SUPPLEMENTARY UNEMPLOYMENT BENEFITS IN FORMS OF TRANSPORTATION COMPETING WITH RAILROADS

According to available reports, supplementary unemployment benefit plans have not yet made any significant entry into nonrailroad interstate transportation with the exception of the Atlantic and gulf coast shipping in the National Maritime Union wage agreement and in some Great Lakes shipping on boats owned by subsidiaries of steel companies. In the latter case, the benefits and financing are similar to the United States Steel plan summarized in the testimony of Mr. Eli Oliver, except that benefit eligibility is limited to a shipping season of about 40 weeks. The National Maritime Union plan covers unlicensed personnel of 115 operators with a total coverage of about 40,000 seamen. It is designed primarily to cover seamen at times when they normally are not eligible for State unemployment compensation.

Separation pay is a related form of fringe benefits that occurs occasionally. However, the only severance pay agreements of importance discovered in other forms of interstate transportation are those for ground crews of two major airlines-American Airlines and Pan American Airways. In the former, severance pay ranges from 2 weeks' pay for employees with 2 years' service up to 8 weeks' pay for those with 8 years or more service. In the latter, severance pay ranges from 2 weeks' pay for employees with 1 or 2 years' service up to 10 weeks' pay after 10 years' service. Other dismissal pay agreements discovered provided 1 or 2 weeks' pay only if the employer failed to give advance notice of furloughs. The information for this statement includes all that was available at the Bureau of Labor Statistics, Maritime Commission, Airlines Personnel Research Conference, and the American Trucking Association. Brief summaries of the two plans mentioned are attached.

SUPPLEMENTAL UNEMPLOYMENT BENEFIT PLAN FOR GREAT LAKES SEAMEN EMPLOYED BY SUBSIDIARIES OF STEEL COMPANIES

Contributions

Regular contribution of 3 cents an hour for each hour worked, or such part as is needed to maintain the fund at "maximum financing." "Maximum financing" is the product of 102 cents per hour multiplied by the total number of contributory hours in the first 12 of 14 months preceding the first day of each month. There is also a provision for additional contributions into a "contingency fund" if and when necessary to provide the benefits of the plan.

Benefits

Weekly benefits are to total 65 percent of normal take-home pay as adjusted by a tax table and based on the average for a 56-hour week in the first 3 of the last 6 months preceding unemployment. Unemployment benefits from State laws are deducted, with a maximum supplement of $35, plus $2 per dependent for not more than 4 dependents. If State benefits are exhausted, the maximum is $66.50 plus dependents' allowance.

Duration of benefits depends on credit units and status of fund. Normally benefits are paid 1 week for each 1% credits.

Eligibility

To be eligible an employee must have at least 2 years' service, and (1) work in 6 of the 12 preceding months, 12 of the preceding 24 months, or 18 of the preceding 36 months, or (2) work at least 1,100 hours in the preceding 12 months. Twenty-six credit units are earned in 40 weeks and a maximum of 52 weeks' credits may be accumulated. Credits are accumulated more rapidly than for steel workers and charged off more rapidly because the shipping season is normally about 40 weeks. For this reason also, benefit payments are limited to the 40-week period beginning with the last Sunday in March.

SUPPLEMENTARY UNEMPLOYMENT BENEFIT PLAN FOR UNLICENSED PERSONNEL COVERED BY NATIONAL MARITIME UNION AGREEMENT

Contributions

This is an industrywide plan covering 115 operators (40,000 seamen) on the Atlantic coast and Gulf of Mexico. Employer contributions are 25 cents per man per day.

Benefits

Weekly benefits are $30, if not eligible for State benefits, and $15, if State benefits are payable. Maximum durations are as follows:

1. Layoff-3 weeks.

2. After recovery from disability which caused employee to leave vessel-5 weeks.

3. If disability prevents reshipment-13 weeks while disabled and 5 weeks after recovery.

4. If care of disabled spouse causes employee to leave vessel or to extend leave of absence-2 weeks of emergency, and 5 weeks total.

5. If legal proceeding prevents reshipment-2 weeks while engaged, and 5 weeks total.

6. Periods of unemployment after vacation time-4 weeks.

Overall maximum is $180 in 365 days, not including disability benefit which may be paid for 13 weeks.

Eligibility

Regularly employed seamen with rights to reship are eligible. A seaman is considered regularly employed if covered by welfare benefits under National Maritime Union welfare program, or in a regular employment pool as determined by bargaining agreements and in covered employment at least 500 days in the 36 months preceding claim, or in covered employment at least 200 days in the 365 days or in the calendar year preceding time of claim.

Senator MORSE. The next witness will be Mr. Lloyd A. Nelson, Associate Director, Civil Accounting and Auditing Division of the General Accounting Office.

I understand Mr. Nelson is accompanied by C. E. Eckert, legislative attorney of the Office of the Comptroller General, and James L. Thompson, Jr., supervisory accountant, Civil Accounting and Auditing Division of the General Accounting Office.

Mr. Nelson, we are very glad to have you with us.

You may proceed in your own way. If you would like to read your prepared statement you may or summarize it and we will insert the full statement in the record.

My main purpose in having you come down was to have the Senator from Colorado, who I think has some questions to ask you, have that privilege and any of the rest of us that may have some, but you proceed in any way you would care to.

Senator ALLOTT. Mr. Chairman, it is not so much-I would like to explain my situation-it is not so much that I have questions to ask of these gentlemen, but rather that in the some 212 years that I have been on this subcommittee, the question has constantly recurred, and Mr. Cheney will remember some very long discourses we have had previously on this, as to whether or not the Government was financing part of this program.

My attention was called to the report of the General Accounting Office of 1953 I believe and 1956 which sets forth some statements in this respect which I believe should be called to the attention of the committee, because while we are considering this whole general thing it seems to me that we should also consider this, and the evidence of the gentlemen should therefore become very pertinent.

My purpose is not so much to question these people as to give them an opportunity to place before the committee the contention and position which they take in this matter.

Senator MORSE. We will be delighted to have them.

Mr. ECKERT. I am Charles Eckert, this is Mr. Nelson, Associate Director of our Civil Accounting Division, and the next gentleman is Mr. Thompson of our audit staff. I just want to say this, Mr. Chair

man: We have no comment to make this morning on the merits of the legislation which is before the committee.

Under the budget and accounting we are required to review the operations of the Railroad Retirement Board and as the agent of the Congress to bring this information to the Congress and to this committee in order that it might be informed.

Senator MORSE. I understand.

Mr. ECKERT. We have some questions here on the soundness of the fund and some question on payments made by the Federal Government into this system.

Mr. Nelson will review our report.

Senator MORSE. Proceed, Mr. Nelson.

STATEMENT OF LLOYD A. NELSON, ASSOCIATE DIRECTOR, CIVIL ACCOUNTING AND AUDITING DIVISION, GENERAL ACCOUNTING OFFICE; ACCOMPANIED BY CHARLES E. ECKERT, LEGISLATIVE ATTORNEY, OFFICE OF THE COMPTROLLER GENERAL; AND JAMES L. THOMPSON, JR., SUPERVISORY ACCOUNTANT, CIVIL ACCOUNTING AND AUDITING DIVISION, GENERAL ACCOUNTING OFFICE

Mr. NELSON. Mr. Chairman, we have prepared a brief statement that gets down in a few moments the story we have. It might be better if we read it.

Senator MORSE. I think so, too.

Mr. NELSON. The Comptroller General released a report to the Congress on April 26, 1957, regarding certain significant financial aspects of the railroad retirement system. The essence of the report is that the Federal Government is providing some measure of financial support to the railroad retirement fund, although it appears it has been the intent to have the railroad retirement system on a self-supporting basis.

Further, the Federal financial support now provided, and heretofore given, to the railroad retirement fund is hidden and not readily disclosed as Federal assistance. It is our view that when the Congress provides financial assistance to any program it should not be buried under the heading of something else.

The General Accounting Office holds the view that the Congress should determine whether or not the railroad retirement fund is to be partially underwritten by a Federal payment. If the Congress were to decide to underwrite the account in some measure, then we believe the amount should be stated in separate appropriations for the specific purpose.

It is generally recognized that the retirement fund has a substantial deficiency and that the level cost is greater than the level income of 1212 percent of taxable payrolls.

There exists a problem on action to be taken by the Congress to bring agreement between costs and income in the railroad retirement fund.

Our report, issued April 26, 1957, discussed the following points:

1. The actuarial condition of the fund, the existing deficiency, and the need to establish general agreement between level costs and in

come.

2. Appropriations to the fund in excessive amounts for the $160 per month free wage credits given to railroad workers while in military service.

3. Reimbursements received for military wage credits by the fund from the old age and survivors insurance trust fund under the financial interchange arrangements, but without any payment by the railroad fund for such reimbursements.

4. Interest rates earned on Federal obligations by the fund over the years have been higher than the average rates paid by the Government on borrowings from the public.

5. The fund earned interest on funds placed to the credit of the account before the related taxes were collected from the carriers and employees.

The railroad fund should have an income designed to be equal to annual level costs of the system. The board has two principal sources of income, taxes on railroad payrolls and interest on investments. The current tax rate is 12.5 percent of taxable payrolls, while the rate needed under current benefit law to keep the deficit from growing is about 15.7 percent of taxable payrolls.

It is evident, therefore, that action is needed to close the gap of 3.2 percent of payrolls even under the current benefit formula. If benefits were to be increased further, then the tax rates would need to be increased more than 3.2 percent of payrolls.

These rates we mention make no provision for amortizing the deficiency which was estimated by the Board at approximately $2.8 billion at December 31, 1953. This deficiency was $12.6 billion before enactment of the 1951 amendments which transferred $9.8 billion of railroad retirement liabilities to the social security system, thus reducing the railroad retirement actuarial deficit to $2.8 billion. Such deficiency has grown further by reason of the 1956 amendments (Public Law 1013, 84th Cong., August 7, 1956).

We recommend that on the premises that the presently existing actuarial deficit of the railroad retirement system should not increase and the system should be maintained on a self-supporting basis, (1) the present tax rate be adjusted upward to a level approximating the present annual level costs of benefits and that (2) any future upward revisions in benefits payable be accompanied by a corresponding upward revision in the tax rates. The Railroad Retirement Board has informed us that it is in agreement with these recommendations, as they testified here this morning.

It is significant to consider that failure to act at this point in time merely postpones action and permits the situation to become more acute and even more difficult to remedy at a future point in time.

Our second point relates to appropriations made to the railroad fund for free credits on presumed wages of $160 per month while in military service. These free wage credits have been provided to railroad workers while in military service from 1939 through 1956. The law authorizes Federal appropriations to the fund on the basis of the railroad payroll tax rates in effect during the period of military service.

The appropriations made to date total $334,429,000 and under current law and more recent estimates by the Board, a request for approximately $90 million additional has been initiated.