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estimate is high and that probably no net reductions will accrue to the railroad retirement system. Second, the estimate assumes a level annual taxable wage base of $5.6 billion. Actual payrolls have been below this level. In 1957, they were $4.6 billion and in 1958, $4.1 billion. Therefore, there is reasonable doubt that the 5.6 billion wage base will be realized. We believe that these are points on which the committee might wish to develop further information.

Aside from the above comments concerning financing of the system, two of the bill's retirement provisions pose problems:

(1) Under the existing law an individual cannot receive disability benefits for any month in which he is paid more than $100 in earnings. Under the bill this would be modified so that the disability benefit would be denied for any month in which earnings exceed $100 only if his annual earnings exceed $1,200. This proposed annual earnings criterion would seriously weaken the existing test for determining whether disability continues to exist. Under the proposed bill an individual could earn $300 a month for 4 months (which raises a serious question as to his continued disability) and still draw his monthly disability benefits for the entire year. Under existing law his benefits would be withheld for these 4 months. While this annual criterion is found in the old-age and survivors insurance program, it is not applicable to the disability benefits part of that program. Moreover, inasmuch as the railroad program provides benefits under considerably less stringent conditions in occupational disability cases, it would appear most undesirable to weaken the disability test by liberalizing the earnings provisions.

(2) The existing law provides that annuities be based upon either the railroad formula or the old-age and survivors insurance formula, whichever yields the higher amount. This particularly affects survivor cases, two-thirds of which now draw benefits under the old-age and survivors insurance formula. These bills would provide a 10 percent increase in annuities determined under the oldage and survivors insurance formula as well as a 10 percent increase in annuities determined under the railroad formula. As the use of the old-age and survivors insurance formula is designed to assure that railroad benefits will not be lower than social security benefits, it is questionable that the benefit resulting from the OASI formula (which were recently increased by 7 percent) should be increased when applied to railroad cases.

Also, proposed amendments to the Railroad Unemployment Insurance Act raise important questions:

(1) The duration of unemployment benefits would be extended from the present 26 weeks to 39 weeks for employees with 10-15 years of service and to 52 weeks for employees having 15 years or more service. The present maximum daily limit on unemployment benefits would be increased from $8.50 to $10.20 with corresponding increases in the relationship to gross pay from 60 percent to 70 percent.

The President has urged the States to improve the duration and amounts of benefits paid under the States' unemployment compensation programs. His 1959 Economic Report states: "Benefits should be raised so that the majority of covered workers will be eligible for payments equal to at least half of their regular earnings; and the maximum duration of benefits should be lengthened to 26 weeks for any person who qualified for any benefits and who remains unemployed that long." The existing provisions of the Railroad Unemployment Insurance Act meet the above criterion. The proposed increases should receive the most careful scrutiny, since they involve broad questions of social policy. In addition to the fundamental question of relationship to the basic unemployment insurance system which needs thorough consideration, the proposed extended weekly benefits could impair incentives to move into other lines of work. This would seem to be an undesirable consequence in view of the fluctuating railroad employment situation. Similar impairment might result from the proposed benefits inasmuch as the level of compensation could, in many cases substantially in excess of 70 percent when related to take-home pay. These proposed liberalizations on unemployment insurance are estimated by the Railroad Retirement Board to account for a significant part of the increased cost and the required increased employer contributions rate. It also appears likely, that the maximum tax rate of 32 percent specified in this bill, will fall short of covering the cost of these benefits.

(2) The bill would virtually eliminate any waiting period for unemployment benefits. An individual would be entitled to benefits even though he was out of work for only 1 day. Experience has shown that there are significant reasons for a waiting period. It is not necessary to compensate every small case of wage

loss which is often attendant upon normal and smooth adjustments between labor demand and supply. Few eligible workers lack sufficient funds to tide them over for a few days of unemployment. In addition, the waiting period minimizes administrative costs involved in processing and paying very small claims, and serves to conserve the fund so that it can be used for benefit payments for more significant unemployment risks.

(3) Unemployment compensation benefits are designed to offset current loss of income due to unemployment, not to reimburse for prior losses. This principle is violated by the proposed temporary extended benefits, which would provide benefits in the future to an individual who had days of unemployment between June 19, 1958, and April 1, 1959. The principle is again violated by provisions of the bill which would make all proposed benefit increases retroactive to June 30, 1958.

The above provisions, in our opinion, should receive the most careful scrutiny because they involve serious questions of social policy and possible precedents for other programs. The additional costs of these benefits should also be considered in relation to the pressing problem of assuring a sound financial base for existing benefits.

Altogether, the proposed benefit liberalizations, when added to the needed steps which these bills take toward elimination of the present serious financial deficiency in the railroad retirement system would entail a substantial increase in railroad retirement and railroad unemployment taxes. The immediate effect of these bills would be to raise the railroad retirement rate to 13% percent and the unemployment rate to 3% percent, or a combined total of 17 percent of covered payroll- 64 percent on workers and 10 percent on the carriers. By 1969, the railroad retirement tax rate would rise to 18 percent, thus leading to a combined total of 211⁄2 percent of covered payroll-9 percent on employees and 122 percent on the employers. These rates would compare with the present railroad tax rate of 121⁄2 percent and unemployment rate of 3 percent a combined total of 151⁄2 percent-64 percent on workers and 91⁄4 percent on the carriers. The desirability and feasibility of the proposed substantial liberalization in benefits for railroad workers in this industry at these payroll tax rates must, of course, be judged in terms of the industry's long-term prospects and its competitive position with other forms of transportation. The sharp tax increase necessary to pay for the liberalizations over the next decade would present a grave problem for the railroad industry-an industry which is already receiving emergency financial aid from the Government under legislation enacted in the 85th Congress.

The impact on the employees would also be substantial and has led to legislation being introduced to obtain exemptions of employees' contributions from Federal income-tax provisions. In the 1960 budget message, the President opposed changing the status of such contributions for Federal income tax purposes. In summary, enactment of legislation to place the railroad retirement system on a sound and fully self-financing basis and to increase the level of wages covered under the system was recommended by this administration. While S. 226 would make a useful contribution in this direction, it incorporates substantive provisions affecting both railroad retirement and railroad unemployment benefits which we believe are questionable. The proposed liberalizations would also create a financial problem in the railroad unemployment programs. Accordingly, the Bureau of the Budget would strongly recommend against enactment of S. 226 in its present form.

Sincerely yours,

PHILLIP S. HUGHES,

Assistant Director for Legislative Reference.

[S. 280, 86th Cong., 1st Sess.]

A BILL To amend the Railroad Retirement Act of 1937 to provide that benefits payable under such Act or the Railroad Retirement Act of 1935 shall not be considered as income in determining eligibility of veterans for non-service-connected disability pensions Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 20 of the Railroad Retirement Act of 1937 is amended (1) by inserting "(a)" immediately after "SEC. 20", and (2) by adding at the end thereof the following:

"(b) Pensions and annuities under this Act or the Railroad Retirement Act of 1935 shall not be considered as income for the purposes of section 422 of the Veterans' Benefits Act of 1957."

RAILROAD RETIREMENT BOARD,

Chicago, Ill., February 3, 1959.

Hon. LISTER HILL,

Chairman, Committee on Labor and Public Welfare,

U.S. Senate, Washington, D.C.

DEAR SENATOR HILL: This is a report on the bill S. 280 which was introduced in the Senate by you on January 14, 1959, and which was referred to your committee for consideration.

The bill would amend the Railroad Retirement Act of 1937 to provide that pensions and annuities under this act would not be considered as "income" for purposes of the "income limitations" prescribed by section 422 of the Veterans' Benefits Act of 1957, under which non-service-connected disability pensions are not paid to "any unmarried veteran whose annual income exceeds $1,400, or to any married veteran or any veteran with children whose annual income exceeds $2,700."

Enactment of the bill would make the present provision of section 20 of the Railroad Retirement Act almost wholly nugatory. This section, added to the Railroad Retirement Act by Public Law 746, 83d Congress, 2d session, 1954, permits any person to waive an annuity or pension to which he is entitled under that act, with the main purpose of this provision being to enable the annuitant or pensioner, by so waiving, to come within the income limitations specified in the veterans' laws and thereby qualify for a veteran's non-service-connected disability pension. There would, of course, be no need or purpose for any such waiver if the bill S. 280 is enacted.

The elimination of such waivers would cost the railroad retirement system a relatively small amount each year, but from an actuarial point of view this additional cost would be negligible.

Otherwise, enactment of the bill would not affect administration of the Railroad Retirement Act or increase the benefits payable thereunder.

Since the only effect of enactment of the bill would be the incidental one of eliminating the waivers referred to above, apart from the small cost to the system of this elimination, the Railroad Retirement Board takes no position with respect ot the proposal.

We understand that hearings on bills to amend the Railroad Retirement Act have been set for February 9, 1959; accordingly, this report is submitted without prior clearance with the Bureau of the Budget. A copy of the report is being forwarded to the Bureau of the Budget today and you will be informed of the views of that Bureau as soon as they are received.

Sincerely yours,

HOWARD W. HABERMEYER, Chairman.

[S. 875, 86th Cong., 1st Sess.]

A BILL To amend the Railroad Retirement Act of 1937 to permit women to receive reduced benefits thereunder at age sixty-two

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That (a) section 2(a)3 of the Railroad Retirement Act of 1937 is amended to read as follows:

"3. Individuals who will have attained the age of sixty and will have completed thirty years of service or, in the case of women, who will have attained the age of sixty-two and will have completed less than thirty years of service, but the annuity of such individual shall be reduced by one one-hundred-and-eightieth for each calendar month that he or she is under age sixty-five when the annuity begins to accrue."

(b) Section 2 (g) of such Act is amended by inserting after "wife under age 65" the following: "(other than a wife who is receiving such annuity by reason of an election under subsection (h))".

(c) Section 2 of such Act is further amended by adding at the end thereof the following new subsection:

(h) A wife who would be entitled to an annuity under subsection (e) if she had attained the age of 65 may elect upon or after attaining the age of 62 to receive such annuity, but the annuity in any such case shall be reduced by one one-hundred-and-eightieth for each calendar month that she is under age 65 when the annuity begins to accrue."

(d) Section 3 (e) of such Act is amended by inserting after "age sixty-five," the following: "women entitled to spouse's annuities pursuant to elections made under subsection (h) of section 2 to be entitled to wife's insurance benefits determined under section 202 (q) of the Social Security Act,".

SEC. 2. The amendments made by the first section of this Act shall be effective only with respect to annuities accruing for months after June 1959.

Hon. LISTER HILL,

RAILROAD RETIREMENT BOARD,
Chicago, Ill., February 9, 1959.

Chairman, Committee on Labor and Public Welfare,
Washington, D.C.

DEAR SENATOR HILL: You have requested a report from the Railroad Retirement Board on the bill S. 875 which was introduced by Senator Langer on February 2, 1959, and referred to your committee.

Section 1 of the bill S. 875 would amend the Railroad Retirement Act to provide reduced retirement annuities for women without 30 years of service upon election, and for reduced spouses' annuities to women at age 62 upon election, with the reduction in both instances to be by one one-hundred-and-eightieth for each calendar month that the annuitant is under age 65 when the annuity begins to accrue.

Section 2 of the bill S. 875 provides for the proposed amendment to be effective with respect to annuities after June 1959.

The Board is opposed to the enactment of the bill for the following reasons: 1. The bill, if enacted, would increase the cost of the railroad retirement system by about 0.03 percent of payroll, or $1.5 million a year.

2. The bill makes no provision for financing the additional cost which its enactment would entail.

3. The railroad retirement system cannot absorb the added cost because a recent actuarial estimate shows that the net level cost of benefits under the act is 16.68 percent of taxable payroll, Since the actual tax rate is only 12.50 percent, the present benefit structure already involves an actuarial deficiency of 4.18 percent of payroll which is equivalent to about $213 million a year on a level basis.

4. The effect of the enactment of the bill would be to increase the deficiency to about 4.20 percent of payroll or $215 million a year.

The Board, accordingly, recommends that no favorable consideration be given to this bill.

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.

Sincerely yours,

HOWARD W. HABERMEYER, Chairman.

[S. 987, 86th Cong., 1st Sess.]

A BILL To amend the Railroad Retirement Act of 1937, the Railroad Unemployment Insurance Act, the Internal Revenue Code, the Social Security Act, and for other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

PART I-AMENDMENTS TO THE RAILROAD RETIREMENT ACT OF 1937

SECTION 1. (a) Section 3 (a) of the Railroad Retirement Act of 1937 is amended (1) by striking out "3.04", "2.28", and "1.52" and inserting in lieu thereof "3.19", "2.39", and "1.60", respectively; and (2) by striking out "$200" and inserting in lieu thereof "$250”.

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(b) Section 3 (c) of such Act is amended by inserting after "or in excess of $350 for any month after June 30, 1954," the following: "and before July 1, 1959, or in excess of $400 for any month after June 30, 1959,".

(c) Section 3 (e) of such Act is amended by striking out "$4.55" and "$75.90" and inserting in lieu thereof "$4.78" and "$79.70", respectively.

SEC. 2. (a) Section 5(f) (2) of the Railroad Retirement Act of 1937 is amended by striking out "and 7 per centum of his or her compensation after December 31, 1946 (exclusive in both cases of compensation in excess of $300 for any month before July 1, 1954, and in the latter case in excess of $350 for any month after June 30, 1954)," and by inserting in lieu thereof the following: "plus 7 per centum of his or her compensation paid after December 31, 1946, and before July 1, 1959, plus 72 per centum of his or her compensation paid after June 30, 1959 (exclusive of compensation in excess of $300 for any month before July 1, 1954, and in excess of $350 for any month after June 30, 1954, and before July 1, 1959, and in excess of $400 for any month after June 30, 1959),".

(b) Section 5(h) of such Act is amended by striking out "$33", "$176", and "$15.40" wherever they appear and inserting in lieu thereof "$34.65", "$184.80", and "$16.17", respectively.

(c) Clause (A) (i) of section 5(1) (9) of such Act is amended by striking out the word "and" appearing after "July 1, 1954," and by inserting after "June 30, 1954," the following: "and before July 1, 1959, and any excess over $400 for any calendar month after June 30, 1959,".

(d) Clause (A)(ii) of section 5(1) (9) of such Act is amended (1) by inserting "and before 1960" after "1954" where it first appears; (2) by inserting after "$4,200" where it first appears the following: ", or for any calendar year after 1959 is less than $4,800,"; (3) by striking out "$350" and inserting in lieu thereof "$400"; and (4) by striking out "and $4,200 for years after 1954, by" and inserting in lieu thereof the following: ", $4,200 for years after 1954 and before 1960, and $4,800 for years after 1959, by".

(e) Section 5(1)(10) of such Act is amended by striking out "44", "11", "$350", "$15.40", "$36.66", "$27.50", and "$14.66" wherever they appear and inserting in lieu thereof "46", "11.6”, “$400”, “$16.17”, “$38.49", "$28.88", and "$15.39", respectively.

SEC. 3. All pensions under section 6 of the Railroad Retirement Act of 1937, all joint and survivor annuities and survivor annuities deriving from joint and survivor annuities under that Act awarded before July 1, 1959, and all annuities under the Railroad Retirement Act of 1935, are increased by 5 per centum.

SEC. 4. (a) The amendments made by subsections (a) and (c) of section 1, and by subsection (b) of section 2 shall be effective only with respect to annuities (not including annuities to which section 3 applies) accruing for months after June 1959. The amendment made by subsection (a) of section 2 shall be effective only with respect to lump-sum payments (under section 5(f) (2) of the Railroad Retirement Act of 1937) in the case of deaths occurring after June 1959. The amendments made by subsection (e) of section 2 shall be effective only with respect to annuities accruing for months after June 1959 and lump-sum payments (under section 5(f)(1) of the Railroad Retirement Act of 1937) in the case of deaths occurring after June 1959. Section 3 shall be effective only with respect to pensions due in calendar months after July 1959 and annuities accruing for months after June 1959.

(b) All recertifications required by reason of the amendments made by this part shall be made by the Railroad Retirement Board without application therefor.

PART II-AMENDMENTS TO THE INTERNAL REVENUE CODE

SEC. 201. (a) Section 3201 of the Railroad Retirement Tax Act is amended by striking out "614", "December 1, 1054", and "$350" and inserting in lieu thereof "64", "June 30, 1959", and "$400", respectively.

(b) Section 3202(a) of the Railroad Retirement Tax is amended (1) by striking out "after December 31, 1954" wherever it appears and inserting in lieu thereof "after June 30, 1959"; (2) by striking out "$350" wherever it appears and inserting in lieu thereof "$400"; (3) by striking out "after 1954" and inserting in lieu thereof "after June 1959."

(c) Section 3211 of the Railroad Retirement Tax Act is amended by striking out "12", "December 31, 1954", and "$350" and inserting in lieu thereof "132", "June 30, 1959", and "$400", respectively.

37456-59-3

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