Financing If the bill is enacted, the funds available for payment of benefits would be divided between the railroad unemployment insurance account and the proposed railroad sickness benefit account. Thus it is necessary to consider separately the adequacy of financing for each. The proposed railroad sickness benefit account would receive income from contributions and taxes equal to 1 percent of taxable payroll, and in addition would receive interest on the balance in that account. This total income should be more than adequate to support the benefits, since they would cost in the future under the bill only about 0.7 percent of payroll. The railroad unemployment insurance account would have available maximum contributions equal to 2.3 percent of payroll and in addition would receive interest on the balance in this account and any possible transfers from the administration fund. This should also be adequate to support the benefits payable, since in the long run, benefits for employment would cost probably less than 1.6 percent of payroll. About half of the balance in the sickness account would be considered part of the unemployment account on September 30 for the purpose of determining the contribution rate applicable for a particular year. Thus, theoretically, a stituation could develop in which the sickness account balance increased while the unemployment account balance did not, and the resulting contribution rate might not be adequate to support the unemployment benefits. However, such a situation is not likely to occur for many years. Future cost to the railroads While no immediate reduction in employer contribution rates would occur if the bill is enacted, ultimately the cost of the program for the railroads would be reduced by approximately 1 percent of payroll. This is the net result of the reduction of future costs on a level basis which would result from the bill and the establishment of a sickness benefit account supported jointly by employees and employers. On the basis of a $5.1 billion payroll this would amount ultimately to savings for the railroads of about $50 million a year. STATEMENT OF MR. HABERMEYER As shown by an actuarial study, the proposed increase in the tax rate and compensation base would not, after taking into account the proposed increase in benefits under the Railroad Retirement Act, provide sufficient revenues to remove the actuarial deficiency of the railroad retirement system, since a substantial and unacceptable deficiency of 3.23 percent of taxable payroll would remain under the railroad retirement system. Congress should, I think, first provide the additional revenue necessary to place the retirement system on a sound financial basis. This is a commitment which the President of the United States requested and received from this committee of Congress when he signed the 10 percent increase in the benefit bill (Public Law 1013, 84th Cong.) on August 7, 1956. As a consequence, I cannot recommend the enactment of the proposals respecting the railroad retirement system. The present bill, as it would affect the provisions of the Railroad Unemployment Insurance Act, would result in a reduction generally in the amount of benefits paid. By this reduction, together with the present and proposed methods of paying for benefits to be paid, the system would have, as has been indicated, the necessary financing to support the program and would pose no problems in this respect. Since I did not take a position with respect to the liberalizations proposed in S. 226 and chose to remain neutral, I feel that I must likewise remain neutral and leave to your committee the policy questions involved in this bill. I would recommend that the compensation base be changed to $400 per month to be consistent with the base in the Railroad Retirement Act. The representatives of management and labor will doubtless present at the forthcoming hearings detailed information respecting the bill and carefully considered arguments in support of their respective views. STATEMENT OF MR. HEALY I favor the enactment of S. 987 for the following reasons: In my several appearances before this committee, and elsewhere, I have earnestly urged removal of the inequities in the present Railroad Unemploy 1 See letter on p. 47. 37456-59- 4 ment Insurance Act and specifically, that unemployment benefits be denied to those employees Who are discharged or suspended for just cause; Who voluntarily quit their jobs; Who are on strike against the industry, or any part of it or who, not directly involved in such incidents, choose to remain away from their own duties; Who are eligible for immediate age or disability annuities under the Railroad Retirement or Social Security Acts; Who do not perform their regular work because of pregnancy or its related ailments. The Board's technical report shows that $14,868,000 were paid out in unemployment insurance benefits during the last fiscal year to employees who were discharged, suspended, voluntarily quit or involved in strikes. In October and November 1958, the Board's Director of Research, at my request, prepared some estimates of the ratio of such benefits to the total unemployment insurance payments which I now respectfully offer for your consideration: Certainly, there is no justification for payment of benefits to such employees who, it should be remembered, contribute nothing whatever to the support of this social insurance system. It is to be noted, however, that S. 987 does not entirely close the benefit door to employees who are discharged, suspended, or voluntarily quit. The Railroad Retirement and Social Security Acts assure immediate annuities to those eligible workers of the Nation who retire by choice or otherwise. Why then, should any be permitted to defer these applications and, in the interim, collect sickness or unemployment benefits, amounting to $12 or $13 million per year, under the Railroad Unemployment Insurance Act? Since only one State provides maternity benefits--and that at employee expense only-where is the justice that requires the railroad industry to "contribute" between $3 and $4 million per annum in such cases? In the last fiscal year, 3,535 claimants were disqualified for failure to accept or apply for work, but, after such periods, were paid an aggregate of $511,295 in unemployment insurance benefits. S. 987, it seems to me, proposes changes in the present technique that would be beneficial to the employees. Certainly, the elimination of the present time spread between the base year earnings and the benefit year would be welcomed particularly by those employees who are, perforce, furolughed or laid off in periods of heavy traffic declines due to economic or other conditions. The proposal that a qualifying requirement of 87 days' work be established for unemployment insurance benefits is well supported by the numbers of employees who qualified in the past 4 years on base year earnings of less than $1,300, i.e. Board studies reveal that the majority of workers who enter railroad employment for the first time each year do not remain-most casual workers stay for only a short while. This lengthier qualifying requirement could help to encourage many of the younger and desirable entrants to give railroading, as a career, a little more thought. The proposal that railroad employees share with their employers the cost of sickness benefits is reasonable and sound. With four exceptions, the State systems, covering the vast majority of the industrial workers of the Nation, do not provide any sickness benefits. In two of those four States, the cost of the sickness program is borne partly by the employees, and in the other two, the employees pay the entire bill. I have, with vigor, opposed any increase in railroad retirement benefits because of their current and future superior advantages in comparison with social security and, frankly, there has been no change in my own thinking. S. 987, however, offers a potential compromise worthy of evaluation. Although management was not a consenting party to the increases granted in 1956, its representatives volunteered to accept management's share of that cost burden in order to fulfill assurances of others to the Congress, and the President of the United States. Management, through S. 987, is asking the removal of the inequities in the Railroad Unemployment Insurance Act under which the railroad industry has been unduly penalized for many years. In a spirit of helpfulness, management offers, through S. 987, to divert the savings that would accrue from the correction of those inequities in the Railroad Unemployment Insurance Act, in excess of its voluntary commitments on the cost of the 1956 amendments, to a further increase in certain benefits under the Railroad Retirement Act. This proposal, or compromise offer, will reduce the current annual actuarial deficiency of the railroad retirement system by some $32 million; appease somewhat the clamor for increased benefits and, it is hoped, promote a moratorium of several years, or at least until such time as the help given to 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. STATEMENT OF MR. HARPER I seriously oppose the enactment of the bill S. 987. In my opinion the proposed increases in benefits under the railroad retirement system are insufficient in the light of present economic conditions, and the provisions for financing these new benefits and the present deficiency, as shown by the actuarial study, are inadequate. Also, in my judgment, the purpose and effect of the bill is to weaken drastically the protection now and long afforded railroad workers against unemployment and sickness. The bill is backward-looking in concept in that it would either eliminate altogether, or substantially reduce, long-established benefits which have universally been recognized as being reasonable and justifiable. Moreover, the bill would contravene a traditional and long-established congressional policy by imposing upon employees one-half the costs of the sickness benefit program. The bill, if enacted, would be unmistakably against the best interests of railroad employees and public policy because: 1. The token increases in benefits under the railroad retirement system, proposed by the bill, some of which would not be increased at all, and others to a negligible extent, would not serve to keep the system in a reasonable relationship with present economic conditions as reflected in present-day wages, prices, and income generally. That failure would weaken rather than strengthen the system. 2. The tax increase proposed in support of the system would not be anywhere near enough to enable the system to meet its obligations for future benefits and it would on an actuarial basis be insolvent. 3. The number of employees eligible for unemployment and sickness benefits is greatly reduced by changes in the existing qualifying provisions and by the addition of a number of rigid disqualifications not now in the law. The bill provides for individual base years and individual benefit years for each individual employee under the unemployment insurance program, and the uniform use of the calendar year preceding the benefit year, as at present, is eliminated. This change alone results in the disqualification of thousands of employees. The amount of qualifying earnings within the base year is raised from $400, as at present, to levels ranging from about $1,200 minimum to about $1,500 maximum, which, of course, disqualifies many more. The requirement of earnings from railroad employment in 6 different months of the base year, 2 of which must be in the last half of the year, of an amount equal to what he would have earned in 87 days disqualifies other thousands of railroad workers for unemployment and sickness benefits. The bill abolishes the long-established congressional policy, which has been in effect from the very beginning of the system, for the payment of unemployment benefits for time lost due to orderly, legitimate, and legal strikes, conducted solely to rectify or improve conditions of employment in full accord with the quite specific and carefully considered provisions of the Railway Labor Act and in full accord with the provisions of the laws and constitutions of the railway unions, long and universally recognized as respectable, well-run and responsible organizations. Unlike the present provisions, the bill precludes any continuance of benefits for an employee, even in a succeeding benefit year, after the employee has exhausted his rights to benefits in a benefit year, except where he has had new substantial employment. Employees are, in effect, permanently disqualified who voluntarily quit employment, including those who quit under duress or provocation. The payment of maternity benefits as such is completely eliminated. The bill provides that an employee who is disqualified for unemployment benefits for any reason is by reason of that fact also disqualified for sickness benefits. Any employee who is, or upon application would be, entitled to full retirement, disability or pension benefits under either the Railroad Retirement Act or the Social Security Act is disqualified for either unemployment or sickness benefits unless his unemployment results from involuntary failure of employment. Subject to the exception stated this provision would disqualify all railroad workers 65 or more years of age; women employees 60 or more years of age with at least 30 years of railroad service; and all persons who could qualify for disability benefits under either act. It is understating the case to refer to this provision as harsh. 4. The amount of benefits payable both for unemployment and sickness is substantially reduced by the bill. Under the present law benefits are computed on the basis of aggregate earnings in the base year, or upon the basis of the last daily basic rate of pay, whichever produces the greater benefit rate. The bill at hand provides that the last daily basic rate in the base year shall be the sole basis for the computation of benefits. In 1957-58, 70 percent of the sickness benefit rates and 47 percent of the unemployment benefit rates were computed upon the basis of aggregate earnings in the base year. They were so computed because it produced a higher benefit rate as provided in the present law. These figures illustrate the extent to which benefit rates would be reduced. The bill provides for the computation of benefit rates upon the basis of takehome pay, that is, benefits based upon the last daily basic rate, less the railroad retirement and sickness benefit tax, and the regular income tax withholding, applicable to such last daily basic rate. Congress in its wisdom has by provision of law waived the payment of income taxes on railroad unemployment and sickness benefits. This bill would recapture such taxes for the benefit of the railroad unemployment insurance trust fund, which only indirectly recaptures for the railroads themselves the taxes which the Government has waived. 5. Administration of the system would be made difficult to a degree approaching impossibility. The design and plan so carefully thought out and developed for easily ascertained and quickly paid benefits would be revised for the worse. Presently, the base year and the benefit year are fixed and uniform periods, known and easily understood by the employees, the railroads, and the Board. Facts essential to the making of determinations as to eligibility for benefits and no less essential in the computation of benefits are now readily available to the Board. That would not be true if the bill under discussion were enacted. Ascertainment and establishment of those facts in every individual case can only begin after the receipt of applications for benefits. Thereafter, in every case inquiry must be made of all the employers the newly unemployed person has had in the previous 12 months to ascertain or verify the claim as to the determining wage rate, the reasons for losing the employment, the amount of withholding tax, the total amount of employment and pay the claimant has obtained in the previous 12 months, and a specification of the months in which the claimant has worked. Additionally, for purposes of determining eligibility for full retirement, disability or pension benefits, facts as to total railroad service, age, sex, and physical condition together with all other information needed to adjudicate a claim for an annuity or monthly benefit under the Railroad Retirement Act or the Social Security Act must be established. Since all of these time consuming inquiries and determinations must and can only be made after an employee has made his initial application, payment of benefits must and will be unreasonably delayed. In my personal judgment the very mechanics of adjudicating claims under the provisions of these bills will require from 6 to 8 weeks, and some of the more difficult cases will require 6 months or more. 6. One of the most objectionable features of the bill is the provision under which employees would be required to pay one-half the costs of the sickness benefit program. This would violate completely the fundamental congressional policy which has continued since the inauguration of the system. Inasmuch as hearing on bills to amend the Railroad Retirement and Railroad Unemployment Insurance Acts have been set for February 18, 1959, 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. By direction of the Board: Hon. LISTER HILL, MARY B. LINKINS, RAILROAD RETIREMENT Board, Chairman, Committee on Labor and Public Welfare, DEAR SENATOR HILL: In my statement attached to the Board's report on bill S. 987, I said "I would recommend that the compensation base be changed to $400 per month to be consistent with the base in the Railroad Retirement Act." I did not mean to imply by this statement that the program would need the additional revenue which would be provided by this change. As a matter of fact, if this change were to be adopted, the maximum contribution rate could be reduced to 24 percent and the system left on a sound financial basis. I thought I should submit this information so there would be no misunderstanding on this point. Sincerely yours, HOWARD W. HABERMEYER, Chairman. RAILROAD RETIREMENT BOARD, To: The Board. From: The Associate General Counsel. The attached shows the sections of the Railroad Retirement Act, the Railroad Retirement Tax Act, and the Railroad Unemployment Insurance Act which would be amended by the bill, S. 226. The proposed changes in the several sections are shown by including in brackets all existing law to be omitted, and by italicizing all new proposals. DAVID B. SCHREIBER, Associate General Counsel. |