2. Reduction in the eligibility age for widows, dependent widowers, and parents from 65 to 60.-It is well known that women who have not been in employment outside the home, on reaching age 60, find it very difficult to secure a paying position at or after that age. Under the present act no benefits are payable to such widows and parents until they reach age 65. The present Railroad Retirement Act permits the payment of full retirement annuities at age 60. This is recognition of the facts regarding employability of women at that age. There are about 30,000 widows and parents between the ages of 60 and 65 who would become eligible for survivor benefits, averaging about $45 a month, on the first of the month after the bill is enacted. The cost of this provision would come to approximately $23.5 million a year. 3. Subsitution of a work clause for the presumptive recovery provision for disabled annuitants under 65.-The present Retirement Act provides that a disabled annuitant under age 65 is presumed to have recovered from his disability if he earns in employment or self-employment more than $75 a month for 6 consecutive months. The provision has been found to be difficult of administration and subject to abuse. The Board believes that the substitution for this provision of one that would suspend benefits for any month for which the employee earns in employment or self-employment more than $100 a month would be more equitable and easier to administer than the present provision. There are ap proximately 43,000 disabled annuitants under age 65 who would be potentially affected by this provision. About 800 of them are now suspended because of the application of the present 6-month recovery test and would have to be reexamined for possible reinstatement. It is estimated that the provision would be a little less costly than the present one, the amount of savings being approximately $1.5 million a year. 4. Payment of survivor benefits to a widow and dependent disabled child past age 18.-Under the present Railroad Retirement Act, a widow under age 65 can receive a widow's benefit if, and so long as, she has a child under age 18 in her care, regardless of whether the child, after age 18, is able to work or not. The Board believes that any widow who has a child past 18 who is permanently and totally disabled has a greater burden than a widow who has a nondisabled child under 18. It therefore believes that any widow who has such a disabled child in her care should receive here benefits and the child should receive his benefits as long as the disability continues, just as in the case of a child under age 18. No good estimate is available as to the number of survivors who will be affected by this provision. A rough estimate of the cost of the provision is $750,000 per year. 5. Utilization of employment after age 65 in computing the monthly compensation.—The present Railroad Retirement Act provides that all compensation earned by an employee, including compensation after age 65, shall be used in determining the amount of the retirement annuity. In a considerable number of cases, the employee after age 65 earns less than he did before age 65. In the judgment of the Board, such an employee should not be penalized because he continues to work beyond age 65. The Board therefore believes that the amendment in the bill which freezes the monthly compensation at age 65, unless the use of compensation after age 65 would increase the annuity, is a desirable one. Approximately 100,000 annuitants who had service after age 65 are now on the current payment rolls. Only those among them who file applications will have their annuities considered for recomputation under this provision. It is estimated that, if all file, some 7,500 will be eligible to receive higher annuities from a few cents to a few dollars a month and averaging 55 cents per month, retroactive to November 1, 1951. Of the current new retirements at age 65 or over, about two-thirds have had some service after age 65. Only a small minority of these, however, had higher average earnings before age 65 than after and would therefore profit from the provision. It is estimated that the cost of the provision would be about $50,000 per year. 6. Elimination of reduction in survivor benefits on account of entitlement to railroad retirement benefits.—Under the present act, a woman who is covered by the act and whose husband is also covered cannot receive both a widow's benefit and a retirement benefit based on her own earnings. In effect, she can receive only the larger of the two benefits. Since such an individual has earned her retirement act credits by her own work, she should be entitled to receive benefits based on her own earnings. There are fewer than 100 aged widows and parents now receiving less than the full amount of both survivor and retirement annuities. These individuals would receive increases averaging about $20 a month. The cost of the provision would be about $20,000 per year. 7. Elimination of national delegate service in the absence of previous railroad employment.-In the conventions of the railroad brotherhoods, there are a considerable number of delegates who are not railroad employees and whose service as delegates is now taxed under the Railroad Retirement Taxing Act. Practically all such persons will never receive benefits under the act, because they would not have the minimum of 120 months' service required for eligibility for benefits. The work of collecting the taxes on this small and irregular service and of keeping compensation records in the Board is not justified by the small amount of taxes and benefits involved. Appropriate amendments to the Railroad Retirement Tax Act are also included in the bill. There is no way of knowing the number of individuals who would be affected, but it is probably small. A rough estimate of the cost is about $10,000 a year. 8. Elimination of deductions because of failure of children to attend school.Under the Railroad Retirement Act, a child of a deceased employee is entitled to benefits until he reaches age 18, except that if he is age 16 or over and is not attending school, no benefit wil be paid for any month while he is not so attending. Such a provision was originally in the Social Security Act, but has been removed, and there is no good reason for continuing it under the Railroad Retirement Act. Some 150 children, whose annuities are now being withheld under the schoolattendance clause, would be affected by this provision. Most of these children, however, are in families already receiving a social security minimum amount. The total benefits to the family would therefore not be affected in these cases, although a recalculation of the individual benefits may have to be made. The amendment will have little effect on the total cost of the bill. The table on the following page gives the costs of the amendments in the bill to the Railroad Retirement Act. Both dollar costs and tax rates are given. The table and the footnote show that the increased revenue from the increase in the taxable ceiling to $350 per month is more than enough to pay the increased benefits without increase in the tax rate. Cost and tax rate summary-A. Additional annual costs and corresponding level tax rate required by amendments in H. R. 7840 to the Railroad Retirement Act [Assumes level annual payroll of $5,450 million on basis of $350 monthly compensation ceiling] Provision Annual dollar cost (in thousands) Level cost (percent of taxable payroll) 7. Elimination of credit for national delegate service for persons who have no other creditable service. 1. Additional benefits resulting from increase in ceiling to $350 per month: Retirement benefits. Survivor benefits. 2. Reduction of eligibility age for widows and parents to 60 3. Change in disability work clause. 4. Disabled child, continuation of benefit to widow and child. 5. Disregard compensation after age 65 if use would reduce annuity. 8. Elimination of provision for suspension of benefit of child over 16 not attending school. 10 1 Total.. 53, 831 .987 Under the present Railroad Retirement Act, benefits cost $670.5 million per year on a level basis. The proposed amendments would thus increase the required annual outlay to $724.3 million ($670.5 plus $53.8). This would be equivalent to a 13.29 percent tax rate on the $5,450 million covered payroll based on a $350-per-month ceiling. The latter payroll compares with the $5,000 million assumed level annual payroll based on the present $300-per-month creditable ceiling on taxes and compensation. The existing tax rates are not changed by the proposed amendments. However, because of the increased payroll there will be available $56 million in additional tax revenue. This compares with the annual cost of $53.8 million resulting from the benefit liberalizations of the proposed amendments. RAILROAD UNEMPLOYMENT INSURANCE ACT AMENDMENTS The provision of the bill mentioned earlier increasing the tax and benefit base from $300 to $350 a month applies also to the Railroad Unemployment Insurance Act contributions and benefits. As stated previously, it is estimated that the increase in the contribution base to $350 a month would increase the taxable payroll by about 9 percent. This would add, at the current contribution rate for unemployment insurance of 0.5 percent, about $24 million a year to the contributions paid by the railroads. However, it would make necessary an increase in the contribution rate from 0.5 percent to 1 percent by about January 1, 1957. The bill in effect provides for two changes in the benefit formula of the Railroad Unemployment Insurance Act which includes both unemployment and sickness benefits. The first change is to add the new bracket to the present formula. This additional benefit bracket would bring the benefit schedule more in line with the earnings of employees at the present time. It also would help to carry out the recommendation of the President that unemployment insurance benefits be increased in the various unemployment insurance systems so as to more nearly approach 50 percent of wages. The present formula provides that any employee whose earnings in a base year exceeded $3,500 would have a benefit rate of $7.50 a day. The bill provides that a new rate be provided as follows: $3,500 to $3,999.99__. $4,000 and over. Per day $7.50 8.00 The addition of the $8 benefit rate would have no effect on benefits until July 1956 since 1955 would be the first base year in which any employee could have creditable compensation of $4,000 or more. Increasing the earnings to $350 a month would have some effect on all benefit rates in the existing schedule, but would affect principally those now in the top 3 or 4 compensation ranges. However, the increased earnings limit for the second half of 1954 will have a slight effect on benefit rates starting July 1955. It is estimated that the effect of the $350 a month limit and $8 benefit rate, excluding the proviso, would be to increase benefits by about 3.5 to 4 percent beginning with July 1956. Over a long period of time the addition of the $8 per day bracket would probably increase benefits by about 5 percent. The second change in the Unemployment Insurance Act provides that the employee's daily benefit rate should not be less than 50 percent of the daily rate of compensation for the employee's last employment in which he engaged for an employer preceding the registration period, but that no such rate should be increased above $8 per day. The majority of the Board is in agreement on all of the proposed amendments except for the proposed method of achieving increases in unemployment benefits. The separate statements on this provision from the Chairman of the Board and from the labor member of the Board are attached. This is the report of Chairman Kelly and Board Member Harper, a majority of the Board. A separate statement from the carrier member concerning the bill is attached. All three members of the Board, however, call attention to a suggestion from the Board's budget officer that if the committee reports out a bill as a result of this hearing, a section substantially as follows should be included in the bill as reported by the committee so that, if the bill is enacted, the Board may immediately start processing adjustments necessitated by the changes in the Railroad Retirement Act: "SECTION In order to carry out the purposes of this Act, there shall be set aside as of enactment date, as an additional amount appropriated to Salaries and Expenses, Railroad Retirement Board (Trust Account), $500,000 to be derived from the Railroad Retirement Account and apportioned by the Bureau of the Budget as required, for administrative expenses in administering the provisions of this Act. Any unobligated balance on June 30, 1955, of the amount hereby appropriated shall revert to the Railroad Retirement Account.” STATEMENT OF COL. RAYMOND J. KELLY, CHAIRMAN OF THE RAILROAD RETIREMENT BOARD The problems created by the proposed amendments to the Railroad Retirement Act, as described in the statement by the majority of the Board, are minor. I am in favor of the amendment to the Railroad Unemployment Insurance Act which would increase benefit rates for unemployment and sickness benefits. Such action would be in accordance with the recommendations contained in the President's economic message. At the present time our railroad unemployment and sickness benefits are about 40 percent of average weekly wages. Our benefits should be higher to be in line with the President's recommendation; closer to 50 percent of average weekly wages. While I do favor an increase in benefit rates, I am not in favor of the method proposed in H. R. 7840 for increasing them. It proposes to get these results the hard way by changing the whole benefit formula in the present law. The present formula is a fairly simple one. It is one Congress gave us in 1938. It is one the labor organizations favored in 1938 and have since supported. This formula provides a daily benefit rate based on an employee's annual compensation in the railroad industry. For each of ten different categories of annual compensation, there is a benefit rate specified in the law. Within any benefit year (July 1 to June 30) a benefit rate does not change. We can easily tell from the Board's wage records what benefit rate an employee is entitled to and he can easily understand how we arrived at it. I can understand how a benefit rate is determined under the present law. It is not easy for me to understand how it would be determined under the proposed amendment and I do not think railroad employees will find it easy to understand either. It would cost us about $700,000 to administer the proposed amendment and it would be expensive for the railroads to provide us with the necessary information to administer it. We don't need a new and more complicated formula in order to get higher benefit rates. We don't need to spend a lot of money on administration to get these results. We can get these results and the results the President wants, without much increase in administrative costs. We can do it by sticking to the basic benefit formula we now have and revising the scale of benefits upward. Here is one way to do it: 1. Increase the amount recognized as compensation in any one month from $300 to $350 (as provided in sec. 305 of H. R. 7840). 2. Add a new top benefit rate of $8.50 for earnings over $4,000. 3. Split the lowest 2 wage brackets into 3 with benefit rates of $3, $3.50, and $4. 4. Raise remaining benefit rates by 50 cents. A comparison of the present table of benefit rates and the new table of benefit rates is set forth below: This proposal might possibly pay out in benefits about $18 million more a year. It would cost us very little more in administrative expense to pay benefits under this proposal. The structure of the present benefit formula which has stood the tests of 15 years of benefit payments would remain unchanged. I recommend it for your consideration and the consideration of the railroad labor organizations and carriers. Average benefit payments as a percentage of average weekly wage Benefit payments would be increased by the following percentages: 11 percent for unemployment benefits; 12 percent for sickness benefits. (Estimated by the Office of the Director of Research.) STATEMENT BY HORACE W. HARPER, LABOR MEMBER OF THE RAILROAD RETIREMENT BOARD As stated in the report by the Railroad Retirement Board on H. R. 7840, I am submitting a separate statement on the proviso in section 304 of the bill. I believe that this proviso is important and necessary, and should be approved for the following reasons: The Railroad Unemployment Insurance Act has never provided adequately for the railroad employees who, because of sickness or lack of available work, or because they entered railroad employment late in the benefit year were not able to work more than a few months in the base year. Nor does it provide adequately for individuals whose rate of earnings has increased substantially after the end of the base year, and before the period of unemployment. The annual compensation base used to determine benefit rates is adequate for most employees fortunate enough to be fully employed in the base year, and on the whole, is more satisfactory than State law provisions. However, there remains this group for whom benefits are inadequate. The proviso that benefit rates should be at least 50 percent of the daily rate of compensation in last employment, subject to the $8 per day maximum is designed to take care of them. The beneficiaries this proviso is designed to protect are not just casual employees. They include thousands of regular railroad workers with years of railroad service. Others are at the beginning of railroad careers and may have worked as long as a year in addition to their brief base-year service before becoming unemployed or sick. They included workers in many different occupations, such as firemen, brakemen, stenographers, station agents, carmen, and machinists, not just laborers. Of the 68,000 unemployment beneficiaries paid at a rate less than $6 per day for unemployment in the 1952-53 benefit year, 35,000 were employed in the railroad industry within 30 days of the beginning of their unemployment. In other words, this large group had substantial employment after the base year. Frequently, among the beneficiaries, those with low rates are employees who were forced to stop working because of sickness early in the base year. Among the sickness beneficiaries with rates under $6 the proportion still active in the industry at the time their benefits began was about the same as among those unemployed. Of those not recently employed, 53 percent had worked in the railroad industry for more than 5 years. Benefits under the Railroad Unemployment Insurance Act in 1952-53 totaled close to $100 million, and it now appears that the total for the current benefit year will not be much different. However, to be on the safe side, I have assumed for cost purposes that benefits under the present law would average $125 million a year. For all cost estimates the Board has used an average taxable payroll of $5 billion a year. With this payroll the benefits under the present law, for longrange cost calculations, are estimated at 2.5 percent of the taxable payroll. I have estimated that H. R. 7840, if enacted, would add 16 percent to the benefits for a year like 1952-53. Here again, to be on the safe side, I have assumed a 20-percent increase for cost estimates. Thus the total benefits including the proposal are estimated at $150 million a year. Increasing the taxable earnings limit to $350 a month will add about 9 percent to the taxable payroll, raising it to $5.45 billion a year. Thus the unemployment and sickness benefits under H. R. 7840, for long-range cost calculations, are estimated at 2.75 percent of the taxable payroll. The Railroad Unemployment Insurance Act sets aside an amount from contributions equal to 0.2 percent of the taxable payroll to be used for administra |