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Under these conditions, representatives of the A. A. R. and representatives of the Railway Labor Executives' Association began a series of conversations in an effort to work out a program of amendments which, taken as a whole, would prove acceptable to both. I am glad to say that those conversations proved successful and that an agreement was reached. As I stated at the outset, that agreement did not reflect the views of either side, in their entirety. It reflected a compromise reached by the parties in a sincere effort to compase their differences.
From what I have said it is clear that what the parties have agreed upon is a measure which increases the pensions and retirement annuities of the employees under the Railroad Retirement Act and, at the same time, provides for a graduated scale of taxes for the railroads. under the Railroad Unemployment Insurance Act. The two features are bound together in the agreement. No agreement could have been reached otherwise.
Mr. Chairman, I thank you for your attention.
Mr. O'HARA. Mr. Fort, I assume in these conferences consideration has been given to H. R. 6766 as to whether the proposed legislation is actuarially sound; is that correct?
Mr. FORT. Oh, yes, sir.
Mr. FORT. There is no change in the retirement age. It is 65 for men and 60 for women, as I understand it.
Mr. HARRIS. Mr. Fort, I believe you said this would increase the retirement annuity by 20 percent.
Mr. FORT. Yes.
Mr. Harris. The unemployment insurance benefits that the workers would receive will remain the same as today and provided for under the so-called Crosser amendment?
Mr. FORT. That is true.
Mr. HESELTON. You said that the unemployment insurance fund was more than $900,000,000 now?
Mr. FORT. Yes.
Mr. LEA. Mr. Fort, tell us what the bill means in dollars, from the lowest to the highest pension benefits.
Mr. Fort. The minimum retirement annuity-I am speaking generally, with some exceptions-is $50 a month. That would be increased to $60 a month.
The highest pension now is $120 a month, and that would be increased to $144.
Mr. LEA. How does that compare with the maximum payments under the Social Security Act?
Mr. Fort. A good deal larger, Mr. Lea.
The CHAIRMAN. Mr. Parmalee, will you give your name and position for the record?
Mr. PARMALEE. My name is J. H. Parmalee, vice president of the Association of American Railroads and director of its bureau of railway economics.
The largest single annuity which can be received under the Social Security Act is $44 a month. In addition to that, of course, there are certain additions for the wife and one or more children. The very maximum under that act was $85 a month, and that maximum is virtually never reached because of the stringent conditions under which it can be reached. The average single annuity under the Social Security Act is $23.50 a month, and the average over-all, including the wife and children additions, is somewhere in the neighborhood of $28 and $29 a month. That is the average. Mr. LEA. How do these rates compare with Government retirement benefits? Mr. PARMALEE. That I cannot answer. I am not familiar enough with that. Mr. RogFRs. Mr. Fort, you say that there is more than $900,000,000 now to the credit of the unemployment insurance account? Mr. ForT. Yes. so Rogers. Under this bill, will you be able to draw down any of that? Mr. ForT. Under this bill that money would be used, so far as is necessary, to pay benefits, and the one-half percent tax would not be sufficient while the tax was 1% percent, to pay the full amount of benefits. So, gradually, that fund of $934,000,000 would be reduced. Mr. Rogers. But it cannot be reduced lower than $450,000,000 unless you pay more than one-half of 1 percent? Mr. ForT. When it is reduced to the point of $450,000,000, the tax would rise from one-half of 1 percent to 1 percent, and if it ever became reduced to $250,000,000—which we do not think it ever will— the tax would return to the full 3 percent. The CHAIRMAN. The next witness will be Mr. Schoene, general counsel for the Railway Labor Executives Association.
STATEMENT OF LESTER P. SCHOENE, GENERAL COUNSEL, RAILROAD LABOR EXECUTIVES ASSOCIATION
Mr. SchoeNE. Mr. Chairman and gentlemen of the committee, my name is Lester P. Schoene. I am a member of the law firm of Schoene, Freehill & Cramer, with offices at 1625 K Street, Washington, D.C.. I appear here representing the Railway Labor Executives Association, also the Brotherhood of Railroad *ś and the Brotherhood of Locomotive Engineers, who are not members of the Railway Labor Executives Association. I appear in support of the bills H. R. 6766 and H. R. 6768, identical bills, which were introduced yesterday by the chairman and Mr. Crosser. As Mr. Fort has already explained, the text of this bill is the result of an agreement between the representatives of the employees through the Railway Labor Executives Association and the representatives of oilway management through the Association of American RailroadS. As Mr. Fort has also explained, the terms of the bill are the result of give and take in arriving at an agreement. The provisions of the bill in which the employees were chiefly interested in seeing enacted into legislation are in substance the same terms that were embodied earlier in the Crosser bill, H. R. 5993.
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 hois, 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 o who have retired and those who will be retiring in the near uture. 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. SchoßNE. 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 eriod. p 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. e 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 final Crosser bill, H. R. 5993, at approximately 2.4 percent of pay TOII. 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 oir 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. SchoBNE. 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. SchoBNE. 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. SCHOEN E. 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