last year and what the chairman referred to yesterday as unfinished business. We proposed last year a 3-point program to the Congress. It involved, first, a general, but by no means universal, increase of 15 percent in the benefits under the Railroad Retirement Act. Secondly, we proposed to eliminate the then existing actuarial deficit in the Railroad Retirement Act as disclosed by the sixth actuarial valuation and to provide financing for the additional benefits proposed through an increase in the railroad retirement taxes, both on the employers and on the employees, from 614 percent to 714 percent. We proposed that this rather substantial contribution on the part of the railroad employees and the increase therein be offset to some extent by savings in income taxes through the exclusion of the railroad retirement taxes on the employees from gross income for purposes of the income-tax laws. I don't suppose it is necessary to say that they are of course already excluded, so far as the employer is concerned, from the much higher corporate tax rate of 52 percent. As the time for adjournment approached it became clear that the Congress could not complete its consideration of that entire 3-point program before adjournment. Nevertheless, it was considered that some emergency action was nesessary to relieve the distress of these retired employees and the survivors of deceased employees who were attempting to live under conditions of rising costs of living on very inadequate incomes. Consequently Congress enacted a bill providing for what was generally a 10-percent increase, although again not universal, even among the retired employees. It also revised the formula for computing survivor annuities upward by 10 percent, but that had very little effect for the reason that the great bulk of survivor annuities were already being paid under the minimum benefit provision in the act which provides that the benefit shall not be less than it would have been under the Social Security Act if railroad employment had been covered by that act, and the 10-percent increase in the railroad formula was not sufficient to bring most of those annuities up to the amount of the social security benefit, and consequently we are even today awarding some 90 percent of the survivor benefits on the basis of that social security minimum. Likewise with respect to spouse's benefits. We have a ceiling on spouse's benefits not paying more than the maximum spouse's benefit that would be payable under the Social Security Act that was not changed last year, with the result that most spouse's benefits were either not increased or increased less than 10 percent. That emergency action was taken without making any provision for either eliminating the deficit disclosed by the sixth actuarial valuation, or financing the additional cost that was incurred through the benefit liberalizations made in last years's legislation, but with the understanding on the part of the members of the Committee, both in the House and the Senate, and on the part of our organizations, and by the President when he signed the bill, that we would put our heads together this year and come up with recommendations for solution to all the unsolved problems that were left by last year's partial action and partial inaction. We have found that the benefit levels, notwithstanding the increase last year, remain wholly inadequate. Of course, so far as survivor benefits are concerned, as I have already indicated, they are being paid by the measure of the Social Security Act. In other words, with respect to the survivors of our deceased employees, 90 percent of them are being awarded under a formula that gives them no more than they would have had if the employee whom they survived been employed under the Social Security Act and had paid that rate of taxes instead of the 614 percent that he pays under the Railroad Retirement Act. So far as the retirement benefits are concerned, they are averaging only $115 a month, that is, for those on the rolls, even with that 10-percent increase. Actually the average for all retirement annuities is somewhat lower than that. When I speak of the $115 I am speaking of average retirements. The disability retirements average only about $104. Of the annuities being currently awarded the retirement annuities run a little higher than that, about $125, but for some reason the age annuities being currently awarded are averaging only $103, or even a little less than the average for the total on the rolls. We are consequently proposing on the benefit side as the major change in benefit levels a general and almost universal additional 10percent increase in the benefits. The only exceptions to the universality of the 10-percent increase are these: We have some annuitants who are being paid under one of our minimum annuity provisions that gives them as much in the annuity as their average monthly compensation was while they were in active service. There are relatively few of those. They are generally people who had short periods of service or very low earnings when they were in the industry, but we have not proposed that that minimum be increased to 110 percent of their average earnings while they were in active service, so that all of those who continue under that minimum, notwithstanding the 10-percent increase in the formula, would receive no increase in the benefits as provided by this bill, and others who may rise above that minimum may not rise as much as 10 percent. There is one further exception. Although the survivor benefits would be increased by 10 percent, both in the computation under the Railroad Retirement Act and in the social security minimum, we have some surviving widows, again rather few in number, who are being paid a survivor benefit higher than either the social security minimum or the railroad retirement formula by reason of the provision that if a spouse is receiving a spouse's annuity at the time widowhood occurs the survivor annuity shall not be less than the spouse's annuity. In other words, we avoid a reduction in the annuity being received at the time widowhood occurs and we have not proposed any increase in that minimum, so that those for whom, say, 110 percent of the social security minimum would not bring them up as high as the minimum they are already receiving under the guaranty not to reduce a spouse's annuity at widowhood, there might be no increase. However, with those exceptions the major benefit provision in the bill is an-across-the-board 10-percent increase so far as retirement benefits are concerned. The CHAIRMAN. For clarification, under present law a spouse receives a maximum of $54.40, is that right? Mr. SCHOENE. A maximum of $54.40, that is right. The CHAIRMAN. The average which a spouse receives is estimated to be about $30? Mr. SCHOENE. I think that is correct. The CHAIRMAN. If a spouse who received the maximum of $54.40 then finds herself widowed, she will continue to receive the $54.40 even though under present law she might receive less? Mr. SCHOENE. That is right. Even though the survivor benefit would be less than that she would continue to receive what she had been receiving as a spouse, and the maximum which you referred to, Mr. Chairman, would be increased by this bill by 10 percent, so that instead of having the situation we had last year of maintaining that ceiling that prevented so many of the spouses from getting the increase, that ceiling is now increased 10 percent by the proposals in this bill. The CHAIRMAN. Do you consider that a minor exception? Mr. O'HARA. May I ask one question there, Mr. Schoene? What is the survivor benefit under social security? Of the spouses' benefit what is the monthly payment? Mr. SCHOENE. It is 50 percent of the employees' primary insurance amount, which Mr. Niessen explained to us, and that now comes to a maximum, as I understand it, of $54.40. There are a number of other substantive changes proposed with respect to the Railroad Retirement Act, and I think I can best present those by reference to the specific sections of the bill. If it is agreeable to the committee I would like to discuss the specific sections of the bill. A number of them are merely technical and conforming and in the interest of saving time when I come to those sections I will simply identify them as being of that character and not go into the technical details of draftsmanship. The CHAIRMAN. So that the record may be clear, you are testifying in behalf of H. R. 4353 and all identical bills? Mr. SCHOENE. That is correct. The CHAIRMAN. You are not testifying on any of the various other bills that are before the committee? Mr. SCHOENE. That is right. I can say with respect to all the other bills that I have seen, and I think I have seen all of them, that they provide various kinds of changes and liberalizations in benefits which to one degree or another would increase the expenditures of the system, would make no provision for financing those additional expenditures, and no provision for eliminating the present deficit, and regardless of whether we would consider any particular improvement in benefits desirable, it is our firm position that this system must be kept on a sound financial basis and we are consequently opposed to any bill which would in the face of the present existing actuarial deficiency increase expenditures without making adequate provision for financing. That can be the total of my testimony as to all other bills. Looking first as section 1 of the bill, and I will refer to subsection (a) first, that section is addressed to a situation involving an inequity as between the railroad retirement system and the Social Security System arising from the social security amendments of last year. Under the Social Security Act as amended last year women employees are given the option to retire at the age of 62 instead of 65, but taking an annuity in an amount that is actuarially reduced from the amount to which they would be entitled if they were age 65, so that the total value of the annuity at age 62 remains the same as it would be at the age of 65. Our women employees with less than 30 years of service do not have that option and we feel that they should have it. Our women employees if they have 30 years of service may retire at as early an age as 60 and receive their full annuity, but if they have less than 30 years of service they must now wait until age 65 before they can retire. Section 1 (a) of the bill would permit them as under social security at their option to retire at the age of 62, taking a reduction of one one-hundred-and-eightieth in the amount of annuity for each month that they are under age 65 at the time of retirement. That is calculated to make the value of the annuity the same and consequently would add no cost to the retirement system. It would also however, make the application of the social security minimum more practicable with respect to the women employees. Coming to section 1 (b) that section is addressed to an inequity arising among our disability-retired employees. As a sort of pragmatic test of possible recovery from disability, the present law provides that an employee on disability retirement who earns more than $100 in any month in nonrailroad employment loses his annuity for that month. Of course, if he works in the railroad industry or for the last person by whom he was employed before he retired, he, like an age-retired annuitant, receives no annuity for that month regardless of the amount of the earnings, but if he engages in some other employment and earns more than $100 a month he loses the annuity for that month. We have varying situations. We find that occasionally one of these individuals may earn very considerably in excess of $100 in a single month and he loses only the 1 month annuity. We have other cases whereby earning only slightly over $100 in several months during the year the individual loses several annuities, one for each month in which he exceeded the $100 amount, but he may have total earnings less than or not in excess of the other fellow who earned it all in 1 month and the one loses several annuities, whereas the other loses only 1. We found also that under the general work clause under the Social Security Act the amount taken into consideration is $1,200 per year. Consequently, we felt that this inequity between disability annuitants arising from the fortuitous circumstances as to how many months is covered by the amounts they may earn could be eliminated by approaching it from an annual average point of view. We felt that the social security work clause is for one thing too complicated, and for another thing, can result in complete loss of income after employment ceases through subsequent withholdings, which we did not feel was equitable, and might result in severe hardship. We consequently devised a modification of the present system which we propose that the retirement board will continue to withhold payment of an annuity for any month in which the individual earns in excess of $100, but at the end of the year if it is found that the total earnings for the year are not in excess of $1,200 any withheld annuities will be paid, and if the amount earned is in excess of $1,200 we would not draw a sharp line at $1,200, but retain only 1 month's annuity for each $100 that the total earnings exceed $1,200, treating the last $50 as $100. We feel that in that way there can be an equitable adjustment among these disability-retired employees. It may not completely eliminate all inequities or inequalities, but we think we have come pretty close to it. Mr. O'HARA. Mr. Schoene, in respect to earnings, does that mean salaries for wages or would it also include returns from investments? Mr. SCHOENE. It would not include returns from investments. It would, however, include earnings in self-employment, so-called selfemployment. I do not like that term. It always seems to me to be self-contradictory, but it has come into use so I will use it too. It is substantially the kind of earnings that would be covered by social security, which does include self-employment but not investment earnings. Coming to section 1 (c) of the bill on page 3, that section modifies the maximum ceiling on spouses' annuity, which I have already referred to, by making it 110 percent instead of an amount equal to the maximum amount payable under social security, and it is through that that the spouses now getting the maximum would receive their increase of 10 percent. Section 1 (d) is one of these technical conforming amendments that I earlier referred to and I will not stop to discuss it in any detail. Section 1 (e) is comparable with respect to spouses to section 1 (a) which I have already discussed. At the present time a spouse of a retired employee under the Railroad Retirement Act is not eligible to a spouse's annuity until she reaches age 65, but under the Social Security Act, as amended last year, assuming that the retired employee is age 65 and is drawing benefits on that basis, a spouse under the Social Security Act is given the same election as the woman employee of taking her spouse's annuity at age 62, but with the reduction in the amount to render that annuity at age 62 of the same value that it would have been had it been deferred to age 65. We propose in section 2 (e) of the bill to afford that same option to the spouse of a railroad employee. Section 2 (a) of the bill changes the factors on which retirement annuities are computed by increasing each of those factors by 10 percent above their expression in the present law with the result that an annuity computed on the revised formula will be 10 percent higher than one computed under the present law. The reference to $250 on line 2 of page 4 at the end of the subsection I have just been discussing refers to an amount in excess of $150 in the formula and by being changed from $200 to $250 takes account of the fact that we are also in this bill proposing to increase the maximum creditable compensation from $350 per month to $400 per month. The CHAIRMAN. In this 10 percent general increase will there be a small percentage of those who will not receive the increase as occurred with the legislation that we enacted last year? Mr. SCHOENE. The only exceptions on the retired employees are the ones I have already referred to, Mr. Harris, namely those being paid under the minimum that provides them an annuity equal to the amount of the average compensation they earned while in active service. So far as the retired employees are concerned those are the only excep tions. The CHAIRMAN. What about the spouses and the widows? |