This report addresses expanding welfare-to-work (WTW) programs to increase work among welfare recipients facing personal and family challenges. Section 1 examines what is known about the impact of traditional WTW program models and policy innovations on employment and earning profiles of these recipients. Evidence is presented showing WTW programs that emphasize quick job entry, penalties for non-compliance with program requirements, time limits, and/or earned income disregards have helped only a small fraction of the most disadvantaged recipients enter the labor market. Section 2 provides examples of programs designed to enhance the functioning of families facing personal or family challenges and examines available research on their efficacy. Models that address low basic skills and limited work experience, substance abuse and mental health issues, and family crises are presented. Section 3 examines how strategies to enhance family functioning that are specifically targeted to recipients who face the greatest difficulties in making the transition from WTW could be integrated into a newly designed welfare structure that emphasizes employment and time limits. It addresses such program design issues as identification of families most likely to benefit; design of specific program components; financial penalties for non-compliance; and mechanisms for providing such services. (Contains 48 references.) (YLB)