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majority of cases, rather than to pick out some isolated cases and cite them as examples of something that is undesirable about the act.

Senator MORSE. Gentlemen, I thank you for your testimony. We will be in touch with you again for supplementary memoranda, and probably for some conferences with us in executive session later.

We stand in recess until tomorrow morning at 10 o'clock.

(Whereupon, at 11:30 a.m., the subcommittee recessed, to reconvene at 10 a.m. Tuesday, February 10, 1959.)

AMENDING THE RAILROAD RETIREMENT ACT OF 1937

TUESDAY, FEBRUARY 10, 1959

U.S. SENATE,
SUBCOMMITTEE ON RAILROAD RETIREMENT OF THE
COMMITTEE ON LABOR AND PUBLIC WELFARE,

Washington, D.C. The subcommittee met at 10 a. m., pursuant to recess, in room 4232, New Senate Office Building, Senator Wayne Morse (chairman of the subcommittee) presiding.

Present: Senators Morse (presiding), Clark, and Case.

Committee staff members present: Stewart E. McClure, chief clerk; Samuel V. Merrick, special counsel to the subcommittee, and Ray Hurley, professional staff member.

Senator MORSE. The subcommittee will come to order.

Our first witness will be Mr. Lester Schoene representing the Railway Labor Executive. Association. You may proceed in your own way.

STATEMENT OF LESTER SCHOENE, ATTORNEY, REPRESENTING

· RAILWAY LABOR EXECUTIVES ASSOCIATION Mr. SCHOENE. Thank you, Mr. Chairman, my name is Lester Schoene. I am a lawyer engaged in the general practice of law with offices at 1625 K Street NW., Washington, D.C. I appear here on behalf of and as counsel for the Railway Labor Executives Association whom I have represented in these matters for the past 15 years.

I would like to hand to the reporter a list of the organizations associated with them.

Senator MORSE. The list will be received and incorporated in the record.

(The document referred to follows:)

ORGANIZATIONS AFFILIATED WITH RAILWAY LABOR EXECUTIVES' ASSOCIATION
American Railway Supervisors' Association.
American Train Dispatchers' Association.
Brotherhood of Locomotive Engineers.
Brotherhood of Locomotive Firemen & Enginemen.
Brotherhood of Maintenance of Way Employes.
Brotherhood of Railroad Signalmen of America.
Brotherhood of Railroad Trainmen.
Brotherhood Railway Carmen of America.
Brotherhood of Railway & Steamship Clerks, Freight Handlers, Express & Sta-

tion Employes.
Brotherhood of Sleeping Car Porters.
Hotel & Restaurant Employees and Bartenders International Union.
International Association of Machinists.

International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths,

Forgers & Helpers.
International Brotherhood of Electrical Workers.
International Brotherhood of Firemen & Oilers.
International Organization Master, Mates & Pilots of America.
National Marine Engineers' Beneficial Association.
Order of Railway Conductors & Brakemen.
Railroad Yardmasters of America.
Railway Employes' Department, AFL-CIO.
Sheet Metal Workers' International Association.
Switchmen's Union of North America.
The Order of Railroad Telegraphers.

Mr. SCHOENE. The association consists of the chief executives of some 22 standard railway labor organizations which is all of the standard railway labor organizations in the country, and in addition the chief executive of the Railway Employees Department, American Federation of Labor-CIO, which is itself a federation of the shop craft organizations.

* Collectively these organizations represent virtually all organized railroad employees in the country. There are a few exceptions, but not many.

Our association, as the committee is aware, has for many years maintained a standing committee on railroad retirement and unemployment insurance matters, and this committee has from time to time made recommendations to the association, and after the approval of the association to the Congress the four changes in the railroad retirement and unemployment insurance laws. I think it is fair to say that virtually all amendatory legislation on these subjects has originated with recommendations made by the association. Congress does not always see fit to follow the recommendations literally, but generally amendatory legislation has grown out of such recommendations.

The bill S. 226 which we are recommending for adoption as promptly as legislative action can be taken as the committee is aware from its own past experience is an outgrowth of some 3 years of legislative activity. I think, however, to put it in its perspective it may be well to very briefly recapitulate what recommendations we have made in the past and what action has been taken with respect to it.

I have characterized the matter now pending before you as unfinished business. Back in 1955 our association found that the retired railroad employees and the survivors of deceased employees were in great financial distress because the purchasing power of their annuities has declined, the amounts being awarded were relatively small, and the beneficiaries were simply unable to live adequately on the income that was provided by these benefits.

It would of course be simple merely to recommend an increase in the benefits. However, we found that there was no room by way of financing to absorb any increase in benefits at that time. In fact, the Railroad Retirement Act according to the last preceding actuarial valuation was running an actuarial deficiency at the time. Consequently, it was necessary in conjunction with any recommendations for increasing the benefits to find some new means of financing not only the new benefits to be recommended but the existing actuarial deficiency.

After a great deal of study we came forward early in 1956 with a three-point recommendation. We recommended a general increase in benefits of 15 percent. There were exceptions, but the general increase was in the nature of 15 percent.

We proposed to eliminate the actuarial deficiency then existing, and to finance these new benefits by increasing the tax rates on both employers and employees from 614 to 712 percent. At the same time we recognized that railroad employees were already being taxed very substantially in excess of the taxes levied on other industrial employees and we thought it proper to recommend at the same time that the employees be permitted to treat their railroad retirement taxes as business expenses and to exclude them from gross income for income-tax purposes in the same manner that employer taxes are excluded in arriving at net income on which income taxes are paid.

The Congress was unable to conclude action on this program in 1956, and recognizing, however, the urgent need for providing some relief to retired employees and survivors of deceased employees the Congress took emergency action near the end of the session in 1956 by providing a 10-percent general increase in the retirement and survivor benefits. I deferred, however, taking any action on the financing or on any offsetting tax relief to railroad employees.

It was understood at that time, and our organization committed themselves to the committees of Congress and to the President, that we would come forward early in the next Congress with a program that would round out the necessary benefit changes and would at the same time provide for the financing of new benefits, and the absorption of the actuarial deficiency, not only the preexisting one but the additional deficiency that was created by the enactment of the general 10-percent increase in 1956.

Senator MORSE. I want to point that up for the benefit of Senator Clark, who is a new member of our committee. After the 1956 action there was an understanding between and among the brotherhoods and the carriers that at a later time there would be a further proposal that would take care of the deficiency created in the fund as the result of the 1956 action.

Is that a fair summary statement of what the understanding was?

Mr. SCHOENE. I think so, Senator. At least that is a fair understanding of the commitments that our organizations made to the committees of Congress. I think it was understood that the railroads would have to come forward with proposals also to put the fund on a sound actuarial condition. There was no mutual agreement between the carriers and our organizations as to how that would be done, but we definitely agreed that we would come forward with a program that would be addressed to the entire unfinished problem that the emergency legislation left us with.

Senator MORSE. For the record, will you state again the limitations at that time as to the deficiency that was created by the 1956 act? When Congress finished with the 1956 action some increases were allowed, but by allowing those increases there was a deficiency created in the fund. It was decided to postpone action with relation to that deficiency until the next session of Congress.

Mr. SCHOENE. That is correct.
Senator MORSE. How much was that deficiency?

Mr. SCHOENE. I would like to supply the exact figure for the record if I may. I do not have it before me. It was between 3 and 4 percent of payroll, according to my recollection.

37456_59__7

(Mr. Schoene subsequently submitted the following information :)

ACTUARIAL DEFICIENCY IN THE RAILROAD RETIREMENT SYSTEM AFTER ENACTMENT

OF THE 1956 AMENDMENTS TO THE RAILROAD RETIREMENT Act

The figures below show the actuarial deficiency in the railroad retirement system immediately preceding, and subsequent to, the enactment of the 1956 amendments to the Railroad Retirement Act.

[blocks in formation]

Actuarial deficiency immediately before the 1956 Railroad Retirement Act

Amendments (based on 6th valuation as of Dec. 31, 1953)..
Cost of 1956 Railroad Retirement Act Amendments (as estimated in 1956).....
Actuarial deficiency as of Dec. 31, 1956 (7th valuation before revisions). ----
Actuarial deficiency for present law as of Dec. 31, 1958...

1. 63
1. 57

3. 26
* 4.18

166 213

1 Payroll with $350 limit on monthly compensation.

Figures relate to the payroll assumption of the 7th valuation, i.e., $5.1 billion taxable per year. * Addition of 0.73 for 1958 Social Security Amendments and 0.20 for not paying the actuarial deficiency during 1957 and 1958.

Senator MORSE. That deficiency was related only to retirement benefits. It had no relationship whatsoever to unemployment insurance benefits.

Mr. SCHOENE. That is correct. The unemployment-insurance benefits are financed through an entirely separate fund, the railroad unemployment insurance account, and this deficiency had no relation to that account.

Senator MORSE. In 1957 when the brotherhoods came forward with a proposal to take care of the deficiency with respect to the retirement fund, they also proposed an increase in unemployment-insurance benefits.

Mr. SCHOENE. That is right. I was just coming to the 1957 program.

Senator MORSE. I would like to have in the record at this point for the benefit of Senator Clark the history of what happened in 1956. When we went to work on the problem in 1957, we were confronted with the problem of passing legislation if we could that would bring the retirement fund into solvency on a sound actuarial basis. Then it was proposed that the committee proceed to consider also some improvements in the unemployment-insurance program. So that when our bill was passed last year, S. 1313, it took care not only of the deficiency in the retirement fund, and the benefits to it, but also some benefits to the unemployment-insurance program.

Mr. SCHOENE. That is correct. The program that we proposed to the Congress in 1957 was in major part first an additional 10 percent across-the-board increase for retired employees and the survivors of deceased employees, a proposal to eliminate the actuarial deficiency that you have just referred to, Senator Morse, in its entirety, or for all practical purposes by a 7122 percent immediate increase—I do not mean a 712 percent increase—a tax rate of 712 percent on employers and employees. That is an increase from 614 percent to 71%, percent.

We also proposed that the base on which that tax was levied should be increased from compensation up to $350 a month to $400 a month.

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