mittee. It is therefore requested that our views on H. R. 4744 be considered in lieu of a detailed report on provisions of the type found in the above mentioned bills. Sincerely yours, DONALD R. BELCHER, Assistant Director. Hon. J. PERCY PRIEST, DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE, Washington, March 21, 1956. Chairman, Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D. C. DEAR MR. CHAIRMAN: This letter is in response to your requests for reports on H. R. 738, H. R. 757, H. R. 3416, H. R. 3719, H. R. 5272, H. R. 5801, H. R. 6833, H. R. 8230, H. R. 8338, and H. R. 8399. Some of these bills contain certain provisions that are incorporated in Public Law 383, 84th Congress, approved August 12, 1955. Such bills would need to be revised to take this into account. In this letter we shall consider only provisions which would make changes in present law. These changes will be separately discussed. 1. In cases in which, under existing law, the survivor of a railroad worker is eligible for a survivor annuity or benefit under the Railroad Retirement Act, five of the bills (H. R. 757, H. R. 3416, H. R. 5272, H. R. 6833, and H. R. 8338) would, perhaps inadvertently, permit payment of the same type of survivor benefit to an individual under both programs, with each benefit being based on the same worker's earnings records, and with the worker's old-age and survivors insurance employment and self-employment, and possibly his railroad employment, being credited toward both benefits in determining eligibility (insured status) for, and the amounts of, such benefits. A more detailed analysis of these provisions is contained in the enclosed staff memorandum. H. R. 5801 would make comparable amendments applying only to individuals receiving widow's benefits. These bills would thus make drastic changes in survivor benefits payable under existing law, which provides for benefits on the combined earnings record under one system or the other but not under both. These changes would have the effect of providing dual benefits based on the same service, without dual contributions. They would result in windfall benefits, with attendant heavy costs and without any discernible social purpose, and would further dilute the contributory principle. Thus, even apart from their unfunded cost to the railroad retirement account, we believe that these changes should not be made. 2. All of the bills listed, except H. R. 5272 and H. R. 5801, would delete the provision of the Railroad Retirement Act which requires that a spouse's annuity under the railroad program be reduced by the amount of any benefit which the spouse is eligible to receive under the old-age and survivors insurance program, other than a wife's or a husband's benefit. H. R. 8338 would also delete certain reduction provisions of the Railroad Retirement Act which apply when an individual qualifies for more than one annuity under the railroad program. Apart from considerations of cost, this proposed repeal of dual-benefit restrictions on railroad retirement or survivor annuities, like earlier analogous repeals, raises questions of principle. The belief that it is inequitable to deduct from a railroad annuity other benefits for which the annuitant is eligible under the same program, or under the old-age and survivors insurance system, overlooks the fact that in both programs benefits are weighted in favor of workers in the lower earnings brackets, a feature characteristic of social insurance. One of the purposes of the dual-benefit restrictions enacted in 1951 was to recognize and compensate for this fact. We appreciate the fact that the progressive repeal of other dual-benefit restrictions by recent legislation may be said to have resulted in discrimination in favor of those, especially survivors of railroad workers, who have thus been relieved of certain dual-benefit setoffs, as against a spouse of a living railroad retirement annuitant who is subject to a comparable setoff. And the question may also be raised why, fiscal considerations aside, a spouse's annuity should be subject to such (limited) railroad-retirement-OASI coordination by way of setoff when her husband's annuity is not. This poses a dilemma. It may be doubted, however, that the dilemma should be resolved by eliminating such vestiges of this type of benefit coordination as still exist, instead of moving in the direction of more rather than less coordination of these two social-insurance systems. 3. H. R. 8230 includes a provision to amend section 3 (c) of the Railroad Retirement Act (defining "monthly compensation") so that retirement and spouses' annuities under the railroad program would be computed on the basis of the monthly average of the 5 calendar years (not necessarily consecutive) of the worker's highest earnings in railroad service up to $350 per month. This provision (which is compared with existing law in the enclosed staff memorandum) is more generous than those now in the Railroad Retirement Act, the Social Security Act, and the Civil Service Retirement Act. Apart from problems of cost, it raises a question as to the soundness of selecting from a whole working life as a basis for reflecting income loss that benefits under the act are designed (partially) to replace the 5 years which (whether or not consecutive) happen to be those of highest earnings. 4. If the proposed amendments embodied in these bills were considered desirable in principle, they would require further evaluation from the point of view of their cost. While these amendments (except those discussed in pt. 1 of this report) would seem to have no direct effect on the benefit payments made under the OASI program, and while enactment of any of these bills would seem to entail no net cost to the OASI system in view of the provisions of the Railroad Retirement Act for cost adjustments between the railroad retirement account and the OASI trust fund, the problem of financing of Federal social insurance systems is a matter of concern to us. Although the railroad retirement system is intended to be a fully financed system, it has, in recent years, not been fully financed, despite the savings to the system resulting from, among other things, the transfer of the earnings credits of less-than-10-year railroad employees to the OASI system. We believe that it is important to the welfare of railroad employees and to our economy as a whole that the railroad system should be maintained on a self-supporting basis. In reporting favorably on H. R. 4744 (now Public Law 383), your committee was "unanimously of the opinion that, regardless of the desirability of certain proposals for the liberalization of benefits under the act, no amendments to the law should be made which would jeopardize the financial soundness of the railroad retirement system." At the same time, however, having regard to past experience in the light of changing economic conditions, your committee was influenced by the hope that the estimated actuarial deficit shown by the fifth actuarial valuation would be favorably affected by the next evaluation (H. Rept. 1046, pp. 12, 13). Unfortunately, this hope is not borne out by the recently completed sixth actuarial evaluation, which estimates that the present actuarial deficit is 1.63 percent of payroll, or $86,390,000 a year, on a level cost basis, thus indicating "that an increase in the revenues is needed, if the system is to be maintained on a sound reserve basis." The table contained in the enclosed staff memorandum (based on estimates obtained from the Railroad Retirement Board) shows the additional cost to the railroad retirement system which enactment of the various changes proposed by the present bills would entail. Together they would cause an additional annual level-cost deficiency in the railroad retirement fund of either 1.9 percent of payroll or $102 million, or 4.35 percent of payroll or $230 million, depending upon which of 2 possible alternative interpretations is placed on the amendments discussed under part 1 of this report. These figures strikingly indicate the undesirability of upward changes in benefits without such adjustments in the contribution schedule as are required to restore the system to actuarial balance. We are, therefore, compelled to recommend against the enactment of the bills covered by this report. The Bureau of the Budget advises that it preceives no objection to the submission of this report to your committee. Sincerely yours, M. B. FOLSOM, Secretary. STAFF MEMORANDUM SUPPLEMENTING REPORT ON BILLS TO AMEND RAILROAD RETIREMENT ACT (H. R. 738, H. R. 757, H. R. 3416, H. R. 3719, H. R. 5272, H. R. 5801, H. R. 6833, H. R. 8230, H. R. 8338, AND H. R. 8399) 1. Five of the bills (H. R. 757, H. R. 3416, H. R. 5272, H. R. 6833, and H. R. 8338) would make substantial changes in the provisions of law under which benefits based on combined earnings records under the Railroad Retirement and OASI systems are now payable to the survivors of railroad workers. Under existing law, where an individual is eligible for a section 5 survivor annuity, or a section 5 (f) (1) lump-sum payment, under the Railroad Retirement Act, with respect to a deceased railroad employee who has had 10 years of railroad service and a "current connection" with the railroad industry, survivor benefits are paid only under the Railroad Retirement Act, but they are computed on the basis of the combined earnings record derived from both the railroad retirement and OASI systems (see Railroad Retirement Act, section 5 (1) (9). Where a survivor cannot qualify under section 5 of the Railroad Retirement Act, benefits based on the combined earnings record are payable under, and only under, the OASI system. The two acts contain parallel dual-benefit prohibitions with respect to survivor benefits. Subsection (g) (1) of section 5 of the Railroad Retirement Act provides that if an individual is eligible for a survivor annuity or lump sum under section 5 of that act with respect to the death of an employee, the individual shall not be entitled to a lump-sum death payment or monthly insurance benefits under the Social Security Act on the basis of the wages of the same employee. Similarly, section 202 (1) of the Social Security Act provides that, if a person is eligible for an annuity under section 5 of the Railroad Retirement Act of 1937 or to a lump-sum payment under subsection (f) (1) of that section, with respect to the death of an employee, no lump-sum death payment, and no monthly insurance benefis, under the Social Security Act shall be payable to any person on the basis of the OASI wages and self-employment income of such employee. These correlated provisions thus forestall the payment of duplicate benefits based on the same combined earnings record in cases in which there is eligibility for a railroad survivor benefit, notwithstanding section 5 (k) (1) of the Railroad Rteirement Act which, in death cases (and also life cases in the case of employees having less than 10 years of railroad service) in effect bring railroad earnings under OASI for benefit purposes. If, on the other hand, no one is eligible for a survivor annuity or lump-sum death payment with respect to a railroad employee under the Railroad Retirement Act, because the employee did not at the time of death have the necessary insured status under the Railroad Retirement Act even on the basis of the combined earnnigs record, the combined earnings are counted under OASI both in determining insured status and the amounts of benefits. (See Railroad Retirement Act, section 5 (k) (1); Social Security Act, section 205 (o).) Thus, the repeal of the dual-benefit prohibition of section 5 (g) (1) of the Railroad Retirement Act and of section 202 (1) of the Social Security Act, as proposed by the five bills above mentioned, would permit the survivor of a railroad worker, where the survivor is eligible for a railroad survivor benefit, to receive survivor benefits under both programs on the same worker's earnings record, and with the worker's OASI employment and self-employment, and possibly his railroad employment, being credited toward both benefits in determining eligibility (insured status) for, and the amounts of, benefits. The word "possibly" is used with respect to the question of whether the worker's railroad employment would also be credited in such cases on the OASI side, because, though such a result would seem to flow from section 5 (k) (1) of the Railroad Retirement Act, this is made doubtful by the fact that the bills would not expressly modify section 205 (o) of the Social Security Act which provides that railroad compensation shall be credited under the OASI system “if” no one is eligible for a survivor benefit under the Railroad Retirement system. There is some doubt that in the preparation of these bills the effect which they would have on the basic coordination provisions between the two systems was foreseen. The titles of these bills do not indicate that any such drastic change was intended. 2. The proposed deletion of set-off provisions discussed under point 2 of the Secretary's letter needs no elaboration here. 3. H. R. 8230 would, among other things, compute a railroad retirement annuity and spouse's annuity under that program on the basis of the monthly average of the five calendar years (whether or not consecutive) of the worker's highest earnings in railroad service up to a maximum of $350 per month. Under the present Railroad Retirement Act (section 3 (c)), the "monthly compensation" for such benefit computation purposes is the average of the worker's total creditable earnings during all of his railroad service, up to $300 a month before July 1, 1954, and up to $350 since that date, and with pre-1937 earnings computed with reference to a statutory 1924-31 base period to avoid administrative difficulties. (There is also a special rule for determining, with respect to service before September 1941, the compensation of redcaps whose remuneration was wholly or substantially in tips.) 4. Additional annual cost of bills on level-cost basis (from Railroad Retirement Board estimates): Provision 1. Repeal of sec. 5 (g) (1) of Railroad Act and sec. 202 (1) of Social Security Act- (b) On assumption that railroad earnings would also be credited, in deter- 2. Repeal of setoff against spouse's annuity, etc... 3. Change of monthly compensation formula Total (a) On first assumption with respect to item 1.. 4. Existing law (6th valuation), deficiency. 5. Annual level-cost deficiency under existing law plus bills- RAILROAD RETIREMENT BOARD, Hon. J. PERCY PRIEST, Chairman, Committee on Interstate and Foreign Commerce, House Office Building, Washington, D. C. DEAR MR. PRIEST: This is a report on H. R. 738 which was introduced in the House of Representatives by Mr. Williams on January 5, 1955, and which was referred to your committee for consideration. The bill would amend the Railroad Retirement Act of 1937 (as amended) in the following manner: 1. The present restriction in section 2 (e) of the act, requiring the reduction of the spouse's annuity by the amount of her insurance benefit under the Social Security Act, would be repealed. 2. The present restriction in section 5 (g) (2), requiring the reduction of survivor annuities by the amount of the insurance benefits under the Social Security Act, would be repealed. 3. The restoration of reductions for social security benefits would be retroactive to October 31, 1951. In effect, the bill would permit spouses and survivors to receive full benefits under the Railroad Retirement Act even though they may simultaneously be entitled to certain insurance benefits under the Social Security Act. At present, the railroad retirement benefits are reduced by the amounts of such social security benefits. The combined employer-employee taxes for the support of the railroad retire. ment system amount to 12.5 percent of taxable payroll, with a limit of $350 a month per employee. The latest actuarial estimates made in connection with the recent 1954 amendments to the Railroad Retirement Act, show that the level cost of the benefits under the act is 13.43 percent of payroll (assuming a level annual payroll of $5.45 billion), indicating a present deficiency of about $51 million a year. We estimate that the additional costs of the amendments proposed in H. R. 738 would come to approximately $19 million a year on a level basis. This would increase the deficiency from $51 million to $70 million a year. Although there are many other reasons why the Board believes that this bill should not be enacted, the fact that it would provide no additional revenue to meet the substantial increase in the cases of benefits compels the Board, for that reason alone, to recommend that no favorable consideration be given to the bill. The Bureau of the Budget advises that it has no objection to the Board's submission of this report. Sincerely yours, RAYMOND J. KELLY, Chairman. RAILROAD RETIREMENT BOARD, Hon. J. PERCY PRIEST, Chairman, Committee on Interstate and Foreign Commerce, House Office Building, Washington, D. C. DEAR MR. PRIEST: This is a report on H. R. 757 which was introduced in the House of Representatives by Mr. Cunningham on January 5, 1955, and which was referred to your committee for consideration. The bill would amend the Railroad Retirement Act of 1937 (as amended) in the following manner : 1. The present restriction in section 2 (e) requiring the reduction of spouses' annuities by old-age or parents' insurance benefits payable under the Social Security Act, would be repealed. 2. The present restriction in section 5 (g) (1) against the payment of survivor benefits under both the Railroad Retirement and the Social Security Acts on the basis of earnings of the same employee, would be repealed. The bill would also strike out section 202 (1) of the Social Security Act which in effect contains the same provision as the last sentence of section 5 (g) (1) of the Railroad Retirement Act. 3. The present restriction in section 5 (g) (2) requiring the reduction of survivor annuities by the amount of certain insurance benefits under the Social Security Act would be repealed. 4. The changes introduced by the bill would become effective the first of the month following the month of its enactment. The bill retains the present provisions of both the Railroad Retirement and Social Security Acts by virtue of which survivor benefits are computed on the basis of the deceased employee's railroad and social security earnings combined. There is, however, the anomaly that railroad compensation would be credited under the Social Security Act only when the survivors are not eligible for benefits under the Railroad Retirement Act, whereas social security wages would be credited under the Railroad Retirement Act even though survivor benefits based on the same wages would also be available under the Social Security Act. It is difficult to see why social security wages should be credited twice in cases when survivor benefits would be payable under both acts. In effect, the bill would permit spouses of railroad employees to receive full benefits under the Railroad Retirement Act even though they may simultaneously be entitled to an old-age or parents' insurance benefit under the Social Security Act. At present, railroad retirement spouses' annuities are reduced by the amounts of such social security benefits. The bill would also establish a system of unrestricted dual survivor benefits under both the Railroad Retirement and Social Security Acts which, in our opinion, is highly undesirable. Under present law, survivor benefits are paid by either the Railroad Retirement Board or by the Social Security Administration, but not by both at the same time. However, regardless of which agency pays the survivor benefit, the credits earned under both systems are combined. The combined employer-employee taxes for the support of the railroad retirement system amount to 12.5 percent of taxable payroll, with a limit of $350 a month in earnings per employee. The latest actuarial estimates made in connection with the 1954 amendments to the Railroad Retirement Act show that the level cost of benefits under the act is 13.43 percent of taxable payroll, indicating a present deficiency of 0.93 percent of payroll, or approximately $51 million a year. We estimate the additional cost of the amendments proposed in H. R. 757 would come to about 0.75 percent of payroll, or approximately $41 million a year on a level basis. This amount, when considered in addition to the present deficiency of 0.93 percent or $51 million a year, would result in a total deficiency of about 1.7 percent of payroll, or approximately $92 million a year. There are a number of reasons why the board believes that the bill should not be enacted. The considerable additional cost resulting in an increased deficiency is, of course, the most important one, particularly since the bill makes no provision for additional revenues to meet this additional cost. In view of the foregoing, the board recommends that no favorable consideration be given to the bill. The Bureau of Budget advises that it has no objection to the board's submission of this report. Sincerely yours, RAYMOND J. KELLY, Chairman. |