I D I P

f 3 l/ / / F E D E R A L DEPOSIT ins uran ce corpora- 

‘ TION—ASSUMPTION OF EMPLOYEE BEN EFITS COSTS AND CHANGE IN AUDIT DATES

GOV ERNMEN T’

Storage

H E A R IN G

BEFORE A

SUBCOMMITTEE OF THE

j COMMITTEE ON

GO VER NMEN T OPE RATIO NS 

HOUSE OE REPRESENTATIVES

EIGH TY -EIG HT H CONGR ESS 

F IR S T SE SSIO N

OCTOBER 8, 1963

Printe d for the use of the 

Committee on Government Operations

i

24-679

U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 1963
COMMITTEE ON GOVERNMENT OPERATIONS

DAWSON, Illinois, Chairman

R. WAL TE R RI EI IL M AN , New York 

GE OR GE MEA DE R. Michigan 

CL AR EN CE J. BROW N, Ohio 

FL OREN CE P. DW YE R. New Jersey 

RO BE RT P. GRIF FIN , Michigan 

GE OR GE M. WA LL IIA US ER , New Jersey 

JO HN B. AN DE RS ON , Illinois 

RI CH AR D S. SC HW EI KE R, Pennsylvania 

OG DE N R. REI D, New York 

FR ANK J. HO RT ON , New York 

BI LL ST INSO N, Washington 

RO BER T Mc CLOR Y, Illinois

WILLIAM L.

C II ET HOLI FI EL D, California 

JA CK BRO OKS, Texas 

L. II. FO UN TA IN , North Carolina 

PO RTER HA RD Y, Jr., Virginia 

JO HN A. BL AT NI K, Minn esota 

RO BER T E. JONE S, Alabama 

ED WAR D A. QA RM AT Z, Maryland 

JO HN E. MOSS, California 

DA NT E B. FA SC EL L, Florida 

HEN RY S. REUSS, Wisconsin 

JO HN S. MONAGAN, Conn ecticut 

RI CH ARD E. LA NK FO RD , Maryland 

TORBERT H. MA CD ON AL D, Massachusetts 

J. ED WAR D ROU SH, Ind iana 

WILLIAM S. MO OR HE AD , Pennsylvania 

CO RN EL IU S E. GA LL AG HE R, New Jersey 

WILLIAM J. RA ND AL L, Missouri 

BE NJ AMIN S. RO SE NT HA L, New York

Christine Rat Davis, Sta ff Director

James A. Lanigan, General Counsel

Miles Q. Romney, Associate General Counsel

Malcolm K. Edwards, Mino rity Professional Staff

J. P. Carlson, Minority Counsel

Legal and Monetary Aff ai rs Subc ommit tee

DA NT E B. FA SC EL L, Florida, Chairman

RI CH ARD E. LA NK FO RD , Maryland JO HN B. AN DE RS ON , Illinois

TORBERT H. MA CD ON AL D, Massachu setts ROBER T Mc CLORY, Illinois 

CO RN EL IU S E. GA LL AG HE R, New Jersey

M. Joseph Matan, Sta ff Administrator

Charles Rothenbero, Counsel

Milucent Y. Myers, Clerk
C O N T E N T S

Sta tement of—

Moroney, William M., Jr., Assistant to the Chairman and Controller, 

Federal Deposit Insurance Corp oration; accompanied by Jack 

Sronce, Deputy Controller; and Francis C. Brooke, Jr., Assistant Page 

Counsel__________________________________________________ 10

Neuwirth, Max A., Assistant Director, Comptroller General’s Office, 

General Accounting Office; accompanied by Gerard Wilker, Civil 

Accounting and Auditing Division; and James M. Campbell, 

atto rney, Office of the General Counsel_______________________ 2

Statem ent su bmitted for the record by William M. Moroney, Jr., Assistant 

to the Chairman and Controller, Federal Deposit Insurance Corporation: 

Statem ent of Jesse P. Wolcott, Director, Federal Deposit Insurance 

Corporation___________________________________________________ 10

Draft legislation_____________________________________________ 12, 15

AP PE ND IXES

»endix A—Portion of report on aud it of Federal Deposit Insuranc e

Corporation, Jan uar y 1963.. .................... ....... ........... ............. ................... 19

Appendix B—Letter from Erie Cocke, Sr., Chairman, Federal Deposit

Insurance Corporation, to Hon. Dan te B. Fascell, Jun e 21, 1963........... 20

Appendix C—Letter from Hon. Joseph Campbell, Comptroller General of

the United States, to Hon. Dan te B. Fascell, August 19, 1963, with 

enclosure_____________________________________________________ 21

B H B

FEDERAL DEPOSIT INSURANCE CORPORATION—ASSUMPTION OF EMPLOYEE BENEFITS COSTS AND

CHANGE IN AUDIT DATES

TUESDA Y, OCTOBER 8, 196 3

H ouse of R epresenta tives,

Legal and Monetary A ffa irs S ubcomm ittee

of th e C om mittee on G overnm ent O per ations,

Washington, D.C.

The subcommittee met, pursuant to notice, at 10 a.m., in room 100- 

B, George Washington Inn, Hon. Dante B. Fascell (chairman of 

the subcommittee) presiding.

Prese nt: Representatives Dante B. Fascell, Joh n B. Anderson, and 

Robert McClory.

Also present: M. Joseph Matan, staff administrator; Charles 

Rothenberg, counsel; and Millicent Y. Myers, clerk.

Mr. F ascell. The subcommittee will come to order.

We are meeting this morning because it is the responsibility of 

the Legal and Monetary Affairs Subcommittee of the House Government Operations Committee to examine and evaluate the efficiency 

and economy of the operations of certain executive branch departments and agencies, including those of the Federal Deposit Insurance 

Corporation.

This hearing will inquire into the recommendations of the Comptroller General of the United States in audits of the Federal 

Deposit Insurance Corporation that the Federal Deposit Ins urance Act be so amended as to require—

(a) tha t the Corporation assume all costs of providing retirement, disability, and compensation benefits for Corporation 

employees; and

(b) tha t the General Accounting Office make its repo rt on 

audits on a calendar-year basis.

Our first witnesses this morning will be from the Comptroller 

General’s Office. We have with us Mr. Max Neuwirth, who is the 

Assistant Director, accompanied by Mr. Gerard Wilker, Civil 

Accounting and Auditing Division, and James M. Campbell, attorney, Office of the General Counsel.

Mr. Neuwirth, you may proceed any way you like. You may 

read your statement or summarize it.

1
2 FDIC— ASSUMPTION OF EMPLOYEE BEN EFITS COSTS

STATEMENT OF MAX A. NEUWIR TH, ASSISTANT DIRECTOR, COMPTROLLER GENERAL’S OFFICE, GENERAL ACCOUNTING OFFICE;

ACCOMPANIED BY GERARD WILKER, CIVIL ACCOUNTING AND

AUDITING DIVISION, AND JAMES M. CAMPBELL, ATTORNEY, 

OFFICE OF THE GENERAL COUNSEL

Mr. Neuwirth. Mr. Chairman, I would like to read my statement.

Mr. Chairman and members of the subcommittee, we welcome this 

opportunity to appear before you.

We appear before you today in connection with the possible enactment of legislation required to implement the recommendations contained in our report to the Congress on the Federal Deposit Insurance 

Corporation for the fiscal year ended J une 30, 1962, and preceding 

years.

Our recommendations are designed (1) to provide tha t the Corporation reimburse the Government for its share of the cost, and related 

administrative expenses, of retirement benefits and of compensation 

benefits for its employees; and (2) to require that audits of the Corporation’s financial transactions be made by the General Accounting 

Office on a calendar-year basis rath er than on a fiscal-year basis as 

is presently required. The Corporation has consistently supported 

these recommendations made in our annual reports on audits of the 

Corporation.

Since the first pay period beginning after June 30, 1957, the Corporation has contributed to the Civil service retirement fund in 

amounts equal to the contributions made by its employees. The 

Corporation’s contributions are made pursuant to the Civil Service 

Retirement Act Amendments of 1956. However, this act does not 

provide for retroactive contributions, and, therefore, the Corporation has not contributed its share of the cost of providing retirement benefits for its employees for the period from its inception on 

June 16,1933, to Ju ly 13, 1957. Consequently, this cost will be borne 

by congressional appropriations unless the Federal Deposit Insurance Corporation is required to contribute its share of the cost of 

these employee benefits for the period from its inception to July 13, 

1957. In addition, the Corporation has never borne its share of the 

cost of administering the fund. This cost has been financed from 

appro priated funds and we believe it would be equitable for the 

Corporation to bear its pro rata share of administering the benefits 

accruing to its employees.

We estimate tha t payments of $4 million would be required to 

reimburse the civil service retirement fund for benefits provided to 

the Corporation’s employees without cost to the Corporation. This 

estimate is based on the Corporation’s payments being equivalent to 

the amount of the employees’ contributions and is exclusive of interest 

and the Corporation’s pro rata share of the cost of administering the 

fund.

In addition to the civil service retirement benefits, employees of the 

Federal Deposit Insurance Corporation receive compensation benefits 

for disability or death resulting from personal injury sustained while 

in the performance of their duties. The Corporation has not reimbursed the Federal employees’ compensation fund for compensation 

benefits received by its employees and, consequently, these costs have
FDIC— ASSUMPTION OF EMPLOYEE BEN EFITS COSTS 3

been borne from appropriated funds. The Federal Employee’s Compensation Act Amendments of 1960 require a mixed ownership corporation to reimburse the fund for the total cost of compensation 

penefits accruing to its employees afte r December 1, 1960, and to 

pay its fair share of the cost of administration of the Employees’ 

Compensation Act. Officials of the Corporation have advised us 

tha t they believe the Corporation is neither required nor authorized 

to reimburse the fund for these costs but tha t they would support 

legislation authorizing the Corporation to make such payments.

Payments of about $71,000 would be required to reimburse the employees’ compensation fund for the benefits received prior to fiscal 

year 1963, by the Corporation’s employees without cost to the Corporation. This estimate is exclusive of the cost of administering the 

fund.

In summary, the foregoing recommendations contemplate the enactment of an amendment to the Federal Deposit Insurance Act requiring the Corporation (1) to pay its share of the cost of civil service 

retirement benefits for its employees for the period from inception to 

Jul y 13, 1957, (2) to reimburse the compensation fund for benefits 

paid to the Corporation’s employees retroactive to inception of the 

Corporation and currently afte r enactment of the amendment, and 

(3) to pay its fair share of the cost of administering both systems 

retroactive to its inception and currently after enactment of the 

amendment. We believe tha t these costs should be borne from the 

Corporation’s revenues derived from the assessments regularly received from insured banks. The contemplated amendment would 

result in the Corporation’s bearing generally all costs pertaining to its 

operations except unemployment compensation benefits which are too 

small to justify the cost of determining the applicable amounts.

Our second recommendation contemplates an amendment to the 

Federal Deposit Insurance Act to specify the calendar year as the 

fiscal year of the Corporation for accounting, auditing, and reporting 

purposes and require the General Accounting Office to make its reports of audits accordingly rather than as of June 30 each year as is 

presently required. Since inception, the Corporation has submitted 

its annual report to the Congress on a calendar-year basis. Banks in 

general submit financial reports and statistics on a calendar-year 

basis. It would facilitate our audit and it would also be advantageous to the Corporation if the period covered by the audit were the 

same as that covered by the Corporation’s annual report.

Mr. Chairman, this concludes my prepared statement. We will be 

glad to answer any questions you or members of your subcommittee 

may have.

Mr. F ascell. Thank you, Mr. Neuwirth.

Mr. Anderson, do you have some questions ?

Mr. Anderson. The total cost of enactment of these recommendations tha t you have made would be $4 million, is tha t righ t?

Mr. Neuwirth. $4 million, sir, is the estimate, but it does not include interest and a pro rata share of administrative expense of the 

fund.

Mr. Anderson. I s tha t particular—do you know whether that 

particular recommendation is one that is embodied in the law as fa r 

as other Government agencies are concerned ?
4 FDIC— ASSUMPTION OF EMPLOYEE BEN EFITS COSTS

In other words, do all of the other agencies th at are involved in 

the fund contribute a certain share of the administrative expense?

Mr. Neuwirth. Retirement contributions since 1957, yes. Prior 

to 1957, no.

In other words, for civil service contributions since the enactment 

of the 1956 act.

Mr. Anderson. But this provision would only be prospective, as far 

as tha t portion of your recommendations are concerned? I mean 

this sharing of the administrative burden or expense.

Mr. Neuwirth. No, sir. We believe both administrative experience 

and benefit contributions should be retroactive, as well as prospective.

Mr. Anderson. Why would you be t hat stringent with respect to 

the FD IC, if the other agencies have only paid their pro rata share 

since 1957 ?

Mr. Neuwirth. Well, sir, we have had similar recommendations in 

other reports to the Congress on other corporations, such as ExportImp ort Bank. We have had the same recommendations, sir, in the 

report of practically every corporation th at we audit.

But, unfortunately, there has not been sufficient congressional interest.

Mr. Anderson. Is this a difficult accounting job, to ascertain with 

any mathematical certainty what their fai r share of the expense is, 

going all the way back to 1933 ?

Mr. Neuwirth. You mean for other corporations?

Mr. Anderson. No, this particular Corporation.

Mr. Neuwirth. No, sir. We have a figure that I believe can answer 

your question. The Civil Service Commission sets up a rate per 

employee on the current pay role of each agency. It averages about 

$1. We believe that-----

Mr. Anderson. $1 a year, you mean ?

Mr. Neuwirth. $1 a year per employee.

From our recent reports, the number of personnel in the Federal 

Deposit Insurance Corporation is about 1,200. Taking an average of 

a thousand employees per year from inception in 1933 to 1963, at 

this dollar rate, it would total $30,000.

Mr. Anderson. I see.

Tha t is all the questions I have.

Mr. F ascell. Mr. McClory?

Mr. McClory. Mr. Neuwirth, who initiated this idea of the FDIC 

contributing back or volunteering to reimburse the Federal Government in this way?

Mr. Neuwirth. We did, sir—in our reports going back to 1947. 

And the reason for it is tha t the FDIC , as you know, operates out of 

revenues: assessments received from banks. They meet all of their 

costs from these revenues. As a matter of fact, they are on record 

in many periodicals and reports in which they take pride in the fact 

that they don’t want any support from the Government. We believe 

tha t these contributions are a cost—the same as a payroll cost, to the 

FDIC, in carry ing on their business, because their employees have 

received benefits from the fund.

Mr. McClory. Now, when you computed what the possible liabilities of the FDIC are to the banks, didn’t you—you made an actuarial 

computation-----
FDIC— ASSUMPTION OF EMPLOYEE BEN EFITS COSTS 5

Mr. Neuwirth. No, sir; we did not make an actuarial computation, sir. What we did was we took the matching contribution. In 

other words, prior to—from 1933 to 1957-----

Mr. McClory. I am not talking about the pension benefit at all 

now. I am just talking about the potential liability of the FDIC. 

You took the potential liability and you made an actuarial computation, did you not, and then made the assessments on the basis of what 

your actuaries had provided th at the potential liability was?

Mr. Neuwirth. No, sir. We did not make any actuarial computation.

Mr. McClory. Isn’t this a funded program of the FDIC? This 

is a reserve program, is it not ?

Mr. Neuwirth. To answer your question, this is the way we computed the $4 million. We did not do it on an actuarial basis.

Mr. McClory. I am not talking about the $4 million. What I 

would like you to do for me-----

Mr. F ascell. You will have to ask the FDIC. He is from the 

Comptroller General’s Office.

Mr. McClory. I see.

Well, let me ask you this, then: With regard to the FD IC contribution or assessment, you have reviewed in the General Accounting 

Office the validity or the sufficiency of the contributions which have 

been requested of the contributing banks, have you not ?

Mr. Neuwirth. Well, the FDIC, sir, has not made any contributions prior to 1957. The only contributions made were by employees.

Mr. McClory. We are not talking on the same subject. I am not 

talking about the contributions to the pension fund. I am talking 

about the assessments against the banks for F DIC insurance.

Mr. Neuwirth. This was part of our review, yes, sir, the assessments from the banks.

Mr. McClory. Yes.

Now, excluding for the moment the pension benefits of the employees, has the General Accounting Office considered the sufficiency 

of the assessments th at the FD IC makes—requires of the banks ?

Mr. Neuwirth. Well, I can only answer you in tha t respect, that 

there is a $2% billion reserve in the deposit insurance fund.

Mr. McClory. Now, tha t $2% billion reserve that was accumulated— 

at the time tha t the assessments were made—it did not take into 

account this liability of reimbursing the Government?

Mr. Neuwirth. Apparently not.

Mr. McClory. No. So tha t you have computed the assessment 

was more than sufficient, and it can adequately absorb this?

Mr. Neuwirth. Yes, sir.

Mr. McClory. There is no doubt in your mind about that ?

Mr. Neuwirth. No, sir.

Mr. McClory. What are the reserve funds? What are they invested in? Government securities?

Mr. Neuwirth. Government securities, as we understand, at about 

2 percent.

Mr. McClory. And the Government securities are 

off through taxes th at are levied against the taxpayei 

this is really a tax liability, is it not? It is a ta 

ultimately.

24 -67 9— 63------ 2
6 FDIC— ASSUMPTION OF EMPLOYEE BEN EFIT S COSTS

Mr. Neuwirth. Well, the revenues, of course, come from assessments to the banks in this case, an outside source.

Mr. McClory. Tha t is right. But the reserves that are built up 

are all invested, are they not ?

Mr. Neuwirth. As far as we know.

Mr. McClory. And they are invested in Federal securities ?

Mr. Neuwirth. Yes, sir.

Mr. McClory. And the obligation of the Federal securities is the 

obligation of the taxpayer, is it not?

Mr. Wilker. I might point out, Congressman, that there is a for* 

mula provided by the act whereby the assessments from the banks are 

first applied to cover the administrative costs, and the actual and 

potential losses of the corporation. After covering these expenses 

two-thirds of the balance is returned to the banks and one-third 

goes into this reserve fund.

Mr. McClory. There have been refunds, have there ?

Mr. Wilker. Yes, sir.

Mr. McClory. I see.

Now, is the assessment—the future assessments, they will have to 

be increased, will they not, to reflect those additional obligations of 

the FDIC?

Mr. Wilker. Not necessarily, sir. It will just increase the administrative expenses, and reduce the amount returned to the banks.

Mr. McClory. This is going to make the Federal balance sheet— 

the Federal Government’s balance sheet—look better to the extent of 

$4 million, is it not ?

This is really a contribution of $4 million on the asset side of the 

Federal Government th at otherwise would not occur.

Mr. Neuwirth. Tha t is correct. This $4 million will come to the 

Federal Government.

Mr. McClory. The Budget Bureau—have they been pressing you 

on this at all ?

Mr. Neuwirth. No, sir.

Mr. McClory. You have not—there hasn’t been any pressure from 

the White House at all on this ?

Mr. Neuwirth. No, sir.

Mr. McClory. This emanates from the General Accounting Office ?

Mr. Neuwirth. Yes, sir. And, as I said before, sir, these recommendations go all the way back to 1947, and we have had several 

administrations since tha t time.

Mr. F ascell. Mr. Neuwirth, as a matter of fact, this problem that 

we are discussing here this morning is reflected not only in other corporations but also with other governmental retirement funds; isn’t 

tha t true ?

Mr. Neuwirth. When you say “other Government retirement 

funds”-----

Mr. F ascell. I am talking about governmental employees generally. Don’t we have the problem tha t the Federal Government has 

not made contributions to the fund, and tha t what we are doing is 

paying out of appropriations each year?

Mr. Neuwirth. Yes, sir.

Mr. F ascell. And the problem represented here is a problem we 

have had practically across the board in Government; tha t the Congress makes appropriations for payments out of the fund rather
FDIC— ASSUMPTION OF EMPLOYEE BEN EFITS COSTS 7

than appropriating the funds necessary to keep the fund actuarially 

sound; and in this case, we do not even have the employer contributions toward making the fund properly sound ?

Mr. Neuwirth. Yes, sir. The contributions have been made only 

since 1957 by FDIC .

Mr. McClory. Can I ask one more question, Mr. Chairman?

How much would be involved if all of the different governmental 

corporations repaid the amounts that were originally contributed to 

these pension funds by the Government? Tha t is, I suppose it exists 

in the Savings and Loan Corporation, and the RFC.

Mr. F ascell. Not RFC.

Mr. Neuwirtii. We don’t have a figure like that, but it could be 

prepared. It would take some effort to do it. We have not prepared such a figure for the other corporations. But we have had this 

recommendation.

Mr. McClory. With regard to all of them ?

Mr. Neuwirth. Yes, sir.

Mr. McClory. So the chances are we will have other studies of this 

type made in the future ?

Mr. Neuwirth. Yes, sir.

I might point out one other thing to you, if I may.

In the basic act of the Virgin Islands Corporation and St. Lawrence 

Seaway Development Corporation there is a provision that they 

contribute to the civil service retirement fund. The St. Lawrence 

Seaway has made such contributions since 1954, and the Virgin 

Islands since 1950 on the basis of annual billings as determined by 

the Civil Service Commission for the Government’s share of the 

cost. They have been making these contributions prior to the 1956 

act which required FDIC among other Government corporations 

and agencies to make such contributions.

Air. McClory. What about TVA? Are they involved in this program in the future? Did we contribute—was there a Federal contribution of TVA employees originally?

Mr. Neuwirth. I am not familiar with it, sir.

Air. Wilker. I have no personal knowledge of it.

Air. Neuwirth. Sorry.

Air. McClory. Tha t is all, thank you.

Air. F ascell. Air. Neuwirth, have you ever heard discussion with 

respect to this problem—that there is a great reluctance in the Congress to require a full contribution by Government corporations on 

the theory tha t they might become independent operations, completely separate and apart from the Government ?

Air. Neuwirth. Well, my dealings recently with the FD IC—as we 

say in our statement here, the FD IC is supporting this legislation.

Air. F ascell. Any other questions?

Thank you very much, Air. Neuwirth, and gentlemen.

Air. Alatan has some questions.

Air. Matan. On page 2 of your statement, in discussing the amount 

tha t will be required to reimburse the civil service retirement fund, 

you give a figure which you say is exclusive of interest.

Is the Comptroller General recommending that interest be paid on 

the amount that is being contributed into the retirement fund?

Air. Neuwirth. Well, let me answer you this way, sir.
8 FDIC— ASSUMPTION OF EMPLOYEE BEN EFIT S COSTS

We have no strong feelings on the subject. But we believe that 

from an equitable point of view the Federal Deposit Insurance 

Corporation should pay interest, and we believe it should pay interest at the same rate that it has earned on these moneys which are due. 

And, as I said a bit earlier, it is my understanding that the rate is 

approximately 2 percent. We base our opinion on several premises. 

One is th at they had the use of this money. If it was turned over 

with interest at this time, the FDIC would not be in any worse position than they would be had these payments been made on a current 

basis.

Mr. Matan. Have you made any computations of the amount the 

interest would come to?

Mr. Neuwirth. Yes, sir. On the basis of 2 percent, which again I 

would like to repeat tha t I believe was the earning rate of the FDIC 

on its invested funds, it is approximately $1 million. A little over 

$1 million.

Mr. Matan. What is the rate of earning by the retirement fund? 

Do you know that, sir?

Mr. Neuwirtii. Yes, sir. I believe i t is approximately 4 percent, 

although there have been some variations in the rate. But generally, 

it is roughly about 4 percent.

Mr. Matan. I have no further questions.

Mr. Fascell. Mr. Neuwirth, in your last audit, did you get any 

figures you could give us on the size of this fund, and what the contributions to it are on an annual basis, both by the FDIC, and from 

appropriations?

Mr. Wilker. The retirement fund?

Mr. F ascell. Yes, just the retirement fund.

Mr. Wilker. We don’t have figures on the retirement fund, sir.

Mr. F ascell. Well, are they hard to get ?

Mr. Campbell. We could get them for you readily, I think.

Mr. Neuwirth. Do you mean the entire contributions to the retirement fund ?

Mr. F ascell. In other words, you estimated $4 million as going 

from 195V back to 1933 ?

Mr. Neuwirth. That is correct—from 1933 to 1957.

Now, that is based on a matching basis. I would like to emphasize 

one thing on this $4 million. It is a suggested guide for the 

committee.

Our computation is based on a precedent set by the Congress in the 

1956 act in which it requires corporations and agencies to match 

employees’ contributions. The present rate is 6y2

 percent. We used 

tha t formula as a basis to retroactively determine the amount. This 

computation has not been made on an actuarial basis.

Air. F ascell. What I am trying to find out is, W hat is the amount 

of the employees’ contribution"?

Mr. Neuwirth. From the FDIC? We don’t have that figure here. 

The gentleman from the FD IC may have that figure.

Mr. F ascell. In other words, B4 million is an estimated figure 

based on the amount of contributions fixed in the 1956 act; is that 

what you said ?

Mr. Neuwirth. Well, it is based on that formula, yes.

Mr. F ascell. And that is based on 6y2

 percent?
FDIC— ASSUMPTION OF EMPLOYEE BEN EFITS COSTS 9

Mr. Neuwirth. Well, it is based on matching the employees’ contributions from 1933 to 1957; in other words, we are saying in effect 

tha t from 1933 to 1957 employees of the FD IC have paid into the 

fund approximately $4 million. Therefore, we estimate tha t on a 

matching basis, $4 million is due from FD IC for their share of the 

costs.

Mr. F ascell. To the fund?

Mr. Neuwirtii. Yes, sir. From an actuarial point of view, it 

might differ somewhat.

Mr. Fascell. Now, from 1957 on, under the act, the corporation 

and the employees have contributed an equal amount to the fund?

Mr. Neuwirtii. As required by the Congress—G1

/^ percent.

Mr. Fascell. Now, on what authority are payments out of the 

fund made ?

Mr. Neuwirtii. Payments out of the-----

Mr. F ascell. Yes. Are they automatic under the act, or is any 

legislative action required ?

Mr. Neuwirtii. You mean payment of benefits to retirees from the 

civil service retirement fund ?

Mr. F ascell. Right.

Are benefits payable as a result of the law, without any further 

legislative act?

Mr. Neuwirth. Yes, sir.

Mr. Fascell. So, now, what we are talkin g about is making the 

fund a complete fund as to FDIC, as properly contemplated by the 

law, even though the act, when passed in 1957, was not retroactive?

Mr. Neuwirth. Yes, sir. In other words, this would contemplate 

the FD IC would pay its fair share of the cost to the fund.

Mr. F ascell. Now, what would happen in the future if this retroactive payment were not made ?

Mr. Neuwirth. If it is not made ?

Mr. F ascell. Yes.

Mr. Neuwurth. Well, of course, the civil service retirement fund 

would not have the benefit of those moneys, plus interest. As you 

know these funds are used to pay benefits to retirees. The fund 

would be out this amount.

Mr. Anderson. Will the gentleman yield?

Would it be correct, then, to say tha t in effect what this will do 

will be to reduce the contingent liability tha t is constantly being 

built up under this civil service retirement fund by this $4 million?

Mr. Neuwirtii. Yes, by this small amount.

Mr. Anderson. This liability tha t someday would otherwise have 

to be met by future appropriations?

Mr. Neuwirtii. To the extent of th at amount, yes.

Mr. Anderson. I see.

Thank you.

Mr. Fascell. Any other questions?

Thank you very much, Mr. Neuwirth, and gentlemen.

Now, we will hear from representatives of the FDIC. We have 

Mr. William Moroney, assistant to the Chairman and Controller, Mr. 

John Lord, General Counsel; Mr. Jack Sronce, Deputy Controller, 

and Mr. Brooke, Assistant Counsel.

Mr. Moroney. Mr. Lord is not here this morning.

Mr. Fascell. Mr. Moroney, we will be very happy to hear from 

you.
10 FDIC— ASSUMPTION OF EMPLOYEE BENEFITS COSTS

STATEMENT OE WILLIA M M. MORONEY, JR ., ASSISTANT TO THE

CHAIRMAN AND CONTROLLER, FEDE RA L DEPOSIT INSURA NCE

CORPORATION; ACCOMPANIED BY JACK SRONCE, DEPUT Y CONTROLLER, AND FRA NCIS C. BROOKE, JR ., ASSIS TANT COUNSEL

Mr. Moroney. The representatives of the Comptroller General 

have correctly stated tha t the FD IC has consistently supported these 

proposals. They have been making these recommendations. These 

proposals were first presented by the FD IC to Congress in connection 

with the Financial Institutions Act of 1957, and later in legislation 

relating to a modification of the assessments payable to the FD IC in 

1960.

But they were never reported out, or never enacted.

Mr. F ascell. Have you had hearings on this matter before the 

legislative committee of the House?

Mr. Moroney. These proposals were submitted, not in the House. 

They may have been in the House in 1957, with the Financial Ins titu ­

tions Act. I think they were considered in the Senate in 1957 in connection with the Financial Institutions Act. But they were not reported out then, and the bill, though passed by the Senate, was not 

reported out by the House, and the Financial Institutions Act of 

1957 was not enacted.

Then in 1960 they were in a Senate bill. The major purpose of 

the bill was to modify the assessments provisions of the Federal 

Deposit Insurance Corporation Act. The companion House bill 

which was passed by the House, related only to assessments. It was 

passed by the Senate without consideration of the Senate bill.

The reason I mentioned tha t is today I am here to present the 

views of Mr. Wolcott, who is Director of the FDIC.

Mr. Cocke, who was Chairman, has left the Corporation. His term 

expired on August 4. Our Board of Directors now consists of Mr. 

Wolcott, a Director, and the Comptroller of the Currency, who is an 

ex officio member of the Board. The Comptroller of the Currency 

has taken no position on these recommendations of the Comptroller 

General.

So I am submitting today the statement of Mr. Wolcott, who is 

our Director.

His statement is as follows:

Mr. Chairman, I am pleased to be given an opportunity to express my personal views on proposed legislation being considered by this committee, which 

would provide th at the Corporation assume all costs of providing retirement, 

disability, and compensation benefits for Corporation employees, and that the 

General Accounting Office make its report of audits of the Corporation to the 

Congress on a calendar-year basis.

In my view it would be desirable for the Corporation to repay to the Governm ent all sums heretofore advanced by it on accou nt of benefits th at have 

accrued to the Corp oration’s employees. Beginning with the fiscal year 1958, 

the Corporation has been required to contribute and pay into the civil service 

retirem ent and disa bility fund an amount equal to 6% percent of all salaries 

paid to its employees. Therefore, I would support any proposal to repay, to 

the Government, the Government’s share of the cost of benefits which have 

accrued to the Corporation’s employees from the time of its inception to the 

time the Corporation sta rted to contribute its share of the cost of retirement 

and disability benefits, and to the present time with respect to accrued em-
FDIC— ASSUMPTION OF EMPLOYEE BEN EFITS COSTS 11

ployees’ compensation benefits, and to assume full responsibility for the future 

cost of such benefits.

The Comptroller General in bis report to Congress on his ann ual audit of 

the Corporation has recommended th at legislation be enacted to accomplish 

these ends.

It has been estim ated th at should the Corporation make payments to the 

Departm ent of Labor, Bureau of Employees’ Compensation, for reimb ursem ent 

of benefits paid to our employees and to the Civil Service Commission for our 

employees civil service reti rem ent fund payments, the total cost to the 

Corporation for such payments from the inception of the Corporation through 

fiscal 1962 would be $4,078,343.91.

The amount which would be due to the retirem ent fund as computed by the 

General Accounting Office from the inception of the Corporation to June 30, 

1957, after which the Corporation began making paym ents to the retirement 

fund, is $4,007,210.91. In computing this amount the Comptroller General took 

dollar for dollar the total amount contributed by employees to the fund since 

the crea tion of the Corporation. The total amount which would be due to the 

Federal employees’ compensation fund for benefits paid to our employees from 

the inception of the Corporation to Jun e 30, 1956, as determ ined from data 

furn ishe d to the General Accounting Office by the Department of Labor, is 

$64,689. Labor Departm ent repo rts for the fiscal years from July 1, 1956, 

through Jun e 30, 1962, indicate th at the total amount of Fed eral employees 

compensation benefits paid during th at period to our employees was $6,444. 

Thus, the total estim ated cost for Fed eral employees compensation fund payments would be $71,133, which figure, added to the $4,007,210.91 cost to the 

Corporation of civil service reti rem ent fund payments, brings the total potentia l cost to the Corporation to $4,078,343.91.

The other recommendation of the Comptroller General concerning his annual 

audit report has my supp ort for the reason that by statute, accounting by 

the Corporation and aud iting by the General Accounting Office are on the 

basis of a fiscal year ending Jun e 30. Also by statute, the Corporation is 

required to make an annual report to Congress on a calendar-year basis. Fu rther, the calculation and determination of assessment cred its which are 

provided in the Federal Deposit Insurance Act for the benefit of insured banks 

must be made on the basis of operations on a cale ndar-year basis. The complication of requiring financial stateme nts of operation s and accountings to be 

made, for certain purposes, on a fiscal Jun e 30 basis and, for other purposes, on 

a calendar-year basis, has been confusing and burdensome. It has resulted 

in unnecessary and duplicate work on the pa rt of the financial and accounting 

personnel of the Corporation. Accordingly I would supp ort an amendment to 

the Federal Deposit Insurance Act such as th at proposed by the Comptroller 

General to provide th at the Corporation accounting and General Accounting 

Office auditing would be on the basis of a cale nda r year rather tha n the fiscal 

yea r now fixed by law.

Dr aft legislation to accomplish these recommendations has been prep ared by 

the Legal Division of the Corporation and is submitted with this statem ent for 

the consideration of the subcommittee.

The foregoing views being personal, they have not been subm itted to the 

Bureau of the Budget for advice as to the ir relationship to the program of 

the administration.

Attached to the statement is suggested dra ft legislation which is 

comparable to the language submitted by the Corporation in connection with the Financial Institutions Act.

We have a suggested addition to the first sentence in the proposed 

amendment. This sentence provides for the payment by the Corporation into the civil service retirement fund an amount agreed upon 

between the Civil Service Commission and the Corporation. We suggest the addition of the words to the first sentence, “on the basis that 

the Corporation’s payments to the retirement and disability fund 

be equivalent to the contributions made by employees of the Corporation.”
12 FDIC— ASSUMPTION OF EMPLOYEE BEN EFIT S COSTS

(The suggested dr aft legislation referred to follows:)

Draft Legislation

A BIL L To am en d se ction 13 of th e Fed er al Dep os it In su ra nce Ac t, as am en de d (12 

U.S.C. 182 3)

Be it enacted by the Senate and House of Representatives of the United

States of America in Congress assembled, Th at section 13 of the Federal Deposit Insurance Act, as amended, is hereby amended by adding thereto at the 

end thereof the following new subsection :

“ (i) The Corporation shall pay into the civil service retirem ent and disability fund such sum as shall be agreed upon by the Civil Service Commission 

and the Corporation as the Government’s share of the cost of the civil service 

reti rem ent system applicable to the Corporation’s officers and employees and 

the ir beneficiaries for the period from the creation of the Corporation to the 

first day of the first pay period which begins af ter Jun e 30, 1957. The benefits 

of the Fed eral Employees Compensation Act (5 U.S.C. 751-791, 793), as now 

or her eafter amended, and of the unemployment compensation provided in title 

XV of the Social Security Act (42 U.S.C. 1361-1370), as now or hereaf ter 

amended, shall extend to the officers and employees of the Corporation. The 

Corporation shall pay into the employees’ compensation fund such sum as shall 

he agreed upon by the Secretary of Labor and the Corporation as being the 

amount of the benefit payments made from such fund on account of the Corporation’s officers and employees prio r to January 1, 1963. The Corporation 

shall, after January 1, 1963, pay into the employees’ compensation fund, on the 

basis of ann ual billings as agreed upon by the Secretary of Labor and the 

Corporation, the amount of the benefit payments made from such fund on account of the Corporation’s officers and employees. The ann ual billings shall 

also include a fa ir portion of the cost of the adm inistratio n of the employees’ 

compensation fund, which portion shall be paid by the Corporation into the 

Tre asu ry as miscellaneous receipts. Any payments made hereunder applicable 

to periods prior to J an ua ry 1, 1963, s hall be paid out of the Corporation’s capita l 

accou nt and shall not affect the ‘net assessment income’ computed under subsection (d) of section 7 for such periods. Any such costs applicable to periods 

after January 1, 1963, and any amounts contributed to the civil service retirement and disability fund pursu ant to section 4( a) of the Civil Service Retire ­

ment Act of May 29, 1930, as amended by the Civil Service Retirement Act 

Amendments of 1956 (Pub lic Law 854, 84th Congress), shall be included as a 

pa rt of the adm inistra tive and operating costs of the Corporation for the purpose of computing ‘net assessment income’ as provided in said subsection (d) 

of section 7, and may be paid upon estim ates or form ulas subject to subsequent 

adjustment after audit o r other verification, and the amount of any subsequent 

adjustment shall be charged or credited in the yea r in which the adjustment 

is made. Any disagreement between the Corporation and the Civil Service 

Commission or the Secretary of Labor, as the case may be, as to the propriety 

or amount of any sum due for past benefits as here in provided or as to the 

amount of any ann ual billings shall be determined as the President by Executive orde r s hall direct.”

Draft Legislation

A BIL L To am en d su bs ec tion s (b) an d (c) of se ction 17 of th e Fed er al Dep os it In su ra nc e 

Act, as am en de d (12 U.S.C. 1827 (b) an d (c ))

Be it enacted by the Senate and House of Representatives of the United

States of America in Congress assembled, Th at subsection (c) of section 17 of 

the Federal Deposit Insurance Act, as amended, is hereby amended by striking 

the first two sentences thereof and substituting therefo r the following three 

sentences :

“ (c) The fiscal yea r of the Corporation shall be the calendar year. A report 

of (lie audit for each cale ndar year shall be made by the Comptroller General 

to the Congress not later tha n Jun e 30 following the close of such calendar 

yea r: Provided, Th at the first repo rt of audit under this provision shall include 

any period of 1963 or 1964 which has not been included in any audit report. 

The Comptroller General shall furnish the Corporation a short form report 

showing the financial position of the Corporation at the close of the calendar
FDIC— ASSUMPTION OF EMPLOYEE BENEFITS COSTS 13

year, if it is possible for liim to do so in time for inclusion of the report in the 

Corporation’s annua l r epo rt to the Congress.”

Subsection (b) of section 17 of the Federal Deposit Insurance Act, as amended 

(12 U.S.C. 1827(b )), is amended by deleting the last sentence thereof.

Mr. F ascell. Where would you insert that?

Mr. Moroney. On the seventh line, at the end of the first sentence 

of the proposed amendment.

Mr. F ascell. That would be after the year “1957” ?

Mr. Moroney. There would be a comma after “1957”-----

Mr. F ascell. Followed by insertion of the language you just read?

Mr. Moroney. Yes, sir. Our statement is tha t these would carry 

out the recommendations made.

I want to call to the attention of the committee th at this provides 

for everything except the administrative costs of the civil service 

retirement, and it has an added provision stating that the benefits of 

the Federal Employees Compensation Act as now or hereafter 

amended and of the unemployment compensation provisions of title 

XV of the Social Security Act as now or hereafter amended shall 

extend to the officers and employees of the Corporation.

Mr. Fascell. Now, is tha t last language you read a suggested 

addition?

Mr. Moroney. It is in addition to the recommendations of the 

General Accounting Office; tha t is, there is a difference of opinion 

existing between the Labor Department and the Corporation as to 

the applicability of these two provisions, and we think tha t they 

should be made applicable.

But we think it should be clarified with express legislation tha t 

they are applicable. It is their opinion they are applicable to us. It 

is our opinion they are not.

We feel that our employees should have the benefits. And we feel 

it should be expressly stated in our act.

Mr. F ascell. I see.

Now, this additional language, would it be part of the first dra ft 

amendment ?

Mr. Moroney. Yes, sir; it is the second sentence of that first page 

of the dra ft legislation. With reference to the other point tha t I 

raised about not including the administrative costs of the civil 

service retirement, we do provide for paying a fai r share of the administrative costs of the employees compensation. We are uninformed as to whether or not the 6y2

 percent that is now being paid by 

the Corporation, matching what the employees pay, would be 

adequate to pay the administrative costs.

It is my understanding of the present law th at the FD IC now pays 

the same amount as the employee without paying any additional administrative cost. And I don’t know whether or not those funds 

are adequate that are now being paid to take care of the civil service 

administrative costs. I am informed by the representatives of the 

Comptroller General tha t such administrative costs are paid out of 

appropriations.

The reason we have not recommended it in here is tha t the present 

pattern of agency payment for civil service benefits is a matching 

of the payments made by the employee, and tha t is what we have 

recommended.
14 FDIC--- ASSUMPTION OF EMPLOYEE BEN EFITS COSTS

The present law with reference to the employees’ compensation is 

tha t the agency pay a part of the administrative costs. So we have 

followed that.

Tha t is our statement.

We would be glad to answer any questions.

Mr. F ascell. Thank you.

Mr. Anderson ?

Mr. Anderson. If I understand your statement, or the statement 

of Mr. Wolcott, and your comments, there are no essential points of 

difference at all between the position taken by the General Accounting 

Office on this matter and your agency, the FDIC.

Mr. Moroney. No, except in our present circumstance. The Corporation in the past has supported these recommendations. Today, 

Mr. Wolcott is supporting them. Mr. Saxon, the Comptroller of 

the Currency, has taken no position on them, either for them or 

against them ; and our present board officially has not acted on them.

But in the past the Corporation has supported these proposals.

Mr. Anderson. I have no further questions.

Mr. F ascell. Mr. McClory ?

Mr. McClory. Mr. Moroney, this is the first hearing you have had 

before a congressional committee on this subject, is it not?

Mr. Moroney. I am quite sure this proposal was up before the 

Senate Banking and Currency Committee, and it wasn’t included in 

their reported bill. My understanding of it, then, is that we had a 

proposal and the General Accounting Office had some comments on 

it that were different than ours, and I do not know why it wasn’t 

included. I don’t recall any general discussion of it at the time of 

those hearings.

Mr. McClory. Did you request the present hearing?

Mr. Moroney. No, sir. This, as I understand it, arose from the 

inclusion of these recommendations in the General Accounting Office 

audit report on our Corporation. And it has been in their audit 

reports for the last 5 or 6 years at least, or longer.

Mr. McClory. The committee initiated the hearing?

Mr. F ascell. That is right, Mr. McClory. It is our responsibility 

to review all of the reports of the General Accounting Office, and 

this just arose in the normal course of business.

Mr. McClory. Now, with regard to Federal employees, the provisions of the Federal Employees Compensation Act, are the FDIC 

employees covered now under the Federal Employees Compensation 

Act ?

Mr. Moroney. It is their opinion tha t our employees are covered.

Mr. McClory. But this is the first time it is being specifically 

written into the law, that the FD IC employees are covered; is that 

right?

Mr. Moroney. That is right. And the same language that provides 

for the coverage of employees under their act, is applicable to the 

Federal employees unemployment compensation.

Mr. McClory. Do you know what the total reserves are of the Federal Deposit Insurance Corporation, with regard to all of its liabilities?

Mr. Moroney. The Federal Deposit Insurance fund is approximately $2.6 billion.
FDIC— ASSUMPTION OF EMPLOYEE BENEFITS COSTS 15

Mr. McClory. An d this add ed lia bility, the n, of some $4 million 

comes out of th at —will be d edu cted fro m th at reserve?

Mr. Moroney. In this dra ft leg islation, st ar ting on th e second 

page, it pro vid es th at —

Any payments made hereunder—

Tha t is the back paym ent s to these two fun ds, ap prox im ately $4 

millio n—

applicable to the period prio r to Janu ary 1, 1963, shall be paid out of the 

Corporation’s cap ital account and shall not affect the net assessment income 

computed under subsection (d) of section 7 for such periods. Any such costs 

applicable to periods after Janu ary 1, 1963, and any amounts contributed to 

the civil service retirem ent and disability fund, pursu ant to the 1956 amendments to the Civil Service Act, shall be included as a pa rt of the adminis trative and operating costs of the Corporation for the purpose of computing net 

assessment income as provided in said subsection (d) of section 7—

An nu ally, th e n et assessment incom e figure is determined by taking 

the total assessments an d deducti ng fro m th at the expenses of the 

Co rporati on and its losses th at year, and the n giv ing the banks a 

cre dit of 66% percen t, and the 33% perce nt goes int o our fu nd alon g 

wi th the income from our investm ents.

Mr. McClory. We ll, in the ory, at least, wh eth er it works out in 

terms of dolla rs or not—in the ory , at leas t, the assessments th at are 

mad e in the fu tu re will hav e to be sufficient to compensate fo r thi s $4 

million th at is paid out of th e ca pital account.

Mr. Moroney. No, sir. Th e pro posal here is th at the $4 million 

be pa id out of our dep osit insura nce fund , bu t th at he re af ter any 

pay me nts to eit he r of thes e fun ds, as hav e been ou r paym ents since 

1957 to t he re tir em en t fund , be tre ated as an annual expense, deductible f rom asse ssments be fore the credit is mad e to th e b ank.

Mr. McClory. An d you feel th at th is paym ent out of the capital 

fund , the n, can be m ade wi tho ut im pairm ent or wi tho ut ieo pardizi ng 

the lia bilitie s o f the F D IC ?

Mr. Moroney. Yes, sir.

Mr. Sronce. I t w ould only am ount to abo ut one-six th of 1 per cent 

of th e fun d.

Mr. McClory. Th e assessments th at hav e been made heretofo re 

hav e ha d a lit tle leew ay in the m—at lea st to the exten t of this $4 

millio n fo r the pe riod 1933-62.

Mr. Sronce. Yes, sir. Assessments, by the way, are esta blis hed or 

set b y law.

Mr. Moroney. Th is cre dit th at the banks get was firs t includ ed in 

the law in the amendments of 1950. Th e smaller amo unt of the 

proposed pay ments, m atc hin g employees’ paym ents into the r eti remen t 

fun d, would be fo r th at period between 1941, when o ur employees generally were covered by civil service, a nd 1950. We believe th at it would 

be smaller in th at period be fore any credit w as pro vid ed th an it would 

be in the pe riod 1950-57.

Mr. McClory. W ha t perce nta ge of the tot al FD IC reserves are 

invested in Fe deral secu rities?

Mr. Moroney. Pr ac tic ally all of them .

Mr. McClory. So th at if there was any act ual cash liab ility th at 

the FD IC ha d to assume, you wou ld have to cash the bon ds in order 

to pay the liab ility, meet th e obligation ?
16 FDIC--- ASSUMPTION OF EMPLOYEE BEN EFITS COSTS

Mr. Moroney. Tha t is right.

Mr. McClory. That is all I have.

Thank you.

Mr. F ascell. Mr. Matan ?

Mr. Matan. Mr. Moroney, does support of the Comptroller 

General’s recommendations also include a willingness to pay interest 

on the amount to be paid into the retirement fund ?

Mr. Moroney. Mr. Wolcott’s statement doesn’t make any recommendation on the interest. If the committee determines that it is 

advisable or desirable, it will be for the determination of the 

committee ?

Mr. Matan. Have you given any consideration to the rate of interest which should be paid?

Mr. Moroney. Well, we have-----

Air. Matan. The rate on which it should be computed?

Mr. Moroney. Well, we have figured that on the same basis as the 

General Accounting Office has.

Mr. Matan. Do you come to about the same figure? They had a 

million dollars as a round figure.

Mr. Moroney. Yes. We came to a figure on the retirement payment.

We figured it on the basis at 2 percent it would be $1,006,933 on 

the retirement and disability payments, and on the compensation payments it would be $22,413, or a total for both at 2 percent simple interest of $1,029,346.

Mr. Matan. If the payment of interest were to be inserted in the 

law, would that require an amendment to your proposed legislation?

Mr. Moroney. Yes, sir.

Mr. Matan. I have only one other question.

Have you calculated whether there would be any savings to the 

Corporation if its accounting, the GAO accounting, were changed to 

the calendar rather than the fiscal year?

Mr. Moroney. I don’t think we calculated savings. It would avoid 

some duplications and obviously there would be some savings. And it 

would be a better way to do it and more convenient.

I think there would be some savings.

But we have not estimated any.

Mr. F ascell. It would certainly be more efficient, would it not?

Mr. Moroney. Tha t is right.

Mr. Sronce. It would also have the benefit of giving the Congress 

an audit of the report that we furnish them.

As i t is now, we give the Congress a report as of the end of the 

year, the calendar year. And in that report is the General Accounting Office audit report of our preceding June 30 statement. So we 

are out of step to tha t extent.

Mr. Fascell. And with no way to reconcile them, either, except 

with a great deal of difficulty?

Mr. Sronce. No, sir. There is no attempt to reconcile them in 

the report.

Mr. F ascell. I understand that. And if somebody else wanted to 

do it, it would be very difficult, if not impossible.

On the matter of the estimated amount of contributions to the 

retirement fund prior to 1957, was the amount tha t was not contributed by the F DIC actually paid out of appropriations?
FDIC— ASSUMPTION OF EMPLOYEE BENEFITS COSTS 17

Mr. Moroney. I am no expert on the workings of the retirement 

fund, sir, but I would just assume that Congress has set a pattern 

tha t the fund should operate on a basis of the agency matching the 

employees’ contribution. And it is on tha t basis—tha t has been considered by Congress necessary to make the retirement fund work— 

tha t our assumption is made as to what our contribution should be.

Mr. F ascell. But if benefits were paid out in the period between 

1933 to 1957, and they were not payable wholly out of employee contributions, then any differential would have had to be paid out of 

appropriated funds ? There is no question about that ?

Mr. Moroney. Tha t is right.

Mr. Fascell. Now, we don’t know what the extent of tha t is, 

do we?

Mr. Moroney. No, sir.

I think it would be very difficult to determine that. That is why 

it seems reasonable to use the basis they have suggested, tha t Congress adopted in 1956 to become applicable to agencies in 1957.

Mr. Fascell. What does the FD IC now pay into the retirement 

fund on an annual basis ?

Mr. Sronce. The Corporation itself is paying about half a 

million dollars a year and the employees are paying about the same.

Mr. Fascell. I s tha t estimate on the calendar-year or fiscal-year 

basis?

Mr. Sronce. This is on a fiscal-year basis.

Mr. F ascell. So that would be as of last June 30 ?

Mr. Sronce. Yes, sir.

Mr. F ascell. Approximately $500,000 ?

Mr. Moroney. We have a statement here covering the 6 months 

period ended Ju ne 30,1963. Our civil service and Federal Insurance 

Contributions Act payments amounted to $303,000. That is for the 

last 6 months preceding June 30.

Mr. Fascell. Do you have any figures to show what benefits were 

paid in tha t same period ?

Mr. Moroney. We don’t have information on the benefits paid. It 

may vary—tha t is, an employee counts his time with us—he may work 

for us, and then some place else. And he combines all his service.

Mr. F ascell. If we wanted that figure, we would have to get it 

from the fund itself ?

Mr. Moroney. I am not sure they would have it, without terrific 

expense, sir.

Mr. F ascell. Well, somebody must know how much is paid out 

in benefits over a 6-month period to the employees, or former employees, of the Corporation.

Mr. Moroney. Well, it would be this problem: Suppose the man 

worked for us for a period, and then for another agency, and then 

he had his Army service. It would be quite a chore.

Mr. F ascell. There is no way to relate it back directly to the time 

of his employment with the Corporation ?

Mr. Moroney. Tha t is right.

Mr. Fascell. So basically, we are talking about a matter of principle, as far as repayment by the FD IC to the fund is concerned, 

because there is no way to compute and charge back to the fund the 

actual benefits tha t were paid to FDIC employees?
18 FDIC— ASSUMPTION OF EMPLOYEE BEN EFITS COSTS

Mr. Moroney. That would get it away from being a general retirement fund. Tha t is, it is probably to the advantage of all agencies 

tha t it is a central fund with the risks spread out, rather than benefits to employees of each agency. Our experience might be greater 

or less than that of any other agency. We have no way of knowing.

Mr. F ascell. So it is all intermingled ?

Mr. Moroney. Tha t is right.

Mr. F ascell. Any other questions ?

Gentlemen, thank you very much.

The subcommittee will stand in recess.

(Whereupon, at 11 a.m., the subcommittee recessed, subject to the 

call of the Chair.)
A P P E N D I X E S

Appendix A—Portion of Report on Audit of F ederal Deposit Insurance

Corporation, January 1963

Comptroller General of the United States,

Washington, January 2 2, 1S6S.

B-114831.

To the President of the Senate and the Speaker of the House of

Representatives :

Here with is our report on the audit of the Feder al Deposit Insurance Corporation for the yea r ended June 30, 1962.

Our audit disclosed no new ma tters requiring recomm endations to the 

Congress. We are, however, repeating two recommendations to the Congress 

which were contained in prior audit reports. The recommendations relate to 

amending the Federal Deposit Insurance Act to requ ire (1) th at the Corporation assume all costs of providing retirement, disability, and compensation 

benefits for Corporation employees and (2) th at the General Accounting 

Office make its repo rts of audits on a cale ndar-year basis. The Corporation 

has consistently supported both these recommendations.

Senate bill 2609, introduced in the 86th Congress on August 27, 1959, to 

amend the Federal Deposit Insurance Act included provisions which would have 

resulted in the adoption of these recommendations. The bill, however, was 

not enacted.

Copies of this report are being sent to the President of the United States 

and to the Chairman of the Boa rd of D irectors of the Feder al Deposit Insurance 

Corporation.

J oseph Campbell,

Comptroller General o f the United State s.

Report on Audit of Federal Deposit I nsurance Corporation, Year Ended

J une 30, 1962

The General Accounting Office has made an audit of the Federal Deposit In ­

surance Corporation for the yea r ended Jun e 30, 1962, p urs uant to section 17(b ) 

of the Federal Deposit Insurance Act (12 U.S.C. 1827). The scope of the audit 

work performed is described on page 19 of this repo rt.

general comments

The Federal Deposit Insurance Corporation is an independent Government 

agency which was created in 1933 by the Banking Act of 1933? The Corporation insures the deposits of banks entitled to the benefit of insurance in the 

maximum amount of $10,000 for each depositor. All national banks in the 

United States and all State banks that are members of the Federal Reserve 

System are required to be insured. Nonmember National and Sta te banks 

may become insured upon application and approval for insurance.

On page 20, we express an opinion that the financial stateme nts present 

fairly the financial position of the Federal Deposit Insu rance Corporation at 

Jun e 30, 1962, and the results of its operations and the sources and application 

of its funds for the yea r then ended, except th at we are unable to express an 

opinion on the adequacy of the deposit insu rance fund to meet, futu re losses.

1

 T hi s act ad de d se ctio n 12b to th e Fed er al Re se rv e Ac t, whi ch section, as am ended, was 

w ithd ra w n from th e Fed er al Re serve Ac t an d mad e th e Fed er al De po sit In su ra nce Ac t 

and am en de d by th e a c t of Se pt. 21, 1950 . an d su bs eq ue nt acts (12 U.S.C. 18 11 ).

19
20 FD IC — ASS UM PT IO N OF EM PL OYEE B E N E FIT S COSTS

RECOMM ENDAT ION S TO THE CONGRESS

Our au dit of the Fed eral Deposit Ins ura nce Corporation for the year 

ended Jun e 30, 1962, did not disclose any new ma tters requiring recommendations to the Congress. We are, however, repeating two recommendations included in reports on aud its for prior years. The two recommendations follow.

Cost of providing retirement, disability, and compensation benefits for corporation employees

We recommend th at the Federa l Deposit I nsu ran ce Act be amended to require 

the Corporation to pay—

1. Into the civil service retirem ent and disability fund the Government’s 

share of the cost of providing retirement and disability benefits for the 

Corporation’s employees for the period from the creation of the Corporation 

through the y ear ended June 30,1957.

2. Into the employees’ compensation fund the amount of benefit payments 

made from such fund on account of the Corp oration’s employees for all 

periods subsequent to the creation of the Corporation.

3. Into the Treasury as miscellaneous receipts a fair portion of the cost 

of administering the civil service retirement system and the employees’ 

compensation fund for all periods subse quen t to the creation of the 

Corporation.

Senate bill 2609 introduced in the 86th Congress on August 27, 1959, to 

amend the Federal Deposit Insurance Act would have requ ired the Corporation 

to make the foregoing payments and would have resulted in the Corporation’s 

bearing all costs pertaining to its operations from inception. The bill was not 

enacted.

Audits by the General Accounting Office

We recommend that section 17(c) of the Fed eral Deposit Insu rance Act (12 

U.S.C. 1827(c)) be amended to require th at the General Accounting Office 

make its repo rts of audits on a calendar-year basis rather tha n on a fiscal-year 

basis. The previously mentioned Senate bill 2609, which was not enacted, 

included a provision specifying the calendar year as the fiscal yea r of the 

Corporation for accounting, auditing, and reporting purposes and requiring 

the General Accounting Office to make its reports of audits accordingly.

The Corporation has consistently supported these recommendations.

Appen dix B —Letter F rom F ree Cock e, Sr., Chair m an, F ederal Depos it

I nsuran ce Corporation, to H on. Dan te B. F asc ell, J un e 21, 1963

F ederal D epos it I ns uran ce Corporation,

W ashington, June 21,1968.

Hon. Dan te B. F asc ell.

Chairman, Legal and Monetary Affa irs Subcommittee, Committee on Government Operations, House Office Building, Washington, D.C.

Dear Mr. Cha ir man : This is in reply to your lette r of March 12, 1963, 

requesting the comments and present views of the Corporation on the recommendations contained in the Comptroller General’s report on the audit of the 

Federal Deposit Insu rance Corporation for the yea r ended Jun e 30, 1962, which 

repeats the following two recommendations made in prio r rep orts: (1) Th at the 

Corporation assume all costs of providing retirement, disability, and compensation benefits for Corporation employees, and (2) th at the General Accounting 

Office make its reports of audits on a calendar-year basis.

You are advised that the Corporation has consistently supported these recommendations and our present views thereon remain unchanged.

The Federal Deposit Insurance Corporation operates without appropriated 

funds, since its entire income is derived from assessments paid to it by insured 

banks. The Corporation has refunded, with interest, the original investment 

in its capital stock made by the Tre asu ry and the Federal Reserve banks and 

it has accum ulated a reserve insurance fund in excess of $2,500 million, while 

caring for operating costs and expenses. The Corporation desires to repay to 

the Government all sums here tofore advanced by it on account of benefits 

th at have accured to the Corporation’s employees. Beginning with the fiscal 

year 1958, the Corporation has been required to contribute and pay into the
FDIC— ASSUMPTION OF EMPLOYEE BEN EFIT S COSTS 21

civil service retirem ent an d disability fund an amount equal to 6% percent of all 

salarie s paid to its employees. Therefore, the Corporation would support any 

proposal to repay, to the Government, the Government’s sha re of the cost of 

benefits which have accru ed to the Corporation’s employees from the time of 

its inception to the time the Corporation sta rte d to contribute its sha re of the 

cost of retirement and disability benefits, and to the present time with respect 

to other accrued benefits, and to assume full responsibility for the future cost 

thereof.

The Comptroller General in his reports to Congress on his ann ual au dit of 

the Corporation has recommended th at legislation be enacted to accomplish 

these ends. During his aud it of the Corporation for the fiscal year ending 

Jun e 30, 1958, the Comptroller General estimated th at the cost of reimbursement 

to the Government of benefits paid to Corporation employees by the Bureau of 

Employees’ Compensation and for civil service retirem ent benefits received for 

these periods of time would amount to $3,908,125.60. It is estim ated th at the 

additional cost covering the benefits through the end of fiscal yea r 1962 would 

amount to $6,444.

The second recommendation of the Comptroller General is supported by the 

Corporation for the reason that by statute, accounting by the Corporation and 

aud iting by the General Accounting Office are on the basis of a fiscal yea r 

ending Jun e 30. Also by statute, the C orporation is required to make an ann ual 

report to Congress on a calendar-year basis. Furth er, the calcu lation and de> 

term ination of assessment cred its which are provided in the Federal Deposit 

Insurance Act for the benefit of insured banks must be made on the basis of 

operation s on a calendar-year basis. The complication of requ iring financial 

stateme nts of operation s and accountings to be made, for certain purposes, on a 

fiscal Jun e 30 basis and, for other purposes, on a calendar-year basis, has been 

confusing and burdensome. It has resu lted in unnecessary and duplicate work 

on the part of the financial and accounting personnel of the Corporation. An 

amendment to the Federal Deposit Insurance Act such as th at proposed by 

the Comptroller General to provide th at the Corporation accounting and General Accounting Office au diting would be on the basis of a calend ar year would 

be supported by th e Corporation.

Sincerely yours,

Eble Cocke, Sr., Chairman.

Appendix C—Letter From Hon. J oseph Campbell, Comptroller General op

the United States, to Hon. Dante B. Fascell, August 19, 1963, With

Enclosure

Comptroller General of the United States,

Washington, A ugu st 19,196$.

B-114831.

Hon. Dante B. Fascell,

Chairman, Legal and Monetary Affairs Subcommittee, Committee on Government Operations, House of Representatives.

Dear Mr. Chairman : In accordance with the requ est of your subcommittee

staff, we are prese nting herein additional information rela ting to the recommendations contained in our report to the Congress on the Federal Deposit 

Insu rance Corporation for the fiscal year ended Jun e 30, 1962, and preceding 

years.

These recommendations a re :

1. Th at the Federal Deposit Insura nce Act be amended to require the 

Corporation to—

a. Pay into the civil service retirem ent and disa bility fund the Government’s share of the cost of providing retirem ent and disability 

benefits for the Corporation’s employees for the period from creation of 

the Corporation through the year ended Jun e 30,1957.

b. Pay into the employees’ compensation fund the amount of benefit 

paym ents made from such fund on account of the Corporation’s employees for all periods subsequent to the creation of the Corporation.

c. Pay into the Tre asury as miscellaneous receipts a fa ir portion of 

the cost of adm inistering the civil service retirem ent system and the 

employees’ compensation fund for all periods subsequent to the creation 

of the Corporation.
22 FDIC— ASSUMPTION OF EMPLOYEE BEN EFITS COSTS

2. Th at section 17(c) of the Fed eral Deposit Insurance Act (12 U.S.C. 

1827(c)) be amended to require that the General Accounting Office make 

its repo rts of audit s on a calendar-year basis rather tha n on a fiscal-year 

basis.

The costs of the benefits provided to the Corporation’s employees and the 

Corporation’s sh are of the costs of administering the retirement system and the 

compensation fund described in item 1 have been or are being borne from 

appropriated funds. We believe that these costs should be borne from the 

operating revenues of the Corporation derived from the assessments regularly 

received from insured banks.

From the Corporation’s inception, in 1933, to March 1, 1941, only those employees who had transf err ed to the Corporation from other Government 

agencies were covered under the civil service retirem ent and disability system. 

This coverage was a continuation of the coverage enjoyed by these employees 

during the ir employment by the other Government agencies. Employees recruited elsewhere were not covered for retirement and disability benefits. Effective March 1, 1941, the Presiden t issued Executive Order 8G99 covering most 

positions in the Federal Deposit Insurance Corporation into the competitive 

classified civil service, and thereby making these employees eligible for civil 

service retirement and disab ility benefits.

Contributions to the civil service retirem ent fund for all of these employees 

were made only for the amounts deducted and withheld from the employees’ 

salaries for that purpo se; no employer contributions to the fund were made by 

the Federal Deposit Insurance Corporation through Jun e 30. 1957. The Corporation has contributed to the fund currently the rea fter under the provisions 

of the Civil Service Retirement Act Amendments of 195(5 (5 U.S.C. 2254) 

which require that from and af ter the first day of the first pay period beginning after Jun e 30, 1957, a sum equal to the employees’ contributions shall 

also be contributed from the employer’s a ppropriation or fund which is used for 

payment of salaries, pay, or compensation. However, the act does not provide 

for retro active contributions and, therefore, the Corporation has not contributed 

its share of the cost of providing retirem ent and disability benefits for its employees for the period from inception to J une 30, 1957.

Although the Corporation has been requ ired since July 1957 to pay its share 

of the cost of providing retir eme nt and disability benefits for its employees, 

it has not made any payments into the employees’ compensation fund in reimbursement of compensation payments made to its employees nor borne any 

pa rt of the cost of adm inistering the civil service retirem ent system and the 

employees’ compensation fund.

In this connection, the terms of the Federal Employees’ Compensation Act 

Amendments of 1960 (5 U.S.C. 785(c), supp. IV) require any mixed ownership 

corporation as defined in 31 U.S.C. 856 to pay the total cost of benefits and other 

payments made from the employees’ compensation fund during the preceding 

fiscal y ear on account of the inju ry or death of employees or persons under the 

jurisdictio n of such instrumentality occurring after December 1, 1960, and, in 

addition, a mixed ownership corporation is required to pay its fa ir share of the 

cost of administration of the Employees’ Compensation Act. Under the terms of 

the Government Corporation Control Act (31 U.S.C. 856), the Federal Deposit 

Insurance Corporation is classed as a mixed ownership Government corporation.

The Departm ent of Labor requested payment from the Corporation in the 

amount of .$477 to cover reimb ursem ent for compensation benefits and other 

payments made from the fund to the Corporation’s employees on account of 

inju ry or death occurring during fiscal yea r 1962 and for the Corporation’s 

fair share of the cost of adm inistering the Federal Employees’ Compensation 

Act. By a letter dated Jun e 24, 1963, the Chairman of the Board of Directors 

of the Corporation declined to make payment on the grounds that—

“* ♦ * employees of this Corporation are not included among those defined 

und er the Federal Employees’ Compensation Act as eligible to receive such 

compensation because that section specifically includes officers and employees 

of instrumentalitie s of the United States ‘wholly owned by the United States.’ 

Under applicable rules of sta tut ory construction, this definition would exclude 

employees of the Corporation since it is not an instrumentality of the United 

States ‘wholly owned by the United States.’ ”

The Corporation believes th at the Fed eral Deposit Insurance Act should be 

amended to specifically provide for its reimbursing the compensation fund for 

benefits paid to its employees and for its fa ir share of the cost of adm inistering 

the fund.
FDIC— ASSUMPTION OF EMPLOYEE BENEFITS COSTS 23

Our recommendations contemplate the enactment of an amendment to the 

Federal Deposit Insurance Act requiring the Corporation (1) to pay its share 

of the cost of civil service retirement and disability benefits for its employees 

for the period from inception to June 30, 1957, (2) to reimburse the compensation fund for benefits paid to the Corporation’s employees retroactive to inception of the Corporation and currently afte r enactment of the amendment, and 

(3) to pay its fair share of the cost of administering both systems retroactive 

to its inception and currently afte r enactment of the amendment. Such an 

amendment would result in the Corporation’s bearing generally all costs pertaining to its operations except unemployment compensation benefits paid to 

former employees of the Corporation. The unemployment compensation benefit 

payments are estimated to be too small to justify incurring the cost of determining the applicable amounts.

We estimate tha t payments of $4 million would be required under the proposed amendments to the act, exclusive of the Corporation’s share of the cost 

of administering the civil service retirement system and the employees’ compensation fund. This estimate is based on the premise that the act would provide 

tha t the Corporation’s payments to the retirement and disability fund be equivalent to the employees’ contributions.

Also, it is desirable that the proposed amendment to the act specify the calendar year as the fiscal year of the Corporation for accounting, auditing, 

and reporting purposes and require the General Accounting Office to make its 

reports of audits accordingly rather than as of June 30 each year as is presently 

required. Since inception, the Corporation has submitted its annual report to 

the Congress on a calendar-year basis. Banks in general submit financial reports and statistics on a calendar-year basis. The audit would be facilitated 

and it would be advantageous to the Corporation if the period covered by the 

audit were the same as that covered by the Corporation’s annual report.

A list of the Executive orders and legislation placing the Federal Deposit 

Insurance Corporation employees under the civil service retirement system is 

attached.

Sincerely yours,

J os ep h Cam pbell, 

Comptroller General

of the United States.

Lis t of E xec utiv e Orders and Leg isl ation P lacing th e Corporation’s

E mploy ees Under th e Civ il Service R et irem en t System

1. Title 5, United States Code, section 631.

2. Title 5, United States Code, section 2251.

3. Title 31, United States Code, section 856.

4. Executive Order 7916, June 24,1938.

5. Executive Order 8044, January 31, 1939.

<5. Executive Order 8699, March 1, 1941.

7. Executive Order 9830, February 24,1947.

o

ABM*.