AMENDING THE RAILROAD RETIREMENT ACT OF 1937 FRIDAY, MAY 3, 1957 UNITED STATES SENATE, SUBCOMMITTEE ON RAILROAD RETIREMENT OF THE The subcommittee met, pursuant to recess, at 10:06 a. m., in room P-63, United States Capitol, Senator Wayne Morse, chairman of the subcommittee, presiding. Present: Senators Morse (presiding), Cooper, and Allott. Committee staff members present: Stewart E. McClure, chief clerk; Roy E. James, assistant chief clerk; Michael J. Bernstein, professional staff member; and Merton Bernstein, special counsel to the Subcommittee on Railroad Retirement. Senator MORSE. The hearing will come to order. Mr. Calhoun, will you proceed with your testimony, and please accept my apology for being 6 minutes late this morning and for not being able to get here at all day before yesterday. I was involved in an executive session of the Foreign Relations Committee on a nomination matter I could not avoid. I extend to you and to the brotherhoods my apologies for not being here Wednesday. I have never learned to be in two places at the same time. I am very appreciative of my leagues who carried on in my absence. I will catch up with you in the record as soon as I can. Proceed now where you left off Wednesday. FURTHER STATEMENT OF LEONARD J. CALHOUN, CONSULTANT, ASSOCIATION OF AMERICAN RAILROADS col Mr. CALHOUN. Mr. Chairman, I am continuing my testimony on behalf of the Association of American Railroads with respect to S. 1630, which contains a series of amendments to the Railroad Unemployment Act and also with respect to amendments to that act proposed by S. 1313. On March 13 I covered the first half of my prepared statement, and with your permission, at this time I shall only hit the high spots of that previous testimony. As I previously stated, when the original Railroad Unemployment Act was enacted, it was recognized by the spokesman for the Railway Labor Executives that there should be a general conformity certain in important respects with the State-Federal systems of unemployment insurance. At the 1938 hearings the spokesman for the Railway Labor Executives Association pointed out: The maximum for higher paid workers is the same as that in 36 of the States. The amount allowed for workers in the average pay class is substantially the same *** Since that time there has been a great and steadily increasing disparity between the benefits provided and other features of State systems and the railroad system. It is to be expected the railroad practical minimums are considerably higher than the States since railroad employees have a practical minimum wage of some $1.70 an hour or somewhat higher; but it is difficult to justify the fact that the minimum practical benefit paid these $1.70 per hour persons under the existing railroad law is higher than the maximum benefit in some 31 States. We feel, also, that it is not possible to justify the pending proposal of S. 1313 that this minimum benefit be increased by nearly $7 a week. Likewise the proposed increase in total benefits cannot be justified under the 1938 law the maximum total of benefits paid a person with $1,300 in base year wages was $240. Today a person with $1,300 in base year wages receives $1,105 for unemployment and $1,105 for sickness. Under the pending proposal he would receive $1,300 in each case. That is illustrative of proposed benefit expansions. Illustrative of costs is the tax schedule and its proposed expansion. In practically all States the competitors of railroads have unemployment contributions varying from a fraction of 1 percent to a maximumn of 3 percent or an average of around 12 percent of payroll with a $3,000 annual wage base. The present railroad contribution schedule requires 3 percent rate on railroads on a $4,200 annual base when the fund balance is below $250 million. The pending bill proposes to expand the base to $4,800 and the rate to 4 percent when the fund is below $3,000. Now, as to practical results, that would mean maximum railroad unemployment tax of $192 per year on employees making $400 or more a month in the year as contrasted with the average State tax on an employee with the same wages of around one-fourth of the amount. Furthermore, we understand that the Railroad Retirement Board estimates are even with this burdensome tax, if S. 1313 were enacted the probable benefit costs would exceed the tax revenues. The Railroad Association in many months before S. 1313 was enacted had been giving serious study to improving both the administration and if necessary the porvisions of the Railroad Retirement Act. They have been actively cooperating with the Railroad Retirement Board to the end of minimizing genuine unemployment and also in minimizing chizzling. But it has been found on examination that in several important respects amendments to the act itself are necessary, and the principal amendments in 1630, which I will refer to as the association's bill, are directed to that end. At my prior appearance I went into the problem of the fixed base year and the fixed benefit year. I pointed out that under the existing law many persons who were in railroad work continuously since December of 1955, or even somewhat earlier, and who become sick or unemployed today, can't get any benefits until next July. I also pointed out that S. 1313, the railroad labor executives' bill, recognizes the hardship of this situation and provides that certain of these employees could nevertheless start their benefit year earlier. However under S. 1313 other people although in exactly the same situation and with more recent work would not be able to qualify under this proposal because the proposal is limited to people who at some time in their lives have worked for 60 months for railroads. The basic cause of the situation is that for administrative convenience the system presently pays benefits in the first half of the year only to persons who have qualified work in the second calendar year prior to this year. This unwarranted situation exists merely because it is administratively convenient to gather records in a liesurely manner-it was so provided in the bill prepared by the railway labor executives and adopted by Congress in 1938. There is a further inequity that we also face because of the present provision specifying a calendar base year, and a June to June fixed base year. That is the situation that occurs to a person who has perhaps ample wages to qualify if they were all in the same year. For example, a person might work in November, December, January, February and March, but he may end up ineligible despite this continuous work because it didn't all occur in 1 calendar year. The Railroad Association's proposal would remedy the underlying cause of both these situations, by eliminating the 6 month-lag period and by making the qualifying year the 12 months before he applies for benefits and his benefit year the 12 months after he applied for benefits. That, incidentally, would eliminate also the capricious results where a person who gets unemployed, say, in May and so he qualified for only one month's benefit because of the arbitrary limitation of the benefit year. The proposed change in base years, as I pointed out, would require that railroads go to some added expense and there would be some added administrative troubles in making separation reports. But that is a thing that has been faced successfully by State system employers and has resulted in getting away from anomalies such as I have mentioned. I also testified about a second problem; that is, of properly defining qualified employee. As I pointed out, duration of work is more important than wages, and a flat qualifying amount such as is now provided, no matter what size, is an inequitable arrangement because a person making $3 an hour can qualify in half the period of work that a person making $1.50 needs to qualify. So the Railroad proposal in effect would prescribe qualifying amounts related to rates of wages (i. e., 87 times the daily wage) with the practical results that any person that works about a third of the year, regardless of his wage rate, would qualify and a person who worked less than that would not qualify. The third matter I covered in my prior testimony was that of limiting sickness benefits to persons currently attached to the railroad labor market whose unemployment is due to their sickness or involuntary lack of work, and results in the loss of railroad wages. A basic requirement to test current attachment to the railroad industry is the registration for work and availability for work requirements, but this current availability test is absent in the law governing sickness benefits. I described the proposal designed to make certain that people who were in jail or keeping house or who had long since gone over to private employment and were suffering no loss of railroad wages, would not be permitted to draw benefits from the railroad funds. Senator MORSE. In many of those cases, Mr. Calhoun, they wouldn't come back to work for the railroads if you asked them to. Mr. CALHOUN. No, sir. A person who has gotten a better job, and they frequently do, in private industry, and has been working several months in private industry and then gets sick is not in the railroad labor market. Obviously their sickness does not result in any loss of railroad wages. It is perfectly fair when a person is either working for the railroad or is unemployed through no fault of his own and is seeking railroad work, should get the benefits. When he has gone over to entirely different work or is in jail or she is keeping house or whatnot, and not suffering railroad wage loss, it is not proper that the railroad system should be required to pay him benefits. For Then there are certain other situations generally called disqualification periods, when payment of sickness benefits is not justified. example, if a person has voluntarily quit railroad work and he has gone away under the ordinary unemployment compensation provisions he can't draw unemployment benefits for a disqualification period. The theory is not to punish him. The theory is he hasn't suffered any loss of railroad wages because of his unemployment. If during the unemployment he incidentally gets sick, he hasn't suffered any loss of railroad wages because of his sickness. So the disqualification should apply both to sickness and to unemployment. For the same reason that it should apply to one it should apply to the other. That carries me through in summary fashion to the point where my testimony left off at the last hearing, and that starts on page 10 of my prepared statement. An important situation where the individual has withdrawn for the time being from work is where he goes on strike. This is recognized in all unemployment systems. Typical of unemployment law provisions is the first part of the provision found in section 4 (a−2) (iii) of the railroad unemployment insurance law itself-disqualifying participants for the duration of a labor dispute. But, as was pointed out by a witness in the last hearing, the March hearing, there is an exception in the case of the railroad law virtually nullifying it. The exception permits payments even though the individual is on a strike, if it is "lawful." We feel that a person on strike is not a person unemployed due to lack of work, whether the strike is a regularly called strike or a wildcat strike. His wage loss in either case is due to his own voluntary action. Accordingly no benefits are properly payable, and the railroad proposal would so provide by striking out the "lawful strike" exception. Here, again, this is not a penalty but a proper part of the definition of benefit coverage. Furthermore, unemployment insurance is not intended as a device for paying strikers company-financed strike benefits, whether the strike is regularly or irregularly called. Á further situation is where the individual has voluntarily withdrawn, for the time being, at least, from railroad work because he voluntarily quits. The Railroad Act recognizes this under existing law, but unique among systems is the failure of the Railroad Act to similarly exclude a claimant from benefits if he terminates his work by such serious on-the-job misbehavior as to require his suspension or firing. It is not defensible to exclude a person who has walked off the job, but pay him benefits if he engages in such misconduct that he has had to be dismissed from work. Section 5 of the Railroad Association's bill will give the same treatment in both cases. At the present time, persons who walk off the job, or fail to show up for work, or refuse suitable work when unemployed, have only a 30day benefit suspension under existing law. We do not feel that a lapse of this 30 days means that they have suddenly become involuntarily unemployed through no fault of their own. Section 5 of the association's bill has a more realistic solution for these cases and misconduct cases. The individual would get back into the protection of the system when and if he returns to railroad work and works at some time in each of 4 weeks. The next matter I shall only briefly mention, Mr. Chairman, is a proposal omitted from the association's bill for technical reasons. That proposal is to make sickness benefits a system equally financed by the railroads and railroad employees from earmarked payroll taxes. I might point out that when American unemployment-insurance systems were established, it was generally thought that these would be financed by employers and employees, and several States originally did so. But the Federal forcing tax was imposed only on employers, and the theory grew up that, due to the employer's position to regularize employment at least to a substantial degree, he should pay the total cost of unemployment insurance. However, radically different considerations apply to sickness benefits. The employer is already held liable for disabilities attributable to him. Sickness is essentially a personal, non-job-connected phenomenon that everyone is subjected to. Sickness benefits were first adopted in Rhode Island. It was one of the few States with employee contributions toward unemployment compensation, and these contributions were shifted to, and afford the sole financing of, the Rhode Island cash sickness benefits. California and New Jersey, each of whom had employee contributions, likewise established sickness benefits largely financed by such contributions. New York also has adopted sickness benefits. These, too, are very substantially financed by employees covered. The railroad system is the sole American system financed wholly by employers, and I know of no foreign system so financed. We know of no tenable theory justifying this unique railroad system financing. We feel that, with employee participation in the costs, the system would be much better protected against chiseling. I cannot but believe that employee opinion would be adverse to claimant practices which would waste employee-contributed funds and threaten to increase employee-contribution rates. It is possible that employees as well as the railroads would enthusiastically support the next proposal I shall mention-terminating maternity benefits-if employee contributions were levied to finance these benefits. There would, of course, be a better argument for maternity benefits with employee financing, like Rhode Island where employees pay the entire bill, than there is under the railroad system where the cost is borne wholly by the railroads. But even the Rhode Island system limits pregnancy benefits to 12 weeks except in cases of unusual complication as a result of childbirth. In all cases, duration under this system is limited also by the woman's potential benefit duration in terms of base-period wages. |