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Mr. CoWEN. As of the end of 1971, the Board's actuaries have esti. mated that the deficiency was 6.3 percent of taxable payroll. The provisions in this bill which would provide full annuities for individuals at age 60 with 30 years of service has been estimated as providingor as costing—an extra 1.25 percent. Adding those two figures together comes out at 7.55.
However, because the additional income has not been provided from the end of 1971 to date, the present actuarial deficiency is constantly growing, so that it would be somewhat larger than 6.3 today. The 712 would be relatively close.
Senator SCHWEIKER. The 1.25 is to take care of which benefit?
Mr. Cowen. There is a provision in this bill which would liberalize eligibility conditions in such a way as to provide male employees the option of retiring at the age of 60 if they have completed 30 years of service, rather than to wait until age 65 to get a nonreduced benefit. Currently, these individuals have to take a reduction in their benefit because they retire early.
Senator SCHWEIKER. Currently, they retire normally at the age of 65, and if they retire before that, they have to take a reduced benefit?
Mr. Cowan. That is correct.
Senator SCHWEIKER. And this would permit them to retire at 60 years with full benefits?
Mr. CowEN. Yes, sir.
Senator SCHWEIKER. Can they retire between 60 and 65, then, say at 62 if they have 30 years service?
Mr. Cowen. Yes; they can currently retire at age 62 with a 10-year service, with a reduced benefit.
Senator SCHWEIKER. This would reduce it? Mr. Cowen. Currently, women do not have to take an actuarial reduction if they retire at age 60 with 30 years of service, but men do.
Senator SCHWEIKER. What progress do you see the industry and labor groups making in this area?
Mr. Cowen. I am very encouraged by the March 7 agreement, and if they continue they way they have started, I believe they can come to an agreement, but I am not really that well aware of the situation and I am not informed of what they have been doing since.
Senator SCHWEIKER. That is all I have, Mr. Chairman; thank you. Senator HATHAWAY. Senator Beall ?
Senator BEALL. Your 71/2 percent actuarial figure, as I understand it, would take care of the deficit that exists now and continues to grow. Will it also take care of the present temporary increases in benefits that Congress has enacted in recent years?
Mr. Cowen. Just about.
Senator BEALL. Then as time goes on, how long will this 71/2 percent be sufficient?
Mr. Cowen. If there are no future amendments, it could be sufficient. It would depend on what the future course of the program is.
Senator BEALL. At some point in all of this, it seems that the portion of the 71/2 percent used to reduce the deficit diminishes, and there is 71/2 percent available for some other purposes?
Mr. CoWEN. The 712 percent takes into account what is expected to happen in the future with the exception of legislation.
Senator BEALL. And it assumes no growth on the numbers of people on the payroll ? Mr. COWEN. Actually, it assumes a reduction.
Senator BEALL. If we are able to reinvigorate the railroad industry, wouldn't it be possible to turn this situation around?
Senator SCHWEIKER. That is another bill.
Senator SCHWEIKER. I just want to pursue that point. You are saying that envisioning the worst that can happen, that the railroad industry doesn't get reactivated, that even with the declining railworker population, that the 712 percent, barring no legislative additions or increases in benefits legislatively, would care for all the contingencies, even though the work force is reduced ?
Mr. COWEN. Our actuarial office has a tentative figure on the valuation which is due shortly. In making this valuation, the estimated number of employees was expected to continue to drop and level off at roughly 485,000 employees, whereas currently, we have about 600,000 employees in the industry.
So, this was taken into account in making that valuation.
Senator SCHWEIKER. So, it really presumes here a drop of 115,000 employees over the next period of years?
Mr. Cowan. Yes, sir.
Sentor HATHAWAY. Mr. Cowen, will the technical services of the * board be available to the negotiating committee?
Mr. CoWEN. Yes, it will. It was available to them in the last negotiations which resulted in the March 7 agreement.
Senator HATHAWAY. You will help them with drafting and actuarial details? Mr. Cowen. Yes, we will.
Senator HATHAWAY. Could you tell us what is the present rate of loss per year in the system?
Mr. Cowen. In the fiscal year 1972, the year ending June 30, 1972, the balance in the railroad retirement account was $105 million less than it had been the preceding June 30. As of the end of April 1973, the balance in the account was approximately $270 million less than had been the case 1 year earlier on April 30, 1972.
Now, the financial interchange with social security produced roughly $50 million more this year than it did last year, which is not in these figures. Therefore, the estimate would be somewhat over $200 million less as of the end of June 30, 1973, as against June 30, 1972.
Senator HATHAWAY. Is that paper you are reading from, was that part of your statement ?
Mr. COWEN. No, this is a monthly set of financial statistics that the board puts out.
Senator HATHAWAY. I think we should make that part of the record.
You mentioned on page 6 of your statement that the postponement of financing would have a deleterious effect. Would you elaborate on that?
The deficiency ofonal 6.3 percent ind is short thatutions,
Mr. COWEN. The deficiency of 6.3 percent was calculated as of December 31, 1971. Because the additional 6.3 percent income was not received between December 31, 1971, and today, the fund is short that much money. That has to be made up by an increase in future contributions, and therefore, it increased the deficit.
Senator HATHAWAY. I see.
[The information requested and the prepared statement of Mr. Cowen on S. 1867, H.R. 7200, and another on S. 1886 follow:]
Benefits and Beneficiaries
Annuities awarded during April totaled 10.000-unchanged from the month earlier. Regular employee annuity awards consisted of 2.200 based on age and 1,300 based on disability. They averaged $302 and $357, respectively. Age annuities included 1,000 awarded to employees who had retired directly from the railroad industry at age 65 or older. On the average, their awards were for $390 and were based on 31 years of railroad service and $366 in monthly compensation. Supplemental annuities were awarded to 1,400 employees and averaged $66; spouse annuities averaging $132 went to 2,200 wives of retired employees.
Awards made 16 survivors during the month included 3,000 monthly benefits and 2,200 lump-sum payments. The majority of survivor annuity awards went to aged or disabled widows and averaged $164. The other annuities were awarded to 100 widowed mothers and 400 children and averaged $200 and $137, respectively. The 2.200 lump-sum benefits included 1,900 insurance lump sums averaging $716 and 300 residual payments averaging $4,928.
Number in current-payment status at end of period
211,797 282,273 3,406
$65.56 $127.80 $159.04 $143.24
1/ Includes dependent parents' and survivor (option) annuities. Except for benefit payment data, excludes insurance lump-sum and residual payment figures. Benefit payments also
See "Explanatory Notes" on page 4.