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roaders in the same category are lucky if they receive 25 percent of their daily rate when employed.
This means that those in this category will receive every 28 days credit for 20 days unemployment, or $204 per month of 28 days.
On a yearly basis this would amount to $2,652, whereas the maximum railroad retirement benefit is now $186 per month.
Hence, if an employee is let out between the ages of 60 and 65 years and earns while in the employ $4,000 per annum or more, it would behoove him to take his unemployment insurance for 5 years rather than qualify for retirement benefits under our system.
Now, we have many men, in fact, some of them working with the Retirement Board, who had service in the railroad profession for some 10 or 15 years before connecting with the Retirement Board who would get credit for that service if they would work just 1 more year for the railroad.
In other words, a man could come from the Retirement Board and he could start to work for a railroad. He could work for just 1 year and then he could retire and after he retired they would have to pay him unemployment benefits higher than railroad retirement for 5 years.
This provision is a step forward to have the railroads who contribute all the supporting taxes to maintain the unemployment benefits pay an additional part of retirement benefits and no doubt it is a steppingstone to have them eventually pay for retirement benefits in full.
You will note this bill provides that the railroads would pay up to 4 percent on unemployment insurance, but we doubt very much if even this amount would suffice to discharge such an obligation as specified in the bill.
It might be well to comment a little further on this feature. Originally the railroads paid 3 percent taxes in support of unemployment benefits. This fund, which is separate from railroad retirement, went over a billion dollars in reserve. We tried to use the excess in the fund to increase benefits under railroad retirement, but eventually the railroads in 1948 went along with the 20 percent increase in rail pensions and annuities and succeeded in getting their unemployment taxes reduced to 1/2 of 1 percent. It stayed at this figure a number of years until it depleted the fund under $400,000, at which time it was raised as was the demand and is now 2 percent, which they pay to maintain this system.
We have received within the past 10 days thousands of letters from members and active employees who are opposed to any increase in the tax rate or base.
In this connection, Mr. Chairman, I would submit for the record a petition, and I think this is a copy of what has been sent to Mr. Harris, carrying 239 names of railroad employees in one railroad, the Missouri Pacific Railroad at St. Louis, Mo., protesting the passage of H. R. 4353, and consideration of the bills which we recommend.
Mr. MACK. I think if it is agreeable with you, we will accept that and have that included in our files rather than in the record.
Mr. STACK. I will give it to the reporter, Mr. Chairman. I think it is a very important thing because it shows the expressions of the railroad employees in just one railroad.
Mr. MACK. Yes, I think it is very fine, but I think it would be more appropriate for us to have it for our files rather than to have it included in the record.
copy of employee testing
Mr. STACK. I think it was sent to Mr. Harris originally. I think he must have the original of it. I think Mr. Harris has it in his files.
Mr. MacK. The Chairman can include it if he desires, but in my opinion I think it would be better to have it filed with the committee.
Mr. STACK. Our people seem unanimous in their belief that they are already taxed too high for the benefits they receive. Every category of rail employees feel similarly.
I had a phone conversation with a chief clerk in New Orleans. He advised that it is difficult to hire efficient or intelligent employees in the younger brackets because when they explained the deductions taken from their pay under railroad retirement they refused to accept the job, making it necessary to hire employees of lesser qualifications which tends to react to the efficiency of the operation of the rail carriers.
This bill will add another financial burden on our people inasmuch as it will increase the tax rate to 712 percent on the basic maximum salary of $400 per month.
This latter feature should receive no consideration as today we have 27 railroads that have corporate pension systems of their own, which are supplementary to railroad retirement and in many cases employees who earn more than $350 each month.
And, gentlemen, I got that information through our membership.
I understand that Mr. Schoene, talking before the other body, brought out the fact that there were 55 corporate pension systems on the railroads today and that he asked the Retirement Board to get him information relative to these pensions. He also indicated that some of these pension systems discriminated against members of the labor movement or members of organizations represented by labor.
Of the 27 railroads that I have, there are only 2 of them that have noncontributory pensions and those railroads give the pensions to their employees that are holding what they call excepted positions.
We feel that they are entirely justified in taking a stand of that kind inasmuch as they are paying the taxes towards the system. However, some other 25 railroads have contributory plans in which the employee pays 414 percent and 41/2 percent of his earnings over and above $400 per month and when he retires he gets those pensions in addition to his railroad retirement.
One eastern railroad alone has estimated that if the tax base is raised to $400 a month it will eliminate 50 percent of the beneficiaries on that particular road from a corporate pension and the employees on the road if they increase the base to $400, that are qualified to receive pension benefits will have a reduction of approximately $25 a month on their corporate pension system.
The Retirement Board, however, sent out a letter to all the American railroads under date of March 8 signed by Mr. Howard W. Habermeyer, the chairman, requesting the information here in connection with our corporate plans and to know how many employees were involved and what the systems were and to give them the statistics and to know if they were based on an actuarial valuation.
This matter, according to Mr. Schoene, was requested by labor who are trying to exploit the management of the railroads by getting some information through the Retirement Board, but in any case, I would like to submit this letter of Mr. Habermeyer's under date of March 8,
requesting this information from the railroads to be made a part of this permanent record.
Mr. MACK. Is the letter addressed to you?
RAILROAD RETIREMENT BOARD,
Chicago 11, Ill., March 8, 1957. DEAR SIR : On February 27, 1957, the board received the following telegram from Senator Morse :
“Senate Subcommittee on Railroad retirement anxious to develop all available information regarding supplemental pension and retirement plans in the railroad industry. You are requested to survey all such plans in the railroad industry and furnish us complete information as to coverage cost, financing benefits and administration.
“WAYNE MORSE, “United States Senator, Chairman, Subcommittee on Railroad Retire
ment Committee on Labor and Public Welfare United States Senate.” In order to comply with this request, the Board would need comprehensive information on all supplementary railroad pension plans now in operation. We are therefore asking you to furnish us at your earliest convenience all data pertaining to the supplementary pension plan or plans covering your employees.
The data furnished should include the following items:
2. Latest official copy of pension rules and employee pension booklet, if available.
3. Number of employees covered under each plan and number of employees not covered under any of the supplementary plans.
4. Pension statistics for the last several years, including number of pensioners on the rolls, number of new retirements in each of these years, pension disbursements, and total pension costs to the company.
5. Findings of latest actuarial valuation, if made, with indication of level costs, unfunded accrued liabilities and level cost to employer.
If you have no supplementary pension plan in operation, we would like to be so advised, but we would still like to have the total number of your employees. Sincerely yours,
(s) HOWARD W. HABERMEYER, Chairman. Mr. Moss. Mr. Chairman, I would suggest in connection with the insertion in the record that the committee staff be instructed to request of the Retirement Board the list of railroads receiving the communication.
Mr. MACK. We will have that information included in the record, Mr. Moss. I think that will be most helpful. (The information referred to is as follows:)
RAILROAD RETIREMENT BOARD,
Chicago, Ill., March 22, 1957. Hon. OREN HARRIS, Chairman, Committee on Interstate and Foreign Commerce,
House Office Building, Washington 25, D. C. DEAR MR. HARRIS : During the testimony of Mr. Thomas Stack, president, National Railroad Pension Forum, Inc., he introduced into the record a letter dated March 8, 1957, signed by me, requesting employers to furnish the Board information with respect to supplemental pension systems. Congressman John E. Moss, at that time, requested that the Board advise the committee the names of the employers to whom this letter was directed.
The subject letter was sent by the Board to the designated contact officials of all employers covered under the Railroad Retirement and Railroad Unemployment Insurance Acts. Sincerely yours,
HOWARD W. HABERMEYER, Chairman.
Mr. STACK. There are many in this bracket and one eastern railroad alone advises that raising the tax basis to $400 each month would eliminate 50 percent of their employees from getting benefits under their corporate pension plan. If this basis is established it will increase the taxes on employees in the higher rate brackets from the present $21.88 per month to $30 each month, and as the railroads pay an equal share it would mean that employees in this class would pay toward their retirement the sum of $60 each month, or $720 each year, for retirement benefits.
This increase is enormous in view of the fact that if employees were working for industry covered by the Social Security Act, the employer and employee contribution would be only $189 per annum.
In considering that Social Security pays the major part of railroad retirement benefits it is a question of much study why taxes under railroad retirement should be increased at all.
Our trouble today with railroad retirement is the level cost basis, which is based on projections over a period of 50 years, with phantom liabilities assumed by the actuaries to devoid any excess of money for present benefits.
Our reserve today in railroad retirement is $3.8 billion, yet they tell us this cannot be used to increase benefits under our act as it is charged against future liabilities. The facts indicate, however, that since 1937 until 2 years ago when $4 billion was paid in benefits under railroad retirement, that considering we have $3.8 billion today in the reserve, that Social Security is paying the major part of our benefits, that we paid back a loan of a half a billion dollars to the Federal Government to start our system, the financial condition of the fund is not in jeopardy, nor will it be for many years to come.
The 60 actuarial survey of the railroad retirement account was based on a $5 billion taxable basis, whereas today the payroll of the carriers for the fourth time exceeded $6 billion.
Kindly refer to the monthly review of the Railroad Retirement Board January 1957, pages 8 and 9. It states, and I quote:
Although there was practically no change from 1955 to 1956, in the number of workers in employment covered by the Railroad Retirement Act, but the payrolls rose in substantial amounts.
There have been since 1937 11 rounds of general increases granted rail workers, whereas our retired people in the same period received 20-percent increase in benefits in 1948; 15-percent increase in 1951, and 10 percent last July, which was entirely inadequate to meet the ever rising living costs.
Every increase in base pay for the employees meant additional taxes into railroad retirement.
In 1937 less than 10 percent of our employees were earning $300 per month.
In 1956 the average earnings went over $2 per hour for the first time. When the base was increased to $350 per month it gave considerable to our Retirement Board.
The financial interchange provision with the social security trust fund is another source of revenue for the Retirement Board. It must be noted in 1951 hearings that the cost of reinsurance of rail employees under the Social Security Act was testified by the actuaries at $700 million; however, on June 30, 1952, it was found that all we owed Social Security was $432 million.
June 30, 1956 report showed that we owed Social Security $208.8 million and that railroad retirement had reduced their debt to Social Security in 1 year $121.8 million.
The benefit payment credited to railroad retirement by Social Security was $297.3 million. Soon our obligation to Social Security will be wiped out and the moneys received from Social Security will be a windfall to our retirement system, but it is not the employees who are benefiting from the integration with Social Security, but the railroad retirement account.
The Railroad Retirement Board always prides itself with the cost of operation. However, in 1955, the administrative costs exceeded $7 million for the first time, which was 39.6 percent higher than operation costs in 1947.
We know that every railroad employee is interested in the solvency of the fund, so if it can be proven without doubt that our railroad retirement needs more financing it should be brought to the attention of the committee that our railroads are not paying enough toward railroad retirement benefits.
In our 1934 and 1935 act, which was the start of our system and was controlled entirely by the employees themselves and not the labor groups, the railroads paid two-thirds of the supporting taxes, whereas the employees paid only one-third. It was when those acts were held unconstitutional that the brotherhood leaders first came into the picture and immediately agreed with management that employees should shoulder 50 percent of the supporting taxes, but today the picture has changed.
The railroads receive full credit for their contributions to railroad retirement through the statements to ICC.
Again they receive additional relief through the corporate income tax provision which allows them a 52-percent reduction in their corporate expenses for income-tax purposes, so while they pay on paper 614 percent of taxable payroll, they actually pay only 18 percent of this figure, or in their proportion of the present 614 percent on a base salary of $350 per month.
They actually only subscribe 3 percent. We feel that any additional cost necessary in the passage of bills should be born in full by the railroad company.
When in 1948 this Congress saw fit to increase all rail pensions and annuities 20 percent the records show that those same obstructionists were very much opposed on the grounds that such an increase would wreck the railroad retirement account, and they pleaded with crocodile tears against such an increase which, however, Congress granted, only to find when the fourth actuarial survey was made by independent audit the following year that the account was still solvent and that the 20 percent granted at that time, while inadequate, did not reflect on the financial conditions of the fund.
Another feature on financing that I feel should have the consideration of this committee is a more profitable investment of the railroad retirement reserve. Last year we received in excess of $110 million in interest from our reserve from the Federal Government on the basis of 3 percent. Many Government securities pay much greater returns. FHA mortgages, some Federal certificates, and even the savings bonds now pay in excess of 3 percent and those securities are insured as to their value by the Federal Government, hence no loss is anticipated.