who have never returned to the railroad industry, although they have had opportunity-sometimes frequent opportunity-to do so. A check of returns to the Railroad Retirement Board under the prior service resolutions indicates that the number of such persons may run from 25,000 to 50,000.

The amendment to existing law contained in S. 293, dealing with employment relation, provides that only the following classes of persons be deemed to have had an employment relation on August 29, 1935:

(i) Those who on that date were on bona fide leave of absence, which leave is established to the satisfaction of the Board before July 1946;

(ii) Those who were in active service after August 29, 1935, and before January 1945 in each of any six calendar months;

(iii) Those who were not, solely because of sickness or disability, recalled to active service beween August 29, 1935, and August 1944, or, if called, were unable solely for such reason to return to service or, if they did return, to render service in six calendar months as described in (ii), and who had not previously retired or been retired or discharged;

(iv) Those who ceased active service before August 29, 1935, solely because of sickness or disability and who were continuously unable because of sickness or disability to return to the service of an employer prior to August 1944, irrespective of whether or not they were called to return to service by the employer, and who had not previously retired or been retired or discharged;

(v) Those who, as of August 29, 1935, were absent from the service of an employer on account of wrongful discharge. Such wrongful discharge must have been protested within 1 year from the effective date thereof and the employee must have been reinstated in good faith to his former service with all seniority rights within 9 years from the date of discharge.

These amendments would greatly simplify the problem of determining employment relationships. The establishment of a leave of absence does not require any formulation of a practice. Most leaves of absences are recorded in some form and many are specifically granted by written letter or memorandum. Because of the possibility of a document purporting to be a leave of absence being manufactured at a later date, it seems desirable to provide that such leave be established in the next few years. Whether or not an employee was in the service between August 29, 1935, and January 1, 1945, can be established in the majority of cases from the records of the Board. Although the records of the Board do not cover the period between August 29, 1935, through December 31, 1936, the number of persons returning to service in that period and leaving before January 1, 1937, was not great and can be checked without great difficulty from employer pay rolls and personnel records. The Board already has records of a number of cases involving applicants for annuity which could be immediately handled on the basis of this amendment.

The Railroad Retirement Act of 1935 provided for crediting all service whether before or after enactment date, up to the maximum of 30 years, any person who was an employee at any time after the enactment of the law. The provision in the Railroad Retirement Act of 1937 limiting creditability of prior service to persons who were in the employment of, or in an employment relation to, an employer on the enactment date was adopted because of the danger of persons returning to service for a brief period solely in order to secure an annuity based upon a substantial amount of prior service. Cases were cited in the hearings on the Railroad Retirement Act of 1937 in which substantial annuties were awarded to former employees who returned to service for a few hours solely in order to qualify for such annuities and with no idea of remaining in service. There are undoubtedly several million persons having employer service prior to August 29, 1935, and who were not in service and who had no connection with a railroad or other employer on that date. If many such persons return to employer service, the burden on the railroad retirement system would be substantial.

We do not believe that the proposal in S. 293, to extend credit for prior service to certain persons by virtue of their return to employment after August 29, 1935, would expose the system to any substantial financial danger. No person who did not return before a date already passed would be entitled to such credit. During that period in which return would make prior service creditable, there was no current incentive to return solely to qualify for an annuity; we know of no case where a desire for an annuity based on prior service was a motivating factor in any return to service. Any additional cost to the system will probably be more than offset by eliminating prior service credits to persons on furlough who have not returned to service.

On the whole, it is fair to conclude that the inclusion of such a provision would. be a benefit to the operation of the railroad retirement system.

(4) The term "compensation," which is made clear by S. 293, would include payments by an employer to an employee resulting from the employee's displacement to a less remunerative position, or in settlement of a claim for personal injury if the period for which such payments are made can be determined with certainty.

There are situations in which an employer may pay, or may be required to pay, to an employee a specific amount for loss of earnings. For example, if, by reason of coordination or consolidation of two or more employers, or of two or more operations of the same employer, an individual is separated from employer service and is paid a specific amount for a specific period of time, as under the Washington agreement, such payment clearly would be a payment for time lost; however, if, in such situation, the individual was not separated from employer service but was demoted to a less remunerative position, and if, to compensate him, in whole or in part, for the loss of earnings for each month that he worked. in such less remunerative position, the employer made a payment to the indivdual, either in monthly installments or in a lump sum, such payment, though a payment for loss of earnings, would also be creditable as a payment for time lost.

The conditions of creditability of amounts paid in settlement of personal injury claims are two: (i) that the payment be made with respect to an identifiable period of absence; and (ii) that it specifically include the element of payment of time lost. In the latter event the total payment is to be deemed pay for time lost unless, at the time of payment, a part of the amount is specifically apportioned to elements other than time lost. This provision would write into the statute substantially the practice hitherto adopted by the Board except that there is omitted a condition necessary under existing law, namely, that during the period of absence an employment relationship must exist between the recipient of the payment and the employer making the payment. The necessity for determining the employment relationship has given rise to considerable difficulties and has precluded creditability of certain payments under circumstances where that result could have been equitable.

In the event compensation credited as pay for time lost covers a month in which no other compensation is paid, such pay for time lost will, of course, increase the service period.

Compensation is now creditable up to a total of $300 for any one calendar month. This has given rise to some inequities, since, in some classes of service, compensation varies from month to month so that, while over a period of several months the compensation may not average more than $300 a month, it is so distributed as to exceed $300 in several individual months. Moreover, it is desirable, for reasons of economy, to have compensation reported on an annual basis. A considerable part of the economy is lost unless reports and examination of compensation for individual months can be avoided. By making compensation creditable on an average rather than on a month-by-month basis the ends of both equity and efficiency are served.

At the present time, compensation earned by employees is creditable as of the date for which it was payable; that is, if an employee is paid in January 1944 for services, or time lost, in January 1940, the Board must examine and perhaps adjust the records which have already been posted for the month of January 1940. Examinations and adjustments of this character are made in large numbers, running to several hundred thousand each year. The retroactive wage settlements made in December 1941 and in January 1944 resulted in a tremendous number of adjustments. Because the wages for the months involved frequently have to be examined in order to ascertain whether the amount payable exceeded $300 in any one of them, the process of handling retroactive items has been a tedious one; it has required on the average three or four times as much work to process such an item than it does to post an original entry. The processing of adjustments has accounted for from one-quarter to one-third of the totaf volume of wage recording work.

The provision in S. 293 would make compensation creditable as of the date of payment, unless (i) payment with respect to a period in a calendar year is made prior to February 1 of the following year, that is, prior to the date when the annual report of compensation would normally be made to the Board; or (ii) the employee receiving the payment establishes the period with respect to which it was earned, in either of which cases the payment is deemed to have been paid in the calendar year in which it was earned.

The proposed provision, coupled with the provision making compensation creditable on an average rather than on a month-by-month basis, would eliminate perhaps 95 percent of the adjustments which previously had to be made by the Board. Its adoption would be highly beneficial, subject to one modification to be discussed in section VI of this report.

(5) Before the effective date of the Fair Labor Standards Act in October 1938, substantially all redcaps and other station employees performing services by assisting passengers at passenger stations were compensated solely on the basis of tips. Only in a few cases was a wage paid and the wage in those cases was usually nominal. Although, since the effective date of the Fair Labor Standards Act, this group of employees has been receiving compensation, at least in part, in the form of wages, for some time the reported wage was the minimum even though the total compensation, including tips, was sugstantially larger. Adequate records of total compensation, including tips, prior to September 1940 are not available, so that it seems reasonable to make the basis for prior service compensation the 12 months after September 1940. The basic period was limited to 12 months because in September 1941, a wage increase became effective. more than 12 months were used as the basis for prior service compensation for redcaps, they would be favored as against other employees. In the event the relatively brief period of employment does not contain a basis sufficient to yield a fair and equitable average, the Board would be authorized to prescribe some other fair and equitable basis.

If

Under existing law, redcaps pay the same taxes as other employees but, becuse of the difficulties described, they are not now entitled to credit for prior service to the same extent as are other employees with like periods of service. It seems to us no more than fair to rectify this situation as is proposed in S. 293. Many large industries in times past performd, with their own locomotives and over ther own tracks, work normally done by railroads. Except for purely intra-plant switching, most of this work has now been taken over by railroads, usually so long ago that few of the employees involved now remain in service. There are two or three cases, however, where such work was taken over by a railroad within the past 10 or 12 years. The men employed continued to perform, for the railroad, using the same (or substantially identical) equipment over the same tracks in the same location, the work that they had been performing for years past. But, because the railroad had not at all times been the employer, credit for the prerailroad service cannot be extended.

This seems inequitable; in reality the work was identical throughout the whole period of its performance. The employees and employers have been paying taxes in the normal percentage; but prior service is not creditable to the normal extent. The provision in S. 293, that where prior service is creditable “it may also be included as to service rendered to a person not an employer in the performance of operations involving the use of standard railroad equipment if such operations were performed by an employer on the enactment date" would correct this situation and seems fair and reasonable.

(6) The permanent and total disability provisions of the Railroad Retirement Act have proved to be highly restrictive. Under existing provisions, a person must be unable to work at any substantially gainful occupation and he must have completed at least 30 years of service or have attained the age of 60. Some employees become permanently unable to perform any work before they attain age CO-part of them from causes related to their employment and part of them from other causes. A substantial proportion of those employees who become permanently disabled before they attain age 60 have not completed 30 years of service. While it is our feeling that, insofar as disabilities arise out of employment, the cost of protection is properly a charge against the employer and should properly be handled under a system of workmen's compensation, the number of cases of permanent and total disability arising out of employment relative to the total of such disability cases is small. In 12 selected months in 1938, 1939, and 1940, for example, a study made by the Board indicates that the number of cases of permanent and total disability arising from causes related to work was 110. This figure may be a slight understatement. But, so long as there is no system of workmen's compensation for the railroad industry, it is impracticable to treat such cases differently from disability arising from other causes; S. 293 properly makes no such attempt.

As we have already indicated above, we believe it to be a proper function of social insurance to provide incomes in cases in which workers by reason of age or disability or the survivors of workers, because of premature death, are normally without any regular income. We, therefore, feel it appropriate for the

railroad retirement system to be expanded in order to provide more adequate protection in cases of permanent and total disability. The major problem involved relates to what, if any, service should be required as a condition precedent to eligibility for benefits. The occurrence of cases of total disability for causes other than those connected with employment are very rare in persons of ages under 45; even at 45 the number of new cases probably is less than 25 per 10,000 workers per year. If the service requirement for a disability annuity is longer than 15 years, some disabled employees will fail to qualify. A reduction in the requirement below 15 years has a relatively insignificant effect on the cost as compared to a reduction to 15 years, if the annuity is proportioned to years of service, even if a flat minimum be fixed. There is a substantial case, therefore, for eliminating any service requirement other than one sufficiently long to weed out cases in which employment is sought mainly for the purpose of securing a disability annuity. The provision in S. 293 calls for a reduction to 10 years in the service requirement to be met as a condition precedent to award of an annuity to a person permanently unable to do any sort of substantial work. This requirement is probably longer than is needed to avoid adverse selection. However, since the number of cases of disability among employees with less than 10 years of service is probably very small, we think it reasonable to work with such provisions for a time in order (i) to ascertain the extent of disability which remains noncompensable and (ii) make possible the drawing of a more reasonable line should any change later on be found desirable.

The present provisions for disability retirement have been restrictive in another direction. The physical standards set by railroad managements are necessarily high for a considerable range of occupations. A man in train and engine service, for example, may be reasonably disqualified for continued employment at his regular work by reason of a heart condition which, for persons engaged in many sedentary occupations, would not be regarded as serious. Thus, even when an employee is clearly permanently unable to work in his regular class of employment, he may be unable to qualify for retirement benefits because his physical condition may not preclude some substantial form of gainful activity. In the determining of existence of disability, the Railroad Retirement Act does not make a relevant factor the ability of an employee to secure employment of a character which he is physically, mentally, and by prior experience capable of performing that is, the current conditions of employment and unemployment do not bear on the determination.

But the facts undeniably are that men who have spent all or the major part of their working lives on railroads and who, because of physical or mental conditions, cannot continue in their usual jobs, cannot normally secure employment even though there are employments, the duties of which they could, if there were the opportunity, competently perform. S. 293 is evidently based on the proposition that it is an appropriate function of a retirement system to provide retirement benefits in such cases. We agree.

Specifically, it is proposed that for an employee who attains age 60 or who completes 20 years of service, the definition of disability be changed so that an annuity is payable to him upon a showing of permanent and total disability for the regular occupation in which he is engaged. The amendment defines the individual's regular occupation as the one in which he was engaged in more calendar months than the calendar months in which he was engaged in any other occupation during the last 5 calendar years, whether or not consecutive, in each of which he earned wages or salary. This general rule is subject to an exception: If the employee shows that during the last 15 consecutive calendar years he engaged in another occupation in one-half or more of the total months in which he worked, he may, if he desires, claim that other occupation as his regular occupation.

This expansion of the concept of disability to persons who have attained the age of 60 or who have completed 20 years of service is restricted to persons who, at the time of becoming disabled, presumably have some current connection with the industry. This connection is clear in the case of the person whose disability follows immediately upon railroad employment. There are others, however, whose disability becomes apparent only after a period of time in which there may have been no service with an employer as defined in the act. It is possible, of course, to extend the benefits of the new definition to persons in an employment relationship to an employer, using the term "employment relationship" in the sense in which it is used in the Railroad Retirement Act of 1937. Obviously, the new definition of "employment relationship" described above would not easily 75978-4527

be applicable to a continuing situation. Extension of the present concept of "employment relationship" to the disability situation would be difficult. The Board would have to work out rules and practices, not with respect to a single date but for many changing dates.

In place of the use of the concept of employment relationship as the test of current connection, another test is proposed in the bill: An individual is deemed to have a current connection with the railroad industry if in any 30 consecutive calendar months before the month in which he becomes entitled to receive a retirement annuity or dies, whichever first occurs, he had not less than 12 calendar months of such service; and, if such 30 calendar months are not immediately prior to such month of entitlement or death, he has not been engaged in regular employment, other than as an employee of an employer under the act, in the period before such month and after the end of such 30 months. For an individual to whom an annuity under the 1935 or 1937 act began to accrue prior to January 1, 1946, a current connection will be presumed, for the purpose of recomputing the annuity payable on and after that date, if the annuity was based on not less than 5 years of service.

With one exception, all these provisions, it seems to us, are well calculated to provide additional badly needed protection for railroad employees without giving rise to the danger of malingering. This danger is avoided by the provision to the effect that an employee in receipt of a disability annuity who earns more than $75 in service for hire or in self-employment in each of any six consecutive calendar months is to be deemed to have ceased to be disabled in the sixth month of any such earnings. The exception referred to has to do with the employee status of a person at the time he becomes disabled: As indicated, an employee has to be "currently connected” with the railroad industry when he is disabled in order to be eligible for the "occupational" disability (although not when he is disabled for any and all kinds of employment). Under the definition of current connection incorporated in S. 293 an employee laid off from his railroad job, who takes a much lower paid job in a grocery store, for example, until the railroad job opens up again, and who loses one leg in an automobile accident, would not be able to qualify for the "occupational" disability annuity because he had been in "regular" employment since leaving railroad service. This seems unjust. While we realize the difficulties inherent in the definition of employment relation under existing law we are unable to suggest any more satisfactory substitute for use in connection with eligibility in connection with the employee status qualification for occupational disability purposes. We therefore suggest that occupational disability benefits should be payable not only to employees who are so disabled and have a current connection but also to those who are so disabled and who would have an employment relation within the meaning of existing law. While provision is made in the Railroad Retirement Act of 1937 for the payment of annuities to a person aged 60 but less than 65 who is permanently disabled within the meaning of this Act, but who has not completed 30 years of service, there is a reduction of 1/180 in the annuity for each month by which the employee is less than 65 years of age when his annuity begins to accrue. Thus, a disabled employee aged 60, whose monthly compensation is $233.33, is entitled to an annuity of $100 if he has completed 29 years and 6 months of service; but if he has completed only 29 years and 5 months of service, he is entitled only to $65.37 a month. Such large differences in amounts payable to persons whose records are substantially identical seem unreasonable. In any event, the purpose of providing benefits for persons who are unable to work is defeated if the incomes are too small. The average income under the Railroad Retire ment Act payable to persons who are disabled with 30 years of service is about $80 a month, whereas that payable to persons with less than 30 years of service is only about $35 a month. But for the arbitrary reductions, the latter figure would have been almost 30 percent higher. S. 293 propose elimination of the reduction. The proposal is wholly reasonable.

The Railroad Retirement Act of 1937 also provides that in the event of recovery from disability by a person receiving a full disability annuity, the amount of an age annuity subsequently awarded to such person is to be reduced to take account of the amounts paid to him during the period of disability. The provision has not yet been given effect because our experience has been too limited to permit determination of the proper reduction. But if ever it is made effective, it will be unjust and inequitable. It penalizes a person who recovers; a reward would seem more appropriate both from a humanitarian and a social standpoint. S. 293 wisely eliminate this injustice.

(7) Under the Retirement Act at present, the creditable service of an employee includes the month in which he attains age 65. But compensation in months