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Mr. Schoene, you have been before this committee many times on this subject. We are always glad to have your discussions and presentations.

I know that you have given a lot of study and thought to the whole subject matter. We all recognize that. In view of the fact that you have, as I understand, participated in the formulation of the proposals that we have before us in these bills you can explain some of the background of the proposals, and you may proceed any way you desire.

You have a statement, I observe. STATEMENT OF LESTER P. SCHOENE, ATTORNEY, RAILWAY LABOR

EXECUTIVES' ASSOCIATION, AND THE BROTHERHOOD OF LOCOMOTIVE ENGINEERS

Mr. SCHOENE. Thank you, Mr. Chairman. You are very kind in your remarks and I appreciate them. I hope I can be of some benefit to the committee. I have filed a written statement which I shall not read. There may be slight duplication between the testimony I shall give and the statement that I have filed, but I think there will be so little duplication that I believe it would be worthwhile to incorporate the statement in the record and have it transcribed.

The CHAIRMAN. Let the statement go into the record at this point. (The statement is as follows:)

STATEMENT OF LESTER P. SCHOENE WITH RESPECT TO H. R. 4353, H. R. 4354, AND OTHER IDENTICAL BILLS ON BEHALF OF STANDARD RAILWAY LABOR ORGANIZATIONS

My name is Lester P. Schoene. I am a lawyer engaged in the general practice of law as a member of the firm of Schoene & Kramer with offices at 1625 K Street NW., Washington, D. C.

I appear in support of H. R. 4353, H. R. 4354, and other identical bills representing all standard railway labor organizations. These identical bills will hereinafter be collectively referred to as "the bill." All but one of the standard railway labor organizations are represented in Railway Labor Executives' Association. That is an association composed of the chief executives of 22 standard railway labor organizations. The organizations represented in the association are the following: American Railway Supervisors' Association; American Train Dispatchers' Association; Brotherhood of Locomotive Firemen and Enginemen; Brotherhood of Maintenance of Way Employes; Brotherhood of Railroad Signalmen of America; Brotherhood of Railroad Trainmen; Brotherhood Railway Carmen of America; Brotherhood of Railway and Steamship Clerks, Freight Handlers, Express and Station Employes; Brotherhood of Sleeping Car Porters ; Hotel & Restaurant Employees and Bartenders International Union; International Association of Machinists; International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers and Helpers ; International Brotherhood of Electrical Workers; International Brotherhood of Firemen & Oilers; International Organization Masters, Mates & Pilots of America ; National Marine Engineers' Beneficial Association; Order of Railway Conductors and Brakemen; Railroad Yardmasters of America; Railway Employes' Department, AFL-CIO; Sheet Metal Workers' International Association ; Switchmen's Union of North America ; the Order of Railroad Telegraphers.

The only standard railway labor organization not affiliated with Railway Labor Executives' Association is the Brotherhood of Locomotive Engineers. My appearance is on behalf of the association and the Brotherhood of Locomotive Engineers; consequently the statement I make is presented on behalf of substantially all the organized railroad employees in the United States.

Railway Labor Executives' Association has a standing committee, under the chairmanship of Mr. George M. Harrison, president of the Brotherhood of Railway and Steamship Clerks, Freight Handlers, Express and Station Employes, which gives constant attention to the functioning of the railroad retirement and

railroad unemployment insurance systems and to the development of recommendations to the Congress from time to time of necessary changes in the laws governing those systems. All major changes in those laws in the past 20 years has resulted from the adoption by Congress of recommendations so developed by that committee and reviewed and adopted by the association. The substance of the provisions of the bill was developed in this manner, with consultation with representatives of the Brotherhood of Locomotive Engineers, and with important advice and assistance from Members of the House and Senate, the legislative drafting services, congressional staff members, and staff members of the Railroad Retirement Board.

An understanding of the import of the bill, so far as the railroad retirement system is concerned, requires brief recapitulation of what occurred last year. In the last Congress the standard railway labor organizations recommended the enactment of a three-point program: (1) A general, though by no means universal, 15-percent increase in benefits; (2) elimination of the preexisting actuarial deficit in the railroad retirement account and financing of the proposed increase in benefits through increasing the railroad retirement tax rate from 674 percent to 714 percent each on carriers and employees; (3) an offsetting income tax saving to the employees through the exclusion of railroad retirement tax payments from gross income for income tax purposes.

When the time for adjournment of the last Congress was rapidly approaching, it became clear that Congress could not complete action on this entire program before adjournment. The Members of Congress and the organizations representing the employees recognized, however, that some emergency interim action had to be taken to relieve the distress of retired employees who were trying to live on grossly inadequate incomes. The result was the enactment of Public Law 1013, approved August 7, 1956, which generally increased retirement annuities by 10 percent but provided no increase or increases of less than 10 percent to the great bulk of survivor annuitants. No provision was made for eliminating the preexisting actuarial deficit nor for financing such increases in benefits as were provided for.

It was understood by all concerned that the action taken last year could not be regarded as a final disposition of the problem either with respect to the level of benefits or with respect to the financial adjustments necessary to maintain the actuarial soundness of the railroad retirement account. It was expected that the railway labor organizations would continue to devote their attention to these problems and would report to this Congress their recommendations for solution. The bill is the outgrowth of those deliberations.

On the benefit side the major change proposed is a general increase in all annuities (age and disability retirement, spouses', and survivors'), pensions and insurance lump sums by 10 percent. There are two minor exceptions : Certain minimum annuities now equivalent to the average monthly compensation earned in active service and certain widows' annuities now being paid at a rate above the regular widow's annuity in order to avoid a reduction below the spouse's annuity being paid at the time widowhood occurred will be either not increased or increased by less than 10 percent.

The necessity for these increases in benefit payments is readily apparent. The average retirement benefit now being paid, even with last year's increases is approximately $112, with age retirement benefits averaging about $115 and disability annuities averaging about $104. Annuities being currently awarded run a little higher, averaging $120 for all employee annuities currently awarded, $125 for age annuities, but only $103 in the case of disability annuities. The vast majority of survivor annuities are being paid under the minimum provision guaranteeing that the beneficiary will not receive less than would have been paid under the Social Security Act had railroad employment been covered by that act; in other words, notwithstanding the fact that our people are paying nearly three time the tax paid by employees covered by the Social Security Act the great bulk of survivors receive no greater benefits than they would if rail. road employment were under the Social Security Act.

With the cost of living at the highest that it has ever been in history, and apparently still rising, it should require little argument to persuade anyone that the relatively modest increase in benefits proposed in the bill is warranted.

There are a number of other benefit changes directed to the elimination of specific inequities.

At the present time a disability annuitant who earns more than $100 in any month in nonrailroad employment (or engages in any railroad employment or service for his last employer) loses his annuity for such month. Consequently

one disability annuitant may earn substantially more than $100 in a particular month and lose only 1 month's annuity whereas another may earn just over $100 in each of several months, with total earnings less than the first annuitant but lose several months' annuities. In order to eliminate such inequities the bill would provide that annuities withheld with respect to months in which more than $100 is earned will be paid at the end of the year if the annual earnings do not exceed $1,200 and if the annual earnings do exceed $1,200 only 1 month's annuity would be forfeited for each $100 of such excess, treating the last $50 or more of such excess as $100.

Three provisions of the bill are directed to the elimination of inequities as between the railroad retirement system and the social security system resulting from recent amendments to the Social Security Act. Two of these would permit women employees and spouses, respectively, who are otherwise eligible, upon election to draw annuities beginning at age 62 but the amount of the annuity then awarded would be reduced by one and one-hundred-eightieth for each month that the annuitant is under age 65 when the annuity begins to accrue. This is an actuarial reduction designed to keep the total value of the annuity accruing at the earlier age equal to the total value of an annuity beginning at age 65. Such optional earlier beginning dates are now permitted under the Social Security Act. Likewise, the Social Security Act now provides for the payment of an insurance lump sum (substantially a funeral benefit) upon the death of an insured employee irrespective of whether survivors are immediately entitled to monthly survivor benefits. On the other hand, the Railroad Retirement Act still provides for the payment of such insurance lump sums only when no survivor is immediately entitled to monthly benefits. The bill would eliminate this disparity between the two systems. The level of lump-sum benefits under the Railroad Retirement Act is somewhat higher than that under the Social Security Act but the bill would impose a maximum limit of $750 upon such payments. · The bill would increase the maximum creditable compensation per month from $350 to $400 beginning in July of this year. This increased creditable compensation would likewise be reflected in the computation of the residual lump sum which guarantees that there will be paid with respect to each employee, either in benefits during his lifetime, or in survivor payments, an amount at least equal to his contributions with an allowance approximately equivalent to interest on his contributions.

With respect to the work clause applicable to survivor beneficiaries there is now a distinction between survivors residing within the United States and those residing outside. This discrepancy has caused complaint particularly among survivors of railroad employees residing in Canada. The bill would make applicable to nonresidents the same work clause that now applies to residents of the United States.

Part II of the bill contains the proposed amendments to the Railroad Retirement Tax Act.

In line with the proposal to increase creditable monthly compensation froin $350 per month to $400 per month effective with respect to compensation for service after June 30, 1957, the taxable compensation would be likewise increased. The rate of tax would also be increased from 674 percent of the taxable payroll to 712 percent each on carriers and employees. In the case of employee representatives, who pay the combined employer and employee tax, the increase would be from 1212 to 15 percent.

In addition to the foregoing proposals for immediate changes in the tax provisions, contingent further increases equal to the scheduled step rate increases in the social security tax rate after 1965 are provided to go into effect beginning January 1, 1970, on condition that the social security tax increases do in fact become effective as now scheduled. Under the financial interchange arrangements between the railroad retirement system and the social security system the railroad retirement system is in effect charged with the equivalent of social security taxes on railroad employment and is credited with the benefits that the social security system would pay on the basis of railroad employment if it were covered by that system. Thus, if and when social security taxes increase the charge against the railroad retirement system will correspondingly increase. One percent of the immediately effective noncontingent tax increases described above has been allowed to meet such increased charges to 1970, but if thereafter social security taxes have risen as scheduled, the additional contingent increases will be needed to meet these additional charges.

These amendments to the Railroad Retirement Tax Act will eliminate the current actuarial deficit and provide for the financing of the additional benefits provided for in the bill. The Railroad Retirement Board's actuaries estimate that under the present law the railroad retirement system is incurring an actuarial deficit of 2.98 percent of payroll. The additional costs resulting from the bill are estimated at 2.81 percent of payroll but the additional revenues to be derived under the terms of the bill are estimated on a level basis to equal 5.42 percent of payroll. There is accordingly an excess of additional revenues over additional costs in the amount of 2.61 percent of the payroll. This excess of additional revenues comes within 0.37 percent of offsetting the estimated current deficit. It has generally been considered that if estimated costs and estimated revenues come within 1 percent of payroll of balancing, the system is in financially sound condition.

Part III of the bill contains the proposed amendments to the Railroad Unemployment Insurance Act. It is proposed that the daily benefit rates be revised so as to provide 60 percent rather than 50 percent of the daily rate of pay for the employee's last employment in his base year up to a maximum of $10.20. Certain restrictions on the exclusion of Sundays and holidays as days of unemployment under certain circumstances would be eliminated. Also, with respect to days of unemployment the first registration period in a benefit year is placed on a parity with subsequent registration periods; in both instances payment would be made for all days in excess of 4 out of 14, instead of in excess of 7 in the first registration period as the present law provides.

A matter that has been of major concern to the railroad employees in recent years has been the extent to which economic, technological, and other changes in the industry have resulted in the permanent displacement of employees with many years of service at ages when they are too young to retire but too old to find other employment. The payment of 130 days' maximum unemployment benefits in such cases does not come near providing any adequate or equitable disposition of the claims such employees have on the industry. The bill therefore proposes that when employees with at least 5 years of service become unemployed involuntarily and exhaust their normal unemployment benefit rights they may be paid benefits for additional periods graduated according to length of service and ranging from 18 months in the case of employees with less than 10 years of service to 412 years for employees with 20 or more years of service.

In recognition of the higher earnings potential by reason of wage increases in recent years the bill would increase the minimum base year earnings necessary to qualify for benefits from $400 to $500.

In line with the amendments to the Railroad Retirement Tax Act the tax base would be increased from $350 to $400.

Under the sliding scale of contributions in the present law contributions range from one-half of 1 percent of taxable payroll when the reserve in the account is $450 million or more to 3 percent of the taxable payroll when the reserve in the account falls below $250 million. In order to provide adequate financing for the improved benefits the bill would revise this sliding scale to range from 2 percent when the reserve in the account is $450 million or more to 4 percent when the reserve falls below $300 million.

Although provision is made for the possibility of the contributions rising to 4 percent, this does not mean that 4 percent will be required. Mr. E. L. Oliver will present information to the committee showing the extent to which the carriers, through their employment practices, can control the actual cost that will be incurred. It is one of the purposes of the bill to provide a financial incentive to the carriers to stabilize employment and to reemploy in new jobs employees who are permanently displaced from their previous employment.

This concludes my discussion of the terms of the bill which is before this committee for consideration. The committee should know, however, that this bill does not embody the complete program of recommendations which the standard railway labor organizations are making to the Congress. Our program this year, as last year, is a three-point program involving liberalization of benefits, increase in the railroad retirement tax rates, and exclusion of employee taxes from income for income tax purposes.

The third point in this program, the exclusion of employee taxes from income for income tax purposes, is included in a separate bill which is H. R. 5551 in the House and will probably be introduced in the Senate shortly. That bill will require consideration by the House Ways and Means Committee and the Senate Finance Committee and for that reason its provisions have not been included in the bill that is before this committee for consideration.

We found last year that a great many Members of Congress felt that there was ample justification for the exclusion of employee railroad retirement taxes from

income for income tax purposes, but they likewise felt that for the same reasons employee social security taxes and contributions to the civil service retirement system should be given the same treatment. There was, accordingly, a feeling that preferential treatment of railroad employees was being sought. We have taken account of that sentiment and the bill H. R. 5551 applies to employee social security taxes and civil service retirement contributions as well as the railroad retirement taxes.

The CHAIRMAN. May I inquire if you will generally follow your prepared statement ?

Mr. SCHOENE. In substance, but I expect to go into more detail as to the specific provisions of the bill in my testimony. · The CHAIRMAN. The members would probably like to know so they could keep up with you as you go along. · Mr. SCHOENE. I do not think it would be helpful to try to follow the written statement.

The CHAIRMAN. Very well; just so we have an understanding about it.

Mr. SCHOENE. My name is Lester P. Schoene. I am a lawyer engaged in the general practice of law as a member of the firm of Schoene & Kramer, with offices at 1625 K Street, NW., Washington, D. C.

The organizations listed on the first page of my statement are those organizations represented in the Railway Labor Executives Association. That association includes all the standard railway labor organizations except the Brotherhood of Locomotive Engineers, and I am authorized in my appearance this morning to speak also for the Brotherhood of Locomotive Engineers. Consequently the testimony I shall present will be on behalf of substantially all the organized railroad employees in the United States.

The Railway Executives Association maintains a standing committee under the chairmanship of Mr. George M. Harrison, president of the Brotherhood of Railway and Steamship Clerks, which gives constant attention to the functioning of the railroad retirement and unemployment insurance systems, the problems that arise with respect to it, and from time to time has made recommendations first to the association and upon review by the association to the Congress for amendments we consider necessary or desirable in the laws governing those two systems. Substantially all the amendments that have been made in the last 20 years have resulted from recommendations originating in that committee reviewed by the association and ultimately recommended to Congress, the substance of the provisions contained in H. R. 4353, H. R. 4354, and other identical bills are no exceptions in that they did evolve from consideration by the association, but I do want to say that in those deliberations there was very important and constant assistance from the chairman of this committee and from Mr. Wolverton, both of whom, as you all know, have been on the committee a long time and have taken a constant and intense interest in these systems and have gained very valuable experience which we felt desirable to utilize in our own deliberations, and while the Railway Labor Executives Association appears wholeheartedly in support of the bills, I do want to pay tribute to the participation of Mr. Harris and Mr. Wolverton in the formulation of these proposals and in the assistance that they gave in our wrestling with very important and difficult problems.

I think complete comprehension of the situation to which these bills are addressed requires very brief recapitulation of what occurred

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