The report describes the STETS (Structured Training Employment Transitional Services) project, a program designed to prepare mentally retarded young adults for competitive employment. The report summarizes major lessons and policy implications of the STETS demonstration. An initial section describes the evolution of public policy in transition programs and presents information on typical participants. Lessons from program implementation are noted, including the superiority of worksite observation over the use of standardized tests and the use of sheltered workshops as one option for the early phase of training. The following in-program performance measures are reviewed: placement in competitive jobs, length of stay, and operating costs. Findings from the impact and benefit cost research are noted. A final section examines factors involved in expanding the role of transitional employment programs. (CL)