section by section I do want to leave enough time to Mr. Oliver so he can present some very important phases of the bill; and I will consequently skip those provisions of the bill that are merely technical and conforming.

Senator MORSE. A slight interruption. You are dealing with a matter of procedure. Let me say that the Senator from Kentucky, Mr. Cooper, has agreed to continue these hearings this afternoon and we will continue with the witnesses as scheduled, taking them in order; and after you finish we will hear Mr. Oliver, and then the next witness will be Mr. Fain, and the witness following Mr. Fain will be Mr. Stack.

I, unfortunately, cannot be here this afternoon. I want the Senator from Kentucky to know that I appreciate very much his presiding over these hearings in my absence.

Mr. SCHOENE. The next section of the bill I want to discuss is section 1 (e) appearing on page 3. That is the next substantive provision. That again is a provision to eliminate an inequity between our present system and the Social Security Act as amended last year. It does the same thing with respect to spouses as section 1 (a) does with respect to women employees. That is, permit them to elect to receive a reduced annuity at age 62, equivalent in value to what their annuity would be at age 65. The Social Security Act now permits such elections and we propose to make the same option available to spouses under the Railroad Retirement Act.

Senator ALLOTT. Mr. Schoene, in the course of the year I have received many, many letters from women who felt that our actions of last year did not take care of them and left them out in the cold. In fact, I think I have many dozen letters to that effect in my office. I would like to have you make a statement, if you will, as to what the situation was and why those people were left out.

Mr. SCHOENE. When you are speaking of women you are dealing with two categories: either spouses or survivors.

Senator ALLOTT. They are mostly in the survivor class.

Mr. SCHOENE. Yes. The reason they were left out is that in the emergency action taken when Congress was about to adjourn, only a 10 percent increase in the survivor formula was provided, which was inadequate to bring the Railroad Retirement Act survivor formula above the social security formula and since we already had a minimum provision that they would not receive less than they would have if the railroad employment had been covered by social security, they received either no increase or less than even the 10 percent increase. I think their complaints are entirely justified and we are proposing in this bill to remedy that bill by increasing the minimum to 110 percent of the social security formula so that even if they continue to be under the social security minimum, they will receive a 10 percent increase under this bill.

Senator ALLOTT. Just so the record may be complete, last year when we had hearings and there were numerous controversial items, as you remember, with respect to the legislation then pending, and it appeared that we were getting, to some extent, an emergency situation, I think you will agree that at that time the committee, including myself, relied to a great extent upon the representations of the railroad people as to what should be done to tide this over for another year until we could adequately finance it. Is that a fair statement?

Mr. SCHOENE. I think that is a fair statement. It was entirely emergency action.

What could be done was very considerably controlled by the fact that no one wanted to go too far into the red, so far as the Railroad Retirement Act is concerned. And there is no question that the increase in benefits was inadequate and since there was no provision made for dealing either with the pre-existing deficit or financing the increased benefits, it was clearly inadequate on the financial side and that is, both of those things are things we are here to correct now. Senator ALLOTT. Thank you.

Senator MORSE. They would be corrected by this bill, S. 1313, would they not?

Mr. SCHOENE. Yes, sir.

Section 2 (a) of the bill revises the formula for computing retirement annuities by increasing each of the factors by 10 percent and will result in an increase in all of the annuities by the 10 percent.

It also takes into account the fact that the creditable compensation will rise to $400 per month beginning July 1, 1957. That is the significance of the change of $200 to $250 appearing on line 1, page 4 of the bill. That refers to the excess over $150 which is now $200, bringing a total of $350 that is changed to $250 in excess of $150, making it a maximum total creditable compensation of $400 per month.

Section 2 (b) also is related exclusively to the change in creditable compensation from $350 per month to $400 per month.

Section 3 adjusts the minimum benefit, minimum retirement benefit provisions.

Senator ALLOTT. May I interrupt you and inquire about the situation there? Of course, the bill which we have before us has only the proposed amendments, so without having the original act in front of me and having time to compare it and study it, I have to depend on others for this information.

Now, do I understand that that means a man and his wife would receive up to $500 a month?

Mr. SCHOENE. No. When I refer to creditable compensation, I am referring to the earnings while employed which are used as a basis for computing the annuity.

In other words, at the present time, if an individual earns $500 a month, he is credited with only $350 of that in the computation of his annuity.

Senator ALLOTT. Raising that amount

Mr. SCHOENE. This is raising that amount both for credit purposes and, as I will explain later, for tax purposes, to $400.

Senator ALLOTT. Now, may I ask this: If you or any one of your staff has or is going to place in the record any comparison of these amounts related to other industries or to social security

Mr. SCHOENE. The present amount of $350 is the same amount as is credited under social security today except that under social security it is done on an annual average basis of $4,200 a year instead of $350 per month that we have in the act.

I do not know of any specific bills pending but I have been informed that there is consideration being given to increasing that $4,200 presently in the Social Security Act to $4,800.

Senator MORSE. May I interrupt at the moment?

My administrative assistant has just called me from the hearing on an emergency matter. I want to make an announcement.

My colleague, Mr. Thurmond, has arrived, and to demonstrate complete nonpartisanship in the hearing, he joins with me in inviting the former chairman of this subcommittee, the Senator from Kentucky, to preside at the hearings for the rest of the day.

Senator COOPER. I appreciate your nonpartisan compliments.

Senator ALLOTT. One other question on that. What I am getting at, I think, is something that is very obvious and I do not want to be devious about it. I want to come straight to it, which is this:

Have you drawn any comparative charts or graphs which would indicate how much this throws, would throw railroad retirement out of line, both as to benefits and as to costs, with respect to social security and with respect to other existing industrial or other plans of this nature?

Mr. SCHOENE. I was coming to that a little later, Senator, but I will be glad to deal with it right now. I would just as soon deal with it at this point.

In making comparisons between the railroad industry and other industries as to the level of the retirement benefits, and the costs of the retirement benefits program, consideration has to be given to a number of factors that are very complicated and the information available on it is not nearly as adequate as I would like to see it. Primarily, consideration must be given to the fact that the social security system provides a general social insurance program whose purposes are very largely broad social purposes as distinguished from the purposes of staff pension plans. Both in its inception and its development, the social security system has been designed to keep indigents off the welfare rolls, to put it bluntly, and without too much regard to length of service or amounts of earnings while employed.

The fact that it is that kind of a system has had its effects both on the retirement system and on the development of staff pension plans in other industries. The railroad retirement system started out as being primarily what we would call a staff pension plan. It was designed to replace the pension plans that had been in effect in the industry on a voluntary basis for many years and which were closely related to level of earnings and length of service while in the industry.

In order not to omit railroad employees from the benefits of the social insurance plan, developed in the Social Security Act, we have felt that we should recommend to Congress from time to time and Congress has agreed with us from time to time, in providing through the railroad retirement system the same kind of social insurance plan that the Social Security Act provides in other industries. We have it in various features, particularly in our survivor-benefit program, in our minimum provisions that the benefits will never be less than they would be if the railroad employment had been under social security but we have continued to carry in the railroad retirement system what is essentially a staff pension plan superimposed on a social insurance plan.

In other industries supplemental pension plans have been very widely developed by reason of collective bargaining. They are generally correlated to social security so that the supplemental pensions

that are paid are in addition to the social-security benefit that is paid. Those plans differ widely and they are by no means universal. But in the basic industries, the large industries, comparable to the railroad industry, they have become virtually universal. Consequently-let me add this also at this point-that predominantly those supplemental pension plans are noncontributory. In other words, the employer pays the entire cost so that from a cost standpoint the employees covered by those supplemental pension plans are relatively in much better position than railroad employees because they contribute only their 50 percent to the basic social-security benefit and contribute nothing to the supplemental plan.

On the other hand, the employers, with respect to those supplements are relatively worse off than the employers in the railroad industry because the employers in the railroad industry contribute only one-half of the entire cost of the basic social-insurance benefit, plus the staff pension benefit.

Now the most complete information available on the specific subject of comparing the railroad retirement benefits and the costs of the railroad retirement system with the combined social security and supplemental pension systems in other industries, is a study made by the Chief Actuary of the Social Security Administration which was published in the Labor Law Journal for May of 1956.

Senator ALLOTT. What law journal?

Mr. SCHOENE. Labor Law Journal, a publication of Commerce Clearing House. I think it is an objective and unbiased study, certainly it is in no way slanted or biased toward railroad labor. I have known the author for a good many years and think he is a very capable man, but no particular friend of railroad labor. That article shows, as of approximately a year ago, that the benefit payments resulting from combined social security and supplemental payments in other major industries compare very favorably with those provided under the Railroad Retirement Act.

For illustrative purposes, Mr. Myers took a typical case of a worker who retires at age 65 after 30 years of service with average earnings of $250 a month.

Senator ALLOTT. In railroad work?

Mr. SCHOENE. He takes that as a typical case for comparison between railroad and these various other plans. Such an individual under the Railroad Retirement Act would get an annuity of $144.90 as shown by the table appearing at page 272 of the Labor Law Journal and he compares that with the plans in effect in the Aluminum Company of America, the Amalgamated Clothing Workers, American Telephone & Telegraph Co. and let me count them-25 other plans in effect in major industries. Many of the benefits under those plans come very close to the $144.90. Very few of them fall much below. Many of them are above the railroad figure and they range up to as high as $257.25 in the case of the Grumman Aircraft Engineering Corp. The supplemental plans are identified as contributory and noncontributory. They are predominantly noncontributory. In other words, the employer pays the entire cost.

Now, I think that the information contained in that article is of sufficient interest that I would like to request, Mr. Chairman, that it be copied into the record and duplicated.

Senator ALLOTT. Mr. Chairman, I was just going to request that myself and I would request that it be done. I think the article might be of great interest on this general subject and have it included in the record.

Senator COOPER (presiding pro tempore). Without objection

Mr. SCHOENE. I don't have enough copies to distribute it around. That is why I ask that it be reproduced. I will furnish the reporter a copy.

Senator COOPER. Without objection it will be included.

(The article referred to follows:)

[Reprinted from the May 1956 issue of Labor Law Journal, published and copyrighted 1956 by Commerce Clearing House, Inc., Chicago 30, Ill. All rights reserved]

FINANCIAL IMPACT OF PENSION COSTS ON THE RAILROAD INDUSTRY

(By Robert J. Myers)

The belief that the railroad industry has a tax burden for pensions as compared to other industries is not the case. However, this was true 15 years ago, as an examination of the tax and financing basis and philosophy of the railroad retirement system shows. Proposed legislation would raise benefits 15 percent based on increased employer and Federal-income-tax-exempted worker contributions to benefits.

The approximately 14 million workers in the railroad industry receive retirement and survivor benefit coverage under the railroad retirement system. All other employees in private industry obtain such basic protection under the old-age and survivors insurance program of the Social Security Act (hereafter referred to as OASI). The railroad retirement system may be said to be a combination of an industrywide pension plan similar to private plans in other industries and a social insurance system, since it contains elements of both. In addition to the basic compulsory governmental programs, private pension plans have been established by many employers in general industry and, also, in some instances by railroad employers.1

The railroad retirement program provides considerably higher benefits than OASI. Accordingly righer costs and thus higher tax, or contribution, rates are involved. The primary purpose of this article is to examine the general financial burden for pensions borne by the railroad industry, both historically and prospectively, as compared with that of other industries (including the OASI tax cost). In many instances, the costs for private pension plans supplementing OASI are borne entirely by the employer. Throughout the term "pensions" refers both to the appropriate governmental program and to supplementary private plans. In order to make such analysis, the history and philosophical basis of the railroad retirement program must first be considered." Also, the development of the private supplementary plans of other large industries and employers will be briefly described.

It is not clear whether the entire pension cost in a noncontributory plan is carried by the employer. It may be argued that in the absence of pensions, the unions would have asked for more wages so that actually where noncontributory pension plans exist, the employee indirectly pays part of the pension cost. Railroad wage negotiations currently do not involve pensions. Thus, the direct comparison of retirement costs as between railroad and nonrailroad employers may be open to certain questions and subject to limitations. This matter, however, is to a considerable extent "circular" and can never be definitely pinned down, just as the dilemma of which came first, the chicken or the egg. Accordingly, this paper will examine the direct, visible facts and will not attempt to hazard any opinions as to what might have happened under other circumstances.

1 For a detailed analysis of these plans see Railroad Pension Plans Supplementary to the Railroad Retirement System (Railroad Retirement Board, 1949).

2 For a very thorough analysis of the backgrounds of the railroad retirement system, see Retirement Policies and the Railroad Retirement System (report of the Joint Committee on Railroad Retirement Legislation, S. Repte. 6, 83d Cong., (1st sess., January 9, 1953).