covered through December 31, 1958, $228,000, or less than 50 percent. In the last 2 fiscal years, fraud determinations were made in 1,076 cases; 388 were referred to the U.S. attorneys for prosecution; and 286 convictions were reported.

Incidentally, one of our field representatives just recently, in a payroll check on a major switching road, found that 18 out of 22 persons had claimed unemployed insurance benefits for days on which they were actually working.

Mr. Chairman and gentlemen, 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.

Thank you, sir.

Senator MORSE. Thank you very much, Mr. Healy.

Your testimony leaves no room for doubt as to your position on these issues of testimony.

Senator Clark?

Senator CLARK. No questions, Mr. Chairman.

Senator MORSE. The next witness will be Mr. Harper.

STATEMENT OF HORACE W. HARPER, MEMBER, RAILROAD RETIREMENT BOARD

Mr. HARPER. Mr. Chairman and members of the committee, my name is Horace W. Harper. I am a member of the Railroad Retirement Board representing the interest of the great majority of railroad workers in the country.

In my capacity as the labor member of the Board I receive practically all the complaints that railroad workers have with regard to the inadequacy of the benefits under the Railroad Retirement Act and the Railroad Unemployment Insurance Act; and I assure you the volume of such correspondence is huge. The continuing inflation has been hard on all of us but particularly so on those whose income, such as a railroad retirement annuity, is fixed by law.

It is my considered judgment that an increase in such fixed income is overdue and that the 10 percent increase in retirement benefits provided by the bill is very modest indeed. The crucial question, of course, is the proposed increase in tax rates on employers and employees from the present 614 percent up to $350 a month to 634 percent up to $400 a month for the years 1959, 1960, and 1961, and to 74 percent beginning in 1962.

There is an additional provision in the bill for increasing tax rates after 1964 to the extent that the social security tax rates at that time exceed 52 percent. The question is whether the railroad industry can afford this burden.

In considering this question, it is only fair to point out that employees in the railroad industry are entitled to the same consideration as are employees in other large industries, such as the steel, automobile, rubber, glass, and similar industries. I am sure you gentlemen are familiar with the existence of supplementary pension plans in these large industries.

It is believed that the total cost to employers in some large industries, of the social security taxes plus the noncontributory private

pension plans, exceeds the present cost to the railroads, and it is my belief that even after the enactment of the bill, the cost to the railroads would in general not be above that of the total cost to these large industries.

Senator MORSE. Mr. Harper, do you know whether or not any other witnesses are going to supply us with any cost figures to the employers that support that supposition?

Do you know whether or not any of the witnesses for the brotherhoods are going to give us the information that will support your belief that the total cost to the employers in some large industries of the social security taxes, plus the noncontributory pension plan, exceeds the present cost to the railroads?

Mr. HARPER. Yes, the representative of the brotherhoods, Mr. Schoene, will give you some figures, and will discuss at much greater length these costs.

And, Mr. Chairman, there is a discussion of this same point in the record of last year, so that you can find that.

Senator MORSE. I don't know about that, but I do know that it was highly controversial last year, and I know you are going to supply us with material this year that will remove any doubts.

Mr. HARPER. I think the testimony will establish the accuracy of that statement.

There will be testimony before you by persons qualified to discuss the railroads' financial situation, but I satisfy myself with the statement that the railroad employees should be afforded the same advantages as are enjoyed by those in other large industries who receive not only social security benefits but supplemental benefits, the total of which exceed, in some cases, the benefits that railroad employees will receive even after the enactment of this bill.

In my statement in the Board's report on the bill, I stated clearly my position as being in favor of the 10 percent increase in retirement benefits and the increase in the taxes proposed in the bill.

In considering the ability of the industry to pay unemployment insurance costs, it is pertinent to compare the cost of the railroad unemployment insurance system with the average cost of the State unemployment insurance systems.

When the raildroad unemployment insurance system started in 1939, the rate of contribution was fixed at 3 percent of taxable payroll. Succeeding unforeseen developments had a marked effect upon unemplovment insurance costs.

World War II reduced unemployment to a minimum, with the result that the 3 percent contribution rate provided sums greatly in excess of requirements.

Consequently, there was an accumulation in the unemployment fund of more than $900 million. The railway labor organizations and the railroads gave their consideration to this condition, and in 1948 it was agreed that a sliding scale should be substituted for the then flat rate.

Legislation was enacted to implement this agreement, providing that the contribution rate should rise and fall in conformity with the amount in the railroad unemployment insurance account available for the payment of benefits.

Thereafter, and in accordance with the terms of the law, the contribution rate was reduced from the maximum of 3 percent to 0.5 percent.

The 0.5 rate of contribution, in contrast to the maximum 3 percent as fixed in the act, remained applicable and in effect for the 8-year period 1948 through 1955.

In other words, for an 8-year period the contribution rate was reduced from the maximum provided in the law to an actual one-half of 1 percent during that eight-year period.

In the year 1956 the contribution rate was raised to 11/2 percent of taxable payroll, and went up further to 2 percent in 1956 and 2.5 percent in 1957, these increases being attributable to the recession, with which we are all familiar.

It is interesting and noteworthy that, for the 11-year period 1947-58, the Railroad Unemployment Insurance Act average contribution was 0.9 percent compared with 1.6 percent for the State laws. This was so in spite of the fact that sickness benefits were added to the Railroad Unemployment Act in 1947, a provision contained in only four State systems.

In the light of these facts, it does not appear that the railroads have fared badly compared with industry generally in unemployment insurance contributions.

The bill S. 226 provides a minimum contribution rate of 3.5 percent. Estimates prepared by the staff of our director of research indicate that this would not be enough to pay the increased cost of the program if the bill is enacted.

Consequently, I concur with the recommendations of the Chairman of the Board that the maximum rate be increased to 4 percent.

Senator MORSE. Thank you very much.

Mr. HARPER. Now, I don't want to let some of the statements made by the railroad representative to go unanswered.

Senator MORSE. I was about to ask you about some of them after Senator Clark asks his questions.

Mr. HARPER. Very well, sir.

Senator MORSE. Senator Clark.

Senator CLARK. Senator Morse, I would rather have you conduct the examination, because you are so much more familiar with this than I am.

I was quite startled with some of the statements of Mr. Healy's presentation. Mr. Merrick has furnished me with the provisions of the act, section 4(a), “disqualifying conditions," and section 9, "penalties."

I was wondering, as a naive, new member of this subcommittee, how this approach to payments which appear, at least superficially, to be improper could have been made in view of the sections of the act to which I have just referred.

Senator MORSE. That, Mr. Habermeyer and Mr. Healy, was the only question that I had planned to ask this morning, and I throw it out really for handling by other witnesses, subject to any comment that any one or all three of you may wish to make this morning.

You recall that when we had this problem presented to us last year the members of this committee were concerned about two things: First, the substance of the charge that some payments were made in

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regard to which subsequent actions had to be taken for recovery; and second, the procedures that administratively the Board is following in regard to the plan to prevent payments in the first place that shouldn't be made.

I am speaking out of recollection now, but I remember that we raised this matter with the Board and suggested that it would be better if it was possible to follow the procedural devices under the act to have rules that would prevent these payments in the first place, rather than subject the funds of the Board to the administrative costs that they were trying to recover.

Senator CLARK. Let me just give you an example. What is the justification for paying 863 individuals $556,400 unemployment compensation where they were intoxicated in reporting for duty?

First, is the statement correct?

And second, if it is correct, how come?

Mr. HARPER. The Board has the duty and the obligation to administer the Railroad Unemployment Insurance Act. The decision of disputes between employees and carriers as to the justice of discharges come within the purview of the Railroad Adjustment Board. The Board in the first place doesn't have the facilities, nor is it its duty to determine the justice or injustice of discharges.

In the first place it would delay the payment of claims, delay the payment of many just claims. If we made a decision and decided in our wisdom that some man had been properly discharged, and if that man took his case or his organization took the case to the Adjustment Board, the fact that our Board had already ruled unfavorably with respect to his discharge would prejudice his standing before that Board.

And so we don't go into the justice or the injustice of discharges in the payment of unemployment insurance.

Senator MORSE. As I recall, Mr. Harper, in 1957 there was some testimony or some memorandum put in the record to the length of time that it takes to handle the typical case through the Adjustment Board. Am I correct in my recollection that one of the points you gentlemen made in 1957 was that it takes a considerable amount of time? Mr. HARPER. Two or three years.

Senator MORSE. And in the meantime the man has no source of income. And you feel that the act as it is presently worded is mandatory upon you to authorize the payment of the benefits, and then if the Adjustment Board finds that he was justifiably discharged, to proceed with recovery?

Mr. HARPER. In cases of that kind, if an employee is discharged, he has to qualify, he has to be available, and willing and ready to work. He has to make reasonable efforts to find other work before we pay him, and we subject him to the same qualifications as we do other applicants for unemployment insurance.

Senator MORSE. I think Senator Clark and I have served our purpose on this point as of now, subject to Senator Clark's approval.

I would like to request that you three gentlemen on the Board supply us for the record either with further testimony or with a written memorandum dealing with these points that Mr. Healy has raised.

Let me point out to you quite frankly that when we come to write up a bill it is necessary for us to meet the arguments, not only in our

committee but subsequently on the floor of the Senate. If we present a bill that does not provide the procedural protections necessary to prevent great injury to this fund and which will therefore do wrong to both the carriers and the employees that support this fund, petitioners or applicants may be guilty of fraud, may be guilty of behavior that justifies discharge, may be guilty actually of criminal acts in the performance of the work such as pilfering. If you do not have a procedure that permits of a quick determination without draining the funds, and from what Mr. Healy says, results in only a small percentage of the fund actually being recovered, it is only natural that Senators will say, "Well, you had better stop that loophole before you ask us to vote for it."

Now you do have that situation in which one Board, the Adjustment Board, has one jurisdiction, and the Retirement Board has another jurisdiction.

The question is a fair one: Shouldn't we insist upon some procedure that will provide at least for a temporary administrative withholding of the funds until there can be a look-see as to whether at least a prima facie case exists against the applicant justifying withholding the funds until the merits of the charge of drunkenness or criminal conduct or fraud can be looked into?

I think you and I know what would happen to those in charge of a trust fund operated by a trust company or an insurance company or any other trust if they paid out funds and said, "Oh, we will always have a right to recover them if we pay them mistakenly."

Mr. HABERMEYER. I would like to make a comment with respect to this discussion. The Board under the law does have plenty of provisions, and we do assess those provisions.

For example, if a man voluntarily quits his job, he is not entitled to unemployment benefits for 30 days.

If we find that he has fraudulently drawn benefits, we can assess a penalty of 75 days.

With respect to the discussion on the cases where the individual is fired for cause, I was much disturbed by some of the testimony last year and some of the activities within the Board.

I checked back with the first Chairman of the Railroad Retirement Board, Mr. Latimer, and he told me that in the original Unemployment Insurance Act there was a disqualifying provision in such cases but such provision was subsequently deleted on the joint recommendation of railroad management and railroad labor, because they did not want the Board to prejudge these cases that would go to the Adjustment Board. At that time they said that they would rather have the benefits paid than to have the Board enter a decision as to whether or not the benefits should be paid because such a decision would, in effect, be prejudging the individual's case.

Senator MORSE. I remember that last year, but now we have Mr. Healy coming along this year and giving us statistics here in regard to the loss of money, and that disturbs me.

Senator Clark has indicated that it disturbs him.

Senator CLARK. Mr. Chairman, could I ask Mr. Healy a question? Mr. HEALY. Yes.

Senator CLARK. Mr. Healy, would you turn to that part of your statement, please