chairman of this committee-not the subcommittee-but the full com mittee, Mr. Rayburn, by the President of the United States on June 4, 1935, in which he said:

MY DEAR MR. CHAIRMAN: In confromity with my telephone conversation with you, I am enclosing herewith a letter to me from the Attorney General under date of June 4. This letter follows conferences between the Attorney General, the Coordinator of Transportation, and Mr. Donald Richberg. The Attorney General suggests that in view of the sweeping, character of the Supreme Court decision in the Railroad Retirement case, it would be unwise to attempt to secure new legislation at this session of the Congress. He further suggests the passage of a resolution by the Congress to create a commission to investigate the factual situation and make findings a d suggestions for further legislation, if any.

Very sincerely yours,

FRANKLIN D. ROOSEVELT.

Mr. MONAGHAN. Is it not true, Judge, Mr. Eastman has already made a report to Congress?

Mr. FLETCHER. Yes. He made that particular report that I referred to in the opening of my statement, that one which he did not have ready a year ago. I think that report has been made.

Mr. CROSSER. That is the report, the awaiting of the completion of which was urged as a reason for delay a year ago?

Mr. FLETCHER. A year ago; yes, but here the President within the last few days, very recently-this is dated June 4, 1935-is urging instead of the passage of a bill without full consideration, that the best thing to do is to create a commission to make a thorough study of this matter, and with your permission, I would like to read -it is not long-what the Attorney General said about that in his letter to the President, the letter to which the President refers.

DEAR MR. PRESIDENT: Pursuant to your request of May 10 that the railroad retirement matter be discussed with Mr. Eastman and Mr. Richberg, a conference was held in Mr. Richberg's office on May 23, at which Mr. Richberg, Mr. Eastman, and Assistant Attorney General Stephens were present and discussed the matter. The followin; conclusions, which I believe are sound, were reached at that conference:

(1) It was deemed inadvisable to request the Supreme Court to grant a rehearing. On May 25 a release was issued to the press setting forth the reasons why a rehearing was not requested, as follows: "Every phase of the case and every issue of fact and law urged by the Government, or which has been emphasized by others interested, was fully considered and discussed by the Court in both the majority and minority opinions. There have been brought to the attention of the Department no new issues which could be presented to the Court; and to the contentions made by the Government in brief and in argument it is believed that nothing could be added."

(2) In view of the sweeping character of the decision it was determined that it would be unwise to secure new legislation at this session of Congress. (3) It was determined, however, in conformity with Mr. Eastman's suggestion, that Congress be requested to pass a resolution to create a commission to investigate the factual situation and make findings and suggestions for further legislation, if any.

You will recall that on May 17 the Coordinator wrote you suggesting such a resolution, and on May 20 you referred this matter to me for recommendation. Respectfully yours,

HOMER CUMMINGS,
Attorney General.

And then in that connection, and following out the suggestion of the President and the Attorney General, there was introduced by Mr. Rayburn, I think it was a resolution-I have it here-House

Joint Resolution 314. It was a joint resolution to create a commission composed of 3 Members of the Senate named by the President of the Senate; 3 Members of the House, named by the Speaker of the House, and 3 members named by the President of the United States. It provides that the President shall name the chairman, and this commission is to make a study of this whole question and make a report to Congress within a time, I think, limited in the legislation. I think it is March 1, 1936.

I have the impression, Mr. Chairman, that that resolution has been voted out of this committee, and is now upon the calendar of the House.

I hardly see how, consistent with that course, this bill that we have now before us can be reported favorably by the subcommittee and by the full committee.

I thank you very much for your attention and the many courtesies which the committee has shown me on this and many other occasions.

Mr. CROSSER. Who is your next witness, Judge?

Mr. FLETCHER. Dr. Parmalee.

STATEMENT OF JULIUS H. PARMELEE, DIRECTOR OF THE BUREAU OF RAILWAY ECONOMICS OF THE ASSOCIATION OF AMERICAN RAILROADS, WASHINGTON, D. C.

Mr. CROSSER. We will hear Mr. Parmelee.

Mr. PARMELEE. Mr. Chairman and members of the committee, my name is Julius H. Parmelee. I am the director of the Bureau of Railway Economics of the Association of American Railroads with headquarters in Washington, D. C. I appear before you this morning on behalf of the Association of American Railroads for the purpose of laying before you certain facts with respect to the bill which is technically before you, H. R. 8651.

The railroad-retirement bill here before us may be analyzed from the legal point of view, on the basis of its soundness as a pension plan, and on the basis of the cost of the retirement system set up by the proposed legislation.

The legal asapects of the proposed legislation have been or will be discussed by other witnesses. I have been requested to analyze the legislation from the standpoint that H. R. 8651, the railroad-retirement bill, and H. R. 8652, the bill to levy special taxes on carriers and their employees, are related companion measures. In what I have to say I shall confine myself to the economic aspects of these bills, namely, the question of the soundness of the retirement system created by H. R. 8651, its cost, and the burden of the cost on the railway industry as a whole. And when I speak of the railway industry, Mr. Chairman, I mean both the employees and the employers.

My testimony as to the cost of the system assumes that the cost is to be imposed upon carriers as defined in the bill, and upon their employees, by the tax bills H. R. 8652 and S. 3150. If I am incorrect in this assumption, and if the cost is to be borne by the Government and to be raised by general taxation, then my testimony

will be equally applicable to show the costs imposed on the Government by this bill.

The bill would give credit to all persons in the employment relation to carriers at the date of enactment of the bill, in calculating their annuities, for all the years they have spent in carrier service prior to enactment. At the same time, it is evident that future levies on carriers and employees will be made large enough to finance the annuities, both those based on past service and those based on future service as well.

Not only would this feature place an intolerable burden on both carriers and their present and future employees, but it is inequitable in that it calls on future generations to bear the total cost of service rendered by past generations.

First, I draw your attention to the magnitude of the future payments for past or prior service. The figures I shall use are taken from an affidavit prepared and filed by Murray W. Latimer, then chairman of the Railroad Retirement Board, in the course of litigation of the Railroad Retirement Act of 1934, which was declared unconstitutional by the United States Supreme Court on May 6, 1935. Mr. Latimer was a proponent of that act, and his affidavit, defendants' exhibit 7 in the litigation in the Supreme Court of the District of Columbia, which was appealed to and decided by the Supreme Court of the United States, no. 566, October term, 1934, Railroad Retirement Board et al., petitioners, v. The Alton Railroad Co. et al., was filed October 10, 1934, and appears at pages 206-213 of the transcript of record in that case. That transcript, Mr. Chairman, was filed with this committee this morning by Judge Krauthoff as a matter of information and as a part of the committee's files. This affidavit, at page 209, carried a statistical table, showing "the amounts of annuity which would be payable each year from 1935 to 2016 on the assumptions stated above in respect of service rendered prior to 1935." While the calculations made by Mr. Latimer are based on the Railroad Retirement Act of 1934, the provisions of that act relating to credits for prior service are sufficiently similar to those of H. R. 8651 to justify regarding his table as a minimum basis for estimating, although it certainly understates, the cost of annuities in respect of prior service that would be made necessary by the present bill.

I submit this statistical table, which is drawn from the affidavit of Mr. Latimer, at page 209; I have changed it in no respect except to add a heading at the top and a note at the bottom as to the source from which the figures were taken.

(The table referred to is as follows:)

Annuities payable in respect of prior service (Railroad Retirement Act of 1934)

Source: Transcript of Record, U. S. Supreme Court, No. 566, October Term, 1934, defendants' exhibit 7, filed Oct. 10, 1934, by Murray W. Latimer, p. 209.

The total cost of annuities to be paid in respect of prior servicethat is, service rendered prior to the enactment date of the billwas calculated by Mr. Latimer at $4,415,949,000. During the first year, 1935, his calculations showed that $68,749,000 would be required. This amount increases rapidly each year thereafter, reaching a peak of $137,435,000 in the year 1953. It then declines year by year. Not until 1970, for the first time, does it decline below the level of 1935.

In the meantime, of course, annuities in respect of service rendered subsequent to the enactment date would be growing year by year. The total amount of all annuities, which I shall discuss at a later point, will in any year be the sum of the annuities paid in respect of prior service and the annuities paid in respect of subsequent service.

Not only would this tremendous burden of future cost for prior service benefits, amounting to at least $4,416,000,000, be imposed on the carriers and their employees in future generations up to the year 2016, according to Mr. Latimer's calculations, thus levying on the

future to pay obligations which, if incurred at all, were incurred by past generations, but the burden is so divided as to rest in a twoto-one ratio on the employer as contrasted with the employee.

The committee will notice, Mr. Chairman, that in this table drawn from Mr. Latimer's columns there is a second column headed by Mr. Latimer "Two-thirds as the carriers' contribution ", and at the lower right-hand corner of the table Mr. Latimer assigned as the carriers' contribution of this total $4,416,000,000 a total of $2,944,000,000. That would be the amount paid by the employers in the future to take care of the prior service accrued, covering the period of years there stated. Eighty-one years might be astonishing at first, to think that in the year 2016 an annuity would still be in force covering service rendered at some period prior to 1935, but a little mathematical calculation will show you, I think, that a young man of 18 years entering the service in 1934, 1 year prior to the date of the Railroad Retirement Act, might easily be alive in the 2016, when he would be exactly 100 years old. The amounts, of course, in those latter years are comparatively small, but it still remains true that in the year 2016 the obligations incurred prior to 1935 would still be paying off and would be paid at that time by the then generation of employers and employees.

year

This is quite a different principle from that utilized in the socialsecurity bill now before Congress-H. R. 7260-where the division of contributions for old-age annuity benefits is 50-50 as between the employer and employee; in that bill 3 percent is eventually to be levied on each, whereas it is here proposed to finance railroad annuities by an initial levy of 4 percent and 2 percent, respectively. The initial rates provided in the bill represent a minimum, which as I shall later point out will necessarily be increased to much higher levels. Furthermore, title II of the social-security bill does not burden an industry with the cost of annuities based on earnings of employees received prior to December 31, 1936. In other words, the Social Security Act attempts to make no provision for annuities based upon prior service so far as these general old-age annuities are concerned.

The provision as to furloughed employees, section 1 (d) would grant annuities in the future to many employees who would never render service subsequent to the passage of the act, but who would nevertheless qualify for benefits under that provision.

In brief, the intent of the bill, to give credit for the prior service of all men now in carrier service, and the prior service of a large but undetermined number of men formerly in service who may be on furlough or on leave of absence on the date of enactment, whether or not at some future time they return to service, creates a burden estimated at not less than $4,416,000,000, all of which must be paid in the future out of the earnings of carriers and their employees. This in effect is a heavy mortgage on future earnings to take care of past obligations as retroactively created by the bill. It follows that during the next 80 years, 1935 to 2016, to put this retirement system on an actuarially sound and economic basis would require the railway industry to carry a heavy and constantly increasing burden; first, to meet payments accruing on account of prior service; and second, to build up reserves to meet the future annuities of employees of the present and past generations when their turn comes to retire.