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than $500 will not be a "qualified employee" for the benefit year beginning July 1, 1959.
6. An employee with less than 10 years of service who has, after June 30, 1957, exhausted his rights to unemployment benefits under present law would receive additional unemployment benefits, payable retroactively, for days of unemployment, not exceeding 65, which occur in registration periods beginning on or after June 19, 1958, and before April 1, 1959.
7. An employee with 10 but less than 15 years of service, who did not voluntarily leave work without good cause or voluntarily retire, upon exhaustion of his rights to normal unemployment benefits under present law in a given benefit year would have such benefit year extended by an additional 7 successive 4-day periods after such exhaustion, with a maximum of 65 days of additional benefits. .
8. An employee with 15 or more years of service, who did not voluntarily leave work without good cause or voluntarily retire, upon exhaustion of his rights to normal unemployment benefits under present law in a given benefit year would have such benefit year extended by an additional 13 successive 14-day periods after such exhaustion, with a maximum of 130 days of additional benefits.
9. Sundays and holidays could be compensable days of unemployment, just as any other day, whether or not such Sundays and holidays are preceded and succeeded by a day of unemployment.
10. The extended benefit periods discussed in items 7 and 8 could begin as early as January 1, 1958, and the provisions in items 2 and 9 would apply retroactively to days of unemployment in such periods; but for unemployment in general benefit years, the two last-mentioned provisions would apply, retroactively, to benefit years beginning on and after July 1, 1958.
11. To provide funds for the additional benefits recommended, the bill would increase the monthly limit on taxable compensation for services after 1958, from $350 to $400 a month per employee (and would increase the credit base as well), and would change the contribution or tax rate schedule so that when the balance in the railroad unemployment insurance account should fall below $300 million by September 30 of any year (including the year 1958), the rate in the following calendar year would be 312 percent (instead of the present 3 percent when the account falls below $250 million), with step changes to provide lower rates when the balance increases, with a minimum rate of 112 percent when the balance reaches $450 million.
12. The bill would also provide an increase in the maximum creditable and taxable base from $350 to $400 a month on compensation earned by employee representatives after 1958; but this amendment has no practical significance—it is merely a formal amendment to conform to the pattern of the act since employee representative earnings are disregarded for unemployment and sickness insurance purposes, including contribution purposes.
This bill provides more liberal benefits under both the railroad retirement and railroad unemployment insurance systems; further, it provides additional revenue for these benefits. In this regard, the additional taxes provided for the railroad retirement system would place that program on a sound financial basis. This has been one of my greatest concerns since, as you know, we are now operating with a
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serious deficiency of 4.18 percent of payroll or $213 million per year on a level cost basis. Under the Railroad Unemployment Insurance Act, the raising of the maximum tax rate from 3 to 3172 percent, I believe, will not be sufficient to provide the funds to pay the benefits proposed and I would recommend, if this bill is approved, that this rate be increased to 4 percent. The balance in the unemployment insurance account is at a dangerously low level and even under the present program may be insufficient to pay the benefits due. The Board is preparing legislation to secure borrowing authority to tide us over the emergency we feel could occur this year. If this bill is given favorable consideration and even though the maximum tax rate is raised to 4 percent, we will still need this borrowing authority. - Incidentally, in this regard, the Board wrote letters to the Association of American Railroads and the Railway Labor Executives Association calling attention to the need for borrowing authority under the present law. Last week, I had a meeting with the presidents of both those groups, Mr. Loomis and Mr. Leighty, and I believe that they jointly signed a letter to the chairman of the full Committee on Labor and Public Welfare stating that they were in agreement that the Board did need such borrowing authority, and sent along the language that could be entered as an amendment to take care of that situation.
Senator MORSE. The copy of the letter that the Chairman of the Board refers to, to the chairman of the full committee in regard for the need for additional borrowing authority will be made a part of this record at the close of the testimony of the three witnesses this morning.
(The letter was previously submitted and appears on p. 59.) Mr. HABERMEYER. Thank you
The increases in benefits proposed would be desirable to our beneficiaries and I am happy that the additional taxes proposed would put the system on a sound actuarial basis. The only question remaining is whether the industry can afford the additional taxes, for, after all, a healthy railroad retirement system is dependent on a healthy railroad industry. '
Senator MORSE. Mr. Chairman, last year Mr. David Schreiber, the Associate General Counsel of the Board, was made available to this subcommittee as a technical adviser, both in regard to matters of law and in regard to technical problems concerning the actuarial matters and others. He obtained technical information for us from time to time. I would like to have the record show, if it meets the pleasure of the Board, that Mr. Schreiber once again is placed at our services.
Mr. HABERMEYER. We would be very happy to provide Mr. Schreiber's services, Mr. Chairman. : Senator MORSE. He was a great help to us, and I want to thank the Board for his assistance. Of course, the matter of salaries was no inducement, but we just couldn't have done our work last year without Mr. Schreiber's assistance. As you know, I got special permission from the Senate to have him sit with me in the Senate when we submitted the final bill so that he could supply the Senate with the technical information needed. I know Paul Douglas—he used to be chairman of this subcommittee and he is an expert in this field, but even Senator Douglas said that one could study it for years and
glaar. HABERMEYER. Jou made it possibles bill last year, an
still need such assistance as I had from Mr. Schrieber. And I am glad I can be so reinforced this year.
Mr. HABERMEYER. Speaking with respect to Mr. Schreiber's salary, I want to say that you made it possible for him to receive a salary by supporting our technical amendments bill last year, and I thank you.
Senator MORSE. That is the best news I have heard this morning.
Senator MORSE. Referring to your statement where you say, "I would recommend, if this bill is approved, that this rate be increased to 4 percent," that is an increase over last year's bill of half a percent?
Mr. HABERMEYER. Yes, sir. The best information available indicates that the cost of the unemployment provisions included in this bill would probably be about 3.75 percent of the payroll. If the fund, the unemployment fund, was large instead of being practically depleted, I would be willing to take a chance on a 31/2-percent rate, but since the fund is below $100 million, I feel, in order to be sure that we have sufficient revenue to take care of the benefit costs, that it would be better to have that maximum 4 percent rather than 31/2 percent.
Senator MORSE. In your statement you say:
To provide funds for the additional benefits recommended, the bill would increase the monthly limit on taxable compensation for services after 1958, from $350 to $400 a month per employee (and would increase the credit base as well), and would change the contribution or tax rate schedule so that when the balance in the railroad unemployment insurance account should fall below $300 million by September 30 of any year (including the year 1958), the rate in the following calendar year would be 342 percent, instead of the present 3 percent.
That is the same provision as in last year's bill. Mr. HABERMEYER. I would just change that maximum from 312 to 4.
Senator MORSE. That is what I wanted to ask. Shouldn't that be 4 percent in item 11 instead of 342 percent? · Mr. HABERMEYER. Yes, sir.
Senator MORSE. Except for that change, that is the same as the last year's bill? Mr. HABERMEYER. Yes.
The bill calls for 31/2; that is what I am speaking of in item No. 11. I am making the recommendation in that last paragraph that the 312 that is now in the bill be changed to 4.
Senator MORSE. But your item 11 is the same as the section of the bill last year?
Mr. HABERMEYER. Yes, sir.
Senator MORSE. Now, does the procedure provided for in item 11 imply that you gentlemen on the Board have in mind the possibility that the balance may be such in the future on the basis of the rates now proposed that there is a probability that it might drop down to a lower percent?
Mr. HABERMEYER. That would depend on the ability of the industry to stabilize employment to the extent that they could keep people on the payroll rather than have them unemployed, in such case, our balance would increase. If we continue on the same basis as we have for the last year or two, our balances would be very low.
Senator MORSE. I am looking at it now from the standpoint of the legislation, and this is what I call a flexible clause. Is this language put in here to support the probability that the railroads may be stabilize themselves in the foreseeable future that the percentage can be dropped ?
Mr. HABERMEYER. Yes, sir; that step schedule is there, and as the fund increases, the contribution rate would decrease.
Senator MORSE. When you get into discussion about the matter of cost, the argument is sometimes made, “But we have a flexible clause in here that would automatically drop these rates if, as, and when the railroads are stabilized.” And that is what I call an argument by inducement, to get you to go along with a higher rate for now, with a carrot held out for the future that the possibilities are that it would be here. So my question is as follows: As of now, today, February 9, the fund is in such a condition that if we are going to have an actuarially sound fund, it is the recommendation of this Board that the percentage should be 4 percent instead of 312 ?
Mr. HABERMEYER. And it is my judgment that the 4-percent rate would prevail for many years before the fund would build up to a point· Senator MORSE. That is exactly what the purpose of my question is. As far as the present facts are concerned, you do not foresee in the foreseeable future a fiscal situation in the American railway system that would justify any Senator taking the position that he will vote for 4 percent now, because the bill provides a flexible clause in it that permits an automatic reduction, if certain fiscal facts take place. The probability of these fiscal facts taking place that would justify it under item 11 of your testimony is rather remote; isn't that so? Mr. HABERMEYER. Very remote, and a long time in the future.
Senator MORSE. Will the carrier witnesses and the brotherhood witnesses please keep this testimony in mind, because it isn't the last comment I will make on it as these hearings proceed. The burden of proof is on the proponents to show that we are adopting a system here that is actuarially sound, and will not impose a burden upon the present employees so high that the bill will be considered unacceptable to them.
STATEMENT OF THOMAS M. HEALY, MANAGEMENT MEMBER,
UNITED STATES RAILROAD RETIREMENT BOARD
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.
Mr. Chairman, I think you have copies, and to save your time, I will skip these figures.
Senator MORSE. The table contained in Mr. Healy's testimony will be incorporated at this point.
(The table referred to follows:)
Mr. HEALY. Thank you.
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 maxima.
Again, I would just touch on one or two items, with your permission.
Senator MORSE. The entire table may be incorporated in the record, and the witness may refer to it.
(The table referred to follows:)
Mr. HEALY. In 1975 the maximum payable under retirement for age and disability to a social security worker will be $125 per month.
Under the Railroad Retirement Act it will be $273.90 per month, or practically $150 per month more.
The insurance lump sum, what is termed "funeral costs,” remains under social security as $255, but rises from $718 to $865.30 in 1979 under the Railroad Retirement Act.
Now, the Railroad Retirement Act guarantees the returns to the survivors or estates of railroad workers every penny they have contributed in tax, plus interest, and any residual payment, as you will