The present law discriminates against these wives who were required to seek employment because of circumstances over which they often had no control. I feel that railroad retirement and social security are separate and distinct types of laws. To deprive persons of benefits earned through their own labor by a combination of the two laws for purposes of limiting total benefits is to me unwarranted and unjustified. I am informed that legislation is pending before this committee which would permit the payment of dual benefits to wives entitled to social security benefits. I sincerely hope that the committee may see fit to approve such legislation so that these individuals will no longer be penalized unnecessarily. Thank you for the opportunity of presenting my views to the committee. Mr. HARRIS. Thank you, Mr. Rhodes. The next witness is our colleague from North Dakota, Mr. Burdick. STATEMENT OF HON. USHER L. BURDICK, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH DAKOTA Mr. BURDICK. Mr. Chairman and members of the committee, a bill, introduced by the chairman of the subcommittee, recommends itself to me, and having become convinced of the merits of H. R. 9065 introduced by Congressman Harris, I also introduced a companion measure, H. R. 9256. These bills include three main proposals which are stated here briefly: 1. These bills provide for a much needed increase of 15 percent in benefits for thousands of pensioners, widows and other beneficiaries under the Railroad Retirement Act. 2. In order to pay for these increased benefits and maintain the railroad retirement fund on a sound basis, both of these bills would impose an additional 1 percent tax on the railroads and their employees. 3. The tax on employees would be immediately offset by exempting the employee's tax from gross wages in the computation of their income tax. Workers in Canada and Great Britain presently have such an exemption benefit. Under this amendment, most railway employees would ultimately be taxed less than they are now under the 614 percent tax, or the proposed tax of 714 percent under these bills. H. R. 9065, the original bill, and the many companion measures which have been introduced, including my bill, H. R. 9256, are finding widespread support both in and out of Congress. I hope these bills will be favorably considered and reported by this committee and passed by the House and Senate promptly and enacted into law. Mr. HARRIS. Thank you, Mr. Burdick. The next witness is the Honorable Frank Thompson, Jr., of New Jersey. STATEMENT OF HON. FRANK THOMPSON, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY Mr. THOMPSON. Mr. Chairman and Members of the committee, I have received numerous letters from retired railroad workers and members of their families residing in my Congressional District stat 75199-5611 ing their need for increased benefits under the Railroad Retirement Act. I have studied H. R. 9065, a bill introduced by the Chairman of this Subcommittee, Congressman Oren Harris, and find that it contains provisions which would answer the needs of my constituents for greater benefits, and, in addition, would provide the ways and means to collect additional taxes without imposing a burden upon the active railroad workers. I have, therefore, introduced H. R. 9663 as a companion measure. The provisions of these bills would (1) increase the benefits by 15 percent for thousands of pensioners, widows and other beneficiaries under the Railroad Retirement Act; (2) impose an additional 1 percent tax on both the railroads and railroad employees to provide the necessary funds for these increased benefits in order to keep the railroad retirement fund on an actuarily sound basis; and (3) offset the increased taxation of employees by making their taxes paid to the railroad retirement fund exempt from Federal income tax. The railroads at the present time enjoy this exemption. This legislation has the support of all the standard railway labor organizations. I sincerely hope that these bills will be favorably considered and reported out by this committee and ultimately passed in both Houses of Congress and enacted into law. Mr. HARRIS. We thank you for your testimony, Mr. Thompson. The next witness is our colleague from Wisconsin, Mr. Zablocki. STATEMENT OF HON. CLEMENT J. ZABLOCKI, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN Mr. ZABLOCKI. Mr. Chairman, I am delighted to have the opportunity of presenting a statement in support of H. R. 9628, which I introduced to provide for an increase in railroad-retirement benefits, and on behalf of similar measures introduced by my distinguished colleagues. The purpose of the legislation before your committee is simple, but of vital importance to thousands of retired railroad workers, their dependents, and survivors. H. R. 9628 proposes a badly needed 15 percent increase in railroad-retirement benefits. This increase would be granted to retired pensioners, widows, and other beneficiaries with minor exceptions. I am certain that it is not necessary for me to review the reasons which have prompted the introduction of this legislation. I would only like to state that these proposed improvements have the endorsement of the majority of organizations of railroad employees, and of other persons familiar with the benefits presently payable under the Railroad Retirement Act. At this point I would like to note that H. R. 9628-while increasing retirement benefits would maintain the actuarial soundness of the railroad-retirement fund. To pay for the increased benefits and keep the railroad-retirement fund in sound financial condition, the bill would raise the additional funds in the amount of 2 percent of covered payrolls. Both the employee and the employer will pay an additional 1 percent, making their contributions 714 percent on the first $350 of monthly wages instead of 614 percent. The increased tax on railroad workers would be immediately offset under another provision of this legislation which exempts the employees' contributions from gross wages in the computation of their income tax. This exemption is considered fair and equitable since the employers already receive credit on their corporate taxes for the amounts paid into the retirement fund. Mr. Chairman, it is my hope that your committee will take prompt and favorable action on the legislation before you. Your approval of the proposal will be sincerely appreciated by the thousands of railroad workers and their families. Mr. HARRIS. Thank you, Mr. Zablocki. The next witness will be Col. Raymond J. Kelly, who is Chairman of the Railroad Retirement Board. We also have other members of the Board present. We have Mr. Horace W. Harper and Mr. Thomas M. Healy, members of the Board here. I assume, Colonel, in view of the report that I have received over the weekend, the three of you will probably have statements to make. STATEMENT OF RAYMOND J. KELLY, CHAIRMAN OF THE RAILROAD RETIREMENT BOARD Mr. KELLY. That is correct, sir. Mr. HARRIS. Very well, you may proceed. Mr. HARRIS. Colonel Kelly, I fully realize you obviously have a difficult assignment this morning if you are going to report the views of the Board on all of the bills that are pending before this committee. I would not personally, and I am sure the other members of the committee would not expect you to take the time to comment on all of the bills because I assume now that there are about 120 or 130 bills pending before the committee. I fully realize that many of them are similar. I know that we have here on this bill, H. R. 9065, some 69 cosponsors and on other bills there are many cosponsors. But there are a number of other bills, of course, that your Board has reported on, and I have already included those reports in the record. But we would like to have you report on any major items which this committee has to consider. Mr. KELLY. Mr. Chairman and gentlemen, I have an 11-page statement together with a list of all of the bills which have been introduced in the 84th Congress to amend the Railroad Retirement Act, and which have been referred to us for reports. Now copies of this list have been distributed to the members of this committee and, unless the committee wishes otherwise, I will try to summarize briefly the statements in a very few sentences. Mr. HARRIS. Very well. We would be glad to have you do that. I notice that you have with your statement a summary of the provisions of all the railroad-retirement bills pending before the committee. Without objection, it will be included in the record with your statement, and all of your statement may be included in the record. (The statements referred to are as follows:) STATEMENT OF RAYMOND J. KELLY, CHAIRMAN OF THE RAILROAD RETIREMENT BOARD, ON RAILROAD RETIREMENT LEGISLATION PENDING BEFORE THE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE Mr. Chairman and gentlemen of the committee, my name is Raymond J. Kelly; I am Chairman of the Railroad Retirement Board. I appear here to present the views of the Railroad Retirement Board on bills to amend the Railroad Retirement Act introduced in the 84th Congress, and now pending before this committee. I am excluding from this present statement H. R. 9065, 9066, 9068, and identical bills. On these, the three members of the Board have differing views which will be presented separately. On 1 or 2 other bills, the Board has not yet had an opportunity to act. I have with me a list of all bills, which shows also the dates on which the Board filed a report on each where reports had been filed when the list was prepared. Copies of this list have been distributed to the committee. You will note that some of the cost figures given are based on the sixth actuarial valuation and some on the fifth. The sixth actuarial valuation has been completed only very recently and there has not been time to recalculate costs on all of these bills on the basis of that valuation. We have done the best we could and supplied new estimates so far as possible. The effect of the sixth valuation would be generally to increase the costs which were estimated according to the fifth valuation to a relatively small degree. I shall not take time this morning to discuss any individual bill specifically. The members of the Board and members of the staff who are present will be very glad to answer any questions that you may have about any of these bills. My presentation this morning is very similar to the one I made before your committee on June 2, 1954, when a similar large group of bills was under consideration. I should like to make some general observations and then to discuss certain major proposals which together will cover most of the important items of all the bills. My first general comment is that it has been the general policy of the Board not to approve any bill which incurs additional cost without providing additional revenue to offset this cost. In isolated instances where the Board has departed from this policy, it has only been because the Board believed that the financial soundness of the system would not be endangered and because there were other overriding reasons for approval. My next general comment relates to the financing of the railroad-retirement system. The financing of this system is on a level tax rate basis. Under such a method, tax income is larger than the benefit disbursement during the early years of operation. The excess is accumulated in a reserve fund which permits the retention of the level tax rate even after disbursements begin to exceed the tax income. The excess of outgo over tax income is then made up by the interest earned on the reserve. Such would be the situation if the level tax rate were sufficient to finance the system indefinitely on a reserve basis. However, when the level tax rate is smaller than what the system actually requires, the growth of the reserve is impaired and a point is reached when the then current tax income plus the interest on the reserves becomes smaller than expenditures. From that point on, the reserve begins to decline until it is totally exhausted, provided, of course, that no remedial action is taken before then. The railroad-retirement system has already reached a point where benefit disbursements are very close to the tax income. In the very near future, benefit disbursements are expected to begin to exceed the tax income at the present combined rate of 122 percent of taxable payroll. However, it will still take a number of years before the interest on the reserves will become less than the excess of outgo over the tax income. Because of this, and also because of expected short-term gains from the financial interchange, the railroad-retirement account will continue to grow for a number of years. This growth will be only temporary because, according to the sixth actuarial valuation recently completed, the railroad-retirement system is under present law operating at an actuarial deficiency of 1.63 percent of payroll. This deficiency has been determined after considering the effect of the balance now in the account and after allowing for the expected gains from the financial interchange with the social-security system. In view of the rather substantial excess of level costs over the existing tax rate, the Board does not approve further additions to benefits without provision for additional revenues to finance them. If any of the various proposals in the bills we are considering, which are generally so extensive in their nature as to add very materially to the cost, were adopted, the reserve would begin to decline at a vastly accelerated rate. For example, one of the bills would cost about $235 million a year or 4.7 percent of the taxable payroll of both employers and employees. This would result in a situation where the balance in the railroad-retirement account would begin to decrease almost immediately. When the account becomes totally exhausted, it would become necessary either to make a very substantial increase in tax rates or a very substantial reduction in benefits or find some other source of income. The Congress and the Board and the railroad industry, as represented by railroad management and railroad labor, have consistently agreed that the tax rate should be an actuarially sufficient level rate which would not require increases in the future. The enactment of any of the bills now pending before your committee would necessitate larger increases in the tax rates and at an earlier date. The retirement account at the present time has a balance of over $3.5 billion. In the light of what I have said, however, it is obvious that it is much less than what the system should now have in order to enable it to operate at a 12.5 percent tax rate indefinitely. The balance in the account can, therefore, not be looked upon as a surplus to be used for additional benefits. Analysis of the various bills shows that the major proposals fall into several well-defined categories. To simplify the discussion, I shall present the principal categories and discuss each of them. To some extent there is overlapping between them. That is, some bills contain proposals which fall in two or more of the categories. However, my discussion will cover the major points in all of the bills. The four main categories of bills are: 1. Those which provide for an earlier date of eligibility for retirement. For example, some of them provide for retirement at age 60 with 30 years of service, some with 35 years of service regardless of age, and so on. Some of the bills in this group combine with such provisions a provision for an additional minimum, such as 50 percent of the average monthly compensation during the 5 years of highest earnings. 2. Those which would remove some or all of the remaining restrictions on dual benefits. One group would permit wives to receive full annuities under the Railroad Retirement Act without regard to any social-security benefits which they may be receiving at the same time. The second group would permit simultaneous receipt of survivor benefits under both the Railroad Retirement Act and the Social Security Act on the basis of the same individual's earnings, even dual survivorship annuities under the Railroad Retirement Act on the basis of more than one wage record. 3. Those which provide flat increases in benefits. 4. Two bills which would remove the "last person" clause of the Railroad Retirement Act. I shall take these categories up in order. 1. At numerous times over the years proposals have been made to Congress to reduce the age of eligibility for a full retirement annuity, such as to age 60 with 30 years of service. The objections of the Board to all such proposals are based upon the same considerations. First, they would be very expensive. For example, an amendment which would permit retirement at age 60 upon completion of 30 years of service or upon 35 years of service regardless of age, coupled with a provision for a different method of computing earnings for prior service would cost about $115 million a year. Consequently, it is essential to ask ourselves, Is this amendment desirable? Is there any reason why we should permit full retirement at age 60, after 30 years of service, or even earlier after 35 years' service when the employee is able bodied and capable of further service? The law now permits full retirement at any age of a regular employee who has only 20 years of service, or at age 60 if he has 10 years of service, if he is disabled and cannot work in his regular occupation. Again, the law permits a man to retire on a full annuity at any age if he has only 10 years of service, if he is totally and permanently disabled for all regular employment. With all this existing protection for the man who is no longer able to work, such an amendment would it seems, serve no useful purpose at least insofar as the railroad-retirement system, a social-insurance system, is concerned. Under this type of proposal a man could leave the railroad industry with full benefits at a relatively young age and then go out and get another job. If that job is under social-security coverage, as would usually be the case, he could then build up credits for a socialsecurity benefit under the new start provisions. It is the purpose of the rail |