sible in large measure for the existing actuarial deficit. S. 3612, as I have pointed out, puts a stop to the future accrual of dual benefit rights and limits future windfall pavments to the amounts for which our employees have already qualified. These payments during the phase-out period will entail costs than costs under existing law, but the price of fulfilling an obligation that the Joint Negotiating Committee recognizes. As drafted, S. 3612 provides for an adjust

sharply less

ment in the financial interchange that would transfer to the social security system, for the limited phaseout period, the cost of paying these windfall dual benefits to those already qualified for them.

But unless

In one sense there is no equitable funding source for this cost, because we are talking about a benefit that is by its nature inequitable. windfall dual benefits are terminated completely, someone will have to pay for the phaseout costs. Insofar as I am aware, no one has seriously suggested a complete and immediate termination of dual benefits. The equities that have been built up by existing dual beneficiaries and dually qualified employees plainly should be

taken into account.

Accordingly, the question becomes one of selection of the most equitable alternative in paying the costs of the windfall benefits for these employees during the phaseout period.

In the view of the Joint Negotiating Committee the answer to this question rests on whether the financing of these costs is considered a federal responsibility or a rail community responsibility. Our judgment based squarely

on the merits is that it is a federal responsibility. Clearly it is not a responsibility of railroad employees since, as the Commission on Railroad Retirement observed, if present railroad employees are charged with those costs, the burden would fall in large measure upon long-term railroad employees and all future employees

who are not advantaged by dual benefits.

These

To charge these costs to the railroads is equally unattractive. windfall dual benefits should never have been permitted to become part of the law.

They have no counterpart in private pension plans; they would surely never have been part of a negotiated plan; they were opposed consistently by the railroads. Notwithstanding general awareness of the seriousness of the problems of the railroad retirement system at the time of appointment of the Commission on Railroad Retirement in 1970, the Congress enacted three subsequent benefit increases without offsets for the increases which the recipients of dual benefits were to receive. These increases cumulate some 46.5%. The last 11% increase alone, the Railroad Retirement Board estimates, has increased the dual benefit cost by some $40 million a year, so that it would appear that these three increases have increased dual benefit costs by some $195 million per year. Finally, the carriers simply cannot afford to finance the phase-out costs of this windfall benefit for which they are not responsible and for which they have secured no compensating advantages to some 5% of taxable payroll for the next 25 years.

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a cost that would amount

In short, dual benefits are the consequence of legislative error. The legislative restrictions on dual benefits that were once a part of the law should never have been repealed. Nor should Congress have permitted increases in Railroad Retirement benefits to occur without providing for offsets in cases where Railroad Retirement annuitants had already received increases through corresponding Social Security increases. It is plainly a federal responsibilitv.

was

Once having recognized that the phase out costs of windfall dual benefits

a federal responsibility, the Joint Negotiating Committee concluded that since the windfall dual benefit is basically a social security benefit and derives from social security service rather than railroad service, it would be reasonable to adjust the financial interchange between the two systems to provide that the social security system rather than the railroad retirement system bear the phaseout costs of windfall dual benefits. S. 3612, as drafted, provides for such an adjustment.

However, at the opening of hearings before the House Committee on Interstate and Foreign Commerce on H. R. 15301, the companion bill to S. 3612, Chairman

Staggers asked that, in view of the objections of the House Ways and Means Committee to assessing further burdens on the financially troubled Social Security system and because of the jurisdictional problems created by this proposal, the parties address themselves to other possible alternatives for funding the phaseout costs of dual benefits.

In responding to that request, we suggested that a reasonable alternative would be general revenue financing of these costs. The Committee ultimately adopted this approach. There is little difference in principle between financing dual benefits through the Social Security system on the one hand or general revenues on the other. Both alternatives recognize that the financing of the cost of protecting this limited group of employees is a federal responsibility. Once this principle is recognized, the choice of the funding mechanism may well turn on other factors. Under the amendment adopted by the House Committee, a level annual appropriation

is authorized from the general treasury beginning with the fiscal year ending June 30, 1976 in an amount sufficient to equal before the end of fiscal year 2000 expenses incurred due to the payment of windfall dual benefits both during the period 19752000 and after this period plus any loss in interest to the Railroad Retirement Account resulting from the payment of such amounts. The Board is directed to reevaluate the yearly amount necessary for this purpose at five year intervals. Board has estimated that appropriations at the level of $285 million a year through the year 2000 will be sufficient to meet these costs.

The

We recognize that this alternate approach eliminates certain Congressional jurisdictional considerations, which should be helpful in view of the urgent need for passage of legislation as promptly as possible. In addition, the question of the financial condition of the Social Security fund is a serious one requiring lengthy analysis and more appropriately considered apart from this bill. For these reasons and in view of the House Committee's decision to adopt this amendment, we urge this Committee to make a similar change.

In addition to amending H. R. 15301 to provide for general revenue financing of windfall dual benefit costs, the House Committee on Interstate and Foreign Commerce made several other changes which deserve some comment.

S. 3612 and H. R. 15301, as introduced, provided for an adjustment in the financial interchange between the railroad retirement and social security systems, in accordance with the recommendations of the Commission on Railroad Retirement, so as to place the financial interchange on a current basis. At present, the interchange is made on a cash rather than an accrual basis, which results in an 18-month lag in transmittal to the railroad retirement system of monies to which it is entitled. The Joint Negotiating Committee could perceive no just basis for a continuance of that situation. While the House Committee expressed no objection to this proposal on the merits nor in fact did representatives of the Social Security Administration that it was persuaded to defer any legislative changes on this matter until "after the Congress has had an opportunity to consider changes in the financing of the social security cash benefits program." (Report of the House Committee on Inter

the Committee's report indicates

state and Foreign Commerce to accompany H. R. 15301, August 29, 1974, p. 25.) In view of the fact that the proposed adjustment does not have any impact on the current actuarial deficiency of the Railroad Retirement Account and the Committee's determination to consider this matter in the near future, we have no objection to the deletion of this provision.

The House Committee also approved an amendment offered by Congressman Moss that would permit the Railroad Retirement Board, rather than the Secretary of the Treasury as current law requires, to determine the manner in which funds of the Railroad Retirement Account will be invested. The amendment also changes the provisions of existing law to permit investments in obligations which are

lawful investments for other trust funds of the United States. The purpose of the amendment is simple and proper: to increase the earnings of the Account; and its effect is estimated in the House Committee Report to amount to approximately onehalf of 1 percent of taxable payroll on a level basis (Report, p. 15).

The investment policies of the Railroad Retirement Account have been

a matter of concern to the industry for a number of years and the subject of several Congressional hearings. At the time the Railroad Retirement Act was originally enacted, the rate of interest paid on investments was set at no less than 3 percent, in effect providing a subsidy to the Account because the then prevailing interest rate was less than 3 percent. However, since that time, particularly since the mid-1950's, interest rates have increased significantly beyond the 3 percent range, yet the investment of Railroad Retirement Account funds have not always brought the maximum returns available. The reason for this failure has been the control exer

cised by the Secretary of the Treasury in his dual capacity not only as Trustee of the Railroad Retirement Account but as Chief Fiscal Officer of the United States. Treasury policy has been to utilize government obligations, although the law permits funds in the Railroad Retirement Account to be invested in securities guaranteed by the government as to principal and interest.

Earnings of the latter, particularly

obligations of the federally sponsored agencies, have been more favorable than the earnings of government issues.

In its report, the Commission on Railroad Retirement noted that the Secretary of the Treasury was handicapped in the performance of his fiscal responsibilities on behalf of the Railroad Retirement Account by his conflicting responsibility for general management of the public debt. On the matter of investments, the Commission recommended that the investment guidelines be broadened and noted particularly that yields to the Railroad Retirement Account could be increased if the opportunity to buy marketable securities was afforded.