has heavy investments in common stocks and so on, you may have even a depreciation of principal.

In our law again we have at least a floor bottom guaranty of 3 percent, so that I do not know whether from a technical point of view I would be in a position to comment on a comparison between the rates of return.

Mr. DINGELL. How is 3 percent then in comparison with rates of return on other existing pension funds?

Mr. NIESSEN. I would believe, if I am not mistaken, that the current rate of return in other pension funds-you are referring, I am sure, to industrial pension funds-is probably more than 3 percent. The same holds true for insurance companies. On the other hand, may I call your attention, sir, to the fact that in the Federal scheme of retirement systems we have some huge retirement systems that do not earn 3 percent, the OASI trust fund being one of them, and I understand also that at the present time the civil service retirement fund also does not earn as much as 3 percent.

Mr. DINGELL. Thank you.

Mr. AVERY. Will the gentleman yield?

Mr. DINGELL. I will be glad to yield to my colleague.

Mr. AVERY. To your knowledge are there any other retirement funds that are under the jurisdiction of Congress such as the railroad retirement fund?

Mr. NIESSEN. Under the jurisdiction of the Federal Government? Mr. AVERY. Yes, sir. I mean other than the Civil Service and OASI.

Mr. NIESSEN. I believe there are some other smaller funds, and if you care we can submit to you a list of such plans. Mr. AVERY. I would be interested in that. (The information is as follows:)

The Honorable OREN HARRIS,

RAILROAD RETIREMENT BOARD,

Chicago, Ill., March 18, 1957.

Chairman, House Interstate and Foreign Commerce Committee,
Room 1334, House Office Building, Washington, D. C.

DEAR MR. HARRIS: In accordance with Mr. Avery's request made during the March 15, 1957, hearings on the railroad retirement legislation before your committee, I am submitting a list of Federal retirement plans which are now in operation. These plans are described in considerable detail in part 1 of the Report of the Committee on Retirement Policy for Federal Personnel dated January 22, 1954 (S. Doc. No. 89, 83d Cong., 2d sess.).

FEDERAL RETIREMENT PLANS OTHER THAN RAILROAD RETIREMENT, OASI, AND CIVIL SERVICE

Congressional Retirement System.1

Investigative Employees Retirement System.1

Board of Governors Plan of the Federal Reserve System.

Public School Teachers of the District of Columbia Retirement System.

Tennessee Valley Authority Retirement System.

Foreign Service Retirement System.

Policemen and Firemen of the District of Columbia Retirement System.
Federal Judiciary Retirement System.

Judiciary of Territories Retirement System.

Judiciary of the District of Columbia Retirement System.

Judiciary of the Tax Court Retirement System.

1 Included in the civil service retirement system.

Panama Canal Company-Canal Zone Government-Cash Relief System.
Construction Workers of the Panama Canal Retirement System.
Retirement Plans for Members of Armed Forces.

Sincerely yours,

HOWARD W. HABERMEYER, Chairman.

Mr. NIESSEN. I believe that you may find some listing of such funds in a special study that was made by Congress, way back in 1952, and it is known as the Douglas study.

Mr. AVERY. Thank you.

The CHAIRMAN. Are there any further questions, Mr. Dingell?
Mr. DINGELL. No.

The CHAIRMAN. Mr. Alger.

Mr. ALGER. Mr. Chairman, I hesitate to ask this, so I am going to defer to your judgment at the moment as to this question.

I have already observed in previous meetings the different pay-ins between social security and the railroad retirement by the workers, so my question then would be-and I am not sure, Mr. Chairman, whether this is the time to ask it or whether Mr. Niessen will be back-is there comparative information for us as to the actuarial soundness of either plan comparatively? If the pay-in is twice or three times as it is in one case, does that make the retirement plan actuarially sound, and if it is does that make the social security unsound, or is this a question for later on? Mr. Chairman, I am asking, because I am so new to this committee, whether I should wait.

The CHAIRMAN. It is a proper question if you want to get his opinion on it.

Mr. NIESSEN. I am not sure that I can give you a satisfactory answer, but I will try to comment on it.

Mr. ALGER. I may not understand it sufficiently to grasp it.

Mr. NIESSEN. As far as the social security system is concerned we have in here the chief actuary of the Social Security Administration, who is a highly respected actuary throughout the country, and his opinions on the soundness of social security system would be final as far as I am concerned. I believe-if I am wrong I believe Mr. Myers will correct me-that under the 1956 law the social security system is considered in a substantially sound position. Is that right? Mr. MYERS. Yes.

Mr. NIESSEN. As far as the railroad system is concerned, under present law the actuarial estimates came through with the conclusion that the system is very far from being sound. As far now as the program that is being proposed in the bill which was introduced by the chairman, Mr. Wolverton, and other Members of Congress, the actuarial estimates came through with a deficit which is not large enough to be of real actuarial concern in view of the magnitude of the total cost.

Put it this way: If we would deal with a system, something minor, that has a total cost, let us say, of 4 percent, and you have a deficiency of four-tenths of 1 percent, that may be more of a problem. If, however, we are in an area where we have a net level cost of something over 17 percent of payroll and then we have a deficiency of about 0.4, well I do not believe any actuary can in good conscience say that his estimates are close enough to worry about it. Of course there may be a situation, and it is likely that it may happen, that the next reexamination of the figures will show that this estimate was not high enough.

Mr. ALGER. I know we cannot cover the ground, but let me see if I grasp it now.

In other words—I could not ask Mr. Myers yesterday because the bells rang and my turn to question did not come up-do I understand then with the 412-percent pay-in, approximately, whatever it is, on social security, that that system is actuarially sound, but that railroad retirement at 121/2 percent is considered not actuarially sound?

Mr. NIESSEN. I believe I should qualify my answer. The social security system would be very far from sound on a tax rate of 412 percent. However, the social security system has now a schedule of tax rates and according to that schedule the tax rate is supposed to go up to 82 percent, so that the 42 percent is only a temporary measure that was put in, I presume, for

Mr. ALGER. The 812 percent is still well below railroad retirement. Mr. NIESSEN. The 812 is still well below retirement benefits, but the benefits are much larger than the social security benefits are and I would also think that the cost incidence for the two systems, even for the same benefits, may not be exactly the same in all areas, and you have over there a multitude of actuarial considerations, some of them as to the progress, let us say, of future payrolls, and the expansion of coverage, which are quite different for social security than for us. According to what is happening now we could not assume that railroad payrolls will be increasing very much. In fact we assume they will be decreasing, the taxable payrolls, that is. We also cannot assume that railroad employment will be increasing.

There is some evidence that the opposite may happen. I hope not. As far as social security is concerned, you have a problem there of an expanding population and expanding economy, higher earnings, higher payrolls, and the whole flow of figures and assumptions changes.

Mr. ALGER. Mr. Niessen, thank you.

One question brings another, and I already have some homework. Thank you, Mr. Chairman.

Mr. YOUNGER. Mr. Chairman, I just want to ask one question following that.

The CHAIRMAN. Mr. Younger.

Mr. YOUNGER. Then do I understand from your explanation that the social security is actuarially more sound at the present time than the railroad retirement fund?

Mr. NIESSEN. According to the estimates given by the actuaries in the Social Security Administration, and the estimates upon which we rely, the OASI and the disability insurance system of the social security is at the moment sounder actuarially than the present railroad retirement system.

The CHAIRMAN. Mr. Hale.

Mr. HALE. Going back to this table 43, it still contains mysteries to me. Why is it table 43? Where are tables 1 to 42?

Mr. NIESSEN. Mr. Hale, I think I would have to make a confession. Mr. HALE. I would like to understand 1 to 42 thoroughly before I get to 43.

Mr. NIESSEN. I think I will make a confession perhaps of not having used the best judgment by the way of presentation. When the sixth actuarial valuation was released it was done in two parts. There was one general part that explained assets, liabilities, and some other

items, and this was printed in the Railroad Retirement Board's annual report. In addition to that I have prepared a technical supplement with a good deal of material of a technical nature which I thought would not be of general interest for inclusion in a printed record. This happens to be one of the tables of that technical supplement. Had I anticipated your questions, Mr. Hale-I am sorry I was in no position to do so-I would have taken out the table number. I would also have explained what a duration is. I would have explained many things to make it really appear less technical than it is. It was designed for technicians mainly.

Mr. HALE. Are the other tables found in the printed report of the Railroad Retirement Board?

Mr. NIESSEN. This comes from a group of tables that cannot be found in the printed annual report, but if I am not mistaken this committee had been supplied with copies of the technical supplement.

Mr. HALE. Every table was presented to us or will be presented? Mr. NIESSEN. I believe that a copy of the report may be in our office. I am not sure.

Mr. HALE. Tell me this: It says, "Employees with subsequent service only." Subsequent to what?

Mr. NIESSEN. To 1936, sir. The demarcation line over there generally refers to 1936 and prior service would mean employees who came into the railroad industry before 1937.

Mr. HALE. Is that chosen because the act dates from that time? Mr. NIESSEN. That is related to the date when contributions under the Railroad Retirement Tax Act became effective.

Mr. HALE. Tell me again the significance of the date January 1, 1957.

Mr. NIESSEN. The major significance of the date January 1, 1937 is that at that time the railroad retirement system in its present formI am not speaking of all the amendments in the benefits provisions-in its form of general outline came into existence, and if I am not mistaken-if I am mistaken somebody from the Board will correct me here the retirement taxes for railroad employment became effective as of January 1, 1937.

Mr. HALE. I want to see if I can apply this table. Take a man in the first group of figures here. Assume a man of age 48 who has been 14 years in the service, which would mean that he entered in 1939. Fifty percent of those men are what? What is the 50 percent?

Mr. NIESSEN. I will try to explain. Taking the situation the way you have put it, Mr. Hale, for people who came into railroad service you are speaking of the 50 on that side on the average 14 years before 1953, and they came in at a relatively old age, it was assumed that when those people would reach retirement 50 percent of them would have a right not only to an annuity under the Railroad Retirement Act, but they would also have a right to an old-age benefit under the Social Security Act.

Mr. HALE. Half of them will have social security?

Mr. NIESSEN. Half of them will have the right to both benefits and the others will have a right to the railroad retirement benefit alone. Mr. HALE. Taking the same group in the second set of figures, 52 percent will be eligible for disability retirement; is that correct?

Mr. NIESSEN. It does not mean, Mr. Hale, that the 52 percent will be eligible for disability retirement. What it means is something else. Any group of employees coming into railroad service or any group of employees that are now in railroad service would give rise to beneficiaries under several conditions. Some of them will eventually become eligible to an annuity at age 65 or later. Some of them will become eligible on the basis of disability, and, of course, when they die their survivors will be eligible. For purposes of this calculation the question was, How many within each group of railroad retirement beneficiaries can be assumed to have also entitlement to a separate oldage benefit? What this figure of 52 percent means is that out of the disability retirements that will be coming from this specified group of railroad employees, slightly more than a half would also have the right to a separate social security benefit, when they attain the age of 65.

Mr. HALE. Going further down, what does PIA stand for?

Mr. NIESSEN. PIA is an abbreviation for the primary insurance amount and unfortunately some things of necessity have to be abbreviated because otherwise the headings become unwieldly; and, furthermore, let me also say that this table has been prepared for technical purposes only and not necessarily for general distribution.

The CHAIRMAN. And not to be understood by the average layman. Mr. NIESSEN. Mr. Chairman, I would not put it this way. I believe anything can be understood by the average layman if he takes the time and patience to worm it out from the party that tries to give the explanation.

The CHAIRMAN. What did you say PIA meant?

Mr. NIESSEN. Primary insurance amount.

Mr. HALE. PIA means primary insurance amount. What does primary insurance amount mean?

Mr. NIESSEN. That is a technical term for the old-age benefit under the Social Security Act.

Mr. HALE. Don't you think that possibly these tables could be rendered more obscure by the use of Greek letters?

Mr. NIESSEN. There are situations where we have to resort to Greek letters, I am sorry to say.

Mr. YOUNGER. Mr. Chairman, may I ask Mr. Myers the same question that I put to Mr. Niessen?

Do you consider the social-security program actuarially sound

the present time?

Mr. MYERS. Yes, Mr. Younger, I do.

Mr. YOUNGER. That is all.

The CHAIRMAN. Mr. Loser, do you have any questions?

Mr. LOSER. Nothing at all, Mr. Chairman.

The CHAIRMAN. Thank you, very much.

Mr. NIESSEN. Thank you, Mr. Chairman.

The CHAIRMAN. Doctor Neal, do you have anything?
Mr. NEAL. No thank you, sir.

The CHAIRMAN. At this time we will have Mr. Lester P. Schoene, who I understand will have with him Mr. E. L. Oliver. Mr. Schoene is the attorney and Mr. Oliver is the economic adviser of the Railway Labor Executives' Association, and Brotherhood of Locomotive Engineers.

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