security, would it become clarified so that we may know preicsely what the facts are? I understand there is quite a difference of opinion between you and the actuary of the Railroad Retirement Board. I was wondering when the adjustment will be clarified. Mr. MYERS. Mr. Mack, I am afraid this is one of the factors that is going to be very far deferred into the future, because it depends so much on the interplay and interflow between different types of employment. There are many things that are clarified relatively quickly, such as rates of retirement and so forth. But this, I am afraid, is unfortunately perhaps a matter that will not really be at all clarified within the next 5 to 10 years, and it will probably take 15 to 20 years before we really have a good picture of what the interactions of the 2 systems are. Mr. MACK. Presently, all you can do is estimate what the situation will be. Mr. MYERS. That is correct; we can only say what looks reasonable. As I said, the assumptions of the Railroad Retirement Board do not seem unreasonable, but I believe that my assumptions are a bit more reasonable, because we have had such great evidence of the fluidity of the labor force in the United States. Mr. MACK. Thank you very much. The CHAIRMAN. Mr. Myers, thank you very much. The committee will adjourn until 10 o'clock tomorrow morning. (Thereupon, at 3:05 p. m., the committee recessed, to reconvene at 10 a. m., Friday, March 15, 1957.) RAILROAD RETIREMENT AND RAILROAD UNEMPLOY MENT INSURANCE LEGISLATION FRIDAY, MARCH 15, 1957 HOUSE OF REPRESENTATIVES, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Washington, D. C. The committee met, pursuant to recess, in room 1334, New House Office Building, Hon. Oren Harris (chairman) presiding. The CHAIRMAN. The committee will come to order. When the committee recessed yesterday, Mr. Myers, the chief actuary for the Social Security Administration of the Department of Health, Education, and Welfare, had just concluded his presentation, and it was understood that the request of the Railroad Retirement Board would be granted and that the chief actuary of the Board, Mr. Abraham M. Niessen, would present the Board's side of this question. Mr. Niessen, we will be very glad to have you present your side in order that the record can be made. We do hope that these statements will be brief, yet full, so we can have the proper explanation. However, we do want to make more progress today than we made yesterday if we possibly can. STATEMENT OF ABRAHAM M. NIESSEN, CHIEF ACTUARY, RAILROAD RETIREMENT BOARD Mr. NIESSEN. Mr. Chairman and members of the committee, my name is Abraham M. Niessen. I am the Chief Actuary of the Railroad Mr. NIESSEN. Mr. Chairman, I believe my statement should not take longer than maybe 6 or 7 minutes. It is a rather brief statement. The CHAIRMAN. Very well. Retirement Board. I appear here at the request of the Board to comment on certain parts of the testimony given yesterday by Mr. Robert J. Myers, the Chief Actuary of the Social Security Administration, on H. R. 4353, H. R. 4354, and other bills identical to them. Mr. Myers expressed the opinion that, in general, the Board's cost estimates for these bills appear reasonable and proper. However, he does not believe that the 1.18 percent of payroll level gain from the financial interchange which I included in the future assets of the railroad retirement system is likely to materialize. Without this 1.18 percent of payroll gain, the actuarial deficiency for the proposed program would be in the neighborhood of 1.5 percent of payroll instead of the relatively small figure of .37 percent quoted in the Board's reports on the bills. 173 The main reason for the difference of opinion between Mr. Myers and myself is that we are attaching different weights to the effect of dual benefits. As you gentlemen know, the financial interchange credits the railroad retirement account only for the additional benefits which would have been payable under the Social Security Act on the basis of railroad employment and not for gross social-security benefits calculated on the basis of such employment. This means that in cases where the railroad-retirement beneficiary is eligible also for a benefit under the Social Security Act, the reimbursement under the financial interchange provisions is greatly reduced or even totally eliminated. This is a rather complicated technical problem which might be best illustrated by an example. Consider a railroad employee who retired in January of this year at age 65. Assume that he had 30 years of railroad service with creditable compensation of $300 a month throughout and no social security earnings whatsoever. Under present law, his railroad retirement annuity is $182.40. Since his social security old-age benefit would have been $98.50 and the Social Security Administration pays him nothing, the railroad retirement account is entitled to charge the OASI trust fund the whole $98.50 per month. Consider now another man also with 30 years of railroad service and compensation of $300 a month who worked during the years 1954-56 in social-security employment earnings the same $300 a month. If he retired in January of 1957 at age 65 he is entitled to an annuity of the same $182.40 a month from the Railroad Retirement Board and in addition to a social-security old-age benefit of $98.50 a month. For this man the railroad retirement account would receive nothing from the OASI trust fund because that fund is already paying as much as it would have paid if his total railroad employment after 1936 had been covered under the Social Security Act. There is no additional socialsecurity benefit in this case and therefore no reimbursement under the financial interchange. The above example is admittedly not typical but it serves the purpose of clearly illustrating the reduction in financial interchange reimbursements due to the availability of dual benefits. In most actual cases of dual benefits, the credit to the railroad retirement system is not entirely wiped out but is greatly reduced. The CHAIRMAN. Mr. Niessen, could you not give us a typical example then? Mr. NIESSEN. A typical example would work very much in the same way. Suppose you have a more typical case where we pay the same annuity of $182.40 and on the basis of his combined railroad and socialsecurity employment, shall we say, the old-age benefit would have been $100, and it is very likely that the social-security benefit based on wages alone would be in the neighborhood of $80 or $75. In other words, instead of getting for the man something in the neighborhood of $100, we might actually wind up getting under the financial interchange something like $20, or $30, or $25. That would be a typical case, when there is dual benefit. The CHAIRMAN. For further clarification, he received his $182.40 from the railroad retirement? Mr. NIESSEN. Yes. The CHAIRMAN. Suppose his old-age benefits were $35? Mr. NIESSEN. Then in this particular case let us assume that his social-security employment would change the $98.50 perhaps to $100, or very little more. The CHAIRMAN. Let us assume from the $98.50 to the $35. You said that would be the typical case. Mr. NIESSEN. I am not sure whether I understand you, Mr. Chair man. The CHAIRMAN. Let me ask you the question then. Mr. NIESSEN. Please. The CHAIRMAN. You gave an example where the man would receive $182.40 under the conditions you have explained. Mr. NIESSEN. Yes, sir. The CHAIRMAN. Retiring at age 65, but that he had worked under coverage of social security. Suppose his social-security coverage would pay him, say, $45 a month. We will put it that way. Now, would the railroad retirement account be credited with the difference between $45 and $98. Mr. NIESSEN. That is right. The CHAIRMAN. That is what I wanted to know. Mr. NIESSEN. That is right. It can therefore be seen that the assumptions regarding the future incidence and magnitude of dual benefits have a very strong influence on the long-range estimate of the effect of the financial interchange on the railroad retirement system. It is in this area where Mr. Myers and the Board's actuaries have an honest difference of opinion. The Board's actuaries have been aware of the importance of the dual benefit problem and have made the most conscientious effort to properly evaluate it. We have based our assumptions on a careful study of past experience and made what seemed to us reasonable allowances for more dual benefits in the future. Those of you, gentlemen, who participated in the deliberations of this committee on the 1951 amendments to the Railroad Retirement Act may recall that already at that time different views on the effect of the financial interchange on the railroad retirement system were expressed by Mr. Myers on the one hand and Mr. Musher, then chief actuary of the Railroad Retirement Board, on the other. There have since been enacted far-reaching amendments to the Social Security Act which necessitated a revision in estimates on the part of both Mr. Myers and the Board's actuaries. Mr. Myers has changed his estimates from a net loss to the railroad retirement system to a standoff while the Board's actuaries came up with higher estimated gains. In the Board's fifth valuation, which was in part related to the 1952 Social Security Act, the gain from the financial interchange was estimated at about 0.6 percent of payroll. The Board's sixth actuarial valuation, which was based in part on the 1954 Social Security Act, came up with a higher estimated gain that is a gain of slightly over 1 percent of payroll. Finally, the 1956 amendments to the Social Security Act were estimated by me to increase the gain to the railroad retirement system from the financial interchange by approximately one-quarter of 1 percent of payroll so that now the Board's figure stands at 1.27 percent of payroll with a $350 limit on monthly compensation or an equivalent figure of 1.18 percent of a higher payroll with a $400 limit on creditable monthly compensation. I should say that 1.18 percent is the figure that is included in the Board's report on your bill, Mr. Chairman, and the other bills that are identical to it. As stated by Mr. Myers, the amendments proposed in H. R. 4353 and H. R. 4354 would have no appreciable effect dollarwise on the financial interchange transactions since these transactions are related to the social security not railroad retirement laws. At this point I would like to ask your permission, Mr. Chairman, to insert into the record a copy of table 43, which is attached to the statement, of the technical supplement to the sixth actuarial valuation of the railroad retirement system. The CHAIRMAN. The table referred to will be included with your statement. (The table is as follows:) TABLE 43.-Assumed percentages of future retirants under the Railroad Retirement Act who will also be eligible for a social security old-age benefit A. EMPLOYEES WITH SUBSEQUENT SERVICE ONLY 2 Fully insured for a primary insurance amount at age 65 on the basis of social security wages alone. 3 Based on a 0.1 percent sample. NOTE. All future withdrawals were assumed to be eligible for a primary insurance amount at the time they attain age 65. |