to have one. He 

acknowledged to his chagrin that they did not. Now, I applaud the 

Administration for talking about a critically important program. 

Secretary Chao, I believe you are seated there because you have 

earned your way as a Cabinet Secretary. 

Ms. CHAO. Thank you. 

32 

Mr. FOLEY. Not because of being a woman or an Asian but as 

an American who has excelled in her responsibilities and tasks. 

Ms. CHAO. Thank you. 

Mr. FOLEY. I also want to suggest and thank you and the Administration for the crackdown on corporate crime. We have seen 

the result of that yesterday in the significant penalty to a person 

who abused their trust. I also want to applaud you for taking that 

same attempt to bring transparency to the finances of union organizations. In Florida, we have seen several union officials go to jail 

recently as they have been kiting moneys out of the accounts of 

hard working union members, and they have had their moneys 

failed to be accounted for, so I applaud you for that. The proposals 

on Social Security clearly are controversial, but I asked last week 

the basic question: if I paid $1 in today, and 30 years from today 

you told me I can only receive 73 cents back, that is technically a 

default in American business, is it not? 

Ms. CHAO. Yes. 

Mr. FOLEY. So, if I cannot pay back my responsibilities, I am 

de facto not necessarily bankrupt, but I am in a contested state. 

I am not necessarily solvent. I am illiquid, correct? 

Ms. CHAO. Yes. 

Mr. FOLEY. The Administration is at least trying to talk to the 

American public about options. I do not think there is anything 

that has been dramatically forced by the President onto Congress: 

private accounts, retirement age, cap, raising the $90,000, correct? 

So, it is an open dialog, and I hope we can continue to have a dialog rather than a screaming match. I also wanted to ask you a 

question relative to the Bureau of Labor Statistics as it conducts 

its surveys on employment. There is the household survey, the payroll survey, and of course, those numbers tended to be somewhat 

misleading in 2002 and 2003. Reliable and timely economic data is 

critically important for us to function as well as the markets. Now 

that the economy and labor markets have fully rebounded from the 

recession of 2001, has the Department of Labor undertaken any 

comprehensive review of the divergence between the household survey and payroll survey? 

Ms. CHAO. Last month’s numbers were a terrific example of the 

divergence and the complexity of our workforce. Basically, we had 

262,000 new jobs created, but the unemployment went up 5.4 percent, and that is because they are two different surveys. We have 

about 148 million people in our workforce. Fifty million people 

leave their jobs every year, and 50 million people find new jobs, so 

there is great turnover. What we are trying to measure is 0.1 of 

1 percent. The good news is both surveys, the household and the 

payroll survey, are trending upward, and they show that 2.2 to 3 

million jobs have been created in the last 18 months. 

Mr. FOLEY. Thank you. I yield back. 

Chairman THOMAS. I thank the gentleman. Does the gentleman 

from Massachusetts wish to inquire? 

Mr. NEAL. Thank you, Mr. Chairman. Madam Secretary, is it 

your position that there is a crisis in Social Security? 

Ms. CHAO. Well, if nothing is going to be done, there certainly 

is. I think it is solvent now, but in the future, there is going to be 

difficulties in meeting the retirement needs of retirees. 

33 

Mr. NEAL. Could we not treat that issue as you have described 

it, though, as it refers to private pension accounts as well, if they 

do not set aside the proper reserves? 

Ms. CHAO. Yes. 

Mr. NEAL. Having said that, is it your position—the President, 

by the way, has stopped using the word crisis as you know. My 

wild guess is it is because the word does not poll very well any 

longer. Let me proceed. Is it your position that personal accounts 

will take care of the solvency issue? 

Ms. CHAO. I think if nothing is done, the system will face tough 

choices. Policy makers will face tough choices in trying to maintain 

retirement benefits. If it is either a tax increase or a benefit cut, 

and those are not appetizing choices. So, the discussion has been 

hopefully to revolve around the need for some measures to preserve 

our system, and the voluntary retirement accounts are one option 

that we hope people will consider. They are voluntary. 

Mr. NEAL. Is it the position of the Department of Labor that 

that will take care of the solvency issue? 

Ms. CHAO. The Department of Labor is part of this Administration. 

Mr. NEAL. I have noticed. 

[Laughter.] 

Ms. CHAO. As we should be. 

Mr. NEAL. Yes. 

Ms. CHAO. So, I think that would be the case, yes. 

Mr. NEAL. Well, in a sense, I know that you have not had a 

chance to see this, but the President at his press conference this 

morning, quoted here by Bloomberg News says, quote, personal accounts do not solve the issue. So, in a sense, he has kind of left 

people who are out there defending it hanging out there without 

the necessary words of defense, and he has acknowledged at these 

rallies that he is holding—I have been holding my own rallies, incidentally, and there is no admission fee. We do not check to see 

what political party you belong to. We seek no special affiliation. 

We do not have any litmus test of conservative, liberal, or anything; come on in and have a discussion about Social Security. So, 

when we do have this issue before us, and the President says the 

other side will not negotiate, or we want to hear what they have 

got to say or we want to hear about their proposals, you cannot do 

it very well if there is this confined atmosphere for people who only 

agree with the President. That is the reason that he has never 

really answered this question, I suspect, until today: personal accounts do not solve the issue. Let me take you to the next part of 

this, if I might: Mr. Foley said that—he talked about the proposals 

as they relate to Social Security. Would you agree with me there 

really is not a proposal from the President in front of us? Is that 

a fair assessment? 

Ms. CHAO. Well, the President has put forward some of his 

ideas. 

Mr. NEAL. Concepts. 

Ms. CHAO. Yes. That is what he has always done, send principles up in an effort to work with Congress to come up with some 

solutions. 

34 

Mr. NEAL. Fair enough. As a trustee, could you guarantee to the 

audience today and to those of us who are Members of the Committee that there will be no cuts in survivor benefits or for those 

of us who receive disability payments? 

Ms. CHAO. I do not think—— 

Mr. NEAL. You do not think you can do that? 

Ms. CHAO. I do not think I can do that. 

Mr. NEAL. Fair enough, and thank you for your candor on that. 

Let me, if I can, take you to another track here, because I believe 

CAFTA is going to be discussed here in the not too distant future. 

The Administration’s proposal in the President’s budget cuts $369 

million, according to the Congressional Research Service, for job 

training funds in the WIA and employment services budget. If we 

are going to proceed to CAFTA, and let me tell you, if you come 

from the Northeast, and I know you were well educated in that 

part of the country—— 

Ms. CHAO. I hope you do not hold it against me. 

Mr. NEAL. No, in fact, I think it is something—I wish all the 

members of the Administration who went to college in the Northeast might acknowledge that some day. 

Chairman THOMAS. The gentleman’s time has nearly expired. 

[Laughter.] 

Mr. NEAL. I have worked hard on the Chairman as well without 

much success. Would you quickly comment, then, on that notion 

about $369 million being cut at the same time you are going to entertain CAFTA? My area is really getting hurt by this now. 

Ms. CHAO. We are very concerned about training. Basically, we have $1.2 billion in float within the system that is not accountable, 

not accounted for. $1.5 billion goes to infrastructure, and about 

$500 million goes for unaccounted—literally, that is a category. So, 

of that, we think that $300 million can be better utilized in direct 

training. 

Mr. NEAL. Okay; would you recommend to the President that 

this money be restored, though? 

Ms. CHAO. We really, as I mentioned, there is $1.2 billion in excess funds within the system. There should be better utilization. 

Mr. NEAL. Thank you, Mr. Chairman. 

Chairman THOMAS. I thank the gentleman. The gentleman’s 

time has expired. The gentleman from Texas, Mr. Brady, wish to 

inquire? 

Mr. BRADY. Thank you, Mr. Chairman. I look forward to the debate on Central American trade. As you know, because of preferences, almost all of Central America’s goods have access to the 

U.S. market today, most of it duty-free, tariff-free. This will reopen 

two-way trade, so that American farmers and American small businesses and American manufacturers can sell them to Central 

America, which will be a benefit for both regions, since Central 

America especially has come so far in the past decade in labor 

rights and rule of law, democracy. They are just, I think, a shining 

star of what a region makes its decision to move toward our standards have done a beautiful job of it, so I am anxious for that debate. Let us talk a little bit about the economy and job training. 

Our economy, like the rest of the world’s, is changing, and to keep 

good jobs and to get good jobs, job training done right is just a key 

35 

part of that. I know that one of the proposals by the President is 

to provide more flexibility, so that each region can really train 

workers to the jobs in that region. Many of our veterans’ groups 

have been following closely the President’s proposal to consolidate 

veterans’ job training in employment programs with other workforce programs. The good news, I think, is businesses really want 

veterans. They have a great work ethic. They have a lot of skills 

that can move into almost any type of job. Making sure they have 

the full services of job training, I think, is really key for them, really key for our businesses as well. Can you describe how you see the 

President’s job training reform proposal, how that can affect services to veterans, especially what types of benefits and flexibility 

will we have for them under the new proposal? 

Ms. CHAO. Veterans are sacred beings in our society. They have 

done so much for us, and we will not let them down. So, within the 

Department of Labor, we have something called the Veterans Employment Training Service, and on top of that there is an entire 

workforce development system which gives their needs priority. We 

have counselors to help disabled veterans; we have counselors to 

help returning veterans; and again, they get priority on all services. 

Mr. BRADY. Yes, and my understanding, and is it true, Madam 

Secretary, that under the proposal, today we set one standard for 

getting as many veterans back to work as possible, but within the 

workforce, general workforce, we actually set a higher standard for 

more people getting back to work, and under this President’s proposal, are we not really setting a higher goal across America to put 

more veterans back to work than we do today, again, by providing 

flexibility so that the Houston job market is much different than 

the California job market, much different than New York, much 

different than Kansas City, to unlock the boxes of the bureaucracy 

and actually put veterans’ job training ahead of the paperwork that 

too many of our local organizations have to face; is that sort of how 

you see that? 

Ms. CHAO. Yes, you are right, because let us take another example: the Silicon Valley situation is very different from Kannapolis, 

North Carolina, where there are textile workers. So, the States 

should really be given, especially the Governors, much greater 

flexibility in determining how best to use their multi-siloed funding. There are so many silos now in training. What we are trying 

to do is break down the silos and consolidate the funds so that 

there is greater flexibility. For example, right now. a long-term unemployed dislocated worker cannot access dislocated funding, because that is not in the definition. So, we want to, again, allow 

more funding to be more flexibly used to help workers. 

Mr. BRADY. Great; thank you, Madam Secretary. I would just 

encourage you, let us keep working with our veterans’ groups, just 

so they can be reassured that our whole goal is more flexibility, 

more services, better jobs. 

Ms. CHAO. Absolutely. 

Mr. BRADY. So, thank you, Mr. Chairman. 

Chairman THOMAS. I thank the gentleman. The Chair indicated 

at the reconvening from the last recess that the Secretary had until 

12:30, and the Chair regrets any Member who was not able to verVerDate Aug 31 2005 13:08 Apr 28, 2006 Jkt 049200 PO 00000 Frm 00039 Fmt 6633 Sfmt 6602 E:\HR\OC\23914.XXX 23914
36 

bally question the Secretary, but certainly, any written question 

that a Member may have will be responded to by the Secretary, I 

am quite sure. 

Ms. CHAO. Yes. 

Chairman THOMAS. With that, the hearing stands adjourned. 

[Whereupon, at 12:32 p.m., the hearing adjourned.] 

[Questions submitted from Representative Cardin and Representative McDermott to Secretary Chao, and her responses follow:] 

Question Submitted by Representative Cardin 

Question: You mentioned several budget proposals to collect and/or reduce UI overpayments. Are you also considering any proposals to correct 

situations in which unemployed workers are not getting the UI benefits to 

which they are entitled? For example, a study commissioned by the Department of Labor four years ago suggested that 80,000 workers may be denied 

unemployment benefits every year because they are misclassified as independent contractors. 

You have discussed the Administration’s proposal to consolidate a number of job training programs. Can you tell us if that proposal, in addition 

to the Administration’s other budget requests, increases or decreases total 

funding for job training? I ask because the Congressional Research Service 

informs us that total job training funds in the Work Force Investment Act 

and Employment Services would be cut by $369 million in President Bush’s 

FY 2006 budget. 

Defined benefit (DB) plans are vital tools for both employers and employees. These plans offer security to employees because they allocate the risk 

of investment to the employer, and provide professional investment management for retirement savings. They offer employers stability, a solid return of investment, and a valuable benefit to attract the best employees. I 

believe that we should work to encourage not only the maintenance of existing DB plans, but also increase policy incentives to create new DB plans. 

We can agree that the PGBC (PBGC) is underfunded, and that it is a tragedy for employees when defined benefit plans are transferred to the PBGC 

because many employees and retirees will lose significant amounts of retirement savings. We can also agree that it is important to ensure that employees and retirees receive accurate and timely information about the 

state of their pension plans. But my concern is with the long-term implications of some of the proposals you have suggested on the future of the DB 

system. 

The number of defined benefit plans has steadily decreased since 1986. 

In 1986 there were 172,000 plans, and now there are fewer than 31,000. The 

economic environment and funding rules have only exacerbated this trend 

away from DB plans. Yet your proposals ‘‘reward’’ those companies that 

have chosen to stay in the defined benefit system with substantially higher 

premiums and substantially greater risks of getting hit by draconian funding rules. You punish companies that are financially strapped by requiring 

greater payments. 

(i) What role did the maintenance of current DB plans play in the formulation of your proposal? Was it a priority? What parts of your proposal are 

aimed at encouraging companies to stay in the DB business? 

(ii) In the formulation of your proposal did you take into account the underlying economic conditions (recession, large and rapid stock market 

losses) that contributed to the current state of underfunding in both DB 

plans generally and in the PBGC? How will your plan fare through future 

economic fluctuations? 

(iii) Did you consider, in creating these proposals, the effect on company 

finances that these changes will have, and the aggregate effect these 

changes may have on the PBGC (through increases in bankruptcy and plan 

termination for underfunded plans which will face even larger, faster funding payments than they face today)? How did you seek to mitigate these 

challenges? 

(iv) If companies with well-funded DB plans choose to leave the DB system because of the changes you propose, where will you receive the premium payments to make up the PBGC deficit? 

37 

Employers come in and speak to me all the time about how they would 

like to provide pension plans, but find that the rules make it difficult to 

plan ahead. As you know, planning ahead is pivotal in any budget process, 

particularly for companies, who cannot change the rules the way Congress 

can when it does not reach its own budget goals. 

Yet your funding proposals create greater volatility in pension funding 

through the use of the yield curve, and you base the severity of the funding 

requirements on credit ratings, which can be difficult to predict. 

Under a pure yield curve theory a company could have a different funding liability every day of the year. The same holds true for employees, who 

could have a vastly different lump sum payment from 1 day to the next. 

An SEC report on credit rating agencies (required by Sarbanes Oxley) 

concluded that: ‘‘in the case of Enron, the credit rating agencies displayed 

a disappointing lack of diligence in their coverage and assessment of that 

company. In addition, the Staff Report found that, because the credit rating agencies are subject to little formal regulation or oversight, and their 

liability traditionally has been limited by regulatory exemptions and First 

amendment protections, there is little to hold them accountable for future 

poor performance.’’ 

Do you think it wise to place so much emphasis on the evaluations of 

credit rating agencies? How will you evaluate companies that are not publicly held? 

Do you have any new details on how your yield curve proposal would 

work? 

Do you think creating greater volatility in pension funding will help 

maintain pension plans? Will it help to provide greater funding? What 

about in a high interest rate environment? 

[Response not received at the time of printing.] 

————————— 

Question Submitted by Representative Pomeroy 

Question: PBGC’s proposals to increase premiums have become part of 

the President’s Budget and the Budget adopted by the House. With an estimated price tag of $18 billion, it appears that the Administration intends 

to retire most of $23 billion deficit in the 5-year budget timeframe. Please 

explain the rationale in light of the long-term nature of the PBGC liabilities. Could you discuss how the $17 billion of ‘‘probables’’ would be 

factored into this premium increase? Is that reasonable? 

Your projected fixed per employee rate increase to $30 per employee 

would raise about $2 billion over five years, so the $16 billion balance 

would come from the variable rates. Thus, in order to reach the target level 

suggested by OMB and adopted in the Budget, the variable rate would have 

to increase to $136 per $1,000 of unfunded liability. This represents an increase of over 1400% from the current $9 per $1,000. If this calculation is 

not accurate please provide an explanation of how the rates for underfunded plans will be calculated in order to meet the $18 billion dollar total 

amount of PBGC fees anticipated in the FY 2006 budget. Also, since the Administration has generally rejected increasing taxes to help strengthen Social Security, I ask that you explain DOL and PBGC suggesting a dramatic 

revenue enhancement through increases in PBGC premiums? 

The Administration’s PBGC proposal requests Congress to transfer its 

premium setting authority to the PBGC Board of Directors. The Board 

would then establish the premium rates needed to fund PBGC liabilities. 

Please describe how and when the Administration consulted with employers, employees, unions and employer organizations in the formulation of its 

recommendations? Under your proposal, how would the PBGC incorporate 

public input and comments into the rate setting process and how would 

you assure employers and employees adequate transparency in the rate 

setting? Please describe the PBGC Board plans to seek input from Congress as it sets future PBGC premiums and to provide proper accountability to Congress for increases in PBGC premiums. 

How many defined benefit plans does the DOL anticipate will terminate 

over the next five years? How many new defined benefit plans does DOL 

anticipate being set up in the same period? 

The PBGC can finance its deficit in two ways—return on invested assets 

or higher premiums imposed on plan sponsors. Over the last several years, 

38 

the PBGC has unilaterally reduced the equity exposure in its portfolio so 

that it could minimize fluctuations in its own funded status. In so doing, 

they have ‘‘locked in’’ the equity losses from the early part of this decade, 

and concurrently reduced their expected long-term return on invested assets. In taking this action, has the PBGC unilaterally shifted their investment risk onto plan sponsors in the form of permanent, long-term premium 

increases? 

In measuring its liability, the PBGC has historically used an interest rate 

that is well below market rates. What would the PBGC’s deficit be using 

the corporate bond interest rate that Congress enacted last year on a temporary basis? What would the PBGC deficit be using the Administration’s 

own suggested yield curve methodology? Would the PBGC have a surplus 

if it assumed that its assets earned the same investment rate of return that 

the Administration projects individuals would earn in private accounts 

under the President’s Social Security reform model? 

Predictability is, of course, vital for business planning. Under the Administration’s proposal how would an employer know at least two or 3 years 

ahead what its contributions are likely to be? While businesses can purchase contracts to ease some market risks the only choice they have regarding PBGC’s funding rules is to divert cash from operations. Can you 

respond to employers’ concerns about the volatility of proposed funding requirements? 

What modeling have you done on the effect of eliminating smoothing of 

pension contributions on business planning and the economy? What is the 

expected impact of your proposals if we return to an environment of higher interest rates? For example, if your rules had been in effect during the 

early to mid-eighties, what minimum and maximum funding requirements 

would be required? 

The Administration’s proposals would require some employers to make 

much larger pension contributions starting right away. What modeling has 

the Administration done to determine how many companies would not be 

able to meet those sudden increases in cash flow demand? Explain how 

your modeling anticipates changes to the level of corporate bankruptcies 

as a direct result of this proposal. Explain actions that you will be taking 

to make sure that your reform proposals will not force some of the 

‘‘probables’’ into ‘‘definite problems’’ for the PBGC. 

Response: 

In addition to reforming the funding rules to accurately measure plan liabilities 

and assets, to ensure adequate funding, and to improve the timeliness and completeness of disclosures to workers and the government, the Administration’s singleemployer defined benefit pension reform proposal would ensure the fiscal integrity 

of the pension insurance system. 

The pension insurance system, overseen by the PBGC, is funded through premiums paid by pension plans, not through taxpayer funds. The current premium 

structure does not reflect the true risk of a plan terminating with insufficient assets 

to pay benefits and can be manipulated to avoid payment of risk-based premiums. 

The Administration’s plan will reform the premium structure to reflect more accurately the cost of the program and to shift the emphasis to risk-based premium 

funding. 

The premium structure is composed of two components, a flat-rate premium and 

a variable-rate premium. The flat rate premium under current law has not been 

changed since 1991, when the rate of $19 per participant was established. Our proposal would update this rate to reflect the growth in wages over the past 14 years, 

setting it at $30. The flat rate will be indexed to wage growth going forward using 

the same index used to update the PBGC maximum guaranty limit. 

Certain underfunded plans must also pay a variable-rate premium under current 

law. A plan at the ‘‘full-funding limit,’’ measured on the basis of a plan’s vested current liability, is exempt from paying any variable rate premium even if that plan 

has significant unfunded vested current liability. Despite record plan underfunding 

in recent years, less than 20 percent of participants were in plans that paid a variable-rate premium to PBGC last year. Some of the companies that have presented 

the largest claims against PBGC have avoided paying variable-rate premiums for 

years prior to termination. Bethlehem Steel was a poor credit risk for many years 

and its plans were substantially underfunded for many years prior to the plan termination. Bethlehem presented a claim of $3.7 billion after having paid no variablerate premium for any year after 1997. 

39 

The Administration’s proposal would eliminate the full funding limit exception so 

that all underfunded plans would be required to pay a risk-based premium, based 

on the plan’s unfunded at-risk or ongoing liability. The premium rate per dollar of 

underfunding will be reviewed and revised periodically by the PBGC Board, which 

will allow for significant flexibility in balancing the objectives of raising revenue and 

maintaining reasonable rates. 

The budget numbers for the Administration’s proposal reflect a risk-based premium rate of $8— $9 per $1,000 of underfunding, not $136 per $1,000. This assumes that all underfunding is assessed, that the flat-rate reforms are enacted, and 

that premium revenues are sufficient to cover expected future claims and to amortize our $23 billion deficit over 10 years. Of course, plans could always choose to 

avoid paying the risk-based premiums by reducing their underfunding and lowering 

the risk they present to the insurance system. 

Our latest estimates are that an additional roughly $14 billion in flat rate and 

risk-based premiums would be collected under the proposal from 2006–2010, with 

the objective of restoring the single-employer pension insurance system to fiscal 

health in 10 years. 

Æ