Mr. DINGELL. In other words, you have to just take them as the Secretary puts them off the printing press. Mr. HABERMEYER. He can buy them. If he chooses, he can buy them on the open market. Mr. DINGELL. Has he ever done that? Mr. HABERMEYER. Yes, sir. Mr. DINGELL. He has bought open market bonds for you? Mr. HABERMEYER. Yes, sir. The purchase last week was an openmarket purchase. Mr. DINGELL. Let me ask you then some other questions. What are the thoughts of the other two members with regard to this 4 percent on your unemployment tax? Are they in agreement in the actuarial basis on that? Mr. HABERMEYER. I think that probably they better speak for themselves. They will be on the stand later and I would rather not speak for them. I feel they are of the same opinion that I am, that we need the 4 percent in order to adequately protect the benefits which would be payable. Mr. DINGELL. Let me ask you this last question: Is there any divergence among your actuaries as to the need of that 4 percent? Mr. HABERMEYER. None whatsoever. Mr. DINGELL. All your actuaries say that figure is required? The CHAIRMAN. Are there any other questions? Mr. Habermeyer, thank you very much for your appearance here. It is now 12 o'clock. The committee will adjourn until 10 o'clock in the morning, at which time we will have Mr. Harper and Mr. Healy. (Whereupon, at 12 o'clock noon the committee was recessed, to reconvene at 10 a.m. Wednesday, February 4, 1959.) RAILROAD RETIREMENT AND RAILROAD UNEMPLOY MENT INSURANCE LEGISLATION WEDNESDAY, FEBRUARY 4, 1959 HOUSE OF REPRESENTATIVES, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Washingtoan, D.C. The committee met, pursuant to recess, at 10 a.m. in room 1334, New House Office Building, Washington, D.C., Hon. Oren Harris, chairman, presiding. The CHAIRMAN. The committee will come to order. The first witness this morning in a continuation of the hearings on H. R. 1012 and similar and related bills to amend the Railroad Retirement Act of 1937, the Railroad Tax Act, and the Railroad Unemployment Insurance Act, will be Horace W. Harper, a member of the Railroad Retirement Board. Mr. Harper, you may proceed. STATEMENT OF HORACE W. HARPER, MEMBER, RAILROAD RETIREMENT BOARD Mr. HARPER. Mr. Chairman and gentlemen of the committee, in the Board's report on the bill H.R. 1012, I made it clear, I hope, that I am very much in favor of the enactment of this bill. The bill is a good one and it has my unqualified support. Additionally, I have prepared a statement for use today which is available for distribution. The CHAIRMAN. Mr. Clerk, will you pass the statement around to the members of the committee? You may proceed. We have the statement. Mr. HARPER. Mr. Chairman and members of the committee, my name is Horace W. Harper. I am a member of the Railroad Retirement Board. During the hearings on the bill H.R. 1012 yesterday morning, I listened with great interest to the statement made by you, Mr. Chairman, and to the various questions propounded by the members of this committee, and to the various comments made by the witnesses. From these comments and questions it appeared clear to me that there was general agreement as to the need for increasing railroad retirement benefits and the need for providing adequate funds to cover the cost of such benefits as well as to eliminate the present deficit in the railroad retirement system. It is my considered judgment that the 10 percent increase in retirement benefits provided by the bill is sufficiently modest and, therefore, needs no further comment from me. The crucial question, of course, is the proposed increase in tax rates on employers and em ployees from the present 614 percent up to $350 a month to 634 percent up to $400 a month for the years 1959, 1960, and 1961 and to 74 percent beginning in 1962. There is an adidtional provision in the bill for increasing tax rates after 1964 to the extent that the social security tax rates at that time exceed 52 percent. The question is whether the railroad industry can afford this burden. In considering this question, it is only fair to point out that employees in the railroad industry are entitled to the same consideration as are employees in other large industries, such as the steel, automobile, rubber, glass, and similar industries. I am sure you gentlemen are familiar with the existence of supplementary pension plans in these large industries. It is believed that the total cost to employers in some large industries, comprising the social security taxes plus the noncontributory private pension plans, exceeds the present cost to the railroads, and it is my belief that even after the enactment of the bill the cost to the railroads would in general not be above that of the total cost of these large industries. May I interpolate that where the term "noncontributory" is used, that means that the total cost is borne by the employer and no part of it is borne by the employees. There will be testimony before you by persons qualified to discuss the railroads' financial situation, but I satisfy myself with the statement that the railroad employees should be afforded the same advantages as are enjoyed by those in other large industries who receive not only social security benefits but supplemental benefits, the total of which exceed, in some cases, the benefits that railroad employees will receive even after the enactment of this bill. In my statement in the Board's report, on the bill, I stated clearly my position as being in favor of the 10 percent increase in retirement benefits and the increase in the taxes proposed in the bill. Judging from what I heard yesterday morning before this committee, I am satisfied that I am not alone in my position in regard to the bill. I was very glad to hear so much support for the bill, and I am encouraged in the belief that your committee will report the bill favorably. During the discussion yesterday morning, some questions were asked as to why the railroad retirement system is not administered privately by railroad labor and management rather than by the Federal Government. It would take too long to go into the history of the railroad retirement system and the reasons for its separate existence from the social security system. Suffice it to say that the railroad retirement system grew out of the railroads' private pension systems which originated during the last quarter of the last century. In fact, the first Railroad Retirement Act was enacted by Congress in 1934, before the social security system was in existence. The system was subsequently reestablished by agreement between railroad labor and railroad management on a basis which intended and contemplated its permanence. Any attempt now to stop the clock of history and abolish the system and establish it on some other basis would be impossible for the simple and obvious reason that we would be unable to pay off our obligations to those to whom rights have accrued under the present system. I assume you are well aware of the fact that at the time the system was reestablished in 1937 it assumed an obligation to credit toward annuities of service rendered prior to the establishment of the system. No taxes have been paid for this prior service. Furthermore, the accrued liabilities for service rendered by employees to date exceed our reserves by many billions of dollars. Were we to abolish the system now and change it into something else, hundreds of thousands of railroad employees would be made to lose substantial benefit rights for which they and their employers have paid taxes for many years. In considering the ability of the industry to pay unemployment insurance costs, it would perhaps be well to compare the cost of the railroad unemployment insurance system with the average costs of the State unemployment insurance systems. With the advent of the railroad unemployment insurance system in 1939, the rate of contribution was fixed at 3 percent of taxable payroll. Succeeding unforeseen developments had a marked effect upon unemployment insurance costs. World War II reduced unemployment to a minimum, with the result that the 3 percent contribution rate provided sums greatly in excess of requirements. Consequently, there was an accumulation in the unemployment fund of more than $900 million. The labor organizations and the railroads gave their consideration to this condition. In 1948 it was agreed that a sliding scale should be substituted for the then flat rate under which the contribution rate would rise and fall in conformity with the amount in the railroad unemployment insurance account available for the payment of benefits. Legislation was enacted to implement this agreement. Thereafter, and in accordance with the terms of the law, the contribution rate was reduced from the maximum fixed by law of 3 percent of 0.5 percent. The 0.5 rate of contribution, in contrast to the maximum 3 percent as fixed in the act, remained applicable and in effect for the 8-year period 1948 through 1955. In the year 1956, the contribution rate was raised to 1.5 percent of taxable payroll. It is interesting and trustworthy that for the 11-year period 1948-58 the Railroad Unemployment Insurance Act average contribution was 0.9 percent compared with 1.6 percent for the State laws. This was so in spite of the fact that the Railroad Unemployment Act was amended in 1947 to provide sickness benefits, a provision contained in only four of the State systems. In the light of these facts, it does not appear that the railroads have fared badly compared with industry generally in unemployment insurance contributions. I wish to call attention to the 312 percent proposed tax in the bill H.R. 1012. There has been some question as to the adequacy of that There are several schools of thought and I went to different schools from some of the people, I guess, in that light. I personally think that the 312-percent rate will carry it once we get over the hump, but that is only a personal opinion. Our research department estimates that the cost will be 3.75 percent of payroll and I of course would not oppose that. If the committee sees fit to change that figure, I, of course would not oppose that. The CHAIRMAN. Does that conclude your statement, Mr. Harper? Mr. HARPER. Yes, sir. The CHAIRMAN. Mr. Mack, do you have any questions? |