The increasing number of long-term disabled beneficiaries under the Federal Employees' Compensation Act, together with increased benefits and changes in economic conditions, have caused program costs to increase sharply. A review was undertaken to determine: (1) whether benefits under the act are adequate and equitable compensation for wages lost by federal employees because of their on-the-job injuries, while providing an economic incentive for them to be rehabilitated and return to work; and (2) the kinds of claimants being compensated for long-term disabilities and their chances and incentives for returning to work. The high compensation structure under the act provides little financial incentive for injured employees to return to work as originally intended by Congress. In some instances, benefits are higher than preinjury take-home pay. One cause of the high level of federal workers' compensation benefits is the rate at which benefits are paid; 66.7 percent of gross salary for beneficiaries without dependents and 75 percent for those with one or more dependents. Since many long-term disabled beneficiaries are close to or beyond the average age when most federal employees retire and have extremely limited employment possibilities, they are, in effect, retired. The Department of Labor drafted proposed legislation which would: (1) subject federal workers' compensation benefits to federal income tax; (2) eliminate increased benefits for dependents; and (3) provide for the transfer of beneficiaries to the Civil Service retirement program.