Page images
PDF
EPUB

That bill provided increases in retirement annuities ranging from 25 percent in the lower brackets to 40 percent in the higher brackets. The increase was exactly 20 percent for all annuities based on $150 and over of average monthly compensation. It was 25 percent for those based on average monthly compensation of $50 and less, and it was graduated between 25 and 20 percent for those based on average monthly compensation between $50 and $150.

It was calculated by the Railroad Retirement Board that the average increase in the annuity under the bill H. R. 5993 would be 20.4 percent.

The bills which I am advocating this morning would increase the retirement annuities by 20 percent; that is, just slightly less than the increases provided in the original Crosser bill.

That bill, as well as the bills I am advocating here this morning, also provided for the restoration of a feature that had formerly been included in the Railroad Retirement Act; that is, a guarantee that every employee would receive either in benefits to himself, or in benefits payable after his death to a designated member or beneficiary, or to his estate, or other survivors, an amount at least equal to the contributions he had made to the system, plus an allowance for interest. That provision appears unchanged in the bills before you; that is, there are some slight technical changes in language, but no change in substance so far as that provision is concerned.

Those are the provisions which the employees, as I say, have been chiefly interested in seeing enacted. We want to see those provisions enacted because the very radical changes that have occurred in our economy since the formula for determining retirement benefits was fixed have operated to place a very severe economic burden on the persons who have retired and those who will be retiring in the near future.

The formula for calculating annuities under the Railroad Retirement Act was fixed back in 1937, right in the middle of the period which the Bureau of Labor Statistics uses as the basis for its cost-ofliving index.

Since that time the cost of living has increased nearly 50 percent on the basis of the Bureau of Labor Statistics' cost-of-living index. Mr. O'HARA. What year was the basis?

Mr. SCHOENE. The Retirement Act was passed in 1937. The basis used by the Bureau of Labor Statistics in its index is the average of the period 1935 to 1939, and 1937 falls right in the middle of that period.

Now, we recognize, of course, that you cannot operate a stable retirement system and have the benefits keep pace exactly with the cost of living. We are not trying to do that here, but we do feel that when such a radical readjustment in the economy occurs as has occurred since 1937, it becomes necessary to make the kind of an adjustment we are here advocating. It is a very modest increase actually in the retirement annuities, not anywhere near commensurate with the increase that has occurred in the cost of living.

We wish that we could advocate more adequate increases. Some of the bills that have been introduced here do provide for larger increases, some of those bills are unsoundly drawn, and all of them, in our judgment, would go to such an extent in the increase of benefits that they would jeopardize the financial soundness of the railroad

retirement account, and we are very much concerned that what changes are made shall be made with due consideration for maintaining the soundness of the railroad retirement account.

We have given some study and have had information made available to us by the Railroad Retirement Board concerning the cost of a 20 percent increase in retirement annuities and the restoration of the guarantee of the return of contributions.

The studies made by the Railroad Retirement Board are on bases which, in our judgment, tend somewhat to overstate the cost of the original Crosser bill, H. R. 5993, at approximately 2.4 percent of pay roll.

Mr. HARRIS. Would increase it that much?

Mr. SCHOENE. Yes; that would be the cost of the bill.

This bill, since it provides for a straight 20 percent increase rather than the average of 20.4, would cost, of course, slightly less than that. Those same studies of the Railroad Retirement Board indicates that the cost of the present provisions of the law would come to 11.17 percent of pay roll, making a total cost with the additions of 13.59 percent. The current tax rate is a graduated one, running from 5.75 percent on each side to 6.25 percent, or an ultimate total of 12.5 percent.

You can see, therefore, that we are within a range of total cost deviating by approximately 1 percent from the established tax rate. Now, the Railroad Retirement Board has told us, and we agree with them, that in view of the many hypothetical factors that go into such an estimate, and particularly in view of the very conservative nature of the estimate that I have made-that is, the tendency of their estimate to overstate the cost-that when you are within a range of about 1 percent of the established tax rate, you are on safe actuarial grounds.

I mention those figures, however, to indicate that we have gone as far in the direction of increasing benefits as we feel it is prudent to go. It may be that future events will indicate that one could go further, but in the light of what we can see now, this seems to be about the best increase in benefits that can safely be made.

The provisions of the bill from section 5 on are discussed in considerable detail in the report and I do not think it is necessary for me to comment on them beyond saying that those are the provisions of the bill which the employees would not have advocated in and of themselves; in fact would have been opposed to, had they been standing alone. They are somewhat similar to the provisions that were embodied in H. R. 5711, but they represent modifications which, in our judgment, are calculated to safeguard the Railroad Unemployment Insurance Act against dangers of depletion which would have been present in H. R. 5711.

We would have preferred, as a matter of procedure to have the committee consider H. R. 5993, the only bill pending before this committe, that embodies provisions closely identical to those embodied in the bills before you this morning. That is, we would have preferred that that bill be considered and amended to the extent necessary to embody the terms of the agreement. We understand, however, from conferences with the chairman that he deemed it advisable, in the interest of expediting the enactment of the bill, to introduce a further bill and, Mr. Crosser has introduced an identical bill, and we

urge you to report upon it at the earliest possible date, so that we may see it enacted before the Congress recesses.

Mr. HALL. Are there any questions?

Mr. LEA. Mr. Chairman.

Mr. HALL. Mr. Lea.

Mr. LEA. How do the rates as fixed by this bill compare to the civil service rates insofar as retirement is concerned?

Mr. SCHOENE. I cannot make a detailed comparison on that from any data that I have with me this morning, Mr. Lea; but the civil service retirement system, as a whole, is generally recognized as a substantially more liberal system of retirement than the railroad retirement system.

Comparative data on that appear in the records of this committee on consideration of the Crosser amendments in 1945 and 1946.

I might say that during the present session of this Congress—of course there has been a liberalization of the civil service retirement system, which liberalization in and of itself was a greater liberalization than is here proposed with respect to the railroad retirement system-with respect to civil service employees who had already retired, that legislation provided a 25 percent increase or $300 per year, whichever is greater.

The maximum increase under this bill is less than what the recent legislation provides with respect to the civil service employees who have already retired and that legislation made more liberal provisions for civil service retiring in the future.

Mr. LEA. Has the actuarial board of the railroad retirement furnished any comparison beween the beneficial rates under the civil service system and the railroad retirement and Social Security Act? Mr. SCHOENE. Not to my knowledge.

The CHAIRMAN. Are there any further questions?

Mr. HARRIS. Mr. Chairman.

The CHAIRMAN. Mr. Harris.

Mr. HARRIS. I assume this does not amend the Crosser amendment in any way except providing for increased benefits for retired annuitants and to amend the unemployment insurance section?

Mr. SCHOENE. Well, it provides

Mr. HARRIS (Continuing). And the restoration of death benefits. Mr. SCHOENE. That is right. So far as the Retirement Act is concerned, the bill does substantially what Mr. Crosser's bill, H. R. 5993 would have done.

The CHAIRMAN. Does this bill make provision for the widow having the right to collect under the social security as well?

Mr. SCHOENE. Yes. Perhaps a little background statement is necessary there, Mr. Chairman, to make my answer completely clear. The CHAIRMAN. I was under the inpression that it did, and you had not made any reference to it.

Mr. SCHOENE. Well, it appears that the situation on that is that under the survivor benefit system that was enacted in the Crosser amendments of 1946, railroad employees who at the time of death have what is defined as a current connection with the railroad industry, receive their beneficiaries, receive benefits under the Railroad Retirement Act which takes into consideration also any service that was covered by the Social Security Act. If, on the other hand, a death occurs without such a current connection, the benefits are

77039-48- -3

paid under the Social Security Act and they receive credit for the railroad service.

Now, when we restore this lump-sum benefit, that is, this lump-sum guarantee there are conditions on which a widow who is potentially eligible for monthly benefits, upon attaining age 65, may wish to elect to take the lump sum at that time rather than to get her benefits at age 65. The bill provides that she may elect to do so and if she elects to do so she, of course, waives the privilege of having survivor benefits ultimately determined on the basis of railroad service and social-security service combined; but the bill specifically provides that she need not waive such benefits as she might be entitled to under the Social Security Act on the basis of nonrailroad service alone.

The CHAIRMAN. Well, that was a point that I wanted to bring out. I think it is a very worth-while provision that we have in this bill and I am pleased to see that it is in there, because it goes to the point of helping survivors.

Mr. SCHOENE. Well, we felt, Mr. Chairman, that it was only fair to do that, in view of the fact that the lump sum guarantee is a guarantee only of return of contributions made to the railroad retirement system. We do not attempt here to make any return on contributions made to the social security system and consequently if one elects to take this lump sum while potentially eligible for age 65 benefits, it is not fair that they should have to waive the benefits under the social security system.

The CHAIRMAN. From your statement it would indicate then that it provides an improvement from the standpoint of the survivors with respect to the matters you have just mentioned.

Mr. SCHOENE. Yes; it does, Mr. Chairman.

The CHAIRMAN. The committee will recess until 11:45.

Mr. CROSSER. I would like to ask a question, Mr. Chairman.
The CHAIRMAN. You have some questions?

Mr. CROSSER. One or two.

The CHAIRMAN. Mr. Crosser.

Mr. CROSSER. Did you examine the bill that was introduced, I think, on May 26?

Mr. SCHOENE. Which bill do you have reference to, Mr. Crosser. I do not identify it.

Mr. CROSSER. I think Mr. Wolverton introduced a bill on the 26th. We had something delivered on our desks, which I understand was a copy of the bill.

Mr. SCHOENE. That is H. R. 6704.

The CHAIRMAN. H. R. 6704.

Mr. SCHOENE. Yes; I examined that, Mr. Crosser.

Mr. CROSSER. Will you tell us how you regard that bill from the standpoint of the employees? In the first place, do you think it was actuarially sound?

Mr. SCHOENE. Well, Mr. Crosser, on that question I, of course, have to rely on information furnished by the Railroad Retirement Board. I asked the Railroad Retirement Board at the time that bill was introduced to indicate their best judgment to me of what its cost would be. The information I got indicated that the cost of the bill would be approximately 3.15 percent of pay roll, which, as you can see from the testimony I have given, would be about 0.73 percent of pay roll in excess of the cost of H. R. 5993.

In my judgment that would be too far in excess of the tax rate to be actuarially sound.

That bill, so far as the distribution of benefits was concerned, had a range of increases running from 10 percent to 92.5 percent. Naturally on behalf of the employees we would like to see as large an increase as can safely be made and had we considered it actuarially supportable would have liked to have seen some of the larger increases that were provided in that bill. We did, feel however, that the distribution with that wide a range was not equitable among all of the employees and that it particularly discriminated against employees who will be retired some year in the future in favor of employees who have already retired and those who will be retiring in the very near future. That discrimination we felt was rather acute in view of the fact that the employees who have already retired have paid relatively less in contributions to the system than-and some of them paid nothing, of course than those who would be retiring in the future would be paying in taxes all through their railroad career.

That, in summary was the judgment that I had.

Mr. CROSSER. It was a fact, was it not, that the general tendency of the bill was to make those who paid most in a smaller percentage of increase?

Mr. SCHOENE. That is right. That was a general tendency of the bill and that was one of our objections to it.

The CHAIRMAN. Have you finished, Mr. Crosser?

Mr. CROSSER. Yes, Mr. Chairman.

The CHAIRMAN. Of course I did not intend to get into any discussion as to the merits of H. R. 6704. I made that clear when I opened the hearings. I still think it a splendid bill, and from an actuarial standpoint, I may say this, that actuaries, I have found in my experience on this committee, differ sometimes very widely. The study that we made of that bill was to bring it within a range that would not be greater in cost than that of the original Crosser bill. I have been satisfied from the studies that our staff made and the actuarial advice that we had, that notwithstanding others might have a different opinion, we are still of the opinion that it could have been done within that cost. We did seek in that bill to take care of the immediate emergency that is so heavy upon those with small pensions, and annuities, and we had the feeling that the bill would take care of that immediate situation and in a very admirable way and that it would take care of the situation for the next 15 or 20 years. In the meantime there would be time for such revision as might be necessary to take care of those who would be retired after that time and that is all I wanted to say about it. We will not go into a discussion of it.

I am in favor of this bill that represents the agreement between the management and the men.

Mr. SCHOENE. I understand that, Mr. Chairman, I have avoided any specific discussion of the other bills, because we want to get through as rapidly as possible and I think that since management and the men have agreed upon a particular course or program, that the obvious statesmanlike course for the Congress to take is to enact that program into law.

The CHAIRMAN. Regardless of what the provisions of the several bills may be, I take it that there was a very sincere desire upon the part of all who have introduced bills to meet a situation that we all

« PreviousContinue »