Mr. MACK. So, if this legislation brings in more money than it has paid out, it is not designed for that purpose.

Mr. HARPER. It was not designed for that, but we would not object to that, of course. I was very happy to find that the costs were a little less than the revenue from the additional 2 percent of tax.

Mr. MACK. The purpose of the bill was to provide the additional benefits rather than any additional income as far as the fund is concerned.

Mr. HARPER. Yes, sir.

Mr. MACK. Thank you, Mr. Harper.

Mr. HARRIS. Mr. Hale?

Mr. HALE. If I understood you correctly, Mr. Harper, you said you were in favor of this bill with section 5, and you would not be in favor of it without section 5?

Mr. HARPER. That is right.

Mr. HALE. So that a large part of the benefit which would accrue from this bill would come from the taxpayer generally, through remission of income tax? In other words, the pensioner would be getting the money, $300 million of it, which would come out of the Government every year?

Mr. HARPER. No. That would be just the taxable portion. That would just be the wages upon which income taxes were assessed. It would be about 20 percent of that, or $60 million a year, at a maximum, Mr. Hale.

Mr. HALE. I am glad to be corrected. I misunderstood you.

Thank you.

Mr. HARRIS. Mr. Rogers?

Mr. ROGERS. Mr. Harper, on that same question Mr. Hale was asking, do I understand that the net revenue lost to the Government under section 5 in the bill would be $60 million?

Mr. HARPER. At a maximum. That is just a round figure that I did in my head here. There will be so many variations that I am sure the $60 million maximum which I referred to will not be achieved. It will be much less than that.

Mr. ROGERS. That is all.
Mr. HARRIS. Mr. Dolliver?

Thank you.

Mr. DOLLIVER. In your testimony, Mr. Harper, you refer to the fact that a good many of the elderly railroad employees desire to stay on because of one reason, perhaps, the smallness of their retirement fund. If I understood you correctly, you expressed the opinion that this additional amount of 15 percent would not change that situation. Is that correct?

Mr. HARPER. That is correct, yes, sir.

Mr. DOLLIVER. Does it follow that you feel there should be a compulsory retirement age for the railroad?

Mr. HARPER. No, sir. I do not.

Mr. DOLLIVER. You do not believe in that?

Mr. HARPER. No, sir, I do not.

Mr. DOLLIVER. That has been suggested, I think.

Mr. HARPER. In a few isolated cases, agreements have been made between organizations and railroads providing for that. But personally-I am not speaking for railroad people generally or for the organizations-personally, I would oppose it seriously.

Mr. DOLLIVER. You say that certain railroads do have such regulations requiring retirement at certain ages, is that true?

Mr. HARPER. Just with certain crafts. They make an agreement with a craft that employees will retire at age 70. But, as I said, those agreements are isolated and they are very, very few in number. At the risk of making a guess, I would say that, generally speaking, the employees are not for that.

Mr. DOLLIVER. Assume that a retirement age were fixed by law, what effect, if any, would that have upon the solvency of the funds, of which you are trustee?

Mr. HARPER. Of course that would depend, Mr. Dolliver, on the age. At 70, I cannot even compute it here, I cannot even estimate it. But the average retirement age, as I said earlier, is about 68. So if the average is 68, many are below and many are above that. It would have some effect, but how much or how little, I could not say.

Mr. DOLLIVER. If the average retirement age is 68, and compulsory were put on at 70, it probably would not have very much effect. That is outside the scope of this bill. I recognize that. I wanted your opinion on it.

Thank you, Mr. Chairman, and that is all.

Mr. HARRIS. Mr. Flynt?

Mr. FLYNT. No questions.
Mr. HARRIS. Mr. Beamer?
Mr. BEAMER. No questions.
Mr. HARRIS. Mr. Springer?
Mr. SPRINGER. No questions.

Mr. HARRIS. I have 1 or 2 questions. How many employees are in the railroad industry now?

Mr. HARPER. In round figures, 1,100,000.

Mr. HARRIS. What is the amount in the railroad retirement account? Mr. HARPER. $3.5 billion. That is in round figures again.

Mr. HARRIS. What did you mean a moment ago when you said this is the same principle which the railroad industry has?

Mr. HARPER. I am thinking about tax relief, Mr. Chairman.
Mr. HARRIS. That is what I referred to.

Mr. HARPER. The railroads now pay 6.25 into this fund. Then when tax-paying time comes, they charge that off as an operating expense and get tax relief. They only have to pay 52 percent. They have to pay a 52-percent tax on that. So, consequently, that reduces their 6.25 contribution down to about 3.10.

Mr. HARRIS. 3.10.

Mr. HARPER. Instead of 6.25.

Mr. HARRIS. Thank you very much. We are very glad to have had your statement.

Mr. Thomas M. Healy, also a member of the Railroad Retirement Board.

STATEMENT OF THOMAS M. HEALY, MEMBER, RAILROAD RETIREMENT BOARD

Mr. HEALY. Thank you very much, Mr. Chairman.

I am very grateful for this opportunity to appear before you gentlemen in connection with these bills.

Mr. Chairman, you have a copy of my statement?

Mr. HARRIS. Yes, and it is in the record.

Mr. HEALY. I have been on this job about 6 months and have received quite a liberal education. There is a lot more for me to learn. However, like Mr. Harper, most of my life has been spent in the operating departments. When I needed locomotives I went to the mechanical department. When I wanted to know the capacity of a yard or the capacity of a division to handle traffic, I went to people who knew. When I wanted to know the capacity of a port, I went to the steamship people and the port authorities. When these bills came up, I went to the best source of information available to me. That is the director of research and our chief actuary. They had just previously completed the sixth triannual valuation, which showed that we had a current deficiency of $86 million per year.

The three members of the Board, very much concerned about it, issued a joint statement cautioning, warning, if you please, all concerned as to that deficiency as compared with our long-time trust. Our chief actuary and director of research, after their analysis of this bill, stated that it would increase that deficiency from $86 million to $102 million per year.

My confidence in our chief actuary and the director of research was thoroughly borne out by an actuarial committee composed of outstanding leaders in their field, representing the United States Department of Treasury, the railroad employers, and railroad labor.

There was some question as to the conservatism of these actuaries. Our own actuary pointed out the fact that his check or report was on the underside. It was understated. These three distinguished gentlemen said the same thing. There is no question here.

Incidentally, I would like to remind you, too, that Mr. Harper, my good friend and colleague, expressed his personal, implicit confidence in our actuary. Mr. Harper and I disagree on this actuarial figure of 0.33 percent for accelerated retirement. Gentlemen, I can only call your attention to the number of bills you have before you now requesting enactment of amendments to make the pension or retirement system applicable after 30 years of service at 60 years or applicable after 35 years of service, at any age.

I wish to call attention of you gentlemen to the fact that you now have before you a number of bills proposing to reduce the retirement age from 65 to 60.

Mr. DOLLIVER. That is not the present bill that we are concerned with.

Mr. HEALEY. Well, all these bills are considered together as I understand it. We are opposed to that bill generally, but I am just calling your attention to that item.

Mr. DOLLIVER. Thank you.

Mr. HEALY. I have listened, Mr. Chairman, to the questions and answers at our previous hearings and today, and have absolute confidence in you gentlemen. I just would like to respectfully recommend that in the consideration of these proposed bills, that you recall this current deficiency of $86 million a year, certified to by our own actuary, and approved by the actuarial committee.

I thank you, sir.

Mr. HARRIS. Thank you very much, Mr. Healy.
Are there any questions?

Mr. Dolliver?

Mr. DOLLIVER. I want to develop this point that you made a moment ago a little bit. You referred to some bills which provided for voluntary retirement after 35 years?

Mr. HEALY. Yes, sir.

Mr. DOLLIVER. Or at age 60?

Mr. HEALY. At age 60, yes, sir.

Mr. DOLLIVER. If I understood you correctly, you expressed opposition to those measures, is that right?

Mr. HEALY. Yes, sir; we are unanimous on that.

Mr. DOLLIVER. The Board is unanimous on that?

Mr. HEALY. Yes, sir.

Mr. DOLLIVER. Thank you very much, Mr. Chairman.

Mr. HARRIS. Thank you very much, Mr. Healy. We are very glad to have your statement.

I note that certain officers of the Board are here: Mr. Frank J. McKenna, chief executive officer. Does Mr. McKenna or any other member of your staff wish to make any further comment?

Mr. MCKENNA. We are available to the committee to answer any technical questions of the committee, Mr. Chairman. We have no statement.

Mr. HARRIS. Thank you. I notice Mr. David B. Schreiber is here, too, the associate general counsel.

Mr. SCHREIBER. I have no statement, but I would be glad to answer questions, if I may.

Mr. HARRIS. Let me just ask you one question for a brief answer.
Mr. SCHREIBER. All right, sir.

Mr. HARRIS. When the social-security amendments increased benefits in 1954, I believe it was, did the law increase the contribution made by the employees?

Mr. SCHREIBER. I believe they did.

Mr. HARRIS. How much?

Mr. SCHREIBER. I do not recall that. I can check that and let you know, but I believe it did.

Mr. HARRIS. Was it to become effective immediately?

Mr. SCHREIBER. No. The social-security contributions are scheduled to increase over a period until, I believe, 1975. I have forgotten the exact date, but it is scheduled to increase over a period of years. It is now 2 percent on each side. It is scheduled to rise to 4 percent on each side.

(The following statement was subsequently submitted by Mr. David B. Schreiber :)

The social-security benefits were increased by the 1954 amendments to the Social Security Act, generally, by changing the formula for computing benefits. Prior to that time the formula was 55 percent of the first $100 of the average monthly wage and 15 percent of the remainder up to $200. The changed formula called for 55 percent of the first $110 and 20 percent of the remainder up to $240. The same amendments also provided for dropping out up to 5 years of low earnings in order to permit a higher average monthly wage. Further the same amendments provided what is known as a disability freeze; the effect of this is to permit the retention of an insured status which would otherwise be lost, and would increase the average monthly wage because the period of disability would be excluded from the divisor in computing such monthly wage.

Aside from increasing the creditable wages from $3,600 a year to $4.200, the same amendments increased the tax rates on employers and employees, and on those engaged in self-employment, by amending the appropriate sections of the

Internal Revenue Code. Prior to such amendments these sections provided a tax of 34 percent of payroll up to $3,600 a year for any calendar year after 1969, on employers and employees, and 4% percent on self-employed. The amendments changed the 34 percent to 32 percent, and the 4% percent to 5 percent, respectively, for the calendar years 1970 through 1974, inclusive, and to 4 percent and 6 percent, respectively, for the calendar years 1975 and after. As so amended, the present tax schedule is as follows: through 1959 the tax rate is 2 percent of payroll up to $4,200 a year on employers and employees, and 3 percent on self-employed; for the calendar years 1960 to 1964, inclusive, 21⁄2 percent on employers and employees and 33⁄4 percent on self-employed; for the calendar years 1965 to 1969, inclusive, 3 percent on employers an employees and 41⁄2 percent on self-employed; for the calendar years 1970 to 1974, inclusive, 31⁄2 percent on employers and employees and 54 percent on self-employed; and for the calendar years 1975 and after, 4 percent on employers and employees and 6 percent on self-employed.

Mr. HARRIS. Is the social security system considered to be actuarially sound?

Mr. SCHREIBER. As far as I know, the actuaries of the Social Security Administration consider it to be actuarially sound.

Mr. DOLLIVER. Mr. Chairman, the benefits are not commensurate with those received under the railroad retirement system.

Mr. SCHREIBER. That is correct. Our benefits are higher, considerably in many respects, particularly the employee annuities. For example, our maximum annuity at the moment is $166 a month to the employee, and $54.30 to his wife. The benefits under the Social Security Act, the maximum at the moment, and for some years to come, will not be over $108.50.

Mr. HARRIS. $108 as against $166?
Mr. SCHREIBER. That is right.
Mr. HARRIS. That is the maximum?
Mr. SCHREIBER. Yes.

Mr. HARRIS. What about the minimum?

Mr. SCHREIBER. We have a minimum in three ways. Generally, it is $69 at the moment. The social security is around $30. We have provisions which are costly; namely, we have disability benefits. Under our system, a man say only age 30, with 10 years of service, if he is totally and permanently disabled for all employment for hire, will be entitled to an annuity for life. The same man under the social security system would have to wait 35 years before he could get a single cent.

Similarly, under our system, if a man is, say only 40 and is not totally disabled but only disabled occupationally and if he has 20 years of service, he can start having an annuity for life at age 40. The same man under social security would have to wait 25 years before he could get a single cent. I may add that 27.4 percent of all our annuities are disability annuities. I think I am getting to be a little longer than you expected me to be.

Mr. HARRIS. Thank you very much.

Mr. DOLLIVER. On this voluntary retirement, as I questioned other witnesses about earlier, after 30 or 35 years, what is the retirement age now?

Mr. SCHREIBER. The average retirement age, incidentally, is now, I think, 67.7.

Mr. DOLLIVER. That is not what I wanted, the average. What is the minimum age at which retirement can be had?

Mr. SCHREIBER. Under the Railroad Retirement Act?