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some length before your committee, by representatives of labor and of management presenting information which should be of great assistance in your consideration of the bill.
I hope that whatever action may be taken respecting taxes and to improve benefits will result in the railroad retirement system being placed on an essentially sound actuarial basis, and similarly that the increase in the contributions' base and rate and the improvement of benefits will be such as not seriously to endanger the soundness of the unemployment insurance program.
STATEMENT OF MB. HARPER
The standard railway labor organizations, after many conferences and as the result of long and careful consideration, have determined that the provisions of this bill are, from the viewpoint of railroad employees, desirable, reasonable and, in fact, required to bring the railroad retirement and railroad unemployment insurance systems into reasonable relationship with the realities of present conditions, a conclusion in which I heartily concur. Also, it is the judgment of the standard railway labor organizations that the costs involved are not beyond the ability of the railroad industry to pay, to which I readily concur. The bill would provide an across-the-board increase in all benefits and would also provide suitable and appropriate eligibility conditions for railroad workers and their dependents. It would increase the tax rates and the compensation base to which the tax applies sufficiently, not only to cover the added costs of the proposed amendments but also to produce enough additional revenues to eliminate for all practical purposes the present estimate deficit in the financing of the railroad retirement system. In that connection, the following is quoted from the Board's report:
"Considering both additional outgo and additional income, the estimates indicate that the added revenues would exceed the added disbursements by about $5.6 billion taxable payroll. Since the actuarial deficiency for the present law, calculated as of December 31, 1958, is estimated at 3.81 percent of that payroll (adjusted from 4.18 of a $5.1 billion payroll), the enactment of the amendments would leave the railroad retirement system with an actuarial deficiency of 0.60 percent of payroll (3.81 minus 3.21) or about $34 million a year.”
In short, the enactment of the bill would reduce the present estimated 3.81 percent of payroll deficit to 0.60 percent. With only six-tenths of 1-percent deficit, the railroad retirement system can reasonably be regarded as financially sound. Thus, the bill not only would provide increases in benefits but would have the added virtue of, for all practical purposes, eliminating the present too large deficit.
Similarly, the bill, if enacted, would provide desirable and obviously needed improvements in the railroad unemployment insurance system with appropriate provisions for producing funds needed to cover the costs thereof. The increase in the amount of unemployment benefits and the extension of the periods in which benefits are payable, in my opinion, fully justify the additional cost. As pointed out in the Board's report, the costs would be greatly affected by such unpredictable things as the frequency and extent of cyclical fluctuations in railroad traffic, international conflicts, technological developments, etc. However, provisions for contributions to the fund on a sliding-scale basis afford a flexible method for realistically adjusting the fund to meet and conform to such fluctuations. While the Board's cost estimates indicate that a maximum rate of 334 percent, instead of 31/2 percent, may be necessary to assure sufficient funds for the unemployment insurance account, the difference being only 0.25 of 1 percent, should not, in my opinion, weigh against the enactment of the bill. I am firmly convinced that the effect of the provisions contained in the bill would be, apart from other economic considerations, to stabilize employment and, therefore, actually to reduce the cost of the unemployment insurance system. Then too, if the economy continues to go forward, as it is now doing and is generally expected to continue to do, unemployment will fall and, of course, the cost will correspondingly decrease. For these and other reasons, I strongly urge prompt consideration and passage of the bill.
STATEMENT BY MR. HEALY I again, respectfully, record my opposition to any further liberalization of benefits under the Railroad Retirement and Railroad Unemployment Insurance Acts and earnestly recommend an adverse report on S. 226 in its entirety.
There are only two truly comparable social insurance programs for the industrial workers of the Nation. According to the best estimates available, in January 1959, there were 51 million employees in nonagricultural establishments : 44 million, or 86 percent, were under social security coverage and less than 1 million, or about 2 percent, under the railroad retirement system.
It is an acknowledged fact that the benefits under the railroad retirement system, although costlier, are far superior than obtainable under social security as the following comparative data prove conclusively:
Number of benefits in current-payment on Jan, 1, 1959.....--------
Retirement and disability-...
Retirement and disability...
And, without any changes in the present law, railroad workers can look forward, as time moves onward, to even wider spreads as earnings and service bring both groups to the following maximums:
The railroad retirement system has many other advantages. To illustrate :
An age annuitant may also receive, if entitled thereto, benefits under the social security program, without any reduction in his railroad retirement check. There are around 60,000 such individuals presently doing so, and that number is increasing constantly. In point of fact, a recent study revealed that 72 percent of the 1,628,000 employees for whom railroad service was reported in 1956, had accumulated some social security credits. Of these, 405,000, or 25 percent, had dual coverage in that year alone and of that number 82,000 received credit for 12 months of railroad service, which is indicative of the amount of secondary job holding among regularly employed railroad workers.
Also, while the relatively small minority of railroad employees in the total population of industrial workers has the privilege of a separate retirement and survivor program, its members also enjoy certain rights under the social security minimum guarantee provision of the Railroad Retirement Act. Because of the 1958 amendments to the act, some 30,000 retired railroad employees, 90,000 wives, and 160,000 widows, children, and aged parents received increases of about 7 percent, generally, in their annuities under the Railroad Retirement Act, effective in January 1959. As a matter of fact, these increases for spouses are even higher, ranging from 10 percent now to 17 percent a year hence. S. 226 proposes to add another 10 percent to that increase.
S. 226 proposes to increase the taxes on railroad workers from $21.88 per month to $27 in 1959–61, $29 in 1962–64, $32 in 1965, $34 in 1966–68, $36 in 1969, and thereafter, with no assurance, as experience has shown, that there will be no further increases in the interim. I would venture the opinion that when the tax assessment against the employee was raised, January 1, 1952, it was not then thought that further increases would be necessary; at least, in such a short space of time,
The industry's share of the proposed additional taxes for retirement purposes would be $57 million per year in 1959–61, $87 million per year in 1962–64, increasing steadily to around $185 million in 1969.
These proposals to saddle additional taxes upon currently active employees (who have been carrying the burden of the cost of benefits to those who retired without contributing commensurately to the system) upon future entrants and upon an industry that is struggling to recapture its losses and keep as many employees as possible on the payroll is, in my opinion, ill timed and ill advised.
It may interest the committee to know that a study made covering annuitants on the rolls as of December 31, 1955, who retired at age 65 and over, and who had some railroad service after 1936, contributed $240 million in employee-tax contributions and had then already received benefits totaling $1,470 million-a ratio of $6 to $1; furthermore, when the value of future benefits were included; their ratio of benefits to contributions was almost 12 to 1.
The 1951 amendments to the Railroad Retirement Act increased annuities by 15 percent and provided, for the first time, annuities to wives of railroad employees; the 1954 amendments permitted annuitants to receive full benefits even when simultaneously entitled to social security benefits; the 1955 amendments increased the wife's maximum from $40 to $54.30, because of changes in the Social Security Act and that maximum was further increased through the social security amendments of 1958; the 1956 amendments to the Railroad Retirement Act increased benefits, generally, 10 percent. These amendments have increased benefit payments since 1951 by $278 million.
In the vital statistics between 1951 and today is the following incongruous situation :
Railroad retirement system
In lieu of the proposals in S. 226, I earnestly recommend that a moratorium be declared against any further increases in benefits under the Railroad Re tirement Act, at least, until such time as the help given the industry and its own efforts to improve its position and stabilize railroad employment can be properly evaluated by both management and currently active employees.
I am, as firmly, opposed to those proposals in S. 226 to further enlarge or extend the already overgenerous benefits under the Railroad Unemployment Insurance Act, adding $40 million in 1959 and by 1962, $43 million per year to the present tax assessment against the industry.
The average daily benefit rate for unemployment, paced by the growth in rates of pay, plus amendments in 1952 and 1954, rose from $3.55 in fiscal 1951-52 to $7.80 last year and is currently in excess of $8. This bill proposes to further increase these benefit rates from 8 to 25 percent with a general advance of 20 percent.
It also proposes, significantly, to retroactively extend benefits to employees who exhausted their rights although the opportunity to do so was rejected when the program for all other workers was adopted in the last session of the Congress. The cost of this particular proposal is estimated between $15 and $18 million. Under the present law railroad employees can, and do, draw unemployment benefits in more than one year. Actually, 164,000 of the 229,000 railroad employees who drew unemployment benefits between July and December 1958 were also beneficiaries in the fiscal year ending June 30, 1958.
A recent study by Board technicians revealed that of the 1,445,000 unemployiment insurance beneficiaries in the 18-year period ending June 30, 1957, over 354,000 drew benefits in 2 years ; 170,000 in 3 years ; 90,000 in 4 years, and 30,000 in as many as 8 or more years..
The Railroad Unemployment Insurance Act needs reappraisal and not liberalization, for certainly there can be no fairness or equity in the requirements that compelled the industry, over the past decade, to pay out in unemployment benefits $90,466,000 to employees who are discharged or suspended for just causes, or who voluntarily quit their jobs; $15,656,000 to employees participating in strikes against the industry and to other employees affected by such work stoppages, when the Federat-State systems, covering the vast majority of the Nation's industrial workers, consider voluntary separations, discharges for mis. conduct, and labor disputes as major reasons for the disqualification of claimants for unemployment insurance benefits.
In the last fiscal year, 10,200 railroad employees who were discharged or suspended for just causes, drew $6 million in unemployment benefits under the Railroad Unemployment Insurance Act. Let's look at some of the reasons for these discharges and suspensions and the amount of benefits paid to such employees : 863 drew $556,400 for being intoxicated on or when reporting for duty; 930 drew $422,630 for violations of operating rules; 316 drew $145,600 for responsibility for accidents; 1,028 drew $677,300 for being absent without leave, failure to protect assigrim'ents, etc. ; 808 drew $511,095 for misconduct, insubordination, 'négligence; 371 drew $245,895 for dishonesty and police records; and 612 drew $417,560 for nonpayment of union dues.
I was accorded the privilege just recently of reading a communication addressed to a Member of this Congress from an employee who was discharged by a railroad in which, among other things, that employee stated that "the brotherhood officials have refused to help me.” Nevertheless, under the law, the Railroad Retirement Board was required to pay that discharged employee over $2,000 in unemployment-insurance benefits. And, incidentally, he collected for 52 straight weeks.
Some 13,100 railroad employees who voluntarily quit during the last fiscal year collected $8,196,000 in unemployment benefits, although the only valid reason I know for voluntarily quitting a job is to accept a better one, and even then the Railroad Unemployment Insurance Act is unduly liberal. To illustrate:
A veteran employee with over 30 years of service voluntarily quit on July 31, 1956, to enter the real estate field. The alluring promises did not materialize, so that employee on January 11, 1957, applied for benefits under the Railroad Unemployment Insurance Act and collected $1,105. Since the employee worked in the first half of 1956, additional benefits were claimed and paid under the Railroad Unemployment Insurance Act beginning July 1, 1957. :: Are any of these persons truly entitled to extended and retroactive benefits or to any benefits whatever?
And so far as I can determine, no other industry is required by law to subsidize its employees for hampering or halting its production or services.
In the 11 years ending June 30, 1958, over 800,000 railroad employees drew sickness benefits aggregating $402 million, and 30,000 drew maternity benefits totaling $31 million under the Railroad Unemployment Insurance Act.
Only 4 States provide sickness benefits, and in 2 of those the cost is borne entirely by employees, yet the railroad industry is, through taxation, required to shoulder the entire burden for its employees throughout the Nation.
Only one State provides maternity benefits and, in my last appearance before this committee, I cited a classic example of the generosity of the Railroad Unemployment Insurance Act in an actual case.
Let me give to you, please, another example:
A female employee resigning from railroad service, after having been employed for 8 months—September 1955 to May 1956-received maternity benefits under the Railroad Unemployment Insurance Act in connection with the births of two children, one born 10 months after her resignation and the other a year later. Benefits in each case amounted to $975.
Here is how that was, and could be done :
She resigned in May 1956. The first child was born in March 1957 and the second in March 1958. Her first maternity period began in the benefit year beginning July 1, 1956, for which the base period was the calendar year 1955. The second maternity period began in the benefit year starting July 1, 1957, for which the calendar year 1956 was the base year.
While employed her daily rate of compensation was $15. Her total earnings for the 8 months of actual employment was approximately $2,500 on the basis of which she collected an additional $1,950 in maternity benefits.
The Railroad Retirement and Social Security Acts provide immediate annuities to retiring workers entitled thereto but it is permissible, under the Railroad Unemployment Insurance Act for a railroad worker to defer the effective date of his retirement, and in the interim, draw unemployment or sickness benefit. These practices are costing the railroad industry around $12 million per year.
Furthermore, benefit rights are never reduced or canceled in cases of fraud under the Railroad Unemployment Insurance Act as they frequently are under the Federal-State system.
In the fiscal year ending June 30, 1958, field offices of the Board made 9,125 spot checks on unemployment insurance beneficiaries for possible employment on days claimed as idle and in 2,070, or 22 percent of the cases, found this to be true.
I sincerely believe that the removal of these inequities from the Railroad Unemployment Insurance Act will deprive no one of just benefits, and will definitely be in the interest of the industry, its employees, and the public welfare.
Because of the special request for an immediate report on the bill, this report has not been cleared with the Bureau of the Budget. We are, however, forwarding to the Bureau today a copy of the report and we will inform the committee promptly of any comments by the Bureau. By direction of the Board :
MARY B. LINKINS,
EXECUTIVE OFFICE OF THE PRESIDENT,
BUREAU OF THE BUDGET,
Washington, D.C., February 25, 1959. Hon. LISTER HILL, Chairman, Committee on Labor and Public Welfare, U.8. Senate, Washington, D.O.
MY DEAR MR. CHAIRMAN: This will acknowledge your letter of January 21, 1959, requesting the views of the Bureau of the Budget on S. 226, to amend the Railroad Retirement Act of 1937, the Railroad Retirement Tax Act, and the Railroad Unemployment Insurance Act, so as to provide increases in benefits, and for other purposes.
This bill would liberalize and increase the retirement, survivor, and unemployment and sickness benefits, and provide for extended unemployment benefits. It would increase railroad retirement taxes and ultimately increase the employer contributions to the railroad unemployment insurance account. Also, the bill would increase the wage base from $350 to $400 a month (from $4,200 to $4,800 annually). This latter increase is in line with the 1958 amendments to the Federal old-age survivors and disability insurance system and was recommended by the President in his 1960 budget message.
In the retirement system, the benefit rates would be raised by 10 percent and other substantial liberalizations would be made at a total level premium cost of 2.63 percent of payroll according to the Board's estimate.
The railroad retirement system is at present confronted with an actuarial deficiency of 4.18 percent of payroll. Both your committee and the administration recognize that this serious deficiency must be remedied if the system is to be maintained on a sound reserve basis. Under this bill the additional revenues which would be provided for the railroad retirement system through increases in the tax rate and a higher wage base would offset the increase in benefit outlays and would reduce the actuarial deficit to a 0.60 percent of payroll according to actuaries of the Railroad Retirement Board. On the basis of their estimates, this would go far toward making the railroad retirement system self-financed.
The estimated reduction in the actuarial deficiency from 4.18 to 0.60 percent, however, is based upon many assumptions including several which could turn out to be optimistic. First, the Board's actuaries estimate that as a result of the financial interchange with the old-age and survivors insurance trust fund, the railroad retirement system cost will be reduced by 1.12 percent of payroll. The actuaries of the Social Security Administration believe that this