(c) The proviso in such section 2 (a) is amended by striking out "50" and "$8.50" and inserting in lieu thereof "60" and "$10.20", respectively. SEC. 303. Section 2 (c) of the Railroad Unemployment Insurance Act is amended by striking out the period at the end thereof and inserting in lieu of such period a colon and the following: "And provided further, That, with respect to an employee who has five or more years of service as defined in section 1 (f) of the Railroad Retirement Act of 1937, who did not voluntarily leave work without good cause or voluntarily retire, and who had current rights to normal benefits for days of unemployment in a benefit year but has exhausted such rights, the benefit year in which such rights are exhausted shall be deemed not to be ended until the last day of the extended benefit period determined under the following schedule, and the maximum number of days of, and amounts of payment for, unemployment within such benefit year for which benefits may be paid to the employee shall be enlarged to include all compensable days of unemployment within such extended benefit period: but no such extended benefit period shall extend beyond the beginning of the first registration period in a benefit year in which the employee is again qualified for benefits in accordance with section 3 of this Act on the basis of compensation earned after the first of such successive fourteen-day periods has begun. For an employee who has five or more years of service, who did not voluntarily leave work without good cause or voluntarily retire, who has fourteen or more consecutive days of unemployment, and who is not a 'qualified employee' for the general benefit year current when such unemployment commences but is or becomes a 'qualified employee' for the next succeeding general benefit year, such succeeding benefit year shall, in his case, begin on the first day of the month in which such unemployment commences." SEC. 304. Section 3 of the Railroad Unemployment Insurance Act is amended by striking out "$400" and inserting in lieu thereof "$500". SEC. 305. Section 4 (a-2) of the Railroad Unemployment Insurance Act is amended by striking out subdivision (iv), and by striking out the semicolon at the end of subdivision (iii) and inserting in lieu thereof a period. SEC. 306. Section 8 (a) of the Railroad Unemployment Insurance Act is amended (1) by inserting after “June 30, 1954" where it first appears the following: ", and before July 1, 1957, and is not in excess of $400 for any calendar month paid by him to any employee for services rendered to him after June 30, 1957"; (2) by inserting after "June 30, 1954" where it appears for the second time the following: ", and before July 1, 1957, and to not more than $400 for any month after June 30, 1957"; (3) by inserting after "June 30, 1954" where it appears for the third time the following: ", and before July 1, 1957, or less than $400 if such month is after June 30, 1957"; (4) by striking out "1947" in paragraph 2 and inserting in lieu thereof "1957"; and (5) by striking out the table (except the column headings) in such paragraph 2 and inserting in lieu thereof the following: "$450,000,000 or more $400,000,000 or more but less than $450,000,000$350,000,000 or more but less than $400,000,000$300,000,000 or more but less than $350,000,000. Less than $300,000,000‒‒‒‒ 2 percent 212 percent 3 percent 32 percent 4 percent". SEC. 307. Section 8 (b) of the Railroad Unemployment Insurance Act is amended (1) by striking out "3 per centum" and inserting in lieu thereof "4 per centum"; and (2) by inserting before the period at the end of the first sentence the following: ", and before July 1, 1957, and as is not in excess of $400 paid to him for services rendered as an employee representative in any calendar month after June 30, 1957". SEC. 308. The amendments made by sections 302, 303, and 305 shall be effective with respect to benefits accruing in general benefit years which begin after the benefit year ending June 30, 1957, and in extended benefit periods which begin after December 31, 1956. The amendment made by section 304 shall be effective with respect to base years after the base year ending December 31, 1956. The amendment made by clause (1) of section 307 shall apply with respect to compensation paid for services rendered in calendar months after June 30, 1957. ANALYSIS OF S. 1313 PART I. THE RAILROAD RETIREMENT ACT 1. All annuities (age and disability retirement, spouses, and survivors) pensions, and insurance lump sums, under the Railroad Retirement Act would be increased by 10 percent (except annuities which are, or would be, based on the equivalent of the annuitant's average monthly compensation while working in the railroad industry); 2. An employee who was retired on an annuity by reason of disability would not lose the annuity for any month in which he earned more than $100 in outside employment if his total earnings in the year, which includes such month, does not exceed $1,200; and if such earnings exceed $1,200, the annuitant would not lose more than 1 month's annuity for each $100 of such excess, treating the last $50 or more of such excess as $100; 3. Women railroad employees with less than 30 years of service, would be eligible for annuities at age 62 rather than age 65, but the annuity would be on a reduced basis (women with 30 years of service are now, and will continue to be, eligible for full retirement at age 60); 4. A spouse's annuity would be payable at age 62, rather than age 65, upon election of the spouse to receive such annuity on a reduced basis; 5. The "insurance" lump sum (which is not now payable if the deceased employee is survived by a person entitled to an annuity in the month in which the employee died) would be payable even if the deceased is survived by a person so entitled, but the amount would in no case exceed $750; 6. The maximum creditable compensation under the act would be increased from $350 to $400 a month, effective with respect to compensation for service after June 30, 1957; 7. The residual lump sum would be increased to reflect the increase in the maximum creditable monthly compensation; and 8. For survivor beneficiaries who work outside the United States the work limitations on benefits would be same as are now provided for work in the United States. PART II. THE RAILROAD RETIREMENT TAX ACT In order to provide funds for the proposed increases in benefits, and to take care of any present deficiency in the railroad-retirement account, the Railroad Retirement Tax Act would be amended as follows: 1. The tax base would be increased from the present maximum of $350 a month to $400, effective with respect to compensation for service after June 30, 1957; 2. The tax rates on employers and employees would be increased from the present 64 percent of payroll on each side, up to $350 a month, to 72 percent of payroll on each side, up to $400 a month, effective with respect to compensation for service after June 30, 1957; 3. The tax rates on employee representatives would be increased from the present 122 percent of payroll, up to $350 a month, to 15 percent of payroll, up to $400 a month, effective with respect to compensation for service after June 30, 1957; and 4. An additional increase in tax rates with respect to compensation paid for services beginning January 1, 1970, is provided, but such increase would be conditioned upon, and would be equal to the number of percentage points (including fractional points) of, the increase in the rate of social-security employment taxes which, as now scheduled, would not be effective before 1965. (The reason for this proposed conditional increase is that if social-security taxes increase as scheduled, the retirement account will be charged correspondingly more under the financial-interchange arrangement, and to the extent of such increases, scheduled for 1965 and thereafter it is necessary to increase retirement taxes to the 93396-57— -2 same extent on compensation paid after 1969 in order to continue on an actuarily sound basis.) PART III. THE RAILROAD UNEMPLOYMENT INSURANCE ACT In order to improve the lot of unemployed railroad workers, the Railroad Unemployment Insurance Act would be amended as follows: 1. The daily benefit rate would be increased from 50 percent of compensation for the employee's last employment in a base year, to 60 percent of such compensation; 2. The maximum daily benefit rate would be increased from $8.50 to $10.20. 3. Sundays and holidays would be treated as days of unemployment for unemployment purposes; 4. The number of days for which benefits may be paid in the first registration period in a benefit year would be 10 (instead of 7), the same as in subsequent registration periods in the same benefit year; 5. For a career railroad employee (one with at least 5 years of railroad service) who is out of work through no fault of his own, the bill would extend the period during which he may receive benefits. These extended periods would vary in length, depending generally, on the length of the beneficiary's previous employment, so that an unemployed man with 20 or more years of service would receive benefits for as much as 41⁄2 years longer than he might otherwise receive; 6. The minimum earnings in a base year which would qualify an employee for benefits in the benefit year would be increased from $400 to $500; 7. The maximum taxable earnings in a month would be increased from $350 to $400; and 8. The contribution rate would be increased to 2 percent of creditable compensation when the balance in the railroad-unemployment insurance account would total $450 million or more; and this rate would be increased, by steps, to 4 percent of such compensation when the balance in the account fell below $300 million. Hon. LISTER HILL, DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE, Chairman, Committee on Labor and Public Welfare, United States Senate, Washington, D. C. March 25, 1957. DEAR MR. CHAIRMAN: As you know, hearings on S. 1313 and other bills to amend the Railroad Retirement Act and Railroad Unemployment Insurance Act have been held before the Subcommittee on Railroad Retirement of your committee and are now in recess. S. 1313 is identical with H. R. 4353, H. R. 4354, and other House bills on which this Department reported on March 15, 1957, in response to requests of the House Committee on Interstate and Foreign Commerce. Inasmuch as our report on the House bills may be of interest in connection with your committee's consideration of the Senate bill, we take the liberty of enclosing herewith two copies of our report on those bills. Sincerely yours, Hon. OREN HARRIS, ELLIOT L. RICHARDSON, Acting Secretary. DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE, Chairman, Committee on Interstate and Foreign Commerce, March 15, 1957. DEAR MR. CHAIRMAN: This letter is in response to your requests for reports on H. R. 4101 and H. R. 4102, and four identical bills, H. R. 4353, H. R. 4354, H. R. 4530, and H. R. 4620, all of them bills to amend the Railroad Retirement Act of 1937, the Railroad Retirement Tax Act, and the Railroad Unemployment Insurance Act, so as to provide increases in benefits, and for other purposes. Additional bills, identical with the last-mentioned group, have more recently been introduced. In view of the comprehensive analysis contained in the Railroad Retirement Board's report on H. R. 4353 and H. R. 4354 and the fact that these bills are identical with H. R. 4101 and H. R. 4102, except for the income-tax feature discussed below, we shall not burden this report with the customary summary of the proposed legislation. H. R. 4101 and H. R. 4102, while otherwise identical with the later bills, would exclude the amount of an employee's contributions under the Railroad Retirement Tax Act from his gross income for purposes of the Federal income tax. As you will recall, the same proposed income-tax exemption was deleted by your committee on jurisdictional grounds in reporting out last year's major proposal (H. R. 9065) but with the understanding that this feature would be considered in the form of a separate bill by the Committee on Ways and Means, with express recognition of the fact that this feature and the benefit and contribution increases were regarded by the railway labor organizations as "inseparable parts of a unified and integral program" and that these organizations would not favor enactment of the measure without the tax exemption (H. Rept. No. 2418, 84th Cong., pp. 10-12). And when the tax exemption failed to clear the other committee, an amended measure (actually S. 3616, as passed by the Senate) providing merely for a 10-percent benefit increase without any contribution increase was passed as interim emergency legislation (Public Law 1013). In view of this history, the pendency of the proposed income-tax feature before the Committee on Ways and Means in the present Congress, and the fact that one of the separate tax-exemption bills (H. R. 3665) now before that committee is referred to as a part of the overall proposal in summary introduced in the Congressional Record in connection with a companion bill (S. 1313) identical with H. R. 4353 and H. R. 4354, we cannot ignore the tax-exemption feature of H. R. 4101 and H. R. 4102 in appraising this entire groups of bills. As stated by the President in approving last year's interim bill (Public Law 1013), prompt corrective action at the present session of the Congress to assure adequate financing of the system is imperative in view of the serious actuarial deficit in the Railroad Retirement Account: And any additional increase in benefits calls for an increase in contribution rates great enough to make up both the existing deficit and the further costs such benefit increases would entail. This the present bills strive to do, and in that respect they are preferable to H. R. 9065 and others bills considered by your committee last year. But to finance the employees' share of the cost of the benefit increase, wholly or in part, out of general taxation by excluding employee retirement contributions from gross income for income-tax purposes, would in our view be ill advised. In the first place, we can see no justification for exempting from income-tax liability both the amount of employee contributions and the benefits that will later be paid on the basis of these contributions under a retirement system. As you know, benefits under the Railroad Retirement Act are already exempt from income tax. Moreover, the provision would give unjustifiable preferential treatment to employees covered under the railroad retirement system as compared with employees under the old-age and survivors insurance system, the civil service retirement system, and other public and private retirement and survivor benefit plans, and would set an undesirable precedent for extending like treatment to the latter. Indeed, such an extension of the present proposal is already included, as respects social security and civil service retirement contributions, in bills recently introduced (H. R. 5551; H. R. 5768). Apart from the income-tax exemption feature, two aspects of the proposed amendments to the railroad retirement program give rise to concern. In the first place, while the proposed benefit level, we believe, would not be out of line with benefits under private industry plans coupled with those paid under title II of the Social Security Act, the difficulty is that the contribution and benefit structure under the Railroad Retirement Act is neither the outgrowth of collective bargaining between management and labor nor employer sponsored, but is imposed by legislation. We would certainly regard with serious concern any general attempt to impose such a benefit structure, with the consequent cost, on private industry by legislation. The problem is that the Railroad Retirement Act attempts to combine a statutorily regulated social insurance system with a staff retirement and survivor benefit system. While we are aware of the history which originally led to the enactment of this act, this aspect of the program is necessarily troublesome every time it is proposed to increase the benefits, and thus the cost of the system. Moreover, in comparing the proposed benefit structure with industry staff plans determined by collective bargaining, it becomes essential to resolve the question (not within our special competence) whether the railroad industry could bear the increased -contribution rates proposed without undue strain, especially in view of the increases imposed at the same time under the Railroad Unemployment Insurance Act. In addition, one aspect of the actuarial calculations on which the Board's total estimate is based deserves to be specially noted. The Board estimates that, despite the proposed changes in the benefit provisions of the Railroad Retirement Act, the proposed increases in the railroad retirement taxes (including the deferred additional taxes contingent on old-age and survivors insurance rates) will reduce the actuarial deficiency of the system on a level-premium basis from 3.20 percent of payroll (as of December 31, 1956), to 0.37 percent of payroll. However, this estimate is based in part on a long-range estimate that the provision for financial interchange between the railroad retirement system and the old-age and survivors insurance system will yield the railroad system a net gain of 1.18 percent of payroll on a level-premium basis. Our Chief Actuary, on the other hand, estimates that in the long run there will be no significant net gain to either system from the operation of the financial-interchange provision. He emphasizes that, more than for any other provision of the Railroad Retirement Act, any estimate as to the long-range effect of the financial-interchange provision is necessarily subject to future variation since it rests largely on an assumption as to the stability of employment in the railroad industry. Should his estimate materialize, however, the actuarial deficiency of the railroad retirement system would be somewhat over 11⁄2 percent of payroll on a level-premium basis, which might eventually require a combined employer-employee contribution rate of 20 percent if the benefit increase now proposed should be enacted. This possibility should, we believe, be taken into account in considering the most costly of the proposed benefit increases. The proposed changes in the unemployment and sickness benefit and contributions structure of the Railroad Unemployment Insurance Act proposed by these bills would, as pointed out by the Board, be costly and far reaching. The provision (retroactive to January 1, 1957), for extended unemployment insurance benefits of varying duration after exhaustion of regular benefit rights, in cases of workers who have had 5 or more years of railroad service, would be a striking innovation for this country. As the Board puts it, under that provision "an unemployed man with 20 or more years of service could receive benefits, under special conditions, for as much as 41⁄2 years longer than he might otherwise." Such a provision deserves the most careful scrutiny and study, not only from the point of view of cost for this self-contained social insurance program, but also from the point of view of its consistency with generally accepted social insurance principles and its possible precedent-setting effect for this country. The other provisions also-including the elimination of the waiting period for unemployment benefits in virtually all cases (with benefits payable for even 1 day of unemployment on a normal workday), and including the proposed benefit schedule under which, as the Board points out, "it would be possible for some beneficiaries to be paid at benefit rates near 70 percent of the daily rate of pay" (and even higher percentages in the case of maternity benefits)-merit careful study in these respects. Finally, the estimates of the Board suggest that even the sharply increased employer taxes proposed by these bills may not, if all the proposed benefit changes are enacted, provide an adequate margin of safety for the railroad unemployment insurance account. To recapitulate: (1) We recommend against enactment of any legislation which as part of the same bill or as part of a "package," would exempt employee contributions to the railroad retirement system from the Federal income tax. (2) Without the income-tax exemption feature, and if the actuarial estimates of the Board are accepted, the proposed changes in the railroad retirement system would bring the system close to actuarial balance notwithstanding the benefit increases, but would still raise the question (not within our special competence) of the industry's ability to bear the cost. Moreover, on the basis of the abovenoted estimate of our Chief Actuary (rather than that of the Board) with respect to the effect of the financial interchange, the legislation still would not be adequately financed. (3) While we have not, so far, reached definitive conclusions on proposed changes in the Railroad Unemployment Insurance Act, we believe that (a) any levels of benefits and contributions established should be such, and so interrelated, as to provide an adequate reserve for the system and to take account both of the needs of beneficiaries and of the capacity of the industry to bear the cost; (b) benefits should on the one hand be fully adequate and on the other not excessive in the light of generally accepted principles for this type of social insurance; and (c) unusual features of the proposal, particularly the provision for extended unemployment benefits for workers who have had 5 or more years |