1. The bills, if enacted, would increase the cost of the Railroad Retireinent System by more than 5 percent of payroll, or more than $265 million a year;

2. The bills make no provision for financing the additional cost which their enactment would entail;

3. The Railroad Retirement System cannot absorb the added cost because the sixth actuarial valuation of the railroad retirement system shows that the net level cost of benefits under the act is 14.13 percent of taxable payroll. Since the actual tax rate is only 12.50 percent, the present benefit structure already involves and actuarial deficiency of 1.63 percent of payroll which is equivalent to about $86 million a year on a level basis.

4. The effect of the enactment of the bills would be to increase the deficiency to about 7 percent of payroll or approximately $370 million a year. This would bring about a situation where the balance in the Railroad Retirement Account would begin to decrease almost immediately because the total benefit disbursements would exceed the tax collections plus the interest earned by the account.

The Board, accordingly, recommends that no favorable consideration be given to the bills.

This report has been cleared with the Bureau of the Budget, which informs us that there is no objection to its submission.

Sincerely yours,

RAYMOND J. KELLY, Chairman.

Mr. HARRIS. The Railroad Retirement Board's Office of Director of Research has prepared a convenient summary of these bills which, without objection, will be inserted into the record at this point.

(The summary referred to was later inserted and appears on p. 162.) Mr. HARRIS. It has been the policy of this committee, in the consideration of bills to amend the Railroad Retirement Act, to place great emphasis on the financial effect of these proposals upon the railroad retirement account. I believe I am correct in saying that every member of this committee in considering the many proposals over the years to amend the act has expressed grave concern over the financial soundness of the railroad retirement fund. It is the desire of every member of this committee, in my experience and association with them over the years, to give the railroad retired employees all of the benefits that could possibly be given under the program, but at the same time to be sure that the fund is kept sound in order that those that are entitled to the benefits may receive them.

The committee has taken the position, and everyone recognizes it to be a sound one, that regardless of how desirable certain proposals may be, we must adhere to the generally accepted principle that the solvency of the railroad retirement system must not be jeopardized. This principle is accepted by the standard railway labor organizations, as well as the railroad management, in addition to the committee members, as I have mentioned, and others who are tremendously interested in this program and the future of it.

A great many lives depend on the continuity and the stability of these railroad retirement benefits. In fact, for most retired individuals and their dependents, these benefits constitute their chief source of livelihood. We must, therefore, make certain, in considering this legislation, that the reserves in the railroad retirement account, plus the income into the system, will be adequate to pay all benefits due them and those who will retire in the future.

I am satisfied that every Member of Congress who has introduced a bill, and who desires it to be considered in the course of these hearings, has the same feeling. Because we have so many bills and so

many sponsors, we scheduled our colleagues in such a manner that they may come in and explain their bills, outline them to the committee, and give such information as they desire, and not be required to stay here indefinitely.

It is always a pleasure to have our colleagues in the House come before this committee. I think the distinguished chairman of this committee in the last Congress, the 83d Congress, and the preceding Congresses, inaugurated the program to hear sponsors of bills on certain dates. We realize that the jurisdiction of this committee is such that many Members of Congress have legislation referred to it. In consultation with our distinguished chairman, Mr. Priest, I wanted to make this statement for the record, that we are always anxious to schedule hearings on any bill before this committee that would be convenient to our colleagues in the House. We, at this time, are glad to have some of these Members of Congress sponsoring these bills with us.

Our first witness will be our distinguished colleague from that great State south of us known as Florida, the land of sunshine.

STATEMENT OF HON. CHARLES E. BENNETT, A UNITED STATES REPRESENTATIVE FROM THE STATE OF FLORIDA

Mr. BENNETT. Mr. Chairman, I appreciate this opportunity to testify here today in favor of H. R. 3087, my bill to liberalize railroad retirement benefits. I have never introduced a bill which received as much nationwide attention and support as H. R. 3087 has. I have received letters and petitions from all over the Nation in support of this bill, and I understand that your committee has received many thousands of pieces of mail in its behalf.

H. R. 3087 proposes three principal ways of liberalizing railroad retirement benefits. It provides, first, retirement at age 60 with 30 years of service, or with 35 years of service regardless of age. Second, it provides for computation of credit for service prior to January 1, 1937, on the basis of the 5 highest years before that date, rather than on the basis of average earnings for the years 1924-31. Third, it provides a 15 percent increase in annuities and pensions.

Reducing the retirement age after many years of service is needed to care for those who lose their railroad positions at advanced ages but before they have reached 65. There are many instances throughout the Nation of employees whose positions have been abolished through no fault of their own at an age when they can no longer find other employment. Having given their lives to railroad service, they are not trained for other types of work, and they are at an age when it is difficult to find employment. Under the present rigid retirement age, they must wait until they reach the age of 65 to begin drawing benefits. Perhaps 65 as a retirement age is not a great hardship on railroaders who can remain in their employment until reaching that age, but it does seem that Congress should attempt to give some relief to these employees who without fault, lose their positions a few years before reaching that age.

Further, year by year, railroad employees have seen consideration given to retirees but little to those employed and hoping for retirement. Many present employees see this suggested provisions as one of direct and important benefit to themselves.

There are many retired rail workers in the district which I represent. Through conversations and correspondence with them, I have become acutely conscious of the financial problems which they face. It was their misfortune to have worked at a time when our Nation was not as rich as it is today. Many of them had little opportunity to accumulate for their old age. Those who could save for their retirement found the purchasing power of their dollars halved by the inflation resulting, among other causes, from two major international conflicts. Upon retiring, they found that their railroad retirement annuities were based upon the artificially low standard of their wages when money had about twice the purchasing power it now has. These people do not share in our Nation's present prosperity. We are always in a depression as far as these people are concerned.

This demonstrates a need for a more liberal standard for measuring annuities based upon pre-1937 earnings. The second provision of my bill would free annuitants from the requirement that their pre1937 earnings be based upon average earnings for the years 1924-31. Those were generally low-income years, particularly as they reflect economic conditions during the early years of the depression.

While the two provisions discussed above are designed to ease hardships on special classes of annuitants, all annuitants would be benefited by the 15 percent increase. There is a general economic problem shared by all annuitants, which would be greatly improved by enactment of this 15 percent increase.

I have asked whether these increases can be financed on an actuarially sound basis. I am not an actuary, and I would prefer to leave the major burden of the actuarial arguments to Mr. Thomas Stack, president of the National Railroad Pension Forum, Inc., who will testify later in behalf of H. R. 3087. Mr. Stack and his organization have taken considerable interest in this proposal. He has made an intensive study of methods of financing these benefits.

However, I might say that I believe a diligent effort to find means of financing additional benefits might well be successful. For example, increases might be made possible by investing railroad retirement funds. at a higher rate of interest than the 3 percent now received from the Government on the reserve fund of about $3.5 billion. The Joint Committee on Railroad Retirement Legislation recognized this as a possibility for raising benefits on a sound basis. The committee report, Senate Report No. 6, part I, January 9, 1953, discusses this matter on pages 427-434. The report discusses several possibilities for increasing the rate of return. On page 433, concerning the possibility of investing a portion of the reserve in Government-guaranteed real estate mortgages, it says:

While some risk of loss is involved in insured mortgages it was suggested that a net yield somewhat in excess of 3 percent probably could be secured over a period of years.

Thank you, again, Mr. Chairman, for permitting me to appear here today to testify in favor of H. R. 3087.

Mr. HARRIS. Does that conclude your statement?

Mr. BENNETT. It does, sir.

Mr. HARRIS. Mr. Williams, any questions?

Mr. WILLIAMS. I have no questions.

Mr. HARRIS. Mr. Hale?

Mr. HALE. Yes, Mr. Chairman. Mr. Bennett, I was interested in the suggestion that the fund might be invested to get a better return. Have you any specific suggestions along those lines?

Mr. BENNETT. Well, Mr. Stack is going to be more specific on that than I am. I have given it a good deal of thought, however. When I was before the committee last year, I made that suggestion.

I would like to point out that this fund is more rigidly, more tightly invested than any other fund that I know of. For instance, the Federal Reserve System is much more liberal than this system. I see no reason for that excessive rigidity, and tightness, of investment when no organization that I know of has the tight requirements that are required here. There are various standards and criteria which are in that report which I referred to. Some of them take the laws of three of the most conservative States and say that anything that can be invested in those States can be invested by the System. I think that is about the method of the Federal Reserve System.

But there are many more liberal types of investment than this. I would not suggest that it be thrown completely wide open, but I would suggest that on an experimental basis with as large a sum as $3.5 billion it makes common sense to invest part of it in more liberal activity, and I would suggest that a law would be a very fine law which would say that 25 or 20 percent of this would be under a different criteria than the remaining amount.

Mr. HALE. Would you invest in such obligations as State bonds? Mr. BENNETT. Certainly the obligations of most States in this day are sound. As I said in my statement, I am not primarily a man particularly well versed in investments. I could not just manufacture here the terms that I would put into such a law, but I would just suggest as a matter of example that I personally would favor us going to at least as liberal a system as they have under the Federal Reserve System, and in so doing it would amount to millions of dollars of increased income.

Mr. HALE. I do not know what the Federal Reserve System is.

Mr. BENNETT. The details of it I would not know myself. I do not purport to be an authority. I just feel very strongly that we should have a more liberal system and attention should be given to it.

Mr. HALE. I think all of us would like to increase the income of the fund if we could with propriety. But you would not go to the point, for example, of saying that they should buy common stocks; would you?

Mr. BENNETT. I do not feel equipped by training or by knowledge to give such offhand opinions. I could make guesses, but I do not really think it would help the record of this case for me to make such statements. I do not feel that there are ways of finding safe ways of investing on a more liberal basis than the present 3 percent that now exists, and it is obvious that there are, because there are many organizations chartered by States and by the Federal Government which do that very thing. There is no reason why this fund should be so tightly held, in my opinion.

I wish I were better equipped to give you some specific information. Mr. HALE. You raise a very interesting point, and one certainly well worth thinking about.

Mr. BENNETT. Thank you very much.
Are there any other questions?

Mr. HARRIS. Mr. Friedel?

Mr. FRIEDEL. I am not here to question, but I am here to speak in behalf of my bill.

Mr. HARRIS. You are perfectly welcome and we are glad for you to ask any questions as a member of the committee.

Mr. FRIEDEL. Thank you. I just wish to file a statement when my

turn comes.

Mr. HARRIS. Mr. Dolliver?

Mr. DOLLIVER. No questions.

Mr. HARRIS. On that question of the Senate report, Mr. Bennett, I wanted to say that as a member of the joint committee I recall very well the discussion and consideration that led to the suggestion that this method might be pursued toward trying to find additional funds. We were faced with the problem of trying to find some method of obtaining additional funds to meet these benefit payments. On the other hand, you may recall that we were also faced with a fight on the floor of the House and in the Appropriations Commitee, where an attempt was made to knock out that provision whereby the Government was paying this interest. Naturally, we have to be extremely careful about going to other sources for investing the reserves, because you can never tell what will happen and, therefore, caution has to be used with reference to the investment of this reserve fund.

I am glad to have your views on this subject because I realize that we are assuming a responsibility here where the lives of many thousands of people are involved. I know what happens when a mistake is made. You will recall in years gone by when families in their later days had all of their investments snapped out from them. Banks were closed, investments were gone, and reserves were gone. You will recall the conditions under which they were left.

It behooves all of us, of course, to see that nothing like that happens again. We have to make the safest investment possible in order to get the most out of it.

In regard to other suggestions for increasing the income of the fund, you did use generalities. I think it would be helpful to the committee if you could give us some specific suggestions.

Mr. BENNETT. Last year you asked me to give specific statements, and I wrote the committee and gave the committee specific statements. I am just not prepared for that this morning. You have that in your

files.

One thing I feel very deeply about is that I just do not feel that these railroad retirement funds should be more strictly held than the reserve funds. I think if you went to the criteria of the Federal Reserve I think you would find that you would pick up a substantial number of millions of dollars a year. I do not know how much of this program that I have introduced would be financed by it.

Mr. HARRIS. What was that about the Federal Reserve?

Mr. BENNETT. I gave that in a letter form, Mr. Chairman, to your committee.

Mr. HARRIS. Do we have that information, Mr. Clerk?
The CLERK. Not in this hearing, sir.

Mr. HARRIS. I recall your being before this committee and your making a very fine statement, and a forceful statement, and one which received very strong consideration. I want you to know that. Every member appreciated your interest in the retired railroad employees.

75199-56-5