Net railway operating income1 for large railways of Southwestern States, first 8 months and last 4 months, 1956, 1957, and 1958

1 Net railway operating income is the operating profit after taxes-the figure used by the Interstate Com merce Commission as the measure of returns of railway operations. Source: Interstate Commerce Commission, Statements M-125.

Mr. SCHOENE. Mr. Chairman, that concludes my discussion of this particular bill. I note that the other day, on Friday, you introduced at the request of the Association of American Railroads a bill, S. 987, and asked that we be prepared to be examined with respect to it.

Senator MORSE. I think we can shorten it by this instruction: Will you please file for the record at this point a memorandum setting forth the views of the Brotherhoods with respect to the bill?

Mr. SCHOENE. I shall do that.

(Memorandum setting forth views of Railway Labor Executives Association with respect to S. 987 follows:)

GENERAL ANALYSIS OF THE CHANGES WHICH THE BILL S. 987, 86TH CONGRESS, 1ST SESSION, WOULD MAKE IN THE BILLS S. 1630 AND S. 1651, 85TH CONGRESS, 1ST SESSION

The provisions of the bills S. 1630 and S. 1651, 85th Congress, 1st session, are now part of the record in the hearings on S. 226, 86th Congress, 1st session. The purpose of this statement is to indicate, generally, the differences between the bills S. 1630 and S. 1651, above mentioned, and the bill S. 987, introduced in this session of the Cong ess.

The earlier bills propose no amendments to the Railroad Retirement Act or the Railroad Retirement Tax Act, while the bill S. 987 would amend such acts by providing, generally, a 5-percent increase in reti ement and survivor annuities accruing after June 1959, and in pensions due on and after August 1, 1959. The new bill proposes, also, an increase in tax rates from the present 64 percent on each side to 634 percent of pavroll, and would also change the maximum creditable and taxable base for retirement rurposes from $350 to $400 a month, effective with respect to compensation paid for services rendered after June 30, 1959, and would increase the residual lump sum to reflect the increase in the tax rate and the creditable compensation, effective with respect to deaths occurring after June 1959.

The 5-percent increase would not, however, apply to annuities computed under the overall social security minimum, or to the maximum spouses' annuities, or to annuities limited by the individual's average "monthly compensation," or to widows' or widowers' annuities which are in the amount they received as spouses' annuities; in all these cases, any increase would be by less than 5 percent, or by nothing at all.

With respect to the Railroad Unemployment Insurance Act, the bill S. 987 is. generally, the same as the bills S. 1630 and S. 1651, above mentioned, except that the former bill would set up a new 'Railroad Sickness Insurance Account" which would be used for the pavment of sickness insurance benefits under the Railroad Unemployment Insurance Act and would be financed by 1 percent of payroll up to $350 a month per employee, one-half of this 1 percent would be paid as employment taxes by railroad employees under a newly proposed Railroad Sickness Benefit Tax Act, which taxes would be collected through withholding by emplovers from current wages as in the case of railroad retirement taxes, by the Internal Revenue Service, and the other one-half pe cent would be paid from the Railroad Unemployment Insurance Account. The Board would have authority to transfer, on a loan basis (with interest at a rate found equitable by the Board), from the unemployment account to the sickness account, of such amounts as the Board may find necessary.

While the new bill would increase the maximum creditable taxable base from $350 to $400 a month for retirement purposes, it provides no such increase for unemployment or sickness insurance purposes.

The earlier bills would disqualify an individual for unemployment benefits if the individual is eligible for an annuity under the Railroad Retirement Act, or an old-age or disability benefit under the Social Security Act, but the new bill would modify this provision so as to make it inapplicable if the individual's unemplovment is involuntary and due to lack of work.

The remaining provisions of the new bill are generally the same as those in the earlier bill (see the Board's report on the earlier bills in the hearings before the Subcommittee on Railroad Retirement of the Senate Committee on Labor and Public Welfare, 85th Cong., 1st sess., beginning at p. 235), except that in determining the unemployment insurance daily benefit rate, based on 60 percent of take-home wages, the one-half of one percent contributed by railroad em

ployees for sickness benefits would be deducted from such 60 percent. Further, in determining the balance in the "Railroad Unemployment Insurance Account" as of September 30 of any year for the purpose of fixing the contribution rate on January 1 of the next following calendar year, the balance in the "Railroad Sickness Insurance Account" as of September 30 attributable to the employers' contribution would be included.

I discussed S. 1630 and S. 1651 (85th Cong.) in my testimony before the subcommittee on May 3, 1957, which is reproduced at page 416 and following in the record of those hearings.

Mr. SCHOENE. I just wanted to make this one general comment with respect to it. I have not had too much opportunity to study it, but with respect to railroad retirement it apparently provides a 5 percent increase in benefits which, of course, in the light of what I have already brought out concerning the effect of the cost of living on retirement and survival benefits is wholly inadequate. It does not purport to eliminate the actuarial deficiency in the Railroad Retire

ment account.

It proposes an increase in tax only to 6.75 percent, which according to Mr. Loomis' accompanying statement would finance the 10 percent increase of 1956 and in part finance the proposed additional 5 percent increase.

I have serious doubts that it does even that much by way of financing. I will be interested when the railroad witnesses testify how they compute that it goes that far toward financing.

As I say it does not purport to eliminate the preexisting actuarial deficiency or even fully to finance the benefit provided for in the bill. With respect to unemployment insurance while I have not had an opportunity to make a detailed comparison it is apparently quite similar to proposals that the railroad presented to this committee 2 years ago when S. 1313 was under consideration. In that aspect we regard the bill as not a legitimate proposal for improvement or rectification of the unemployment insurance system but really a counterattack.

In other words, they are showing us that if we can come in and ask for improvement benefits they can come in and ask for restrictions, upon qualifications for restrictions on duration of benefits and so on. Those features of the bill have been dealt with as embodied in last year's bill at some length in my testimony before the subcommittee and in addition to giving you this memorandum that the chairman has invited I would like to refer you to a consideration of the testimony given at that time.

Senator MORSE. Senator Clark.

Senator CLARK. No questions.

Senator MORSE. Senator Case.

Senator CASE. I wonder, Mr. Chairman, if the discussion on those particular points from the 1957 testimony might be incorporated in this year's record.

Senator MORSE. That has already been done.

Mr. SCHOENE. As I understand it the chairman has incorporated

the entire record.

Senator MORSE. By reference, the whole record. We will refer it as we will refer to the record this year.

Mr. Schoene, Senator Clark and I raised some questions yesterday in regard to the testimony of the Railroad Retirement Board witnesses, particularly Mr. Healey concerning the number of cases of payment

subsequently found to be fraudulent, the case of payment that the Board had to seek to recover. We raised the question of what the brotherhoods could do to be of assistance to the Board in reducing those cases. They cost money. They are not only losses as a result of the payments that are never recovered, although there was some testimony that recovery is remarkably high, but also the administrative costs of recovery.

The testimony in the record was to the effect that because you have the Adjustment Board acting in one field of jurisdiction, the Railroad Retirement in another, the Railroad Retirement Board did not like to be prejudicing the case while it is pending before the Adjustment Board by refusing to pay on the grounds that the man was discharged for drunkenness or for pilfering or that there was a fraudulent claim. What do you want to add in this record to be supplemented by written memorandum later in regard to this problem?

Mr. SCHOENE. I think you have two distinct subjects there. One with respect to possible fraudulent claims. Of course the brotherhood cannot administer the law. That is the responsibility of a Government agency to police it and enforce it.

We of course do not favor or encourage fraud. We would certainly in no way condone it. We do believe, however, that procedures of the act are recoverably calculated if properly enforced to avoid fraudulent claims. The act requires registration with respect to each day of unemployment claimed.

The registration normally takes place with the supervising officer of the railroad who was this claimant's supervisor when he was employed. So he is in a position to know at firsthand that he did in fact lose his job.

Now whether he may be working somewhere else is not within his first-hand knowledge, but the registration is designed to bring him to the registration point at times of the day that would not very well coincide with his holding a job.

Also he has to be available for work at any work that the Board can find him they refer him to. He has to take it or be disqualified from his unemployment insurance payments.

Also, the law provides criminal penalties for making fraudulent claims. The act itself provides a civil penalty in the first place of disqualification for benefits for 75 days which is assessed without indictment or trial, simply by an administrative determination.

But in addition, the major penalty is the criminal penalty of imprisonment up to a year and a fine up to $10,000. Of course it is the responsibility of the U.S. attorney to enforce that penalty when fraud is detected.

Then you mention the matter of recovery of erroneous payments, of payments fraudulently induced. The Board has authority to make such recoveries, not merely by direct action against the recipient but by offset against other benefits not only unemployment benefits but any retirement benefits that the individual may subsequently become entitled to.

That recovery authority is expressly spelled out in the statute.

So it is our belief that the provisions of the law are adequate if properly administered, and we do want to see effective administration. If there is any way that we can cooperate in securing any more

effective detection of any fraud we would of course be happy to do it, but we cannot take over administration of the law. That is the responsibility of the Federal agency.

With respect to matters of discharge for cause, while there are payments to individuals who are discharged allegedly for cause the proportion of such payment to the total payments is actually very small. I have been furnished with some figures on the proportions of payments made over a 10-year period to employees who are out of employment initially because of discharge, and they came to just about 4 percent, which is not an alarming number. That includes, of course, all who lost their employment on account of discharge, whether it was a justifiable discharge or not.

We have felt very strongly that there should not be a disqualification on that basis. In fact the original Railroad Unemployment Insurance Act as enacted in 1938 did contain a provision disqualifying an employee who had been discharged for cause.

Before the act actually went into operation, however, it was amended in 1939, to eliminate that qualification. That action was taken on the recommendation of the Railroad Retirement Board and with the concurrence of both management and labor.

The reason it was eliminated is precisely the one to which you have pointed, Mr. Chairman, namely that we have under the Railway Labor Act the procedures for the handling of grievances.

We have many instances in which individuals have been discharged allegedly for cause, but upon a proper handling of the grievance either on the property itself or by subsequent reference to the Adjustment Board if it could not be satisfactorily disposed of on the property there are many instances where it has been established that there was no justifiable cause for discharge and the individuals have been reinstated oftentimes with pay for time lost.

It has been our feeling, and I think at least on other occasions management has agreed with us, that that process of grievance handling should in no way be prejudiced or prejudged by administrative determination based on a disqualification for unemployment insurance.

If there were such a disqualification the Railroad Retirement Board would have to make an immediate decision as to its applicability when it decides to pay or not to pay. It would thereby be passing on the merits of the discharges.

I do not believe that management wants those determinations any more than we do.

Management might think it desirable to have the Board confirm its judgment and disqualify the individual for having been discharged for cause if it agrees with the management but I assume that an objective judgment would be made in that they would not always agree with the management. I do not think that the management wants really to have the Railroad Retirement Board making decisions that an individual is wrongfully discharged.

Senator MORSE. Any questions, Senator Clark?

Senator CLARK. No questions.

Senator MORSE. Senator Case.

Senator CASE. On this point the point has been made that it is very desirable that a man should be unquestionably barred from working when he is intoxicated or penalized for violation of operating rules and so forth, that it is quite undesirable to have a possible consequence