GOVERNMENT

Storage

z

R A IL R O A D R E T IR E M E N T 7

(D U A L B E N E F IT S F O R S P O U § ^ ftf c > .

H E A R I N G

BEFORE T H E

JUl

• SUB COM MIT TEE ON COMMERCE AN O FI NAN CE

OF T H E

COMMITTEE ON

INT ERS TATE AND FOREIGN COMMERCE

HOUSE OE RE PRESENTATIV ES

EIGIITY- NI NT H CONGEESS

FIR ST SESSION

ON

H.R . 651, H.R . 1645

BIL LS TO AM EN D T H E RA IL RO AD RETI REM ENT ACT OF 193 7 TO 

ELIM IN ATE TH E PR OVIS IO NS W HIC H RE DU CE T H E ANNUIT IE S 

OF T H E SP OU SE S OF R E TIR E D EM PL OYEE S BY TH E AM OUNT OF 

CE RT AIN MO NT HL Y B E N E FIT S PA YA BL E UN DE R T IT L E II OF TH E 

SO CI AL SE CU RI TY ACT

H.R . 1501

A B IL L TO AM EN D T H E RA IL RO AD RETI REM ENT ACT OF 1937 AND 

T H E SO CIAL SE CU RI TY AC T TO ELIM IN A TE TH OSE PR OV ISIO NS 

W HIC H REST RIC T T H E RIG HT OF A SP OUSE OR SU RV IV OR TO 

RECEIV E FU LL B E N E FIT S SIMUL TA NE OU SL Y UN DE R BO TH ACT S

H.R . 3157, H.R . 6296

BIL LS TO AM END T H E RA ILRO AD RETI REM ENT ACT OF 1937 TO 

ELIM IN A TE T H E PR OVIS IO NS W HIC H RE DU CE TH E AN NUIT IE S 

OF TH E SP OU SE S OF R ETIR ED EM PL OY EE S BY T H E AMOUN T OF 

CE RT AI N MO NT HL Y B E N E FIT S

APR IL 29, 1965

P r i n t e d f o r th e u se o f th e 

C o m m it te e o n I n t e r s t a t e a n d F o re ig n C o m m erc e

Ser ial No. 89-7

U.S . GO VE RN MEN T PR IN TI NG O FFIC E 

WAS HI NG TO N : 196 5
4\ V

CO MMITTE E ON IN TERSTATE AN D FO REIG N COMM ERCE

OR EN HAR RI S, A rk an sa s, C hair m an

HA RL EY O. ST AG GE RS , W es t Virgi ni a

WAL TE R ROGERS, Tex as

SAMU EL N. FR IE D EL, M ar yl an d

TO RB ER T H. MACDO NALD, M as sa ch us et ts

JO HN JARM AN , Ok laho ma

LEO W. O’BR IE N, New York

JO HN E. MOSS, C al ifor ni a

JO HN D. DI NG EL L, Mi ch iga n

PA UL G. RO GE RS , Flo ri da

HO RA CE R . KO RN EGAY , N or th Car ol in a

LIO NEL VAN DEER LI N, Cal ifor ni a

J. J. PI CK LE, Tex as

FRED B. ROONEY, Pen ns ylv an ia

JO HN M. MUR PH Y, New York

DA VID E. SA TTER FIE LD II I, Virgi ni a

DANIE L J . RONAN, Il lin oi s

J . OL IVA HU OT , New Ham ps hi re

JA M ES A. MAC KAY , Ge orgia

JO HN J. GIL LI GA N, Ohio

CH ARL ES P. FA RN SL EY , Ken tuck y

JO HN BELL W IL LIAM S, M issis sip pi

W IL LI AM L. SP RIN GER , Illin oi s 

J. AR TH UR YO UN GE R, Cal ifor ni a 

SA MU EL L. DEVIN E, Ohio 

AN CH ER NEL SE N, M inne so ta 

HA ST IN GS K E IT H , M as sa ch us et ts 

W IL LA RD S. CU RT IN , Pen ns yl va ni a 

GL EN N CU NN INGH AM , Neb rask a 

JA M ES T. BR OY HI LL , N or th Car ol in a 

JA MES HA RV EY , Michig an 

TI M LEE CA RT ER , K en tuck y 

HO WA RD H. CAL LAW AY, Ge orgia

W. E. Wil li am so n, Cle rk

Ken n eth J. P ain te r, A ss is ta nt Cle rk

Pro fe ss io na l Sta ff

And rew Ste venson J am es M. Men ge r, Jr.

K ur t Borc har dt William J. Dixo n

Subcomm ittee on Commerce and Fin anc e

TO RB ER T H. MACDO NAL D, M as sa ch us et ts , Ch airm an

JO H N D. DI NG EL L, M ichig an HA ST IN GS K EIT H , M as sa ch us et ts

J . OL IVA HU OT , New H am psh ire W IL LA RD S. CU RT IN , Pen ns yl va ni a

CH ARL ES P. FA RN SL EY , Ken tu ck y

II
C O N T E N T S

Text of— Page

H.R . 651..................... 1

H.R . 1501___________________________________________________ 2

II.R. 1645___________________________________________________ 2

H.R . 3157__________________________________ 2

II.R. 6296______________________________________ 3

Report of—

Bureau of the Budget on H.R . 651 and H.R . 3157________________ 3

Hea lth, Educatio n, and Welfare Departme nt on H.R . 3157________ 4

Railroad Retirement Board on—

H.R . 651_____________________________________ _____ _____ 3

H.R . 3157 and H.R . 6296____________ _____ _______________ 5

Statem ent of—

Beattie, Donald S., executive secretary-treasurer, Railway Labor Executives ’ Association________________________________________ 31

Beckworth, Hon. Lindley, a Representative in Congress from the

State of T exa s_____________________________________________ 9

Broyhill, Hon. James T., a Representative in Congress from the State

of North Carolina__________________________________________ 8

Byrnes, Robert, Washington, represen tative, National Railroad Pension Forum , Inc ____________________________________________ 15

Finney, Gerald D., general atto rney, Association of American Railroad s_____________________________________________________ 21

Finnigan, George W., president, National Railroad Pension Forum ,

In c______________________________________________________ 18

Habermeyer, Hon. Harold W., Chairman, Railro ad Retirement

Board____________________________________________________ 9

Poff, Hon. Richard II., a Representative in Congress from the State

of Virginia_________________________________________________ 6

Additional information sub mitted for the record by—

Association of American Railroads:

Letter from Gerald D. Fin ney ______________________________ 28

Railroad wage supplements________________________________ 30

National Railroad Pension Forum, Inc., letter from George Finnigan__ 21

i n

RAILROAD RETIREMENT 

(Dual Benefits for Spouses)

T H U R SD A Y , A P R IL 29 , 19 65

H ou se of R ep re se nta ti ves ,

S ubc om mit te e on C om me rc e an d F in a n c e, 

of t ii e C o m m it te e on I nt er st at e an d F or eig n C om mer ce ,

]Y ash ing ton , D.C .

Th e subcom mittee m et, pu rsua nt to n otice, at 10 a.m., in room 2218, 

Ra yb ur n House Office B uilding, Ho n. Tor be rt II . Ma cdo nal d (cliairof the subc ommittee) presidi ng.

Mr. Macdonald. Th e subcom mittee will please be in ord er. Th e 

subcom mittee toda y is m eet ing for th e p urpo se of conductin g h earin gs 

on five bills am ending th e Ra ilr oa d Re tirem en t Act con cer ning the 

pay me nt of benefits un de r th at act to the spouse of a retir ed railr oa d 

employee concurren tly wi th the receipt of social sec uri ty benefits.

These bills are I l.R . 651 in tro duced by ou r colleague fro m Virg inia, 

Mr. Po ff; H.R. 1501 by ou r colleagu e, Mr. Be ckwo rth of Te xa s; Il.R . 

1645, by ou r colleague, M r. A shley o f O hio; I l.R . 3157, by th e chairm an 

of th e full com mittee, Mr. H ar ri s; and H.R. 6296 by ou r colleague on 

the fu ll com mittee, Mr. Bro yh ill of Nor th Ca rolina.

Dur ing the 88th Con gress, our com mittee repo rte d, and the Hou se 

passed, I l.R . 12362, dea lin g wi th this p rob lem , a nd hearin gs were comple ted be fore a subc ommittee of the S enate L ab or and Pu blic W elfare 

Com mittee. T hat sub com mittee or dered th e bill repo rte d fav orably to 

the fu ll Senat e com mittee, bu t time did not pe rm it the fu rthe r consid eration of th at legislation p rior to the ad jou rnment of the Congress.

In g ene ral, these bills wou ld ame nd the Ra ilr oa d Retire me nt Act to 

pe rm it the spouse of a re tir ed ra ilr oa d employee to receive a spouse's 

an nu ity co ncurr ently w ith th e rec eip t of social security benefits ear ned 

in h er own righ t, witho ut red uc tio n in the spouse's a nn uity.

Und er existing law, social sec urity benefits receive d by the spouse 

in he r own ri ght are deducte d fro m her ra ilr oa d retir em en t spouse 

benefits.

At th is point in the r eco rd I will insert copies o f each of these bills.

(ITR. 651, IT.R. 1501, Il.R . 1645, Il .R . 3157, and Il.R . 6296 f ol lo w:) 

[I l.R . 651 , 89 th Con g., 1st se ss.l

A B IL L To am en d th e R ai lroa d R etire m en t Act of 193 7 to el im in at e th e pr ov isio ns which 

redu ce th e an nuit ie s of th e sp ou se s of re ti re d em ploy ee s by th e am ount of cert ain 

m onth ly b en efits p ay ab le u nder ti tl e I I of th e So cial Sec ur ity Act

Be it en ac te d by th e Sen ate an d H ou se o f R epre se nta tive s of th e U nited Sta te s

o f A m er ic a in Co ngres s as se mbl ed , T h at th e la s t pr ov iso of su bs ec tio n (e ) of 

se ct ion 2 o f th e R ai lr oad R et ir em ent Act of 1937 (45 U.S .C. 2 2 8 b (e )) is am en de d 

by st ri kin g ou t “a nd th e am ou nt of any m on th ly in su ra nce benefit, oth er th an a

1
2 RAILROAD RE TIRE MEN T

wife’s or husband’s insurance benefit,”, and by furth er striking out ‘‘or section 

202” and all th at follows down to the period a t the end of such subsection.

Sec. 2. This Act shall tak e effect with respect to annuities accru ing in months 

after the month in which this Act was enacted.

[H .R . 1501 , 89 th Con g., 1s t sess.]

A BIL L To am en d th e Rai lroa d Ret irem en t Ac t of 193 7 an d th e So cial Sec ur ity Ac t to 

el im in at e th os e pr ov isio ns wh ich re st ri ct th e ri ght of a spou se or su rv iv or to rece ive fu ll 

be ne fits si m ul ta ne ou sl y un de r bo th Ac ts

Be it enacted by the Sena te and House of Representatives of the United States

of America in Congress assembled. That the third proviso in section 2(e) of the 

Railroad Retirem ent Act of 1937 is amended to read as follows : “ : And provided

further, That any spouse’s annuity shall be reduced by the amount of any annu ity 

to which such spouse is entitled, or on proper application would be entitled, under 

subsection (a) of this section or subsection (d) of section 5 of th is Act”.

Sec. 2. Section 5(g) of the Railroad Retirement Act of 1937 is amended to 

read as follows:

“ (g) Correlation of Payments.—If an individual is entitled to more than 

one annuity fo r a month under this section, such individual shall be en title d only 

to th at one of such annuities for the month which is equal to or exceeds any other 

such annuity.”

Sec. 3. Section 202(1) of the Social Security Act is repealed.

Sec. 4. The amen dments made by this Act shall apply only w ith respe ct to (1) 

annuities accruin g under the Railroad Retirem ent Act of 1937, and monthly 

benefits payable under section 202 of the Social Security Act, for months after 

the month in which this Act is enacted, and (2) lumpsum dea th paym ents under 

such section 202 in the case of death s occurring after the month in which this 

Act is enacted.

[H .R . 1645, 89 th Cong., 1s t sess.]

A BIL L To am en d th e Rai lroa d Ret irem en t Ac t of 1937 to el im in at e th e pr ov isio ns which 

redu ce th e annuit ie s of th e spou se s of re ti re d em plo yees by th e am ou nt of ce rt ai n 

mon th ly be ne fit s pa ya ble un de r ti tl e II of th e Socia l Sec ur ity Ac t

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

of America in Congress assembled, That the last proviso of subsection (e) of section 2 of the Railroa d Retirement Act of 1937 (45 U.S.C. 228b (e)) is amended 

by striking out “and the amount of any monthly insurance benefit, oth er than a 

wife’s or husban d’s insurance benefit,”, and by furth er striking out “or section 

202” and all that follows down to the period a t the end of such subsection.

Sec. 2. This Act shall take effect w ith respe ct to annuities accruing in months 

after the month in which th is Act was enacted.

[H .R . 3157, 89 th Cong., 1st sess.]i

A BIL L To am en d th e Rai lroa d Ret irem en t Act of 193 7 to elim in at e th e pr ov isio ns which 

redu ce th e annuit ie s of th e sp ou se s of re ti re d em plo yees by th e am ou nt of ce rt ai n 

m on thly b en efits

Be it enacted by th e Senate and House of Representatives of the United States

of America in Congress assembled That subsection (e) of section 2 of the Railroad Retirement Act of 1937 (45 U.S.C. 22 8( e) ) is amended by changing the colon 

before the las t proviso to a period and by striking out all th at follows down 

through the period at the end of such subsection.

Sec. 2. This Act shall tak e effect with respe ct to annuities accruing in months 

aft er the month in which this Act was enacted, and shall apply also to annuities 

paid in lump sum equal to the ir commuted value because of a reduction in such 

annuities under section 2(e ) of the Railroad Retirement Act of 1937, as in effect 

before the amendments made by th is Act. a s if such annuities had not been paid 

in such lump su ms: Provided, however, T hat the am ounts of such ann uities which 

were paid in lump sums equal to their commuted value shall not be included in 

the amount of an nuities which become payable by reason of section 1 of this Act.
RAILROAD RE TI RE MEN T 3

[H .R. G296, 89 th Con g., 1st se ss .J

A BIL L To am en d th e R ai lr oad R et ir em en t A ct of 1937 to el im in at e th e pr ov isio ns which 

redu ce th e annuit ie s of th e spou se s of re ti re d em ploy ees by th e am ount of cert ain 

m on th ly be ne fits

Be it enacted by the Senate and House of Representatives o f the United Sta tes

of America in Congress assembled, That subsection (e ), of section 2 of the Ra ilroad Re tiremen t Act of 1937 (45 U.S.C. 228 (e )) is amended by ch anging the colon 

before the last proviso to a period and by strikin g out all that follows down 

through the period at the end of such subsection.

Sec. 2. This Act shall take effect with respe ct to ann uities accruing in months 

after the month in which this Act was enacted, and shall apply also to ann uities 

paid in lump sum equal to their commuted value because of a reduction in such 

annuities und er section 2 (e) of the Railroad Retirement Act of 1937, as in effect 

before the amen dments made by this Act, as if such ann uities had not been paid 

in such lump su ms: Provided, however, T ha t the amounts of such ann uities which 

were paid in lump sums equal to the ir commuted value shall not be included in 

the amount of ann uities which become payable by reason of section 1 of thi s Act.

Mr. Macdonald. I shall also place into the record at this point the 

departmental reports which have been received.

(The reports follow:)

Executive Office of the President,

Bureau of the Budget, 

Washington, D.C., April SO, 1965.

Hon. Oren Harris,

Chairman, Committee on In terst ate and Foreign Commerce,

House of Representatives,

Washington, D.C.

Dear Mr. Chairman : Your committee has und er consideration H.R. 651, a 

bill to amend the Railroad Ret irement Act of 1937 to eliminate the provisions 

which reduce the ann uities of the spouses of retire d employees by the amount of 

certain monthly benefits payable und er title II of the Social Security Act, and 

H.R. 3157, a bill to amend the Railro ad Retirment Act of 1937 to eliminate the 

provisions which reduce the annuitie s of the spouses of retired employees by 

the amount of certain monthly benefits.

This office gene rally concurs in the views expressed by the Railroad 

Retirement Board on these two bills. Primarily for these reaso ns but also 

because of the importance of retaining and extending the coordination between 

benefits payable under both the Railroa d Retirem ent and the Social Security 

Acts, we would be opposed to t he enactm ent of these bills.

Sincerely yours,

Phil lip S. Hughes,

Assistan t Director for Legislative Reference.

Railroard Retirement Board,

Chicago, III., A pril 26, 1965.

Hon. Oren Harris,

Chairman, Committee on Inter sta te and Foreign Commerce,

House Office Building,

Washington, D.C.

Dear Mr. H arris : This is a report on the bill H.R. 651 which was introduced 

in the House of R epresen tatives by Mr. Poff on Jan uary 4, 1965, and referred to 

your committee for consideratio n.

The bill would amend the Railro ad Retirement Act of 1937 by repealing the 

present provision in section 2(e) of the act which requires the reduction of a 

spouse’s annu ity by the am ount of the spouse’s insurance benefit under the Social 

Security Act (except for a wife’s or husban d’s insurance benefit), effective with 

respect to spouse’s annuities accruing in months after the month of enac tment 

of the bill.

It is estimated th at the add itional costs of the amendment proposed by the 

bill would come to approxim ately 0.30 percen t of taxable payroll, or $13 million 

a yea r on a level basis.
4 RAILROAD RE TIRE MEN T

The Board is opposed to the bill for the following rea sons:

(1) The bill makes no provision for the additional revenue to meet the increase in the costs of benefits which the bill would provide.

(2) The present provision in section 2(e) of the Railroad Retirement Act for 

reducing a spouse’s annuity by the amount of the spouse’s own benefit under the 

Social Security Act is the same, in principle, as the provision in the Social 

Security Act for reducing a wife’s benefit under that act by the amount of such 

wife’s primary benefit under th at act. In view of the reduction in a wife’s benefit, 

the reduction of the spouse’s annu ity und er section 2(e) of the act is only in the 

amount, if any, by which her benefit under the Social Security Act exceeds the 

wife ’s benelit under that act to which she would be entitled except for her other 

benefit.

(3) More tha n one of five women en titled to spouse’s benefits under the Rai lroad Retirement Act are also entitled to prim ary old-age benefits under the social Security Act (a total of about 40,000), and the costs to the railroad ret irement system for the nonreduction proposed by the bill would be about $13 

million a year, as previously stated.

The Social Security Act does not requ ire a reduction in a wife's benefit by the 

amount of her retir eme nt ann uity under the Railroad Retirement A ct ; however, 

there are only about 1,000 of the 2,800,000 women entitled to a wife ’s benefit 

under the Social Security Act who a re also entitle d to an employee annui ty under 

the R ailro ad Retirement Act, and by reason of the financial interchange between 

the two systems, the loss to the social secu rity system for this nonreduction 

is zero. The railroad retirement account thus absorbs the cost of the fail ure 

to reduce the w ife's benefit under the Social Security Act by the amount of her 

railroad retirem ent annuity. The estim ated cost to the railroad retirem ent account from this absorption is 0.01 p ercent of taxable payroll, or $500,000 a year.

(4) Before the 1951 amendm ents to the Railroad Retirement Act, there was 

no provision, in that act, for a spouse’s annuity. The reason for providing a 

spouse’s annu ity by such amendments is stated in the Senate committee repo rt 

(S. Rept. 890, 82d Cong., 1st sess., p. 17) as follows:

“If the finances were adequate to perm it doing all the other things that need 

to be done and also to increase all reti rem ent annuities by, say, 05 jiercent, one 

might well consider that as an altern ative to providing a spouse’s annuity. But 

since such a course is obviously out of the question, the spouse’s ann uity affords 

a means of doing subs tantially th at in the cases of greates t need, i.e., where 

two adult and aged lieople ra ther t han ju st one must live on the ann uity .”

The provision for a spouse’s an nuity was, therefore, in substitution for an increase in employee annuities in cases where two persons had to live largely on 

the income from the one annuity under the Railroad Retirement Act. For this 

very reason, the 1951 amendm ents provided that where a spouse has an income 

from a railroad retirem ent ann uity or a social security benefit, the spouse’s annuity would not be paid except to th e extent by which it exceeds such annu ity or 

benefit.

(5) There is a general misundersta nding about the “purchase ” of a spouse’s 

ann uity through railroad retirement taxes. A railroad employee with a wife 

entitled to a spouse’s ann uity paid no more in taxes tha n he would have paid 

if he had no such wife. A spouse’s ann uity is no more “purchase d” than is a 

wife’s benefit u nder the Social Security Act; yet a wife’s benefit under that act 

is reduced by the amount of her own primary benefit.

In view of the foregoing, the Board urges that the bill II.R. G51 should not be 

adopted.

The Bureau of the Budget has no objection to the presenta tion of this repo rt 

from the sta ndpoint of th e adm inistration’s program.

Sincerely yours,

H oward W. H abermeyer, Ch air ma n.

Depar tm en t of H ea lth, E duc atio n, and W elfa re,

Washington, May 18,1965.

H on . Oren H arris,

Chairman, Committee on Inte rst ate and Foreign Commerce,

House of Representatives, Washington, D.C.

Dear Mr. Cha irman : This lette r is in response to your re quest of February 15, 

1965, for a repo rt on TI.R. 3157, a bill to amend the Railroad Retirement Act
RAILROAD RET IR EM EN T 5

of 1937 to eliminate the provisions which reduce the annuities of the spouses of 

retired employees by the amount of certain monthly benefits.

The bill would delete the provision of the Railroad Retirement Act which 

requires that a spouse’s annuity under the railro ad program be reduced by 

the amount of any benefit which the spouse is eligible to receive under the old-age, 

survivors, and disability insurance program, other than a wife's or husband’s 

insurance benefit, and by the amount of any retirement annuity, or parent’s 

insurance annuity, which the spouse is eligible to receive under the railroad retirement program. The amendment would be effective for months afte r the 

month of enactment.

The deletion of these reduction provisions of the railroad law would have no 

effect on the benefit payments made under the old-age, survivors, and disability 

insurance program, or on the operation of the present provisions of the Railroad 

Retirement Act which require cost adjustments between the railroad retirement 

and old-age, survivors, and disability insurance programs. The question as to 

whether to abandon these reduction provisions involves a matter of railroad 

retirem ent policy, and we defer to the Railroad Retirement Board's position on 

the bill.

We are advised by the Bureau of the Budget tha t there is no objection to the 

presentation of this report from the standpoint of the administration’s program. 

Sincerely,

Wilbur J. Cohen,

Acting Secretary.

United States of America

Railroad Retireme nt Board,

Chicago, III., April 26,1965.

Hon. Oren Harris,

Chairman, Committee on Intersta te and Foreign Commerce, House Office Building, Washington, D.C.

Dear Mr. Harris : This is the report of the Railroad Retirement Board on 

the bill II.R. 3157, which you introduced on January 19, 1965, and the bill 

II.R. 6296, introduced by Mr. Broyliill on March 15, 1965. The bills are identical.

The bills would amend the Railroad Retirement Act of 1937 by repealing the 

present provision in section 2(e) of the act which requires the reduction of a 

spouse’s annuity by the amount of the spouse’s own insurance benefit under 

the Social Security Act (except for a wife’s or husband’s insurance benefit) and 

by the amount of an annuity under section 2(a ) or 5(d) of the Railroad 

Retirement Act for which the spouse is eligible. The change would be effective 

with respect to spouses’ annuities accruing in months after the month of enactment of the bill. The amendment would apply to annuities paid in lump sums 

equal to their commuted value because of a reduction under section 2 (e) of the 

act as now in effect.

It is estimated that the additional costs of the amendment proposed by the 

bills would come to approximately 0.32 percent of taxable payroll, or $14 million 

a year, on a level basis. Of this, 0.30 percent of taxable payroll, or $13 million a year, would be attributable to the removal of the reduction because of 

social security benefits, and 0.01 percent of taxable payroll, or $400,000 a year, 

to the removal of the reduction because of railroad retirem ent benefits.

There is now an actuarial deficit in the financing of the railroad retirement 

system of approximately 0.44 percent of taxable payroll, or $19.5 million a year, 

on a level basis. Enactment of either of the bills would increase this actuarial 

deficiency to approximately 0.76 percent of taxable payroll, or $33.5 million a 

year?

The Board is opposed to the bills for the following reasons:

(1) The bills make no provision for additional revenue to meet the increase 

in the costs of benefits which the bills would provide. Even if it were considered feasible to provide for additional revenue in an amount sufficient to 

cover the added costs of the bills, the Board’s position would not change for 

new income could better be used for improvements in other areas where the 

need seems greater.

(2) The present provision in section 2(e) of the Railroad Retirement Act 

for reducing a spouse’s annuity by the amount of the spouse’s own benefit

1

 The slight inconsistencies between figures are due to round ing procedures. 

48-0S1—05----- 2
6 RAILROAD RETIRE MEN T

under the Social Security Act is the same, in principle, as the provision in the 

Social Security Act for reducing a wife’s benefit under th at act by the amount 

of such wife’s prim ary benefit under that act. In view of the reduction in a 

wife ’s benefit, the reduction of the spouse’s ann uity und er section 2(e) of the 

act is only in the amount, if any, by which her benefit under the Social Security 

Act exceeds the wife’s benefit under that act to which she would be entitled 

except for her other benefit.

(3) More than one of five women entitled to spouses’ benefits under the 

Railroad Retirement Act are also entitled to primary old-age benefits under 

the Social Security Act (a tota l of about 40,000 spouses whose benefits were 

eith er reduced or elim inated), and the costs to the railroad retirem ent system 

for the nonreduction proposed by the bill now and for the futur e would be 

about $14 million a y ear, as previously stated.

The Social Security Act does not require a reduction in a wife’s benefit by 

the amount of here retirement annuity under the Railroad Retirement A ct : 

however, there are only about 1,000 of the 2,800,000 women entitled to a wife ’s 

benefit under the Social Security Act who are also entitle d to an employee 

ann uity under the Railroad Retirement Act, and by reason of the financial 

interchange between the two systems, the loss to the social secu rity system 

for this nonreduction is zero. The railroad retireme nt account thu s absorbs 

the cost of the failur e to reduce the wife ’s benefit under the Social Security 

Act by the amount of here railroad retirem ent annuity. The estimated cost 

to the railroa d retirem ent account from this absorption is 0.01 percent of taxa ble 

payroll, or $500,000 a year.

(4) Before the 1951 Amendments to the Railro ad Retirement Act, there was 

no provision, in that act, for a spouse’s annuity . The reason for providing 

a spouse’s an nuity by such a mendments is s tated in the Senate committee repo rt 

(S. Rep. 890, 82d Cong., 1st sess., p. 17) as follows:

“If the finances were adequate to permit doing all the other things th at need 

to be done and also to increase all retireme nt annuities by, say, 65 percent, one 

might well consider th at as an altern ative to providing a spouse’s an nuity. But 

since such a course is obviously out of the question, the spouse’s annuity affords 

a means of doing substan tially that in cases of gre atest need, i.e., where two 

adult and aged people rather than ju st one must live on the ann uity .”

The provision for a spouse’s ann uity was, therefore, in substitution for an 

increase in employee annuities in cases where two persons had to live largely 

on the income from the one ann uity und er the Railroad Retirem ent Act. For 

thi s very reason, the 1951 amendments provided that where a spouse h as an income from a railro ad retirem ent a nnuity or a social secu rity benefit, the spouse’s 

ann uity would not be paid except to the e xtent by which it exceeds such annu ity 

or benefit.

(5) There is a general misunderstanding about the “purchase” of a spouse’s 

ann uity through railroad retirem ent taxes. A railro ad employee with a wife 

entitled to a spouse’s ann uity paid no more in taxes than he would have paid 

if he had no such wife. A spouse’s ann uity is no more “purc hased” than is a 

wife’s benefit under the Social Security Act; y et a wife’s benefit under that act 

is redu ced by the amount of her own primary benefit.

In view of the foregoing, the Boa rd recommends th at the bills H.R. 3157 

and H.R. 6296 not be reported favorably by your committee.

The Bureau of the Budget has no objection to the presenta tion of this repo rt 

from the standpoint of the adminis tration’s program.

Sincerely yours,

H oward W . H abe rme yer, C h air m a n.

Mr. Macdonald. Our first witness this morning will be our distinguished colleague from the Judiciary Committee, Mr. Poff, who has 

work before his own committee.

Mr. Poff.

STATEMENT OF HON. RICHARD H. POFF, A REPR ESEN TATIVE IN 

CONGRESS FROM THE STATE OF VIR GIN IA

Mr. Poff. Mr. Chairman, I thank you, sir, and I thank mv colleague 

from North Carolina for allowing me to appear ahead of him. The
RAILROAD RE TI RE MEN T 7

Judiciary Committee is in executive session on the voting rights bill 

and I would like to be there as soon as I can. Mr. Chairman, in support of II.R. 651 which I introduced on the 

1st day of the 89th Congress and the related bills, I will be brief. This 

is because the bill itself is brief: the subject, m atter is brief, and the justification is brief. In fact, the justification, it seems to me, can be 

stated in one word and tha t is “fairness.” At one time the Railro ad Retirement Act carried a dual benefits 

restriction against all classes of beneficiaries. None were permitted to 

draw full amount of railroad retirement benefits if they were also entitled to social security benefits. Under the equitable doctrine tha t one pays for one should receive, these restrictions, one by one, have 

been stricken from the act. Today, all have been repealed but one, the 

one which applies to beneficiaries who are wives or husbands of retired 

railroad workers. II.R . 651 would repeal this last restriction. The restriction against railroad spouses is the rankest sort of discrimination denying the most artfu l rationalization. Why should a man or woman who happens to be the husband or 

wife of a railroad worker be treated differently than the spoiise of 

another worker? The same social security taxes have been paid in the 

two cases and if one is to receive less benefits than the other, then why 

should not his taxes in the first instance be less? IT.R. 651 eliminates this discrimination by guaranteeing tha t when payments are made 

into two separate retirement systems benefits will be forthcoming 

from both systems. Mr. Chairman, IT.R. 651 is identical to IT.R. 12362 which passed 

the House last year with the exception of the committee amendment which was adopted during the course of floor debate and which, of 

course, should be considered as a pa rt of H.R. 651. The sum and substance of that amendment requires th at this act shall take effect with respect to annuities accruing in months after the month in which this 

act was enacted. The bill, as the chairman has already indicated, died 

in the Senate last year when the Congress adjourned. According to the actuaries, the deficit involved here is only threetenths of 1 percent of taxable payroll. In dollars, I believe that is 

about $13 million. While this legislation provides no tax increases to provide additional revenue to the fund, I agree with the statement in the unanimous bipartisan committee report, last year that, and I quote:

The equities involved in this legislation are sufficiently compelling to jus tify 

the small added cost to the railroad retire ment system.

Mr. Chairman, I introduced the first bill on this subject introduced 

in the 88th Congress. I introduced the first in this Congress and 

naturally, I would like to see my name on the legislation, but I am 

not unfamiliar with the realities of the legislative mechanism and 

whatever name the legislation reported bears, it will have my enthusiastic support. Parenthetically, I must also add that credit for the idea, I think, 

belongs chiefly to our colleague from Mississippi, John Bell Williams. 

I think it was more than 10 years ago when he first introduced similar 

legislation and if credit is due, he should be acknowledged.

Mr. Chairman, that concludes my testimony.
8 RAILROAD RETIRE ME NT

Mr. Macdonald. Th an k you, Mr. Poff.

Air. I luot?

Air. H uot. Xo que stions.

Mr. M acdonald. Mr. K eith ?

Mr. Keit h. I won der if M r. Poff has been acqu ainted w ith the R ai lroad R etir ement Bo ard’s position on th is legislation ?

Mr. Poff. Yes, sir; I have been acq uai nte d with it over the years.

Mr. Keith. Xo fu rthe r questions.

Mr. Macdonald. Th an k you, very much.

Mr. P off. I t ha nk you, sir.

Air. Macdonald. We will now he ar fro m our colleague from the 

full committee, Air. Broy hill, of No rth Carolina.

STATEMENT OF HON. JAMES T. BROYHILL, A REPRESENTATIVE IN 

CONGRESS FROM THE STATE OF NORTH CAROLINA

Air. B royhill of No rth Carolina . Th an k you, Air. Ch airma n.

Air. Ch airma n and fellow mem bers of the committee, 1 appre cia te 

thi s op po rtu nity to comment briefly on my bill, IT.R. 6296, in which 

I have joined oth ers in pro posing th at this Congress ena ct legislation 

iden tical to II. R. 12362, the bill agr eed to by the House in the last 

Congress.

You will recall th at II.R. 12362, the bill in the 88th Congress, was 

considered by the committee last year and fav ora bly reporte d out on 

Au gust 14. Th e House passed the bill on Sep tem ber 3 with virtu ­

ally no dissent by a voice vote. 1 Info rtu natel y, the Sena te was una ble 

to act on this me asure p rio r to ad journment.

The pur pose of II.R. 6296 is to ame nd the R ailroad Re tire me nt Act 

of 1937 so th at a se riously needed change may be made in that pro gra m. 

Th is amend ment would pe rm it the spouse of a railr oa d employee to 

receive a spouse's annu ity under the Railro ad Re tirem ent Ac t concu rre ntl y with the receipt of social security benefits ea rned in h er own 

righ t wit hout reduction in the spouse’s annuity. Un de r existing law, 

social sec urity benefits received by the spouse in her own righ t are 

ded ucte d from her benefits to which she would be otherwise entitle d 

under th e rail road retirem ent program .

Re tirem ent pro gra ms are esta blished on the prem ise th at a n ind ivi ­

dual who make s regu lar paym ent s to the pla n will, upon retirem ent, 

receive a specified mo nth ly annu ity to assist th at person, or their 

spouse, to meet the expenses of living du rin g their retire me nt years. 

Wh en the pers on has fa ithf ul ly paid for financial sec urity in retir ement, is it righ t to deny them the full am ount to which the y are entitled ? I think not. l e t th at is what is pre scribed in the existin g 

Ra ilroa d Retire me nt Act. A retired rai lro ad employee’s wife, who is 

en titled to an annu ity because o f the husband’s payme nts to the retir ement fun d, and who also is entitled to ret ire me nt benefits throu gh 

her own social sec urity paymen ts, is denied a po rtion of the benefits 

subscribed to fo r he r by h er husband.

Th is inequity has been well defined to this com mittee in numerous 

way s du rin g the 10 year s since the legislation w as first proposed in th e 

84th Congress. Ce rta inl y, the re are those who are entitled to full retirem ent ann uities from both the social sec urity and rai lro ad retir eme nt fun ds whose financia l resources are alr eady critically strain ed.
RAILROAD RET IR EM EN T 9

The required reduction in railroad retirement benefits for the spouse 

by the amount of the social security check only aggravates the situation.

I am certain tha t every member of the committee is cognizant of the 

fact tha t enactment of this bill would increase the annual deficit of 

the railroad retirement fund by about $13 million. The committee 

membership is equally aware tha t the inequity now existing in the 

Railroad Retirement Act is out of step with the purpose of a retirement 

program. The very favorable gain to be realized by enactment of 

H.R. 6296 significantly outweighs the disadvantage of the small deficit 

which would be placed upon the railroa d retirement fund.

Mr. Chairman, the committee reviewed all of these factors and 

more in giving strong support to this proposal last year. Neither 

the situation nor the problem has changed since that time and I can 

see no reason tha t would alter the strongly favorable attitude of the 

committee as demonstrated in the past.

I believe the committee has acted wisely in bring ing up this question so early in the session so tha t there will be ample time for full 

and thorough consideration. It is my hope tha t a bill to put right the 

inequity which now exists will be favorably reported by the committee soon.

Thank you.

Mr. Macdonald. Thank you very much, Mr. Broyhill. Tha t was 

a very fine statement.

Any questions?

Ai r. 11uot. No questions.

Mr. Macdonald. Mr. Keith?

Mr. Keith. No questions.

Mr. Macdonald. Thank you, very much.

Mr. Broyhill. Thank you, Mr. Chairman.

Mr. Macdoald. The next witness is our colleague and a former 

member of the committee, the Honorable Lindley Beckworth. Mr. 

Beckworth, we welcome you.

STATEMENT OF HON. LINDLEY BECKWORTH, A REP RES ENT ATIVE 

IN CONGRESS FROM THE STATE OF TEXAS

Mr. Beckworth. Mr. Chairman, I commend you and your associates 

for considering the bills tha t would amend the Railroad Retirement 

Act. I shall appreciate your giving very careful consideration to the 

provisions of my bill H.R. 1501 as well as the other bills.

Mr. Macdonald. Are there any questions? Mr. Beckworth, we appreciate your continuing interest in this matter and your appearance 

here today.

Mr. Beckworth. Thank you, Mr. Chairman.

Mr. Macdonald. We will now hear from Mr. Howard IV. Habermeyer, Chairman, Railroad Retirement Board.

STATEMENT OF HON. HOWARD W. HABERMEYER, CHAIRMAN, 

RAILROAD RETIREMEN T BOARD, CHICAGO, ILL.

Mr. Habermeyer. Mr. Chairm an and members of the committee, 

my name is Howard IV. Habermeyer and I am Chairm an of the
10 RAILROAD RETIRE ME NT

Kailro ad Retire me nt Board. I have been associated with the Board 

since 1936, a nd I have been Ch airma n of the Board since November 

1956. I ap pe ar here on beh alf o f the Bo ard in opp osition to the bill 

H.R . 3157 and oth er sim ila r bills.

The bill, II.R. 3157 wou ld delete from the Ra ilroad Re tirem ent Ac t 

the provision in section 2(e) which req uires that a spouse’s an nu ity 

be reduced by the amou nt of the spouse’s own insura nce benefit un de r 

the Social Secur ity Act and by the amount of her ret ire men t annu ity 

under the Railroad R etirement Act.

The Board is opposed to the b ill for the fo llowin g reason s:

1. As you know, the rai lro ad ret ire me nt system is financed chiefly 

by pay roll taxes on railroad emp loyers an d employees. Th e tax ra te 

at the p resent time is 8% percen t on each, on compensation up to $450 

a mon th. Th ere is now an actua ria l defic it in the railr oa d ret ire men t 

account of appro xim ate ly $19.5 million a year, or 0.44 perce nt of 

payroll. If H.R . 6675, commonly kno wn as the me dicare bill, as 

it passed the House is enacted, the defic it would go up to about $43 

million a year, or 1 percen t of tax able payro ll. I think it fa ir to 

assume t hat I I.R . 6675 will soon become law.

The ena ctm ent of II.R. 3157 w ould, by itse lf, result in a loss to the 

rai lro ad retire me nt system of appro xim ate ly $14 millio n a year, or 

0.32 percent of taxabl e payr oll. Wh en c onsidered in conju nction with 

H.R . 6675, the ex tra ne t costs would be even som ewh at gre ate r. 

Fu rth ermore, the enactment of both II.R. 6675 and H.R. 3157 would 

bring abo ut a deficiency of nea rly $58 million a year, o r rou ghly 1% 

percen t of ta xable payroll .

Even wi tho ut tak ing into account H.R. 6675, alth ough as a pract ica l 

matter we must, the enac tment of H .R. 3157 would increase t he deficit 

to about $33 m illion a y ear, or to three-fourths of 1 perce nt of taxable 

pay roll. The deficit would be so increased because the bill makes 

no pro vision for new income to cover the costs th at it wou ld entail. 

Even if the bill did provide fo r financing, the Bo ard would still 

oppose it because of the belief th at any spendable addit ion al income 

could be tte r be used to give some benefit increases in are as where the 

need is gr ea ter than in the cases of spouses for whose benefit the bill 

is inte nde d.

Th e figures which I have jus t cite d disclose a very serious s itua tion 

which is a cause for grave concern. We all agre e, I am sure, that 

it is of the utmost importanc e t hat the r ail road reti rem ent system be in 

a soun d fin ancial condition.

The consequence of a substan tial deficiency in fina ncing would be 

th at , at some time in the futur e, sufficient fun ds wo uld not be a vailable 

for benefit paymen ts. The projected deficit fo r the com bination of 

II.R. 6675 and II.R. 3157 w ould come close to th e deficit which existed 

when Presi dent Kenne dy asked fo r the dev elopment o f a prog ram to 

restore our system to a sound finan cial con dition. Such a program 

was, as you know, p ut into effect by le gislation enac ted in 1963. I t is, 

in my op inion, th e o bligation of all pa rties conc erned with the financial 

well-bein g of t he ra ilr oa d retire me nt system t o gu ard again st a recu rrence of the un fav orable sit ua tio n th at existed before th e 1963 ame ndments.

Wh ile the previously men tioned figures alr eady disclose a ra th er 

unsat isfactor y actua ria l condition, the actual sit ua tio n may even be 

worse. Th is is because all of our pre sen t cost figures are bas ed on
RAILROAD RET IR EM EN T 11

the last actuarial valuation, which used a payroll assumption associated 

with a future railroad labor force of 800,000. As of the early part 

of this year, employment was down to 741,000. Actually, an assumption of a future employment of only 700,000 would seem to be justified. 

Under such an assumption, the actuarial deficiency would obviously be 

considerably larger, and this is a strong possibility which we must 

keep in mind.

2. The provision for a spouse’s annuity was enacted for the first 

time as a part of the 1951 amendments to the Railroad Retirement 

Act. The reason for providing such an annuity was that it was obviously impossible to provide sufficient benefit increases across the 

board. It was thought that the spouse’s annuity is a proper substitute 

for a large general increase because it would take care of the cases of 

greatest need; that is, where two aged people rath er than one must live 

on the retirement income.

Following the general premise to its logical conclusion, the 1951 

amendments provided tha t where a spouse has an additional income 

from a railroad retirement annuity or a social security benefit, it would 

be justifiable to reduce her railroad retirement spouse’s annuity to an 

amount which is in excess of her other benefit. We believe th at this 

premise is as valid today as it was in 1951.

3. The objection to the reduction of the spouse’s annuity by the 

amount of certain other benefits is probably based on a mistaken belief 

on the part of many railroad employees that they have purchased a 

full spouse’s annuity throu gh their railroad retirement taxes. But, 

in actuality, such is not the case because all railroad employees pay 

taxes at the same rates regardless of whether or not they have a wife 

who will become entitled to a spouse’s annuity. From the point of 

view of equity, the increase in the cost of spouse’s annuities due to 

the enactment of II.R. 3157 would have the undesirable effect of increasing the tax burden of the majority of employees who do not stand 

to benefit from the changes made by the bill.

4. The provision for reducing a spouse’s annuity by the amount of 

her own retirement benefit is the same, in principle, as the provision in 

the Social Security Act for reducing a wife’s benefit by the amount of 

her own old-age benefit.

The concurrence of a social security wife’s benefit and of a railroad 

retirement annuity under the Railroad Retirement Act poses no financial problems to the social security system for two reasons: First, there 

are very few women falling in this category. We estimate that, of the 

2,800,000 women entitled to a wife’s benefit under the Social Security 

Act, perhaps only 1,000 are entitled also to a retirement annunity under 

our act. Second, by reason of the financial interchange between the 

two systems, the loss to the social security system for this nonreduction 

is zero.

On the other hand, for the railroad retirement system, the problem 

is of major financial consequence. Our spouse population on the 

rolls is now about 175,000. The elimination of the dual-benefit reduction from our act would affect as many as 40,000 women, the vast majority of whom are receiving retirem ent benefits in their own righ t 

from social security.

As I have indicated previously, the cost consequences of this liberalization would be substantial. I should also like to add that no pa rt of
12 RAILROAD RE TIRE ME NT

the a dditio nal cost would be recouped under the financial interc han ge 

with the social security system.

5. Aside from the specific co nsid eration s which I hav e ju st discussed, 

I would like to state t ha t the Ra ilroad Retire me nt Bo ard ha s, w ith few 

exceptions, alw ays objected to any p roposal f or libe raliza tion of benefits 

which did not provide for adequate financ ing of such libera liza tion. 

The bill, IT.R. 3175, conies within th is categ ory of bills since it does 

not pro vid e for add itio nal revenues to finance the ex tra costs whi ch 

it would impose on the system.

As for the oth er bills which are the sub ject of this hearing, I will 

limit m yself to the follow ing rem ar ks :

H.R . 6296 is iden tical with H.R. 3157. Th e b ills IT.R. 651 and IT.R. 

1645 are sim ilar to H.R 3157 an d diffe r fro m it only in t hat they would 

not eliminate the reduction for a retire men t an nu ity un der the Rail road 

Retire me nt Act a nd w ould not reope n the commuted value cases Th e 

Board opposes th ese bills for the same reason s th at it is ag ain st H.R. 

3157.

The bill IT.R. 1501 is like H. R. 651 con cer ning the elim ina tion of a 

reduct ion in a spouse's annuity. In a dd ition , II.R. 1501 would pe rm it 

monthly benefits on the basis of an individu al’s earn ing s to be pa id to 

surviv ors un der both the Ra ilroa d Re tirem ent Ac t and the Social 

Security Act. Un der pre sen t law, survi vor benefits can be pa id on 

an individu al’s earnings un de r one ac t or the other, bu t no t un der 

both . How ever, ear nings cre dit s un de r both acts are combined in 

deter mi nin g eligib ility for, and the am ount of. benefits. Th e w ay 11.R. 

1501 is worded, each agency would sep ara tely pay sur viv or benefits 

on the basis o f combined cre dits un de r the two acts. Th is wou ld be a 

very costly proposition indeed and the whole cost would in actua lity 

fal l upo n the rai lro ad ret ire me nt system. Social security would be 

pro tected by th e mann er in which th e financial interc han ge operates.

The coo rdination of the railr oa d retirement and social sec urity systems as to pay ment of mo nth ly survivor benefits un der one system or 

the o the r, but not under both, has been in effect since mo nth ly benefits 

to survivors of rai lro ad employees were first pro vided by the 1946 

amendments to the R ail road Ret ire ment Act.

Th e change the bill, H.R . 1501, would make as to survivor benefits 

would add 3.25 percen t of taxable pay roll or $140 million a y ear on a 

level basis to the costs of the railr oa d retire me nt system. Th e entire 

bill, H.R. 1501, would add 3.55 perc ent of taxabl e payro ll or $153 

million a year and, needless to say, the Bo ard is strongly opposed to 

thi s bill.

Th an k you very m uch, M r. C hairm an.

Mr. Macdonald. Mr. Iluo t ?

Mr. H uot. I th in k I got a lit tle confused du ring yo ur statem ent 

and perha ps you migh t expla in. You mentioned 1,000 women would 

fall in thi s category and 40,000 un de r the Retire ment Act.

Mr. Habermeyer. You see, social security pays wife benefits the 

same as we pay spouse benefits. They are p ay ing about 2,800,000 such 

women but, of th at 2,800,000, the re is only abo ut 1,000 who have 

worked in the rai lro ad indu str y and earned an an nu ity under o ur system whereas ou r wives, the 175,000 spouses th at we have under ra il ­

roa d retirem ent, the re are abo ut 40,000 who hav e worked and earned 

credits under social security, so they are e nti tle d to a benefit over th ere.

Mr. H uot. Th an k you.
RAILROAD RET IREMENT 13

Mr. Macdonald. W ha t does th at rea lly me an?

Mr. H abermeyer. W ha t we are tryin g to po int up here is th at the 

problem com ing bac k towa rd us wi th res pect to social sec uri ty wives 

does not cost th at system ne ar as much as rem oving this restr ictio n 

would cost because of ou r wives wo rki ng un de r social sec uri ty, you 

see?

Mr. Macdonald. Ye s; I see, and I hav e no way of know ing if it is 

correct. I ju st assu me t hey are correct. 1 know they are liecause you 

would no t say so i f the y were not, b ut I r eally do n ot see w ha t bearin g 

th at ha s on th e bill. You are no t in c om pet itio n with social security .

Mr. H abermeyer. No, no. As a m at ter of fac t, social sec urity has 

the same res tricti on as fa r as th ei r beneficiaries are concerned. I f a 

wife un de r the social sec urity has a bene fit in he r own righ t, an an ­

nu ity , the y make th e red uction. Now, wh at th is bill will do is tak e 

th at awa y from us.

Mr. Macdonald. Mr. K eith ?

Mr. K ei th . Wou ld it be estab lishin g a pat te rn th at would be reflected in leg islation n ex t ye ar p er tine nt to the social sec uri ty system ?

Mr. H abermeyer. I could n ot a nsw er th at.

Mr. Keit h. Wou ld it, in yo ur view, lay a groundwo rk?

Mr. Habermeyer. By an d large, the two systems kin d of work to ­

gethe r. I mean if this red uction was eliminated h ere it is qu ite possible i t would be suggested it be removed over there.

Mr. K ei th . Pe rh ap s it should.

Mr. Macdonald. An y f urt her que stio ns ?

Mr. K ei th . No.

Mr. Macdonald. Si r, on the first page of yo ur testim ony you talk 

about medicare, H.R. 6675, a nd you say af te r it pa ssed the House you 

agree it probably would be ena cted and yo ur deficit would go up to 

$43 millio n pe r ye ar or 1 perce nt of tax ab le payro ll. Fi rs t, wh at 

sect ions of medicare ?

Mr. Habermeyer. These wou ld be pr im arily the increase in social 

sec uri ty benefits, no t the ho sp ita l or doctor section of th e bill, you see?

Mr. Macdonald. But T do not see how it directl y affects the Rai lroad Retirem ent Act.

Mr. Habermeyer. Oh, we are coord ina ted . Th ere is a pro vision 

in ou r law th at says we will never pay less th an 110 p erc ent of wh at 

social sec uri ty wou ld pay if ou r earnings were un de r social sec urity 

and at th e prese nt tim e we are pa ying practic all y 85 perce nt of ou r 

widows on th at basis. One imme dia te effect would be the spouses. 

When th at ta x base goes up to $5,600, ou r maxim um spouse benefit 

now is $69.90, it wou ld im me dia tely go up. Th e maxim um would 

imme dia tely be raise d by v irt ue of t his bill raisi ng the floor of t he base 

un de r social se cur ity to about $72 a nd when a base goes to $6,600 we will 

be pa ying $92.40 max imum spouse bene fit and we pay th at to almost 

every spouse.

Now, while I spoke here a minute ago about the Sy8

 perce nt tax 

rat e, if H .R . 6675 is ena cted o ur rates will autom ati cally go up because 

of the coordi natio n of the tw o systems , and will eventua lly go to o ver 

10 p erc ent . You see, we are ge ttin g in a toug h bind. I do no t like 

to be opposed to lib era liz ati on of benefits. T wou ld like to pa y all 

we can pa y bu t I wa nt to be sure we have a system th at live s up to 

the obligations the people expected of it. You see, now we have on 

ou r rolls , we are pa ying mo nth ly benefits to almost 900,000 peop le. 

48 -08 1— 65 ------ 3
14 RAILROAD RE TIRE ME NT

Mr. Macdonald. On th at point, 1 have heard it said that there were 

more people drawing benefits under the act than are actually contributing to the act; is that right ?

Mr. Habermeyer. That is right. We are paying about 890,000 

people monthly benefits and as I mentioned in my statement as of 

February, railroad employment was down to 741,000 employees.

Mr. Macdonald. Well, talking about the deficit on page 2, you say 

actually an assumption of future employment is only 700,000 that 

seems reasonable to you. What would the deficit be if employment 

drops to that amount?

Mr. Habermeyer. It would be about three-quarters of 1 percent. I 

would say something in that neighborhood.

Mr. Macdonald. Thank you, sir.

Mr. Keith. Under the amendments of 1963 ?

Mr. Habermeyer. Yes, sir.

Mr. Keith . At the time Congress increased the income, did we 

correct some of the inequities that had been pointed out in the hearings 

of 1959 and 1960—the duplication of benefits?

Mr. Habermeyer. No. We had, as I am saying in the statement 

here—no, I did not say it in the statement—Congressman Poff touched 

on it. We had three restrictions in our act at one time; tha t is a man 

who was entitled to a benefit under our system and also simultaneously 

to one under social security system we made a reduction of his dual 

benefits. We had a similar restriction on the widows. Those were 

eliminated one by one and now this is the last restriction tha t is left 

that you are proposing tha t this bill would propose to eliminate.

Mr. K eith. What I had in mind was: Are there any current practices th at may be, or are, unsound tha t could improve the act in the 

future if they were eliminated ?

Mr. I (abermeyer. I am not aware of any.

Mr. Keith. Tf you were ?

Mr. Habermeyer. We would recommend their elimination.

Mr. K eith. Referring to these substantial numbers of people who 

are drawing benefits from the act, is it because of the unemployment 

benefits that they are drawing?

Mr. H abermeyer. That is a separate act. It has no relationship to 

t his at all. There is no carryover.

Mr. Keith. I s it early retirements that are contributing to it ?

Mr. Habermeyer. About 10 years ago I think the average age of 

retirement was about 68.5. It is something less than 67.5 now and we 

are getting more and more labor management agreements for compulsory retirement at 65. So tha t age is getting lower all the time. 

Of course, the earlier a man retires the longer we pay benefits.

Mr. K eith. Tha t is right. You have reduced benefits if they retire 

earlier.

Mr. H abermeyer. Under 65 we take one one-hundred-and-eightieth 

reduction for each month he is under 65 so a man could take a third 

reduction and retire at 60.

Mr. Keith. It is ra ther interesting that your average age of retirement is still above 65, indicating that in some respects the retirement 

plan apparently isn’t adequate to permit ret irement.

Mr. Habermeyer. Well, I do not know.

Mr. Keith. Or to encourage retirement.
RAILROAD RE TI RE MEN T 15

Mr. H abermeyer. I suppose th at is true an d still, I know where people of 70 desire to work if the y only could but they are not allo wed to 

because of a c om pulsory re tirem ent ru le.

Mr. K ei th . Th ere are alw ays people who are exc eptions and are 

very vig oro us at 70. Gener ally the pa tter n fo r ret ire me nt is at 65 

and f or most c orpo rat e e nte rpris es other th an t his one it is compulsory 

at 65.

Mr. H abermeyer. Our benefits are su bstan tia lly hig her. For examp le, maxim um benefits un der social sec uri ty is $127 an d ours are 

cu rre ntly about. $215 and the social sec urity max imum will rem ain at 

$127 unless the law is ame nded w hereas under the Ra ilroa d Re tire me nt 

Act th e ma ximum will continu e to rise and it will be possible some time 

in th e f ut ur e when a m an can ret ire at $350 a mo nth u nder ou r system.

Mr. Keit h. Tha t is very intere sting. At the same time, T th in k it 

should be pointed out th at in large segm ents of ou r indu str y the y have 

sup ple me nta l pla ns which bring some benefits to levels su bstan tia lly 

hig her th an yours.

Mr. H abermeyer. Oh, yes.

Mr. Kei th . But yours is much more ade quate than social security. 

That is the point you are ma king.

Mr. Habermeyer. Yes.

Mr. K ei th . Th an k you, Mr. Chairma n.

Mr. M acdonald. T just, in closing, wou ld like to say, of course, that 

is due to the fact th at social sec urity is so rt of insu rance again st being 

rea lly des titu te.

Mr. H abermeyer. Tha t is rig ht.

Mr. Macdonald. Th e whole concept of social sec uri ty and th e r et irement ; railr oa d retirem en t should not be inter tw ine d because the ph ilosoph y of both are completely different.

Tha nk you, v ery much.

Our next witness will be Mr. Robert B. Byr nes, 'Washington re pr esen tat ive of th e N ational Ra ilr oa d Pension Forum , In c.

STATEMENT OF ROBERT BYRNES, WASHINGTON REPR ESEN TATIVE 

OF THE NATIONAL RAILROAD PENSION FORUM, INC.

Mr. B yrnes. Mr. Ch air ma n and mem bers of the committee, my 

name is R obert B. Byrn es an d I live at 1703 Rho de Isl an d Aven ue NW., 

Wash ington , D.C. I am a retir ed Ba ltim ore & Ohio employee now 

serving as W ash ington rep res entat ive of the Na tio nal Ra ilroa d Pe nsion Fo ru m, In c., of Chicago, Ill. The f oru m is a n onpro fit, vo lunta ry 

membership association of railr oa d, express, and pu llm an employees 

inc orpo rat ed in 1947. It s sole purpose is to tr y to impro ve provisi ons 

in the Ra ilroa d Retire ment Act of 1937. Our org aniza tio n has been 

repres ent ed at every congressional pub lic he aring on railr oa d re tire ­

ment legislation for the past 18 years.

We su pp ort If. R. 3157 an d the four associate d bills in the hope that 

Congress will finally exp unge an un fa ir res tricti on in the Ra ilroad 

Refinement Act. I re fe r to the provision in section 2( e) of the act 

tha t deprives wives of ret ire d railr oa d worke rs of righ tful ly earned 

social se curity a nnuities.

Pu blic Law 234, 82d Con gress in 1951, amended three benefit re ­

str ict ions into the Ra ilr oa d Re tire me nt Act. Th e first res tricti on, bar-
16 RAILROAD RETIRE MEN T

ring employees f rom receiving social sec urity as well as railro ad r etire ­

ment annuitie s, even if both were l egitim ate ly earne d, was repealed in

1954 in Pu blic L aw 746,83d Congress.

The second res tricti on, req uir ing th at the railr oa d ret ire me nt an ­

nu ity of a railroa dm an 's widow be redu ced by the am ount of any 

social sec urity benefit she might be entitl ed to receive, was repealed in

1955 in Publi c Law 383, 84th Congress. Th e th ird res triction, requ iring th at a retir ed rai lro ad er's wife not receive any social security 

annu ity she may have ea rned, stil l rem ains in the act.

Tha t incred ibly un just provision keeps many aged couples who try 

desperate ly to sta y aliv e on low pension incomes in a sta te of real 

pover ty, such as they had never expected th ei r ret ire me nt to be. W ith 

the sc ant kn owledge working railroaders have of reti rem ent law it can 

be rea dily understood th at man y of the couples now in dire distress 

had felt assure d th at the wife’s social sec uri ty pension wou ld be pa rt 

of the fam ily income after the two reache d ret ire men t age.

In pi tifu l letters, man y wives tell us th at when the y worked and 

paid their social sec urity tax it was wi th the fu ll assu rance th at they 

were inv esting in security fo r their old age. Now, when fac ed with 

the rea lity th at they are to get no re tu rn fo r the contr ibu tio ns they 

made, bu t are told th at the Gover nm ent cannot fulfill its ple dge to 

them because of a legal technicality , the y won der an d they seek inform ation a nd help. Many, who recall the sacrifice m ade to pa y social 

security tax es while they worked, are inclined to question th ei r Govern me nt’s integrity .

Since there are abo ut 40,000 a ged couples handica pped by the pr ov ision un de r section 2(e) one wonders how ma ny hav e died du ring the 

past 14 years witho ut eno ugh money to keep them aliv e while a substan tia l po rtion of their righ tful pension was denied them.

Pe rh ap s some m ight still be a live if the rest riction had been repealed 

du ring 1954 a nd 1955 when the ot he r tw o d ual benefit restricti on s were 

elimi nated fro m the Ra ilroad Re tirem en t Act.

Ab out the tim e the two dual benefit res tricti ons were repealed, the 

Ho norab le Jo hn Bell Wi llia ms, of this committee, intro duced H.R. 

738 in the 84t,h Con gress to repeal, also, th e t hird and pe rhap s th e most 

vicious of the thre e r estrictions. In eve ry Congres s since t he 84th, bills 

hav e been introd uced by man y Congres sme n in a determined effort to 

remove the ineq uity. For this hu man ita ria n effo rt, those Con gressmen hav e e arn ed the sin cere g ra titu de of m any v ery poo r people.

En actm en t of these bills will cost the railr oa d retir em en t account 

very littl e more money. Bu t because of this p enalizin g provision the 

account has been saved much money du rin g the pa st 14 yea rs the 

res tricti on has been p ar t of the law. I f this i nju stice had been repealed 

a decade ago the added cost would have started then. Maybe the 

am ount th at has no t had to be spent for thi s purpose will offset the 

sli gh t increased cost.

La st Sep tem ber, many retir ed couples were enc ourage d when the 

House of Repre sen tative s pas sed H.R, 12362 an d they opt imistically 

hop ed th at their pension incomes would soon be increased. La ter, 

when the Senate adjou rned witho ut passing the bill, those same poor 

souls were d isappoin ted , indeed.

Now Congress h as an oth er opp or tunity to right a w ron g a nd I hope 

the legisla tion asked for in H.R. 3157 an d assoc iate bills will ge t y our
RAILROAD RE TI RE MEN T 17

recommendation and be approved by the House and soon become the 

law of the land.

IMen and women who stand to benefit by passage of these bills have 

small incomes and have been forced to deny themselves many of life’s 

necessities.

Therefore, the elimination of this restriction will bring more money 

into many homes and will be in harmony with the President’s war on 

poverty and at the same time a stimulant to the national economy.

Speaking for American railroader’s, employed and retired, we urge 

your favorable action on H.R. 3157 and associated bills.

Thank you, Mr. Chairman and members of the subcommittee.

Mr. Macdonald. Thank you, sir.

Air. Huot?

Air. Huot. I sympathize very much with these proposed bills. I 

doubt very much your statement on page 2 as to how many people 

might have died for lack of the repeal of this section.

Air. Byrnes. From the letters we receive in AVashington and Chicago I would say there are many; and we were practically told that 

they are in dire need.

Air. Huot. Thank you.

Mr. AIacdonald. Air. Keith?

Air. Keitii. Do you have any figures as to the average income of 

those who have been getting these benefits—those whom you describe 

as extraordinarily poor?

Air. Byrnes. No, Congressman, I have not studied the figures. The 

Railroad Retirement Board, of course, has them. AVe have access to 

those if we want to look a t them. I am merely speaking of the letters 

that come to me that I handle and answer.

Air. Keith. You state that this is caused by a legal technicality. This 

is contrary to the evidence presented by Air. Habermeyer which indicates it was the intent of the Railroad Retirement Board tha t the legislation be in its present form, it is not a legal technicality. It is, 

perhaps, in your view.

Air. Byrnes. I meant because the law applies as it does, these people 

are handicapped.

Air. Keith. Th at is all.

Mr. H uot. Air. Chairman, may I ask one more question?

Air. Macdonald. Yes.

Air. Huot. In your statement somewhere you mentioned that this 

would cost very little. Do you agree with the figures that were given 

by Air. Habermeyer?

Air. Byrnes. That is right, b ut I have been here at many hearings 

when the figure of 2 and 3 percent was not considered to be too great 

for safety.

Air. Huot. But you do agree t ha t the figures given by Air. Habermeyer are probably the figures to be involved ?

Air. B yrnes. Yes.

Air. H uot. Thank you.

Air. Macdonald. Sir, you made mention of letters tha t you receive. 

I might add that many Members of Congress receive much mail from 

membership of your National Railroad Pension Forum. I know. I, 

myself, have received a good deal of mail and you do a very effective 

job of generating mail. I was wondering how many people you had 

in your National Railroad Pension Forum.
18 RAILROAD RE TIRE MEN T

Mr. Byrnes. At one time we have had as many as 120,000 paid 

members. That has shrunk during the years. Recently, there has 

been an increase in membership. I would say it is now about 20,000 

or 25,000.

Mr. Macdonald. Do they all have to pay dues ?

Mr. Byrnes. They pay $1 a year dues. A great many have retired 

and stopped their payment of dues, but they are still very interested 

and still read our paper and still they consider themselves members 

even though they are not contributing.

Mr. Macdonald. I can state of my own knowledge tha t your testimony is heard at all the hearings that effect the benefits of railroad 

workers and I think for $1 a year they get a good deal of service out 

of you.

Mr. Byrnes. 1 mean the service is far beyond the ordinary membership. If a person makes it a point to correspond, we carry on voluminous correspondence with railroaders. We never question and ask 

if they are members.

Mr. Macdonald. Your membership follows your lead in this matter 

because in this area we get voluminous correspondence from your 

membership urging passage of bills of this category.

Thank you very much, sir.

Our next witness is Mr. George W. Finnigan, president of the 

National Railroad Pension Forum, Inc.

STATEMENT OF GEORGE W. FINNIGAN , PRESIDENT, NATIONAL 

RAILROAD PENSION FORUM, CHICAGO, ILL.

Mr. F innigan. My name is George W. Finnigan. I reside at 2832 

Fast 78th Street, Chicago, Ill., and am president of the National Railroad Pension Forum, the national headquarters of which are located 

at 2403 Fast 75th Street, Chicago.

I offer support of measures to revise section 2(e) of the Railroad 

Retirement Act of 1937 so as to eliminate restrictions on payment of 

full spouse benefits to annuitants’ wives, who themselves qualify for 

old-age insurance benefits under the Social Security Act or an annuity 

under the Railroad Retirement Act. Since it would provide relief 

to all those adversely affected, it appears that bill H.R. 3157 would 

best do the job.

It has been stated on the record that objection to the restrictions 

is based on the mistaken belief that a railroad employee has paid for 

his spouse’s annuity through his railroad retirement taxes. It was 

also inferred that establishment of the spouse benefits by the Congress 

in 1951, was some kind of a gif t to the needy. The fallacy of such 

arguments is established by the fact that spouse benefits, as are all 

othoi benefits, including those to the underage children of a deceased 

voike r or disability annuity to a worker forced into early retirement by reasons of health, are paid from taxes assessed. I, therefore, 

< ontend there is no such mistaken belief and that he does, in fact, pav 

for the benefits and that gifts are not involved.

If the wife of a rail worker qualifies for ohl-age-insurance benefits 

oi lailioa d retirement annuity, it came about through the performance 

o. work and the payment of taxes by the employee and her employer. 

' lav that will penalize a worker for industriousness and, that coverts
RAILROAD RE TI RE MEN T 19

a p roperly atta ined se cur ity to her d isa dv an tag e, is not ju st no r legally 

sound.

A wife who joined efforts wi th her husband to make ends meet or 

to obtain the be tte r things of lif e sho uld not have he r sacrifice re ­

warded by an act of confiscation. Th e wife who works u nd er railro ad 

ret ire men t p rov ide s taxes fo r paym ent of spouse benefits to wives who 

did not work and survivor paym ents fo r whi ch she had no beneficial 

prospects. She also pays taxes used fo r disability annuities to sing le 

and marrie d men. Hea lth a nd longev ity ex pe rts sta te a marr ied man 

is likely to remain he alth ier than single men.

One could go on, bu t I believe no fu rther evidence of the ineq uity 

is needed. Th e pu zzlin g feature is why it has taken so ma ny years 

to correc t an obvious erro r, while at the same tim e dema nding full 

tax es from the offended.

Th e cost fe at ur e is regu larly adv anced as a reason for opp osing 

removal of the res tri cti on s, yet I am not aw are th at rai lro ad re tire ­

me nt finances have e ver been in a he althier sta te than today. Deficits 

of $50 millio n to $213 m illion h ave been more often the case. A deficit 

of $20 million was claime d in testim ony las t Septe mb er; equivalent 

to 0.41 p erc ent of the tax ab le p ayrol l. Due to the advanta ges gained 

fro m an increase in the tax and the base, effective Novemb er 1, 1963, 

an d an increase in the tax, effective Ja nuar y 1, 1965 (a 26.1-percent 

increase withi n a pe rio d of 14 m on ths), the deficit should he considera bly reduce d at th is time.

Assum ing the cost of cha nges in hill H.R . 3157 were $14 million , 

the defic it wou ld be incr eased to $34 million or som ething less th an 

0.7 perce nt of taxa ble pa yroll, with ou t ta ki ng int o con sideration the 

imp rov ed position cre ate d by the tax increases and appli catio n to t he 

high er base. Thi s figu re is well wi thin the tolera nce of 1 per cent of 

tax able pay roll lon g acc ept ed as a cri ter ion fo r an actua ria lly soun d 

system.

" Th e mem bers of the com mittee will recall the gen eral use of the 

1-perce nt tol era nce figure. For some unknown reason, a figure of 

one-h alf of 1 perce nt has been thr ow n on th e scene of late.

Since deter mi natio n of ac tuarial soundness is based on pre sen t and 

estimate d fu tu re occurrences, the p rogn ostic ati on s a re subject to err or. 

An y good est im ato r will “loa d” th e est imate with a contingency item 

to allow fo r u nfo reseen demand s. It is enti rely conceivable th at even 

with ado ption of bill H. R. 3157, the deficit would be zero.

Of cours e, the sta te of the finances of the ret ire me nt system is a 

concern to me. So is the fact that retirem en t for railro adme n has 

lag ged beh ind prog rams in the tru ck ing, steel, and auto industries.

A fter long an d caref ul conside ration , 1 submitted a pe tition to the 

Con gress, recom mending establishm ent of a com mittee to con duc t a 

thorou gh an d ind ependent stu dy of th e railr oa d ret ire men t finan cial 

stru ctur e an d subm it rec om me ndations and pro posed leg islation to 

str en gthe n the system and prov ide ret ire me nt com par abl e to th at in 

other indu str ies and the va rio us civil service pro gra ms.

It is know n th at th e retir em en t rese rve fund has remained sta gn an t 

fo r seve ral years. One of the reas ons for not ha vin g reache d lar ge r 

prop ortio ns , principa l an d inter est, is the hug e un fund ed obligations 

whi ch c ould not be handle d successfully in the face of reduc ed employment; secondly, the ta rd y increase in inter est on reserve fu nd s; and
20 RAILROAD RETIRE ME NT

third ly, failure to use the funds to full advantage. I believe a committee, as suggested, could rehabilitate the system to the extent tha t reserves would grow, the income from reserves increase, making feasible 

retirement for men at age 62, more liberal annuities and survivor 

benefits, and very possibly a reduction in taxes.

It is worth noting tha t President Johnson just recently directed a 

study to upgrade the Federal employees’ pension program.

The petition to Congress, No. 106, reported on page 3223 of the 

Congressional Record for February 22,1965, was referred to the I nte rstate and Foreign Commerce Committee and I urge the members to 

give it consideration at an early date.

The need for a reevaluation is evident and the longer it is delayed, 

the more difficult will be the solution. A similar, but different, study 

council has been proposed by Representative Poff, of Virginia, who, 

like Representative Williams, has made long and determined efforts to 

repeal the restrictions on spouse benefits tha t brings us together today.

I hope nothing will further delay unrestricted payment of spouse 

benefits to the wives of every retired worker who qualifies by reason 

of service, current connection, and marriage requirements. My compassion and sympathy to the surviving member of those couples, of 

which one mate could not stave off the inevitable long enough to witness proper recognition.

Before I close I just have one mild comment on some testimony tha t 

has been given with respect to the system being handicapped by the 

regulation tha t requires that railroad retirement benefits be at least 

110 percent of social security. I find much objection from railroad 

workers to the fact tha t it is only 110 percent rather than 150 percent, 

because of the relation of the amount of social security taxes to tha t 

paid by railroad retirement workers.

Further , when bill II.R. 6675 is mentioned, the so-called medicare 

bill, the payments by the Retirement Board will go up and it is my 

understanding tha t the taxation on railroad retirement is tied in with 

social security, so that, as Mr. Ilaberm eyer touched on a while ago, 

it will be increased accordingly and there is a great consternation now 

among the railroad workers and retired ones who understand th at they 

are not to benefit in increased pension amounts, even though the tax on 

railroad workers will be going up along with social security, by whatever amount social security is increased.

I think of nothing else at this time and I want to thank the chairman and members for your courtesy.

Mr. Macdonald. Thank you, Mr. Finnigan.

Air. Huot?

Mr. Huot. Do you have women working for railroads who retire?

Mr. Finnigan. Women working for railroads who retire.

Mr. Huot. Some of these would be wives of railroad people ?

Mr. F innigan. Yes.

Mr. II uot. Do they get their pension and their husbands get their 

full pension also ?

Mr. F 'innigan. Their full retirement annuity, earned by their own 

work effort.

Air. IIuot. By themselves ?

Mr. F innigan. Yes.

Mr. Huot. They get their full retirement benefit ?

Air. Finnigan. That is right ; if they comply with the age.
RAILROAD RE TIRE MEN T 21

Mr. II uot. An d the h usb and who has also worked fo r the railr oa d 

also gets his fu ll benefit ?

Mr. Finn iga n. Yes, sir.

Mr. I I uot. So they are both covered by th e retire me nt.

Mr. Finn iga n. Bo th havin g paid the full amount of taxes, pr ovided the service, and met the age requirement, the y get th eir ful l 

benefit.

Mr. I I uot. Th an k you.

Mr. Macdonald. Mr. Ke ith ?

Mr. Keith. No questions.

Mr. Macdonald. I have no questions.

Mr. F inn iga n. Th an k you, sir.

(Th e followi ng let ter was late r received fro m Mr. Fi nn ig an :)

National Railroad Pension F orum, I nc.,

Chicago, 111., May 1,1965.

Hon. Torbert II. Macdonald,

Chairman, Subcom mittee on Commerce and Finance,

Interstate and Foreign Commerce Committee,

House Office Building, Washington, D.C.

P ear Mr. Chairman : Following are additional remarks, for which I asked permission to submit for the record, to clarify portions of my testimony before your 

committee on April 29. Not being an actu ary, nor having such independent talent available to me, I 

must rely on inform ation and opinions emanating from the staff of the Railroad 

Retirement Board. I recall previous testimony by Board represe ntatives that 

deficits were not considered serious nor dangerous, though the deficits to which 

they had reference were several times the 0.7-percent deficit expected with the 

adoption of II.R. 3157.

One other item appropriate for the record here is the statement of the Chief 

Actuary for the Board before the Senate Subcommittee on Railroad Retirement at 

hearing May 2-3, 1956, to the effect that no actu ary would come in and say that 

his projections were accurate within 1 or 2 percent. Therefore, I feel justified 

in recommending the adoption of bill II.R. 3157, confident th at the estimated deficit 

of 0.7 percent would in no way jeopardize the soundness of the railroad retirement system.

Again, my th anks for the opportunity afforded Mr. Byrnes and me to appear in 

favor of removal of restrictions on spouse benefits to tlie wives of r ailroa d retirement annuitants.

Respectfully,

George Finnigan.

Mr. Macdonald. The next witn ess will be Mr. Ge rald I). Finn ey, 

general attorney of the Ass ocia tion of Am erican Ra ilroads.

STATEMENT 0E GERALD D. FINN EY, GENERAL ATTORNEY, 

ASSOCIATION OF AMERICAN RAILROADS

Mr. Finne y. Mr. Chairma n and mem bers o f the s ubcomm ittee, my 

name is Ge rald 1). F inn ey. I am a law yer with th e title of gen eral 

attorney of the Association of Am erican Ra ilroads. Tha t association is an u nin cor porated association of sub sta ntially all of the class I 

railro ads of the U nited Sta tes. I t is a vo lun tar y, nonprofit organization. It s mem bers operate more tha n 95 per cent of the tota l railroad 

mileage in the Un ite d State s and have op erating revenu es o f ap pr ox imately 98 percent of th e tot al railr oa d op erating reve nues of all ra il ­

roads in the Un ite d States.

II. R. 3157 would amend the Ra ilr oa d Re tirem ent Ac t by del eting 

the provision in section 2(e) of the act th at requires th at a spouse’s 

annuity be reduced by the am ount of the spouse’s own insura nce bene-
22 RAILROAD RETIRE ME NT

fit un der the Social Security Act and by the amoun t of th at spouse’s 

ret ire me nt annu ity un de r the Ra ilroad Retire me nt Act. Th e ra ilroa ds arc opposed to H .R . 3157 and the other simila r bills b efore you r 

comm ittee.

The Ac tuary of the Ra ilroad Retire me nt Bo ard has e stim ated th at 

the cost of th e amend ment to which I have referre d would amount to 

$13 million a y ear, on a level basis.

The railroa d retire me nt system is pre sen tly runn ing at an annual 

deficit o f $20 m illion a year. En actm ent of H.R . 3257 would increase 

the actua ria l deficiency to $33 m illion a ye ar leavin g the system in a 

substan tially poore r financial situatio n th an it is at the pre sen t time. 

The rai lro ads oppose any measure pr ov iding fo r such deficit financing 

of the r ailro ad system in which, of course, the y are vit all y interested.

Th e provision fo r the paym ent of annuitie s to spouses becam e a 

pa rt of the Ra ilr oa d Retire me nt Ac t as a res ult of the 1951 am end ­

ments to th at act. Th e par t of the Senate committee repo rt accom ­

pany ing the b ill th at became the law (S. R ept. 890,82d Cong ., 1st sess., 

p. 17), in deali ng with the amend ment prov idi ng fo r a spouse’s an ­

nu ity , m ade it p erf ectly clear th at th e reason for such an a nn uity was 

to provide a dd ition al income where two persons (a man a nd h is wife) 

had to live lar gely on the benefits the y received f rom th e Railro ad R etirement, Act. In oth er words, it was thou gh t th at where two adult 

and aged person s had form erl y ha d to live largely on the income 

fro m th e man ’s annuity, it was des irable to provide an an nu ity fo r 

the ma n’s wi fe ra th er th an increase h is annuity and also increase the 

an nu ity of all oth er men, wh eth er or no t ma rried. However, the 

necessity fo r pa yin g the full spouse’s r ail road annu ity does no t exist 

where th at spouse lias a separate social security benefit.

Th e prese nt prov ision in section 2(e) of the Ra ilr oa d Re tirem ent 

Ac t fo r red ucing a spouse’s an nu ity by the amoun t of he r own insuranc e benefit under the Social Se curity and Ra ilroa d Retire me nt 

Acts is th e same in princ ipl e as th at provision in the Social Security 

Act whi ch reduces a wife’s benefit under th at act by the amount of 

her insura nce benefit un de r the So cial Security Act.

H ie financia l conditio n of the rai lro ad ret ireme nt syste m has, for 

a lon g time, been a matter of serious concern to those inte rested in 

maintaining the solvency of the system. Ove r the yea rs, various 

legisla tive measures pro vid ing fo r increases in benefit paym ents th at 

exceeded increases in tax income were enacted and, as a resu lt, the 

deficit in the railroad retirem ent account incre ased again and aga in 

un til, in 1961, it reached the s tagg ering sum of more th an $70 m illion 

a yea r. It was at this point th at the Presi dent of the Un ite d States, 

in a statem ent with resp ect to a bill that he signed on Sepemb er 22, 

1961, pointed out th at the railr oa d retireme nt system was in serious 

finan cial trou ble. The Pr esiden t urg ed the Congress to take ap pr opr ia te action in its nex t session to restore the retire me nt system to 

healt hy financial self-sufficiency. Th ere aft er, rep res ent atives of the 

railroa ds and of the s tand ar d railway l abo r org aniza tions had a n um ­

ber of conferences aimed at substan tially red ucing the railr oa d system ’s a ctu ari al deficit which, by 1963, h ad risen to $77 m illion a year. 

Manage ment and lab or agr eed on a bill th at was introduced, passed 

by both H ouses, a nd signed by the P resid en t on September 5 to become 

effective November 1, 1963, as Public Law 88-133. The bill pro vid ed 

a num ber of methods by which the deficit would be reduced, one of
RAILROAD RE TI RE MEN T 23

such methods being an increase in the taxes assessed against employers 

and employees. Such increased taxes amounted to $71 million a year. 

The various changes in the law did reduce the deficit until, as has been 

stated above, it is now running a t about $20 million a year.

II.R. 3157, by increasing the actuarial deficiency from $20 million 

a year to $33 million a year, is obviously a step in the wrong direction. 

Further , as has been stated, the spouse’s annuity was made a part of 

the law to increase benefit payments in cases where two aged persons 

would otherwise have had to live on one annuity. If the wife has her 

own social security benefit, such a condition does not exist.

II.R. 6290 is identical to H.R. 3157, and II.R. 651 and H.R. 1645 

are substantially the same as H.R. 3157. The railroads are opposed 

to II.R. 6296, H.R. 651, and H.R. 1645.

There is one other bill subject of these hearings upon which some 

comment should be made. It is II.R. 1501, a bill that not only eliminates the reduction of the spouse’s annuity but also permits benefits 

to be paid to survivors under both the Railroad Retirement and the 

Social Security Acts. Under the present acts, earnings credits are 

combined in determining a survivor's eligibility for and the amount 

of her or his benefits. Survivor’s benefits are paid either under the 

Railroad Retirement Act or the Social Security Act, but not under 

both acts. Under H.R. 1501, each system would pay survivor benefits 

based on the combined credits under the two systems. The actuary 

of the Railroad Retirement Board has estimated tha t the enactment 

of H.R. 1501 would, insofar as the survivor benefit provisions are concerned, cost the railroads about $140 million a year. That bill’s 

spouse’s annuity provision would, as in the other bills referred to, cost 

the railroads about $13 million a year. It is the railroads’ position 

tha t H.R. 1501, with a cost of approximately $153 million a year 

imposed on the railroad retirement system, is in no way justified.

I would like to add a comment or two to what I said in my statement. I thin k the railroad’s principal objection to the legislation 

before you today is based on the general view th at while the bill does 

not provide tax increases to cover the $14 million which H.R. 3157 and 

other similar legislation would entail, eventually we are going to have 

to pay for it. The history of the railroad retirement system has been 

about like th is: We started out with rather law tax rates and with a 

low tax base and the system was financially sound at that time—at 

least the actuaries thought it was sound—and eventually legislation 

was enacted which increased certain benefits under the act and then the 

system became financially unsound.

There were other pieces of legislation t hat were enacted which made 

the system more and more unsound and eventually, when the system 

became of sufficient unsoundness, there was a need to increase the 

taxes either by increasing the tax rate or increasing the tax base.

About 3 or 4 years ago, as Mr. Habermeyer said, President Kennedy 

called the attention of Congress to the fact th at the deficit, the annual 

deficit on a level basis, had risen to something in the neighborhood of 

$70 million a year and he said Congress must do something about this.

Management and labor were able to get together and agree on legislation which increased taxes and other benefits to the system did 

decrease the deficit to around $20 million a year which it now is.

Now, we have before us a piece of legislation which, in many respects, has the sympathy of everyone. The only th ing is, Mr. Chair-
24 RAILROAD RET IR EM EN T

man, tha t it does increase this deficit to $34 million, approximately. 

We have, as Mr. Habermeyer says, another bill, a very important bill— 

the medicare bill—which I feel is going to pass. This will again 

increase the deficit while at the same time it does to some extent 

increase railroad taxes.

Our position in opposition here is fundamentally due to the fact 

tha t we have reached a state where we are now scheduled to pay taxes 

of something, if the medicare bill passes, something over 10 percent 

each side; th at is, the men paying 10 percent and management paying 

10 percent and that tax situation is just about one of saturation.

We are certainly in sympathy with the widows who, as Mr. Hab ermeyer says, need more money. They probably need annuities more 

than the spouses of which we are now talking. We are in sympathy 

with the spouse who we would like to see have more money, of course, 

but there are only so many dollars in this big pie to split up and we 

are therefore opposed to this legislation.

Mr. Macdonald. Mr. Huot?

Mr. Huot. I think Mr. Finnegan indicated in his testimony tha t 

with these changes or the dropping of this provision the deficit would 

be 1 percent which he said was an accepted criterion of the system.

Ho you agree with that?

Mr. F inney. I am not an expert, sir, but my thoughts are these: I 

have heard actuaries say that so long as a deficit does not exceed onehalf of 1 percent of taxable payroll, the system is in a—I will not say 

a sound condition, but not in a dangerous condition. But when you 

get above one-half of 1 percent, then you are getting into a situation 

that is certainly dangerous.

Now, Mr. Finnegan may be an actuary, I do not know. But I have 

heard the actuaries for the Railroad Retirement Board make the statement regarding the one-half of 1 percent.

Mr. TTuot. Thank you, Mr. Chairman.

Mr. Macdonald. Sir, I want Io congratulate you on presenting your 

position very clearly but one thing tha t struck me as I read your statement and listening to your remarks, especially the statement as in the 

record as though read, you say the railroads oppose any measure p roviding for deficit financing in the railroad system which, of course, 

they are vitally interested in.

Well, let me say I respect your position. I was just curious as to 

whether or not your association which you represent would feel that 

the same reasoning should follow if the Government finances railroad 

transporta tion of commuters and tries to bail some of the railroads 

out of their present difficulties.

Mr. F inney. Well, I do not believe the railroad association has 

taken a position with respect to the Northeast legislation providing 

for governmental aid for the commuting railroads in tha t section of 

the country.

I think tha t there are railroads who have taken the position in 

favor of Government assistance. I think there are other railroads 

that have taken the position that such assistance should not be granted. 

I do not believe, Mr. Macdonald, tha t our association has taken a 

position with respect to that.

Mr. Macdonald. I point out our Government is operating on deficit 

spending, which we hear daily on the floor, from people who are opposed to all sorts of bills.
RAILROAD RE TI RE MEN T 25

Mr. Finney. Yes, I have heard that.

Mr. Macdonald. That hue and cry as deficit spending or backdoor 

spending, et cetera, and I suppose if we bail out the railroads, and I 

did not realize it was just the east coast railroads th at were passenger 

carriers and in trouble. I thought most of the railroads had been 

petitioning very frequently both the Interstate Commerce Commission and to the local State boards who have jurisdiction over runs of 

passenger trains, i t was my impression, and I know it is a fact in my 

area as I am from New England, that they just do not want to carry 

passengers—period. All they are interested in is carry ing freight 

and obviously somebody has to carry these passengers and so it has 

become a governmental problem it seems to me, and a fairly fa rfetched one. There are those who are for the bill and have introduced 

a bill for commuters and people who need to use the railroads. It 

seems to me railroads who have been seeking aid to drop all passenger 

runs unless either the State movements or the Federal Government 

underwrites the carry ing of these passengers and then for them to 

come around and say tha t while it is all right for deficit spending 

to go to help the railroads, tha t any deficit spending that there might 

be should not be used to help elderly and needy people is a contradiction.

Would you care to comment on that ?

Mr. Finney. Yes, I would care to comment on that. In the first 

place, I thought you were directing your comments to commuter service rather than passenger service generally.

Mr. Macdonald. As I understand it a commuter is a passenger, is 

he not?

Mr. Finney. Some are called commuters and some are called passengers.

Mr. Macdonald. They are all passengers.

Mr. Finney. I would not say a person traveling from New York 

City to Los Angeles was a commuter. What I had in mind was the 

railroads tha t have taken off passenger trains in, for example, A rizona—if there have been any taken off in Arizona. I am not aware 

tha t any railroads other than commuter service railroads have attempted to obtain either State or Federal assistance.

Mr. Macdonald. Well, I cannot quote you chapter or verse, but 

I have sat in hearings and had other members of our committee from 

various sections of the country dispute with railroad witnesses about 

the dropping of passenger trains.

Mr. F inney. Oh, yes; I am sure you have and I am sure the passenger trains have been dropped because they are not profitable.

Mr. Macdonald. And I can certainly tell you it is the case with 

the Boston & Maine and the New York, New Haven & Hartfo rd 

which I am intimately familiar with. Pretty soon, in order to see 

a passenger train running in New’ England you are going to have 

to go to a park or historical museum and say “This was a passenger 

train tha t used to take people to and from their jobs in the cities.”

Mr. Finney. I think you are almost certainly right. If the railroads cannot carry passengers at a profit, they are going to attempt 

to curtail tha t service or cut it off completely.

Mr. Macdonald. No, sir. Actually, their approach has not been 

that. Their approach in my area and once again I believe in other 

areas too, from statements made by members of this committee, the
26 RAILROAD RE TIRE MEN T

full com mittee of the In tersta te and Fo reign Comm erce Com mittee 

I used to serve un til this year on the Tr an sp or tatio n Subcom mittee. 

The th re at of the railr oa d—a nd it is ju st th at, a bold th re at —is for 

either the State gov ern me nt or the Fe de ral Gover nment to give them 

some aid or they are going to tak e off th ei r pas sen ger tra ins. I t is 

ju st as coldblooded as th at, and obviously th at would have no connection with this he aring exce pt th at you are opposed to deficit s pe nd ­

ing if, indeed, this bill would res ult in th at , and yet such a th re at by 

the rai lro ad s whi ch you serve and if followed throug h by the Fed ­

era l Gov ernment is a continuation of deficit spending. I cannot correlate the two positions. W ha t is sauce fo r the goose is sauce fo r the 

ga nd er, if th at is th e expression.

Mr. Fin ne y. I do no t th ink I would be si ttin g here, Mr . M acdona ld, 

opp osing this legislation if the bill provide d th at this money th at is 

to be spent to pa y benefits to the spouses were to be provide d fo r by 

the Fed eral Governm ent.

Mr. Macdonald. You mean let Uncle Sam do it ?

Mr. Fin ne y. I would say this , th at I wou ld no t be sittin g here op ­

posing it.

Mr. Macdonald. I believe th at is tru e. I have no reason to thin k t ha t 

you w ou ld ; even tho ugh yo ur F ed eral tax bill might go up a little , it 

would no t go up enough so you would take th e tim e a nd tro ub le to come 

here and p ro test it.

Ph ilo sophica lly speakin g, if you are opposed to deficit spe nding , you 

are opposed to deficit spendin g—period. I do no t see how you can 

arg ue for it un de r one se t of circum stance s and arg ue a gains t it under 

an othe r se t of circumstances.

Mr. Fin ne y. I did no t un de rst an d I ha d ever arg ued fo r deficit 

spe nding .

Mr. Macdonald. You say on page 2 the r ailro ad s o ppose any measure pr ov iding fo r deficit financ ing of the railr oa d system which, of 

course, th ey are vitall y inte rested in.

Mr. Fin ne y. I was re fe rrin g the re to the ra ilr oa d retir em en t system 

and no thing els e.

Mr. Macdonald. Mr. Ke ith ?

Mr. K eitti. I s it not tru e th at th e IC G and yo ur boa rd of directors w ould feel th at you would h ave to pass th e cost of th is a lon g to the 

users, either the frei gh t peo ple or the passengers, if you ha d to get 

more funds? If you hav e to hav e more money you hav e to get it 

some where and it w ould be increased freigh t rat es an d increased p as ­

senger fare s, w ould it not?

Mr. Fin ne y. Yes, si r; or s aving s of some sort. Th ere wou ld hav e 

to be economies that I can not an tic ipa te at thi s mom ent. Th e money 

has to come from someplace, Mr. K eit h.

Mr. Macdonald. You mea n further autom ation ?

Mr. Fin ne y. Pe rhap s. I m ean million s and m illions o f dollars are 

invo lved. We pa y now an d the members of the bo ard sitti ng back 

here , M r. Ha berm eyer and Mr. Sh riv er, or someone will correct me if 

I am wrong, the bill fo r th e Ra ilroad Re tirem ent Act alone is someth in g in the neighbo rhood o f $30 million a month.

Mr. H abermeyer. It is ove r $300 million fo r a year.

Mr. Fin ne y. An d, of cours e, we have ve ry large bills fo r the u nem ­

plo ym ent insu rance system and, as Mr. Ke ith said, if taxe s go up, we
RAILROAD RE TIRE MEN T 27

are going to have to finance them someplace. We cannot, under our 

system—we cannot file a return and say we will pay later.

Mr. Keith. What percentage of your operating expenses is devoted 

to payroll and what is its relationship to fringe benefits of this sort?

Mr. F inney. I cannot give you th at percentage, Mr. Keith, though 

I will certainly supply it for the record later. Our fringe benefits— 

and I should have these figures—for our nonoperating emplovees run 

about $22 per employee and I think it is slightly less for the other 

groups of individuals. I ju st cannot tell you.

Mr. Keith. $22 per month, per employee ?

Mr. Finney. Yes, sir.

Mr. Keitii. In your view, if the railroads could afford to spend this 

$14 million, would the unions bargain for this instead of increased 

pensions for the primary beneficiaries ?

Mr. F inney. No, sir.

Mr. Keith. They would prefe r this to all others ?

Mr. F inney. No, sir; with the exception of Mr. Finnigan, I am not 

aware th at any or either the operating or nonoperating organizations 

has supported this bill. Mr. Beattie, of course, will come on after me 

and he will speak for himself, b ut as I say I am not aware th at there 

has been outrig ht labor support, for the legislation.

I will say this, tha t the provision that you are discussing today was 

enacted at the instance of the labor organizations. It was their 

thought at the time the legislation was introduced and the bill passed 

tha t there was, to use my term that I used before, a pie of a certain 

size and you could cut it any way you wanted to and it was the labor 

organizations th at decided we should put in this restriction to prevent 

a railroad spouse and her husband from collecting three full benefits. 

Their view was that her husband should not get one annuity and she 

should not get one full annuity from social security and a second full 

annuity from railroad retirement.

Mr. Keitii. Tha t is the history ?

Mr. Finney. Up to now.

Mr. Keith. To your recollection, $22 a month is not extraordinarily 

heavy for fringe benefits; is it ?

Mr. Finney. This is not the benefit itself. This is amount expended for the benefit.

Mr. Keith. Does that include the retirement plan ?

Mr. Finney. Oh, no, sir.

Mr. K eitii. Well, I think most fringe benefits would include a factor for a retirement p lan; would they not?

Mr. Finney. I am talking about now, Mr. Keith, and perhaps I 

did not make myself clear when I talked about fringe benefits, I am 

talking about such things as hospitalization, for example, the insurance cost, the cost paid to the insurance company th at carries the plan 

is $22 a month per employee.

Mr. K eith. I see. Well, if you had your pension plan paid or administered by an insurance company you could figure out a factor on 

an hourly, monthly, or annual basis; could you not ?

Mr. F inney. Yes, sir.

Mr. Keith. And it would be probably considerably higher and 

bring you once more closer in line with other competing employers. 

Still, it would probably be a far cry from the telephone company, for
28 RAILROAD RE TIRE ME NT

exam ple, and wh at it does fo r its employees wi th a plan int egrat ed 

with social security.

Mr. Finne y. Yes, sir. I know the tele phone com pany has a very 

good plan. How ever, you always hav e to be ar in mind, Mr. Ke ith , 

th at all of the se thing s come in a package. For example, ri ght in our 

own industry, tak e the nonoperat ing employees. They may ask for 

certain fri ng e benefits and obtain them.

The op erating employees, on the oth er ha nd , will say th at rather 

th an ge tting fri ng e benefits, they will tak e a wage increase which 

amoun ts to about the same nu mber of cents pe r hour as the fri ng e benefits cost. I t is impossible when you are loo kin g at thes e fri ng e bene ­

fits to just look at the m and at the railr oa d retirem ent plan witho ut 

also looking a t the tim e when wage increases were gr an ted ra th er th an 

addit ion al ret ire me nt benefits or ad dit ion al fri ng e benefits.

Mr. Macdonald. Will the gentlem an yield ?

Mr. Keit ii. Yes.

Mr. Macdonald. If you are going to fu rn ish inf orma tio n fo r the 

record, and I was not quite clear th at was the case or no t in yo ur 

respo nse to Mr. Kei th ’s question, I would like to have yo u tak e a look, 

if you have any figures available abo ut th e fri ng e benefits th at are 

given to executive s of certain rai lro ads or most railroa ds because as 

I recall, even tho ugh the New York, New Ha ven & H ar tf ord is 

ba nk ru pt and serving in truste esh ip, they are still pa yin g $50,000 a 

year it has been a lleged in salary to a p res ide nt who is no t functio nin g 

as a p reside nt.

As I recall, one of the fri ng e benefits th at the president of the 

ra ilr oa d has was an apart me nt at the Ritz Hotel in Bos ton, plu s expense acco unts th at were over $50,000 a year plus an ap artm en t in 

New Yo rk Cit y, either at the Commodore or the Ba rkley Hotel. 

I was wo ndering wh at the com parison would be in the fri ng e benefits 

fo r executives and the cost percentage wise of the executive side of 

the railr oa d manag ement as oppo sed to the cost of the people who 

act ually do the physic al work on the rai lro ads.

I do no t know if you can get those figures, bu t I am sure the y 

would be very in teresting .

Mr. F in ne y. I am sure the y wou ld be intere sting. I was just 

wonde ring, Mr. Macdon ald, wh at metho d you th in g 1 might employ 

to obta in this inform ation.

Mr. Macdonald. As I recall, you are t he a tto rney and I tak e it th e 

general att orney for the Ass ocia tion of Am erican Ra ilroads.

Mr. Fin ne y. Th at is my title.

Mr. Macdonald. An d I supp ose you are in con tac t with all the 

pre sident s and vice presidents. I do not know if you could get in 

touch w ith all the vice preside nts of all the railroa ds.

Mr. Finne y. I would be certa inly willin g to attempt to obtain the 

frin ge benefits for executives an d others.

Mr. Macdonald. Fine, and th an k you very much, Mr. Fin ney.

(The informa tio n to be su pplied follo ws :)

Association of American Railroads,

L aw D epa r tm en t, 

Washington, D.C., May 10,1965.

Mr. Torbert H. Macdonald,

Chairman, Subcommittee on Commerce and Finance, Jlouse Comm ittee on In ­

ters tate and Foreign Commerce, Washington, D.C.

Dear Mr. Macdonald : On April 29, 1965, I appeared before your subcommittee

in opposition to H.It. 3157 and sim ilar bills that would delete the provision in
RAILROAD RE TIRE MEN T 29

section 2(e) of the Railroad Retirement Act requiring that a spouse's annuity 

be reduced by the amount of the spouse’s own insurance benefit under the Social 

Security Act and by the amount of tha t spouse’s retirement annuity under the 

Railroad Retirement Act. During the course of my testimony, Mr. Keith asked 

that I provide the percentage of the operating expenses of the railroads that 

is devoted to payroll and what is its relationship to fringe benefits. In addition, 

near the end of the hearing and off the record, Mr. Keith indicated that lie would 

be interested in having the total dollar figure paid by the railroads for fringe 

benefits as well as that paid by the carriers in payroll taxes for retirement, unemployment, sickness, and other benefits administered by the Railroad Retirement Board. At my request, Mr. W. F. Betts, assistant director, bureau of railway economics, of this association, lias prepared a memorandum dated April 29, 

1950, entitled “Railroad Wage Supplements,” tha t shows tha t in 1904 the class 

I railroads paid $385 million in payroll taxes for the benefits administered by 

the Railroad Retirement Board and also paid an estimated $180 million to provide hospital, medical, and surgical benefits, for employees and for dependents 

plus life insurance for employees. His memorandum also shows that the payroll taxes paid in 1964 will in 1965 be increased to nearly $416 million and in 

1966 will be increased to $433 million.

This increase in payment comes about as a result of the railroad retirement 

tax rate increase that became effective January 1, 1965, and the additional tax 

rate increase scheduled to become effective Janua ry 1, 1966. His memorandum 

also points out tha t the hospital and medical care and life insurance payments 

estimated at $180 million for 1964 will be increased by about $10 million in 1965 

and by an additional $18 million in 1966. The memorandum concludes by stating 

that the aggregate cost of the payroll taxes and fringe benefits plans may be 

expected to approach $600 million in 1965 and to exceed that total in 1966. I 

am attaching for inclusion in the record with my letter the memorandum prepared 

by Mr. Betts.

In addition to the above costs, a substantial number of the class I railroads 

have supplemental pension plans. This association has never undertaken to 

make a study of such plans nor of their provisions. The latest information of 

which I am aware regarding the number of such plans is contained in a report 

prepared by the Railroad Retirement Board in 1963. That report shows that 

some 54 supplementary railroad pension plans had been studied by the Board. 

The report adds tha t the results w*ere somewhat incomplete because several railroad employers believed to have such plans had not furnished reports to the 

Department of Labor, under the provisions of the Welfare and Pension Plans 

Disclosure Act, in time for inclusion in the Board’s report.

Expenses associated with supplementary pensions, including both pensions 

paid directly and payments made into trust funds for this purpose, are charged 

to account No. 457: Pensions. This is one of the items annually reported by the 

railroads to the Inte rsta te Commerce Commission. In 1963, class I railroads 

reported a total of $56,055,951 as being charged to account 457.

With respect to amounts of labor expense included in operating expenses in 

1963 and estimated for 1964, the figures are as follows:

[Dollars in millions]

1963 1964

estim ate

Wages charged to expenses____ _______

Hea lth and welfare benefits....... ..............

To tal _________________________

Percent of expenses__________________

Excluding depreciation___________

Payroll taxes_____ ______ ___________

To tal labor costs_______________

Percent of total expenses, taxes an d rents. 

Excluding depreciation___________

$4 ,3 95

136

4.531 

(6 0. 8) 

(6 6.9 ) 

$374

$4 ,9 05 

(.56. 0) 

(6 0.7 )

$4 ,463

181

4.64 4 

(60. 0) 

(6 5.9 ) 

$385

$5 ,029

(5 5.6 ) 

(6 0.2 )

During the course of the hearing I stated that to the best of my recollection 

the railroads were spending for fringe benefits, tha t is, for hospitalization, 

medical care, and life insurance, about $22 a month for the railroad nonoperating 

employees. I now find tha t the railroads are presently paying $23 a month 

for such employees in the operating crafts and $22.32 a month for the non-
30 RAILROAD RETIREMENT

operating employees. I am furth er informed tha t the monthly payments per 

nonoperating employee will increase to $25.72 effective February 1, 1966.

At page 51 of the record, Mr. Keith referred to the benefits paid by what he 

referred to as the “telephone company” and it seems that he implied that telephone company employees received sub stan tially gre ate r retirement benefits 

than those received by railroad employees. I do not have up-to-date figures 

regarding benefits paid to American Telephone & Telegraph employees but I 

do have available a report prepared in September 1963 by the Railroad Retire ­

ment Board showing the monthly reti rem ent benefits at age 65 under the Railroad Retirement Act and under a number of other retirem ent plans. Such 

benefits are based on continuous level earnin gs of $400 a month (and it should 

be borne in mind that the railr oad retirem ent tax base has now been increased 

to $450 a month and the railroad benefits contained in the table if applied to 

earnings of $450 a month would be somewhat greater ). The report shows that 

as of Jan uary 1963 the pension for railroad workers with 30 years of service 

would be $211 a month and for A.T. & T. workers (and this includes the old-age 

and survivors annuity paid under the Social Security Act) the benefit would 

be $181. Further, pensions based on service after 1962 w’ould, for a railroad 

worker with 30 years of service be $251, and fo r the telephone company worker be 

$191. The table also shows tha t the railroad worker with 40 years of service 

after 1962 could receive $334 a month and the telephone company employee with 

the same service an annuity (social secu rity plus the company supplemental 

pension) of $230.

This letter with its attachm ent provides all of the information that I have at 

hand regarding the figures requested during th e hearing.

I shall appreciate this letter with its attachm ent being made pa rt of the 

record.

I am sending a copy of this le tte r to Mr. Keith.

Yours very truly,

Gerald D. F inne y.

Railroad Wage Supplements

Wages and sala ries paid to employees of class I railroads in 1964 totaled 

$4,698 million, an average of $7,064 i>er employee, $2.90 per hour paid for, and 

$3.39 per hour actu ally worked.

In addition to wages and salaries, class I railroads in 1964 paid $385 

million in payroll taxes for retirement, unemployment, sickness, and other benefits 

administered by the Railroad Retirement Board, and paid an estim ated $180 

million in wage equivalents to provide hospital, medical, and surgical benefits 

for employees and their dependents and life insurance for employees. This $565 

million in wage supplements raise d total labor costs in 1964 to $3.80 per hour 

worked.

Both wages and supplements are being paid at higher rates in 1965, and are 

to rise again in 1966. Payroll tax rates in 1964 and the approximate aggregate 

amounts paid by class I railr oad s were as follow s:

For retirem ent (and survivor benefits), 7.25 percent of 1st $450 of 

monthly compensation per employee_______________________ $256, 400, 006

For unemployment and sickness insurance, 4 percent of 1st $400 of 

monthly compensation per employee________________________ 128, 200, 000

Total----------------------------------------------------------------------- 384, 600, 000

Effective Jan uary 1, 1965, the tax rat e for retirement paid by railroads was 

increased to 8.125 percent. Applied to the 1964 tax base, the new rate would 

raise payroll taxes by $31 million to a tota l of nearly $416 million. An increase 

in the retirement tax to 8.625 percent, scheduled to become effective January 1, 

1966, would add nearly $18 million more, fo r a total of $433 million in 1966. *

The cost of hospital and medical care and life insurance, estimated at $180 

million for 1964, will increase by about $10 million in 1965, reflecting the full 

annu al effect of additional benefits provided in collective bargainin g agreements 

consummated during the year 1964, and will increase by an additional .818 million 

in 1966, also under th e term s of a 1964 agreement.

Payroll taxes and health and welfare benefits per hour worked will amount to 

about 43 cents in 1965 and about 46 cents in 1966. The aggregate cost, allowing 

for a reduction in the employment level under the 1964 average, may be expected 

to approach $600 million in 1965 and to exceed that tota l in 1966.

April 29,1965. W. F. Betts.
RAILROAD RE TI RE MEN T 31

Mr. Macdonald. Our n ex t witness is Mr. Donal d S. Be attie, execu ­

tive sec retary -tr ea su rer of the Ra ilw ay L ab or Executives’ Associatio n.

STATEMENT OF DONALD S. BE AT TIE, EXECUT IVE SEC RET ARY -

TR EA SU RE R, RA ILWAY LABOR EX EC UT IVES’ ASSOC IATION

Mr. Beattie. Mr. Ch air man an d mem bers of the subc omm ittee , I 

ap preciat e the op po rtu ni ty to ap pe ar here this mo rning. My nam e 

is Do nald S. Be att ie. I am the executive secreta ry-treasurer of the 

Ra ilw ay La bo r Ex ecuti ves’ A ssociation . Thi s association is an un in ­

co rporate d associ ation of the chief exe cutive officers o f the 22 stan dard natio nal an d in tern ationa l railw ay la bo r org aniza tio ns, rep resenting vi rtua lly all railro ad employees in this co untry pu rsua nt to the 

pro vision s of the Railw ay La bo r Act.

Be fore pr esen tin g th e associatio n’s view s on the bills whi ch are 

the s ubject of these heari ngs, I would l ike to state fo r the record th at 

the Ra ilr oa d Retire men t Ac t p rov ide s retir em en t benefits fo r railr oa d 

employees on the basis of age, to tal and pe rm an en t disability, and 

occ upatio nal di sa bi lit y; an d benefits to spou ses of railr oa d employees.

Th e act also prov ide s benefits to su rviving widows, minor children , 

and pa rents of ra ilro ad employees. Al l these benefits are financed 

by payro ll taxes. The presen t tax rate is Sy 8 percen t each on employees and em plo yer s on co mpens atio n u p to $450 a month.

Th e Ra ilw ay La bo r Ex ecuti ves’ Assoc iation is vitally concerned 

with the ad min istra tio n of the Ra ilr oa d Re tir em en t Ac t; it has a 

sta nd ing ra ilr oa d retir em en t c ommittee which co nstan tly e valuates t he 

adequac y of the benefits pro vid ed by the act as well as the adeq uacy 

of the financing of such benefits. I t ha s a lways been the policy o f t he 

association to make ce rta in th at all the benefits un de r the system are 

ade quately financed.

Th e pro vision fo r spo uses’ ann uities , w hich I m entioned earlier, was 

ena cted for the first tim e by th e 1951 Am endm ents to the Ra ilroa d 

Re tirem ent Act. Th is prov ision was in substitution fo r an increase 

in employee an nu ities in cases where two persons ha d to live lar gely 

on the income fro m only one an nu ity un de r the Railro ad Re tirem ent 

Act.

In view of the purpose of th is pro vision, the 1951 amend ments 

pro vid ed th at where a spouse has an income fro m a ra ilr oa d re tire ­

ment an nu ity or a social security benefit, the spouse’s a nn uity would 

not be pa id except to the ex tent by which it exceeds such an nu ity or 

benefit. Th e bill, II.R . 3157 an d sim ila r bills, how ever, would delete 

this lim ita tio n on the spouse’s an nu ity , an d would th us pa y bo th t he 

spouse’s an nu ity an d the ra ilr oa d retir em en t an nu ity , on the spouse’s 

an nu ity an d the social sec uri ty benefit.

Th e policy a ga ins t d ual benefits was es tablish ed by th e 1951 Am endments to the Ra ilroad Re tir em en t Act. The se am end me nts provide d 

three res tricti ons ag ains t the pa ym en t of dual benefits. Th e first requ ire d th at an employee’s an nu ity be reduce d by th e am ou nt of his 

social sec urity benefit or by the a mou nt o f th at po rti on o f his an nu ity 

whi ch is based on the untax ed service befor e 1937, wh ich eve r was less. 

Th e second req uir ed th at a railro ad emp loyee’s wid ow’s an nu ity be 

reduce d by the am ount of he r social sec urity ben efit; and the th ir d 

req uir ed th at a spouse’s an nu ity be reduce d by the am ou nt of any 

social s ecu rity benefit fo r whi ch such s pouse is eligib le, exc ept a w ife's
32 RAILROAD RE TI RE MEN T

or h usband's benefit, (th e redu ction is l im ite d to the a mount by which 

the wife's or husband's benefit is exceeded by any other social sec uri ty 

benefit fo r which the spouse is eligib le) , and by the amount of any 

annu ity un de r the Ra ilroa d Retire me nt Act fo r which such spouse is 

eligible.

In 1954, how ever, the Congress chose to eliminate the first of these 

restric tions, and in 1955 the Congress eliminated the second. Sinc e 

then many Mem bers of both Hou ses of Congres s hav e sou ght to do 

wh at appeare d to them to be log ica l; nam ely, to eliminat e also the 

las t of these th ree restric tion s.

As shown by the rep or t of the Ra ilr oa d Retire me nt Bo ard , the ad di ­

tional costs of the amendmen t proposed by the bill would come to 

appro xim ate ly 0.32 percen t of tax abl e payroll, or $14 m illion a yea r, 

on a level basis.

Of this, 0.30 per cent of tax able payro ll, o r $13 m illion a year, would 

he attri bu table to the removal of the red uction because of social security benefits, and 0.01 percen t of tax able payro ll, or $400,000 a year, 

to the removal o f the re duc tion because of railr oa d retir em en t benefits.

There is now an actua ria l deficit in the financ ing of the railr oa d 

retire me nt system of appro xim ate ly 0.44 percen t of tax able payro ll, 

or $19.5 million a year, on a level basis. En actm en t of the bill would 

increase this actua rial deficiency to a pprox im ate ly 0.7G perc ent of ta xable payro ll, or $33.5 million a year.

We are, of course, deep ly concern ed with the pro posed increase in 

the financial deficit by $14 million a year, bu t we a re obliged to concede 

th at logic is in fav or of the bill.

A fter el im inati ng the first tw o re striction s, the Congress set the p at ­

tern fo r elimi natin g the t hird . In view of t his , and the fac t th at the 

bill is sponsored by the chairma n of House Com mittee on In tersta te 

and Fo reign Commerce, and expresses th e wishes of many Members of 

both Houses of Congress, we interp ose no objection to the ado ption 

of the hill.

In conclusion, Mr. Chairma n, we deem it ap pr op riate to emphasize 

th at we adv ocated the 1951 res tricti on s again st dua l benefits, and we 

opposed the initial inr oads on rem oving those res tric tions.

Our o pposition was pre dic ate d on ou r desire to min imize deficits in 

the financ ing o f the railr oa d retir em en t system . Th e pro gre ssive re ­

lax ation of these restric tions, and the consequent increas es in benefit 

costs, have been the choice of Cong ress. I f it is now the choice of 

Congres s to tak e anoth er step in th at direction , we interp ose no 

objection.

Mr. Macdonald. Th an k you. very much. Mr. Be attie , T just have 

a couple of questions because being a law yer and being in political 

life I hav e heard ma ny peo ple say “Yes” wi thou t eve r sayin g it and 

when t hey leave the room I have been quite convinced the y said “Y es” 

an d then you think abo ut the words used and you are no t quite sure 

wh eth er they said “Yes” or not.

When you say t hat you in terp ose no o bjectio n to t he ad option of the 

bill, I tak e it you are sayin g you are for the bill.

Mr. Beattie. We rel uc tan tly su pp or t the bill, ha ving in mind the 

increase in the deficit.

Mr. Macdonald. Right. Bu t most of thes e people who receive the 

benefits were depressed and in some cases, are mem bers of railr oa d 

unions, are they not ?
RAILROAD RE TI RE MEN T 33

Mr. Beattie. That is correct, probably the great majority.

Mr. Macdonald. As I understand it, the railroads run a fairly 

closed shop type of operation as far as their employees are concerned, 

do t hey not ?

Mr. Beattie. “Closed shop’’ would not be the appropriate term.

Mr. Macdonald. Not in the railroad industry ?

Mr. Beattie. The percentage of membership of active employees is 

very high and members retain their membership after they are retired.

Mr. Macdonald. Right. So, in effect, this bill would be benefiting 

union members.

Mr. Beattie. Th at is correct.

Mr. Macdonald. And, therefore, as you are representing the unions, 

I would think th at you would be for benefits for membership.

Mr. Beattie. Yes; we are under constant pressure, you m ight say 

to improve the benefits under the act, various types of benefits, and 

we have this standing committee which meets approximately once per 

month and I think we perhaps pay more attention to the railroad 

retirement system than to any other particu lar item of our business. 

We have done this since its inception and we are always very careful in 

seeing to it tha t we maintain actuarial soundness to the extent it can 

be done.

Mr. Macdonald. I would like to say parenthetically, having observed as a member of the T ransportation Subcommittee here on this 

Interstate and Foreign Commerce Committee, I have been in close 

contact with a number of railroad unions and I have seen their operation and have nothing but high praise for the job that the unions do in 

protecting their membership and in their reasonableness in their labormanagement, negotiations and tha t is why I wanted to be sure that 

I understood what you said and I now take it you are saying th at you 

do support the bill.

Mr. Beattie. Yes, si r; that is correct.

Mr. Macdonald. Mr. Huot ?

Mr. Huot. No questions.

Mr. Macdonald. Mr. Keith ?

Mr. Keith. I'm not an attorney, but I used to be a Charter Life 

underwriter doing a little with retirement plans. I think to account 

for your initial opposition to this bill it was because they had in mind 

the increased benefits th at could result at the time the formula was 

arrived at without these three restrictions. They knew how much 

money they had to spend; they knew about what the average pay 

was going to be; and tha t the average pension would be so much if 

they had these three restrictions in it. The average pension could 

have been tha t much more. Tha t is probably why the restrictions 

were in there and why they recognize that, in the long run, these 

benefits if they are added are perhaps going to adversely affect their 

ability to pay larger pension benefits to those who would not be favorably affected by these three amendments.

I think their objections historically are very understandable as is 

the reluctance of th eir support now.

Mr. Macdonald. I thought we had tha t point cleared up.

Mr. Keit ii. He spoke for it.

Mr. Macdonald. That is your position, sir; that you do support it?

Mr. Beattie. We are not actively twisting arms for passage.
34 RAILROAD RE TI RE MEN T

Mr. Macdonald. I ha ve nev er known ra ilr oa d unions to tw ist arms. 

If the re is no thing fu rth er, you are excused, sir , and we th an k you, 

very much .

Mr. Beattie. Th an k you.

Mr. Macdonald. I s the re any one else who has an y testim ony to 

offer?

Th en th at concludes the witnesses to be he ard on the bills befo re 

this subcommittee, H.R. 651, H.R. 1501, H .R . 1645, H .R . 3157, H.R. 

6296, an d the he aring s tan ds adjou rned.

(Thereu pon, at 1 1:40 a.m., the s ubc ommittee adjo urned.)

o