Electrical Workers; International Brotherhood of Firemen and Oilers; International Organization Masters, Mates and Pilots of America; National Marine Engineers' Beneficial Association; Order of Railway Conductors and Brakemen; The Order of Railroad Telegraphers; Railway Employes' Department, AFL-CIO; Railroad Yardmasters of America; Sheet Metal Workers' International Association; and Switchmen's Union of North America. NEED FOR NEW LEGISLATION The standard railway labor organizations and many Members of Congress have been seriously concerned with the inadequacy of the benefits under the Railroad Retirement Act to cope with the rising cost of living. The greatest sufferers from the present high cost of living are those people who are trying to exist on a fixed income, such as pensions and annuities. They are trying to get along on a fixed number of dollars each month, and these dollars are buying less. The end result is that there people are driven to greatly lowered living standards. There was general agreement until recently that the railroad retirement system was virtually withoht peer among plans of its kind. However, with the passage of the 1950 and later amendments to the Social Security Act, and the gains made in the past several years by employees in many industries through the adoption of private supplemental pension plans, the railroad retirement system has fallen behind. Recognizing this problem, many Members of Congress have introduced bill proposing to improve the benefits under the Railroad Retirement Act. COST OF BENEFITS PROVIDED FOR BY THE COMMITTEE BILL AND THE DISTRIBUTION OF SUCH BENEFITS The chief actuary of the Railroad Retirement Board estimated that the proposed increase in benefits provided in the committee bill would cost 1.57 percent of taxable payroll, as follows: The cost item of 0.27 percent of taxable payroll as "allowance for accelerated retirement" is questionable. Without this item the estimated cost of the committee bill would be only 1.30 percent of taxable payroll. The Board's actuary assumed that the average railroad employee who earns an average of more than $300 a month would voluntarily retire on an annuity considerably less than one-half his average earnings. This assumption was seriously challenged by the standard railway labor unions and by the labor member of the Railroad Retirement Board when the average increase would have been $15 a month under the bill as introduced. Now that the average increase under the committee bill would be only about $10 a month, the actuary's assumption is even more questionable. Tables 1 and 2 below show the effect of the committee bill on the beneficiaries under the Railroad Retirement Act: TABLE 1.-Estimated number of monthly beneficiaries of each type on the Railroad Retirement Board's current payment rolls July 1, 1956, who would be affected or not affected by proposed 10 percent increase in railroad retirement benefit formulas 1 Includes 6,000 guaranty cases changed to railroad formula, 3,000 minimums ($69, 4.14 times years of service) changed to monthly compensation minimums. 2 Includes 11,500 unreduced spouse benefits over $49.36 but less than $54.30 before increase, and 1,500 guaranty cases changed to the railroad formula. 3 Normal spouse annuity already equal to $54.30. 4 Includes 5,000 guaranty cases and 2,000 spouse minimums changed to the regular railroad formula. 5 Guaranty cases changed to the railroad formula. Act. NOTE.-No provision made for application of the disability freeze under title II of the Social Security Source: Office of Director of Research, U. S. Railroad Retirement Board, July 19, 1956. TABLE 2.-Estimated numbers of monthly beneficiaries of each type on the Railroad Retirement Board's current payment rolls July 1, 1956: Number and percent affected and average monthly benefits before and after proposed 10 percent increase in railroad retirement benefit formulas Source: Office of Director of Research, U. S. Railroad Retirement Board, July 19, 1956. HEARINGS AND CONCLUSIONS Hearings were held on the bills S. 3616 and S. 3654 on May 2 and 3, 1956, by a subcommittee of your committee. The issues during the hearings were directed chiefly to the taxing provisions in the bill. These provisions, however, have been excluded by the committee's amendment. The committee bill is, in essence, a temporary measure for the purpose of providing an interim modest increase in benefits of 10 percent. This is 5 percent less than the increase proposed in the bill as originally introduced. The reason for the smaller increase proposed in the committee bill is that the financing features of the bill as introduced have not been favorably reported. To delay a much-needed increase in benefits until the financial features are worked out would be to shut our eyes to the fact that this session of Congress is about over and that the retired railroad workers and their dependents and survivors, who look to Congress for relief, would be forced to wait at least 6 more months for any increase in benefits. The committee is in agreement with the view that the extra $10 a month, on the average, which the committee bill proposes would not be an incentive for accelerated retirement. If an employee is forced out of service, or is disabled, he would retire if eligible, without regard to this bill. The committee is unanimous in its determination to act promptly at the next session of the Congress on a measure which will finance these increased benefits, regardless of any action which may or may not be taken by other committees of the Congress on related provisions for tax relief. In this connection, the committee has been assured by the Railway Labor Executives' Association that preparations are now being made to present to the Congress early next year a plan of financing the railroad retirement system in such a way as to cover adequately the cost of the benefits provided in the committee bill. Following are letters from officials of the Railway Labor Executives' Association concerning this problem: Senator JOHN F. KENNEDY, RAILWAY LABOR EXECUTIVES' ASSOCIATION, Chairman, Subcommittee on Railroad Retirement, Washington, D. C. DEAR SENATOR KENNEDY: I am writing with reference to S. 3616 and a similar measure, H. R. 9065 by Mr. Harris of Arkansas. As you know, these measures were introduced at the request of the Railway Labor Executives' Association and we have been active in our efforts to secure passage in both Houses of Congress. In view of the failure of the House Committee on Ways and Means to act favorably upon one of the most important features of these bills, it would seem that their passage in this Congress is impossible. After consultation with the leadership of both Houses and with key Members concerned with these problems, our association has agreed to a revision in the text of the Kennedy bill, S. 3616, and the Harris bill, H. R. 9065. We propose now to effectuate an interim increase in benefits as described in the Kennedy bill and the Harris bill of 10 percent. The enactment of this immediate relief for annuitants and pensioners in our system will temporarily ease their burden. We propose at the next sessions of the Congress to recommend to your committee and to the House committee a new program which will contain adequate financing that will take care of the proposed 10 percent interim increase as well as the improvements to be sought next year. You may be certain that the Railway Labor Executives' Association is vitally aware of the implications of this request and we make it only after the most deliberate and careful consideration. We feel that new factors involving the relationship between the railroad retirement system and the social-security system will improve our financial picture and lessen the dangers involved in increasing benefits without immediately increasing revenues. We most certainly intend that our system be financed adequately and you have the assurances of every standard railway labor organization that we shall take every necessary action to provide sufficient revenues for these benefits in the next Congress. We regret very much that the failure of the House Ways and Means Committee to make a definite decision on the financing aspects of the present program have made it necessary for the Congress at this point to provide this type of interim annuity relief for retired railroad workers. We are recommending this action only because of our feeling of responsibility to the hundreds of thousands of retired railroad men and women and their dependents throughout the country who are looking to this Congress for relief in their time of need. We urge your committee to adopt the proposed changes in the Kennedy bill in order that this relief may be forthcoming. Sincerely yours, G. E. LEIGHTY, Chairman. RAILWAY LABOR EXECUTIVES' ASSOCIATION, Memorandum to Senator Kennedy. The Railway Labor Executives' Association does not believe that the enactment of S. 3616 with the elimination of the revenue features and the scaling down 93396-57-24 of benefit increases from 15 percent to 10 percent presents a substantial threat to the actuarial soundness of our system. The cost of this 10-percent increase added to the present cost figure of 14.13 percent in our opinion will place the total cost of the system at 15.43 percent of payroll. Thus the level cost of our system will be in excess of present income. The Railway Labor Executives' Association has always believed, and most actuaries are in agreement, that a system such as ours with a cost figure within 1 percent of payroll is safety financed. If this assumption is correct, the proposed changes in the Kennedy bill would result in an out-of-balance situation. but one which we do not consider poses an immediate threat. We do not regard this as a dangerous step, especially in view of our belief that the recently enacted social security bill will result in an improvement of our financial picture by reason of the financial interchange between our system and the social security system. Heretofore in the financial interchange between our system and social security we have received no credit for the existence of the disability provisions of the Railroad Retirement Act. In the future in these interchanges we will receive credit for this disability program. In addition to these factors which I have mentioned, it is our firm determination to ask the next Congress, immediately upon its convening, to consider another railroad retirement program which will contain adequate financing for this interim increase which we are now recommending. AMEND RAILROAD RETIREMENT ACT OF 1937 The Railroad Labor Executives' Association has an unbroken record of financial responsibility in its requests to the Congress involving railroad retirement matters. We believe that we have demonstrated a record of good faith in our insistence over the years that this system be adequately financed. We hope that the Congress will have confidence in our judgment when we say that we do not believe that this interim increase will endanger the system and will accept our assurances that we shall cooperate in financing these benefits in the next Congress. C. T. ANDERSON, Assistant to the Chairman. SECTION-BY-SECTION ANALYSIS OF THE COMMITTEE BILL Section 1 (a) of the committee bill amends section 3 (a) of the Railroad Retirement Act of 1937 by changing the formula for computing railroad retirement annuities. The effect of this is to provide an increase in retirement annuities by slightly more than 10 percent. (A maximum spouse's annuity of $54.30 would not be increased at all, and such annuity in the amount of $49.40 or more, but less than $54.30, would be increased by less than 10 percent.) Section 1 (b) of the committee bill amends that portion of section 3 (e) of the Railroad Retirement Act of 1937 which precedes the proviso. The effect of this is to provide an increase in the regular minimum annuity through increasing the computation factor of $4.14, in the first alternative formula, by slightly less than 10 percent thereof to "$4.55," and the computation factor of $69, in the second alternative formula, by exactly 15 percent thereof to $75.90. No change is made, however, in the other alternative formula, of the "monthly compensation," so that annuities computed under this formula would not be increased at all. Also, no amendment is proposed regarding the minimum provision requiring the use of the social security formulas so that benefits to which this provision has applied may not be increased by the full 10 percent or, in some cases, at all. Section 2 (a) of the committee bill increases the maximum and minimum survivor annuity totals (computed in accordance with the regular formulas provided by the Railroad Retirement Act, but not under the minimum provision requiring the use of social security formulas) by exactly 10 percent. Section 2 (b) of the committee bill amends section 5 (1) (10) of the Railroad Retirement Act so as to increase the "basic amount" (which is the factor for computing survivor annuities) by exactly 10 percent, and thereby increasing survivor annuities to the same extent. Section 3 of the committee bill provides a flat increase of 10 percent in pensions (i. e., those taken over from the railroad voluntary pension systems), in joint and survivor annuities (i. e., those under the former option provisions) awarded before the effective date of the bill, and in annuities awarded under the Railroad Retirement Act of 1935. The preceding sections of the bill do not apply to these classes of benefits. Section 4 of the committee bill fixes the dates on which the changes made by the other sections of the bill become effective. The increases in annuities (whether employee, spouse, or survivor) are made effective with respect to all accruals after June 1956 irrespective of whether the annuities have been theretofore or thereafter awarded. The increase in lump-sum survivor benefits is made effective with respect to deaths occurring after June 1956. The increase in pension payments would be deflected in the August 1 payment to correspond with the date on which the first increased annuity payments would be made. CHANGES IN THE EXISTING LAW In compliance with subsection (4) of rule XXIX of the Standing Rules of the Senate, changes in existing law made by the bill are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, existing law in which no change is proposed is shown in roman): SEC. 3. (a) The annuity shall be computed by multiplying an individual's years of service" by the following percentages of his "monthly compensation": [2.76] 3.04 per centum of the first $50, [2.07] 2.28 per centum of the next $100, and [1.38] 1.52 per centum of the next $200. (e) In the case of an individual having a current connection with the railroad industry, the minimum annuity payable shall, before any_reduction pursuant to section 2 (a) 3 [or the last paragraph of section 3 (b)], be whichever of the following is the least: (1) [$4.14] $4.55 multiplied by the number of his years of service, or (2) [$69] $75.90; or (3) his monthly compensation: Provided, however, That if for any entire month in which an annuity accrues and is payable under this Act the annuity to which an employee is entitled under this Act (or would have been entitled except for a reduction pursuant to section 2 (a) 3 or a joint and survivor election), together with his or her spouse's annuity, if any, or the total of survivor annuities under this Act deriving from the same employee, is less than the amount, or the additional amount, which would have been payable to all persons for such month under the Social Security Act (deeming completely and partially insured individuals to be fully and currently insured, respectively, individuals entitled to insurance annuities under sub-sections (a) and (d) of section 5 to have attained age sixty-five, and individuals entitled to insurance annuities under subsection (c) of section 5 on the basis of disability to be less than eighteen years of age, and disregarding any possible deductions under subsections (f) and (g) (2) of section 203 of the Social Security Act) if such employee's service as an employee after December 31, 1936, were included in the term "employment" as defined in that Act and quarters of coverage were determined in accordance with section 5 (1) (4) of this Act, such annuity or annuities, shall be increased proportionately to a total of such amount or such additional amount. SEC. 5. (a) *** ANNUITIES AND LUMP SUMS FOR SURVIVORS (h) MAXIMUM AND MINIMUM ANNUITY TOTALS.-Whenever according to the provisions of this section as to annuities, payable for a month with respect to the death of an employee, the total of annuities is more than [$30] $33 and exceeds either (a) [$160] $176, or (b) an amount equal to two and two-thirds times such employee's basic amount, whichever of such amounts is the lesser, such total of annuities shall, prior to_any_deductions under subsection (i), be reduced to such lesser amount or to [$30] $33, whichever is greater. Whenever such total of annuities is less than [$14] $15.40, such total shall, prior to any deductions under subsection (i) be increased to [$14] $15.40. (1) DEFINITIONS.-For the purposes of this section the term "employee" includes an individual who will have been an "employee", and— (1) * |