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possible routines. The claims procedure finally adopted by the Board was developed in these joint conferences. It can be economically administered. By agreement, the railroads have undertaken a substantial part of the claims work. All application for benefits—that is, registration-are received and handled by the railroads until they are ready to be forwarded to the regional offices of the Board for adjudication. Railroads are reimbursed only for the additional or out-of-pocket costs incurred in this work.

I might say that they have some 45,000 men trained to handle these applications.

Senator SCHWARTZ. What should they be reimbursed?

Mr. ETTENGER. The out-of-pocket cost basis was agreeable. We entered into an agreement on that basis; but the Retirement Board could not have hired 45,000 men for out-of-pocket cost.

Senator SCHWARTZ. I understand, but both the railroads and labor were interested in that.

Mr. ETTENGER. Yes; and in having economical administration and in getting into the benefit fund the tax moneys that are paid.

Senator SCHWARTZ. But it did not require the railroads to put on 45,000 men.

Mr. ETTENGER. Oh, no; we didn't put many on; we utilized our own men and facilities wherever it was possible.

It has been said that the expense to the Board for such reimbursement is less than one-fourth the expense it would have incurred to handle these applications with its own forces. Thus, this arrangement contributes to an economical administration.

Mr. Hay. Does that 50 cents go to the man or to the railroad? Mr. ETTENGER. It goes to the railroad, sir.

Again referring to the hearings on the appropriation bill, 1941, we find that Chairman Altmeyer of the Social Security Board said that the administrative expenses of the 51 State unemployment compensation systems for the fiscal year 1939 averaged 7.6 percent of the taxes collected for the same period.

On the face of this record, there appears to be no need to set aside 10 percent of the taxes collected from the railroads for credit to the administration fund. However, we do not suggest any change in the original division of the tax collections. What we do suggest and urge is that after providing the substantial sum of $6,000,000 as a reserve the Board be required to transfer the amount in excess of that sum to the benefit fund.

Senator SCHWARTZ. Is that provided for in S. 3925?
Mr. ETTENGER. Yes, sir.

Section 13 of S. 3925 provides that all of the amendments shall take effect on July 1, 1940, except section 11 relating to appropriations for administrative expenses wihch shall take effect on July 1, 1941.

It is too late to disturb the arrangements made for the next fiscal year.

I have explained the purpose of the amendments to section 11 of the act as provided by section 11 and section 12 of S. 3925. I would now like to discuss briefly the amendments proposed by S. 3920.

Section 22 of S. 3920 continues the provision for a permanently appropriated and continuously available administration fund. It further provides that the Board's determination that any of its expenses shall be paid from that fund or on appropriation shall be

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final and not subject to review in any manner. This may simplify matters for the Board but is it proper to seek or grant such authority in view of the fact that a substantial part of the Board's expenses are chargeable by agreement and by law against other than the administrative fund?

Section 24 of S. 3920 would add a new subsection to section 11 of the act. This is a long section, which begins on line 6 of page 17 and ends on line 13 of page 22. It appears to be very complicated but it is also, it appears, all-inclusive. The first part, extending from line 6 on page 17 to line 10 on page 19, sets up a revolving fund to which credits may be transferred from the administration fund or an appropriation in such proportions and for such purposes as the Board may deem proper. Following the directions for establishment of this revolving fund, we find beginning on line 10 of page 19 this language:

Notwithstanding the objects of expenditure or limitations thereon stated in any act making an appropriation for administrative expenses of the Board for the fiscal year 1941 or any subsequent fiscal year, all moneys at any time credited to the revolving fund shall be continuously available to the Board (except as hereinbefore provided) for any expenses necessary or incidental to administering this act or to any other authorized activity of the Board, including

The next three pages list the items which are expressly included. It would appear that nothing has been overlooked, but we noted particularly the provisions for paying moving expenses of officers and employees and allowances to employees for the use of privately owned automobiles within the corporate limits of their official stations. The last sentence of this section, on page 22, reads:

No limitation on the availability, expenditure, or disbursement of appropriated funds of the United States contained in any act, whether heretofore or hereafter enacted, making an appropriation for the fiscal year 1941, or in any act hereafter enacted (or) shall apply to the availability, expenditure, or disbursement of funds from the revolving fund unless such act specifically states that such limitation shall apply to the avilability, expenditure, or disbursement of funds from the revolving fund.

We submit that grant of authority sought by this section 22 of S. 3920 and the existing provisions of section 11 of the act have no place in an act setting up an unemployment insurance system. These are matters of budgeting to be examined by the experts engaged by the Government for that purpose and passed on by the appropriation committees of Congress. That we have provided for by a simple three-line amendment in section 11 of S. 3925.

Section 25 of S. 3920 would exempt the Board from certain requirements of the classified civil service rules. We are not informed as to the necessity for such exemption.

Section 26 of S. 3920 provides for still further exemption from the civil service requirements. We are definitely opposed to the first sentence, which would authorize the Board to appoint persons to handle claims without regard to the civil service laws. This may be because we do not understand the provisions.

The Board now has authority to enter into agreements with railway labor organizations, employers and State agencies to do this work, and, of course, it can use its own regular forces to take claims. At the urgent request of the Board, and at considerable inconveniences to themselves, railroads have trained certain of their employees in the claims procedure and provided facilities for doing this work. In re

sponse to specific inquiries, we have been advised that the routines established by the railroads are highly satisfactory. There is a substantial element of personal relationship in this claims work. Further, it is carried out on the companies' rights-of-way. We see no reason for expanding the existing authorities under these conditions.

Section 27 of S. 3920 authorizes the granting of leaves of absence with pay, in addition to such leaves as are now granted by law, to employees of the Board. We do not know of any other agency of the Government with like authority.

Section 11 of S. 3920 would amend the existing provisions of the act with respect to the recovery of erroneous payments. The amendment is both prospective and retroactive. It might well have the effect of fostering carelessness and inefficiency. Section 29 of S. 3920 would similarly amend the Railroad Retirement Act. We do not believe that these sections should be enacted into law.

Section 21 of S. 3920 would amend the provisions of section 6 of the act relating to reports required of employers. The act now is in harmony with the reporting requirements of section 8 of the Railroad Retirement Act. If there is to be any change in the form of reports amendments to both acts will be necessary. Particularly we object to the elimination of the provision that the annual statements of compensation to be distributed to employees shall be prepared by the Board. It is our thought that section 6 of the act should be retained until some definite reason is advanced for a change and that, in any event, the requirements under this act should be kept in conformity with the requirements under the Railroad Retirement Act. I may add, in this connection, that reports showing the compensation payable to employees for social security purposes are, at best, very burdensome, and we look with some little concern on indefinite proposals for changes.

Section 5 of S. 3920 would add another involved amendment to the act. The first proviso beginning on page 3, line 11, and the last paragraph beginning on page 3, line 24, and ending on page 4, line 8, deal with what is termed "subsidiary remuneration." That is a coined term with which I am not familiar. It was first called to my attention when I received a copy of Board order 39-519, adopted August 5, 1939, which reads as follows:

ADOPTING REGULATION GOVERNING DETERMINATION OF DAYS WITH RESPECT TO

WHICH SUBSIDIARY REMUNERATION IS PAYABLE

Upon the recommendation of the general counsel the following regulation is adopted, pending final adoption of complete regulations as a guide in the adjudication of applications for unemployment insurance payments and for waiting period credits;

1. The term "subsidiary remuneration” as used in this regulation is remuneration having all the following characteristics:

(a) The services for which the remuneration is payable must be substantially less than full-time services as determined by generally prevailing standards.

(b) The services must be susceptible of performance at such times and under such circumstances as not to be inconsistent with the holding of normal fulltime employment in another occupation.

(c) The services for which the remuneration is payable must be of such type and character as to indicate an understanding of the interested parties that the services would normally be performed while the person performing them is also engaged in regular full-time employment in another occupation.

(d) The remuneration must be attributed to periods of greater extent than the units of time required for the active performance of the services.

I don't know yet what it means.
Senator SCHWARTZ. Will you read that last clause again?
Mr. ETTENGER (reading):

(d) The remuneration must be attributed to periods of greater extent than the units of time required for the active performance of the services.

I don't know what that means.

Senator SCHWARTZ. I don't either. I have only heard it twice, though, without even looking at it.

Mr. ETTENGER. I have looked at it many times.

2. Whenever the remuneration payable is $25 per month or less, services performed in positions of the following classes shall, in the absence of evidence to the contrary, be presumed to be performed for subsidiary remuneration: Regular officers of local lodges, divisions, or similar units of labor organizations; regular officers of lodges or similar units of fraternal or social organizations; officers and directors of building and loan associations; officers, directors, members, or workers in religious, charitable, civic, political, athletic, or similar enterprises; officers, directors, or committee members in professional or scientific societies.

3. Subsidiary remuneration shall be deemed to be payable with respect to any specific days designated by the terms governing the position or employment as days on which services for which the remuneration is paid are required to be performed; any subsidiary remuneration not attributable to services so required to be performed on specific days shall be deemed not to be paid with respect to any day.

I could not find any basis in the law for this regulation, and it may be that the amendment is proposed to cure this defect. So much of this section 5 as relates to the definition of the term "remuneration” found in section 4 of S. 3920 we have adopted and expressed in the much simpler language found in section 2 of S. 3925.

I should like to read that part of section 5, because I am as confused about that as I am about the regulation. The first proviso reads as follows:

Provided, however, That "subsidiary remuneration," as hereinafter defined in this subsection, shall not be considered remuneration for the purpose of this subsection, except with respect to an employee whose base-year compensation, exclusive of earnings from the position or occupation in which he earned such subsidiary remuneration, is less than $150.

I do not know whether that brings in outside employment under the railroad system or just what is intended by it, but we think we have covered the main part of it in the amendment we propose in section 2 of S. 3925.

To go back to the tax scale, the flexible basis for collecting taxes, it is possible that some one could get the impression that the railroads simply suggest a scale that they know will be less than the contribution rate could support and then assure themselves of a reduction in the tax for that reason, because there would always be a surplus in the fund. That has not been directly charged, but you get that impression--at least, I did yesterday, it is certainly not a fact.

We talked about increasing the benefits not less than 25 percent. That is but an estimate. It is based on some unknown factors; but, as Dr. Parmelee pointed out, it leaves room for some margin of error against the proposals in S. 3920, which do not leave any room for a margin of error.

Again, yesterday you were informed that the decline in employment in 1938 as compared with 1937 was 18.7 percent, and that the increase in employment since July 1, 1939, has been 6.4 percent. That is a total swing of 25 percent.

There is something more than a million railroad employees covered by this act. If we take just 25 percent of that amount, it would be 250,000 persons. If we took a simple average of the maximum benefits you could have under the present act--that is, $140 and $240– we would get $190.

If those 250,000 persons got just that simple average of $190 apiece, it would amount to some $47,500,000, which would be in addition to the less-than-normal seasonal unemployment in 1939 and would add $16,000,000

That take us up to some $63,500,000 that is possible under this act in bad times. If you increase that by 25 percent, it adds pretty nearly $16,000,000 more. You get up to $79,000,000 that in a bad year could be payable under S. 3925. That would still leave room, that $100,000,000 reserve, for a slight margin of error; but where would you be if you doubled $63,500,000?

That is why we suggest that these amendments ought to go a little slow. We haven't the actual experience; we don't know the possibilities at present. We have had some experience with some other estimates made in the best of good faith. We do not criticize them in any way, but they were certainly made against accounts that are more easily estimated than unemployment insurance—that is, the Railroad Retirement Act. The original esimates upon which the Railroad Retirement Act was based, taken through 1941, showed disbursements of $271,546,000.

The estimates which I find in the hearings on the appropriation bill, 1941, and put into the record by Mr. Latimer as revised through the period, are $436,897,966.

You could not afford to miss a system that far and expect to carry it at reasonable rates. So, again, we suggest that it is better to start with S. 3925 and, if necessary, add to it as experience proves that you can, just as you are proposing to do this year. You are taking a system enacted in 1938, amended in 1939 and again up for amendment in 1940.

STATEMENT OF J. M. SOUBY, ASSISTANT GENERAL COUNSEL,

ASSOCIATION OF AMERICAN RAILROADS, TRANSPORTATION BUILDING, WASHINGTON, D. C.

Mr. Souby. My name is J. M. Souby. I am assistant general counsel of the Association of American Railroads.

I wanted to make a statement on behalf of the railroads relating to the proposal contained in section 10 of S. 3925 covering this sliding scale of tax rate. It has been testified here by Mr. Hay and mentioned also by Mr. Ettenger that as a result of this rather large transfer from the State funds to the unemployment insurance fund under the present act, the effect of the proposal in section 10 of this bill would be to automatically reduce the tax to 1 percent for the coming year.

We have given consideration to that and considered the uncertainties of the results that might follow from the proposed increases in benefits that are contained in this same bill, S. 3925—uncertainties as to the state of employment during this coming year, and we think that probably it would be unwise to bring about such an abrupt reduction in the tax rate from 3 percent to 1 percent at this early stage.

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