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RAILROAD RETIREMENT

FRIDAY, MAY 21, 1937

HOUSE OF REPRESENTATIVES,

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D. C.

The committee met, pursuant to adjournment, at 10 a. m., Hon. Clarence F. Lea (chairman) presiding.

The CHAIRMAN. The committee will please come to order.
Mr. Latimer, you may proceed.

STATEMENT OF MURRAY W. LATIMER, CHAIRMAN, RAILROAD
RETIREMENT BOARD

Mr. LATIMER. Mr. Chairman, I apologize for not being on time yesterday. I was trying to get some statistics collected in time for presentation, but they were not ready at the time of the meeting yesterday morning.

I should like to devote my time, Mr. Chairman, to a statement giving some statistics on the cost of the proposed amendatory bill, H. R. 6956.

Section 15 (a) of this bill provides

SEC. 15. (a) There is hereby created an account in the Treasury of the United States to be known as the railroad retirement account. There is hereby appropriated to the account for each fiscal year, beginning with the fiscal year ending June 30, 1937, as an annual premium an amount sufficient, with a reasonable margin for contingencies, to provide for the payment of all annuities, pensions, and death benefits in accordance with the provisions of this act.

Now, that language, taken together with the remainder of section 15, contemplates the accumulation of a reserve which will be larger that the amounts required to pay the benefits in the early years, and it is contemplated that the reserve accumulated will provide interest at 3 percent per annum in accordance with subsection (b) of section 15, and that interest, plus subsequent appropriations, will be sufficient to pay the benefits in the later years when the actual disbursements will be much larger than in the early years. Mr. MARTIN. Mr. Chairman

The CHAIRMAN. Mr. Martin.

Mr. MARTIN. I want to ask about that language in 15. (a), page 24, whether or not that should just be an authorization instead of an appropriation?

The CHAIRMAN. What line is that?

Mr. MARTIN, Line 15, page 24. "There are hereby appropriated." The CHAIRMAN. I take it that the proper language would be an

authorization. That is all that would come within the jurisdiction of a legislative committee. This committee, of course, has no appropriating authority.

Mr. MAPES. Mr. Chairman

The CHAIRMAN. Mr. Mapes.

Mr. MAPES. The committee will recall the statement of Mr. Harrison with regard to that, that he hoped that that language would be retained and that the rules committee would report a rule making this language in order, or waiving all points of order against the provisions in the bill so that this provision could be kept in.

The CHAIRMAN. I suppose that that will be a subject for consideration by the committee when it comes to executive session?

Mr. MAPES. Yes.

The CHAIRMAN. You may proceed, Mr. Latimer. ished, Mr. Mapes?

Had you fin

Mr. MAPES. Yes. I asked Mr. Harrison with regard to that particular language, and that was his reply.

The CHAIRMAN. You may proceed, Mr. Latimer.

Mr. LATIMER. It is not now possible to forecast with any great degree of accuracy, of course, the precise amount of the appropriation which that language will call for; but it does appear certain in the early years of operation of the system the annual disbursements will likely be lower than they will be later on.

The formula provides for the accumulation of a contingency reserve which would necessarily take into account the fact of a rising burden on the account.

Since any such reserve would necessarily have some relation to that current

Mr. BULWINKLE (interposing). Mr. Latimer, when would be the peak of the load?

Mr. LATIMER. That question was asked the other day, and I stated that it would be in 1960. I should explain that while the peak disbursements do not occur in 1960 they will probably be within about 10 percent of the peak. Perhaps that statement should be corrected to say that the peak, so far as we can see now, is rather well out of sight for the reason that under this bill there is no limit on the credibility of future service. That is, beginning in the year 1967 there will be annuities paid based on more than 30 years' service, which will not be true prior to that date. And as time goes on, assuming the same length of service in the future as has been true in the past, there will ultimately be an average period of service of some 37 years as compared with a creditable service, or I mean an average creditable service, of some 27 or 28 years at the present time.

Mr. MARTIN. It will not be until after 1967 that any larger pensions will be paid by reason of the fact that there is no limit on the future service?

Mr. LATIMER. That is correct.

Mr. MARTIN. Than will be paid the man now who is ready to retire but has 30 years past service.

Mr. LATIMER. That is correct. More than that, assuming the continuuation of the wage level as at present, the annuities will tend to decline somewhat because of the fact that substantially all annuities at the present time are based on the compensation in the period 1924

to 1931 for persons who are now retiring. That represents the peak period of their earnings for the most part.

For employees who will retire, say 10 or 12 years from now, that period will not represent the peak of their earnings, consequently their annuities, other things remaining equal, will be somewhat lower than they are at the present time. We estimate that about 30 years from now the annuities, assuming no change in the wage level, will be 10 percent lower than at the present time. Thereafter the average amount of the annuity will increase.

The CHAIRMAN. Is there any difference in the wage level now and during that period, 1924 to 1931, you have just referred to?

Mr. LATIMER. On the average, the annual earnings are slightly lower than they were in that period. However, the recovery has been such that that particular level will probably reoccur shortly; but it is not so much the general level of wages which governs annuity costs as the wages of the individuals who are now in service who were also in service in that period.

The CHAIRMAN. I was thinking of its importance from a comparative standpoint, having in mind possible changes in wage levels.

Mr. LATIMER. Yes. As I will explain in a minute, we have based the projection of disbursements and have calculated these premiums on a pay roll of about $2,200,000,000, which, on the average, is approximately the level of the last 8 years. It is not the high point of those years, nor was it the low.

In considering what to put down as the premium, in view of the provision of the contingency reserve, several varying results could be arrived at, but after some study of the matter we have assumed that the premium would increase and, taking 15 as the final or the ultimate premium, we have calculated premiums which in the years 1937, 1938, and 1939-calendar years-bear the ratio of 11 as compared with the ultimate 15; and the succeeding 3 years, 12; and the 3 years following that 13; and the 3 years following that, 14, with the level of 15 reached in 1949 and remaining constant thereafter. Mr. MAPES. Have any appropriations been made by Congress or are any being made now for administrative expenses of the Retirement Board?

Mr. LATIMER. Oh, yes, sir.

Mr. MAPES. How much has been appropriated?

Mr. LATIMER. The total appropriations to date have been $1,905,000 for the period since the enactment of the statute; the first appropriation of $600,000 was made in the deficiency bill for 1936.

Mr. MAPES. Is that an addition to the $2,500,000 which has been estimated to be the expense of operation of the Railroad Retirement Board?

Mr. LATIMER. No; we have calculated in this cost here the cost of administration of the Railroad Retirement Act to date.

Mr. MAPES. Has the Government appropriated $1,900,000 plus out of the general funds of the Treasury in addition to what has been paid in under the Railroad Retirement Act?

Mr. LATIMER. The Railroad Retirement Act calls for appropriations, and nothing is paid under it. There has been an appropria

tion under its authority of $46,620,000 for payment of annuities and separate additional appropriations, as I have stated, for expenses of administration.

Mr. MAPES. Under the existing law is it necessary for Congress to take action every year-make an appropriation-for the expenses of the Board?

Mr. LATIMER. Yes, sir; under the present law and under the law as now proposed-section 16, I believe.

Mr. MAPES. Under the bill before us, as I understood the interpretation of it by Mr. Harrison, that is not the fact. It makes one appropriation and authorizes the Board to fix the amount of money that will be taken out of the fund indefinitely from year to year without any further action on the part of Congress.

Mr. LATIMER. You mean administrative expenses?

Mr. MAPES. For all expenses.

Mr. LATIMER. No, sir; section 16 reads:

There is hereby authorized to be appropriated from time to time such suns as may be necessary to provide for the expenses of the Board in administering the provisions of this act.

Mr. MAPES. Where is that section?

Mr. LATIMER. Section 16, page 27.

The CHAIRMAN. Will you just quote that language?

Mr. LATIMER (reading):

SEC. 16. There is hereby authorized to be appropriated from time to time such sums as may be necessary to provide for the expenses of the Board in administering the provisions of this act.

Mr. MAPES. That section escaped my attention when I was discussing this matter with Mr. Harrison; but in interpreting the other section to which you refer, section 15, I got the distinctive impression not only from the language itself, but from the testimony of Mr. Harrison, that no further action was contemplated on the part of Congress after the passage of this act. The sentence beginning at the end of line 20 of section 15 (a), page 24, authorizes the Board to determine the amount and all it has to do is to submit annual reports to the Bureau of the Budget for an estimate of the appropri ation to be made to the account.

Mr. LATIMER. That is true, so far as the account is concerned, but the account is available only, as in line 19, for the payment of annuities, pensions, and death benefits.

Mr. LATIMER. This bill raises no revenue. This bill is purely an appropriation bill.

Mr. MAPES. The language which you have read here, in section 16, merely authorizes the appropriation out of the general fund of the Treasury for the administrative expenses of the Board.

Mr. LATIMER. Yes, sir; and so does section 15. That is, so far as this bill is concerned, this is purely an appropriation bill from the General Treasury.

Mr. PEARSON. That only applies to this bill; but at the same time, we all have in contemplation the fact that a companion tax bill will be carried through to its final passage, which will provide the funds that are here authorized to be appropriated.

Mr. LATIMER. That is correct: yes, sir.

Mr. MAPES. How much has been the expense of the Retirement Board up to date?

Mr. LATIMER. About $1,650,000 up to May 1; up to May 15 about $1,700,000.

Mr. MAPES. Any deficit?

Mr. LATIMER. There was on May 1.

Mr. MAPES. That has been taken care of?

Mr. LATIMER. That has been taken care of; yes, sir.

Mr. MAPES. That expense has been taken out of the general fund

up to date, I believe?

Mr. LATIMER. Yes, sir.

Mr. MAPES. How many employees have you?

Mr. LATIMER. How many employees have we now?

Mr. MAPES. Yes.

Mr. LATIMER. We have on our rolls just over 800, of whom 112, I believe, are on furlough without pay; yes, 112.

Mr. MAPES. What does that mean?

Mr. LATIMER. It means we did not have money to pay them.
Mr. PETTENGILL. W. P. A. Workers were assigned?

Mr. LATIMER. No, sir

Mr. PETTENGILL. Where did you get them?

Mr. LATIMER. All of the employees, or the 112?

Mr. PETTENGILL. Those you are not paying out of your funds. Mr. LATIMER. No; following the decision of the District Court for the District of Columbia last year, which enjoined the Retirement Board from compelling the carriers to furnish our information, we were forced to create a field force since we could not get the information from the carriers in any other way. We made an arrangement with the Civil Service Commission to engage temporarily the services of persons on furlough from railroads, who were familiar with the specific work which we wished to secure.

We have had, I suppose, from time to time, 300 of such people, temporary employees.

Mr. PETTENGILL. Where does their pay come from?

Mr. LATIMER. The Railroad Retirement Board.

Mr. PETTENGILL. From the Railroad Retirement Board?

Mr. LATIMER. Yes, sir.

Mr. PETTENGILL. Did I understand you to say that you had employees whom the Railroad Retirement Board is not paying?

Mr. LATIMER. I was about to explain that when our funds ran out— rather, I should say first, our budget did not contemplate the establishment of any such field organization such as we had to establish When the Budget estimates were made for the year 1937, we thought that we would secure all records at the expense of the railroads. When the court made it impossible to do that, we had to go beyond our budget, with the permission of the White House and the Bureau of the Budget, and the Appropriations Committee. The second deficiency bill this year came along rather late, and because of the fact our funds were running out, before we got a deficiency appropriation, we found it necessary to lay off these field men. We did that also after the agreement which has been referred to here between the railroads and the labor organizations was entered into with respect to the retirement legislation. Part of that agreement was an agreement on the part of the railroads that they would furnish to the Railroad Retirement Board such information as was adequate to adjudicate annuities.

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