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R A I L R O A D R E T IR E M E N T

A N D U N E M P L O Y M E N T I N S U R A N C E

(CR ED ITA BL E AND TA XA BL E COMP ENS ATION )

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GOVERNMENT

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EIGH TY -EIG HT II CONGRESS

F IR S T SE SS IO N

ON

H .R . 810 0

A RIL L TO AM EN D T H E RAIL ROAD R ET IR E M E N T ACT OF 1937, 

T H E RAIL ROAD R E T IR E M E N T T AX ACT, T H E RA IL ROAD UN EM ­

PL OYM EN T IN SU RANCE ACT , AND T H E T EM PO RARY EXTEN D ED 

RAIL ROAD UN EM PL OY MEN T IN SU RANCE B E N E F IT S AC T OF 

1961 TO IN CREA SE T H E C RED IT A B LE AN D TA XABLE COMI’ ENSA TION , AN D FO R O TH ER PU RPO SES

SEPTEM B ER 11, 1963

P ri n te d fo r th e us e of th e 

Co mmitt ee on In te rs ta te a nd For ei gn Co mm erc e

23-962

B.S. GOVERNMENT PRINTING OFFICE 

WASHINGTON : 1963
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-NJ riE. 

s ^ ’- ^ s i 8

COMMITTEE ON INTE RSTATE AND FOREIGN COMMERCE

OR EN HARRIS , A rk an sa s, C h a ir m a n

JO H N BE LL W IL LI AM S, M ississ ip pi

K EN N ETH A. RO BE RT S, Alaba m a

HA RLE Y O. ST AG GE RS , W es t V irgi ni a

W ALTE R RO GE RS , Tex as

SA MUE L N. FII IE D E L, M ar yl an d

TORBERT H. MA CDONALD, M as sa ch us et ts

GE OR GE M. RH ODE S, P en nsy lv ania

JO H N JA RM AN , Oklah om a

LE O W. O’B RIE N, New York

JO H N E. MOSS, C al if orn ia

JO H N D. DIN GEL L, M ichiga n

PA U L G. RO GE RS , F lo ri da

ROBER T W. H E M PH IL L , Sou th C ar ol in a

DAN RO ST EN KOW SK I, Il linois

JA M ES C. HE AL EY , Ne w Yo rk

HO RA CE R. KO RN EG AY , N ort h C ar olina

W. It. HULL , J r., M isso ur i

G IL L IS W. LONG, L ou is ia na

LIO N EL VAN D EER LIN , C al if orn ia

JO HN B. BENNETT , Michiga n 

W IL LI AM L. SPRIN G ER , Il linoi s 

PA UL F. SC HE NC K. Oh io 

J. AR TH UR YO UN GE R, C al if orn ia 

MILTON W. GL EN N, New Je rs ey 

SA MU EL L. DEVIN E, Ohio 

AN CH ER NELS EN, M in ne 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 nsy lv an ia 

AB NER W. SI BAL, Con ne ct ic ut 

GL EN N CU NN INGH AM , Neb ra sk a 

JA M ES T. BR OYHIL L, N or th Car ol in a 

DO NA LD G. BR OT ZM AN , Co lorado

W. E. W il li am so n, C le rk

Ken neth J . P ain te r, A s s is ta n t C le rk

P ro fe ssio n a l S ta ff

Andrew Ste ve ns on George W. P erry

Kur t B orc hardt J am es M. Men ge r, Jr.

i i
C O N T E N T S

Page

Text of H.R . 810 0______________________________________________________ 1

R eport o f—

B ure au of th e B udget _______________________________________________ 4

Lab or D epart m ent__________________________________________________ 16

R ai lr oad R et ir em ent B oard _________________________________________ 6

S ta te m ent of—

Byr ne s, R ob er t B., W as hi ng to n re pre se nta tive, N at io nal R ai lr oad P ensio n F oru m ______________________________________________________ 40

Il ab er m ey er , li o n . H ow ar d W., C hai rm an , R ail ro ad R eti re m ent

B oar d____________________________________________________________ 18

H arr is on, Geo rge M., ch ie f e xe cu tiv e, B ro th er hoo d o f R ai lw ay C le rk s— 20

Loom is, Ho n. D an iel P., pr es id en t, A ss oc ia tio n of A m er ic an R ail ­

ro ads_____________________________________________________________ 36

Man ion, D. L., pr es id en t, A m er ic an S hort Line R ail ro ad A ss oc ia tio n— 40

A dd itio na l in fo rm at io n s ubm itte d for th e r ec or d by —

A m er ic an S hort Line R ail ro ad Assoc iatio n, le tt er from D. L. Man ion,

pre si dent-------------------------------------------------------------------------------------- 41

A ss oc ia tio n of A m er ic an R ai lr oad s, le tt er fr om D. P. Loom is,

pre si dent_________________________________________________________ 41

N at io nal R ail ro ad Pen sion Fo ru m , Inc., st ate m en t of G eo rge Fin ni ga n,

pre si dent_________________________________________________________ 52

R ail ro ad P en sion C on ferenc e, s ta te m ent of C la re nc e B. C ar te r, nati onal

se cre ta ry _________________________________________________________ 54

R ail ro ad R eti re m ent B o a rd : P ri ncip al pr ov is io ns and leve l co sts of

hi lls in tr od uc ed in 1s t se ss ion of 88 th Con gress, ta b le _____________ 24

R ai lw ay Lab or E xec utives ’ Assoc iatio n, le tt e r fr om G. E. Lei gh ty ,

chair m an_________________________________________________________ 41

ill

RAILROAD RETIR EM EN T AND UNEMPLOYM ENT 

INSURANCE

(C reditable and Ta xa ble Co mp ensation )

WEDNESD AY, SEPTEM BER 11, 1963

H ouse of R epr esenta tives,

Com mittee on I nterstate and F oreign Commerce,

Washington, D.G.

The committee met at 10 a.m., pursuant to call, in room 1334, Longworth Building, Hon. Oren Ha rris (chairm an of the committee), 

presiding.

The Chairman. The committee will come to order. This morning 

I have scheduled a meeting of the committee to first hold brief hearings 

on II.R. 8100, the proposed amendment to the Railroad Retirement 

Act of 1937, the Railroad Unemployment Insurance Act, and related 

acts.

At this point, the bill and the reports of the executive branch will 

be placed in the record.

(The documents referred to follow :)

[I I. R . 810 0, 88 tli Cong., 1st se ss.]

A B IL E To am en d th e R ai lr oad R etire m en t Act of 193 7, th e R ailro ad R et ir em en t Tax Ac t, 

th e R ai lr oad U ne m pl oy m en t In su ra n ce Ac t, and th e Tem po ra ry E xt en de d R ai lr oa d 

Une m pl oy m en t In su ra nce Ben ef its A ct of 1901 to in cr ea se th e cr ed itab le an d ta xab le 

co m pe ns atio n, and fo r oth er pu rp os es

Be it enacted by the Senate and House of Rep resentativ es of the United States

of America in Congress assembled,

Title I—Amendments To the Railroad Retirement Act of 1937

Section 1. Section 3( a) of the Railroad Retirem ent Act of 1937 is amended by 

striki ng out “$250” and inserting in lieu thereof “$300”.

Sec. 2. Section 3(c) of the Railro ad Retirem ent Act of 1937 is amended by 

inserting before “, sha ll be recognized” in the second sentence the follo wing: 

“and before the calend ar month nex t following the month in which this Act was 

amended in 1903, or in excess of $450 for any month af ter the month in which 

this Act was so amended”.

Sec. 3. Section 4( k) of the Railroad Retirement Act of 1937 is amended by 

striking out “by the individual who rendered such military service”, and by 

striking out “six months” and inserting in lieu thereof “twelve months”.

Sec. 4. Section 4( n) of the Railro ad Retirement Act of 1937 is amended—

(1) by inserting after “Ja nu ary 1, 1937,” in the first and sixth sente nces 

the follow ing : “and after J une 30,1963,” ;

(2) by striking out “af ter December 1956” in the first sentence and inserting in lieu thereof “af te r December 31, 1956, and before July 1, 1963,” ;

(3) by strik ing out the second, third, and fou rth sentences and inse rtin g in 

lieu thereof the following : “The additional cost of c rediting milita ry service 

rend ered prior to Janu ary 1, 1937, and after June 30, 1963, shall be deter ­

mined as follows: (i) determine the difference between the ac tuarial value 

of the benefit payable und er thi s Act based in pa rt on milita ry service and

1
2 RAILROAD RETIR EMENT AND UNEMPLOYM ENT INSURANCE

the actuarial value of the benefit which would be payable to the same 

individual without regard to military service; (ii) with respect to m ilitary 

service rendered after June 30, 1903, adjust such difference by applying 

thereto the ratio of the total net level cost of all benefits under this Act to 

the portion thereof remaining a fter the exclusion of administrative expenses 

and interest charges on the unfunded accrued liability afte r taking into 

account the effects of section 5 (k )(2) ; and (iii) subtract the actuarial 

value of such benefit based on the individual’s military service as is includible 

in determinations made pursuant to section 5 (k) (2). In calculating these 

actuarial values, the Board shall use such mortality tables and actuarial 

factors as it finds appropriate; the ratio referred to in clause (ii) of the 

preceding sentence shall be determined from time to time by the Board on 

the basis of actuarial estimates made in accordance with section 15; and 

all actuarial values shall be calculated as of the date on which the benefit 

based on military service begins to accrue and shall not thereafter be 

subject to change. All actuarial calculations in this subsection shall take 

into account interest at the rate used in the actu aria l estimates referred 

to in the preceding sentence.” ;

(4) by striking out all of the seventh sentence af ter “thereon” and inserting in lieu thereof a period;

(5) by striking out the eighth sentence and inserting in lieu thereof the 

following: “In determining pursuant to section 5(k) (2) for any fiscal year 

the total amount to be credited from the Railroad Retirement Account to 

the Federal Old-Age and Survivors Insurance Trus t Fund and the Federal 

Disability Insurance Trust Fund, credit shall be given such Account for the 

amount of the taxes described in clause (3) (B) of the first sentence of this 

subsection and the amount of such taxes with respect to military service 

after June 30,1963.” ; and

(6) by adding at the end of the subsection the following new sentences: 

“The amount authorized to be appropriated to the Railroad Retirement Account pursuant to clause (2) of the first sentence of this subsection shall be 

reduced by the amounts credited to such Account pursuant to section 5(k) 

(2) for military service rendered before January 1, 1957, and the amounts 

so credited shall be considered as addtional costs within the meaning of 

section 217(g) of the Social Security Act. In any determination made pursuant to section 5( k) (2 ), no further charges shall be made against the 

Tru st Funds established by title II of the Social Security Act for military 

service rendered before Janu ary 1, 1957, and with respect to which appropriations authorized by clause (2) of the first sentence of this subsection 

shall have been credited to the Railroad Retirement Account, but the additional benefit payments incurred by such Trust Funds by reason of such 

military service shall be taken into account in making any such determination.”

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

by inserting afte r “so amended” (in the first parenthetical phrase afte r clause 

(v i) ) the following: “and before the calendar month next following the month 

in which this Act was amended in 1963, and in excess of $450 for any month 

after the month in which this Act was so amended”.

Sec. 6. (a) Section 5(1) (9) of the Railroad Retirem ent Act of 1937 is 

amended—

(1) by striking out “and” where it appears the third time ;

(2) by inserting afte r “so amended” the following: “and before the 

calendar month next following the month in which this Act was amended 

in 1963, and any excess over $450 for any calendar month afte r the month 

in which this Act was so amended” ; and

(3) by striking out “$400” where it appears the second time and inserting 

in lieu thereof “$450”.

(b) Section 5(1) (10) of such Act is amended by striking out “$400” and 

inserting in lieu thereof “$450”.

Sec. 7. (a) Section 15 of the Railroad Retirem ent Act of 1937 is amended 

by striking out the third sentence of subsection (a) ; and by striking out 

subsection (b) and inserting in lieu thereof the following:

“ (b) At the request and direction of the Board, it shall be the duty of the 

Secretary of the Treasury to invest such portion of the amounts credited to 

the Account as. in the judgment of the Board, is not immediately required for 

the payment of annuities, pensions, and death benefits. Such investments may 

be made only in interest-bearing obligations of the United S tates or in obligations
RAILROAD RET IREMENT AND UNEMPLOYMENT INSURANCE 3

guaranteed as to both principal and interest by the Unite d Stat es. For such 

purpose such obliga tions may be acquired (1) on original issue at the issue 

pri ce; or (2) by purchas e of outstanding obligations at the market price. The 

purposes for which obligations of the Unit ed Stat es may be issued under the 

Second Liberty Bond Ac t, as amended, are hereby extended to auth orize the 

issuance at par of special oldigations exc lusi vely to the Acco unt. Such obligatio ns issued for purchas e by the Acco unt sha ll have matu rities fixed with 

due regard for the needs of the Account, and sha ll bear interes t at a rate equal 

to the average marke t yiel d, computed as of the end of the calen dar month 

nex t preceding the date of such issue, borne by all marketable interest-bearing 

obliga tions of the Unite d Stat es then form ing a part of the public debt that 

are not due or callable until aft er the expi ratio n of three years from the end 

of such calen dar month, except tha t where such rate is not a multiple of 

one-eighth of 1 per centum, the rate of inter est on such obligations sha ll be the 

mult iple of one-eighth of 1 per centum nearest such ra te : Pro vid ed , Th at the rate of interest on such obligations shall in no case be less than 3 per centum 

per annum. The Secr etary of the Tre asury may purchas e other interest-bearing 

obligations of the United Stat es, or obligations guaranteed as to both principal 

and interest by the United States, on orig ina l issue or at the market price only 

if he determines tha t such purchases are in the public intere st, provided that 

the investment yield of such obligations sha ll not be less than the interest rate 

determined in accordance with the preceding sentence. I f it is in the intere st 

of the Account so to do, the Secr etary of the Tre asury may sell and dispose 

of obligations in the Acco unt and he may sell oblig ation s acquired by the 

Accou nt (othe r than specia l obligations issued exclusiv ely to the Accou nt) 

at the market price. Spec ial obliga tions issued exclusiv ely to the Accou nt 

shall, at the request of the Board, be redeemed at par plus accrued interes t. 

Al l amounts credited to the Acco unt sha ll be ava ilab le for all purposes of the 

Accoun t.”

(b) The Secr etary of the Treasur y is author ized to retire the speci al obligations held by the Account on the date of enactm ent of this Act and to issue in 

lieu thereo f specia l obligations with an inter est rate determined as provided 

for in section 15(b) of the Rai lroad Retirement Act of 1937 as amended by this 

Act .

Sec. 8. The provisions of sections 1, 2, 5, ad 6 of this Ac t sha ll be effective 

with respect to annu ities accr uing and deaths occurring after the month in 

which this Act is enacted . The provisions of section 3 sha ll be effective with 

respect to annu ities awarded on or after the date of enactmen t of this Act . 

The provisions of section 7(a ) sha ll be effective on the date of the enacrment 

of this Act.

Title I I —A me nd me nt s to th e R ailr oad R et ire me nt Tax A ct

Sec. 201. Sections 3201 and 3211 of the Railro ad Retirement Ta x Act are each 

amended by inserting before the colon the fo llo wing: “ before the calen dar 

month next follo wing the month in which this provision was amended in 1963, 

or $450 for any cale ndar month after the month in which this provision was 

so amended” .

Sec. 202. Sections 3202 and 3221(a) of the Railro ad Retiremen t Ta x Ac t are 

each amended by inserting aft er “$400” wherever it appears the follow ing : 

“f or any cale ndar month before the calen dar month nex t following the month 

in which this provision was amended in 1963, or $450 for any cale ndar month 

after the month in which this provision was so amended” .

Tit le I I I —A men dm en ts to th e R ailr oad U ne m pl oy m en t I ns ur an ce Act and

t h e Tem po rary E xtende d R ailr oad U nem pl oy m en t I ns ur an ce Ben ef it s

Act of 1961

Sec. 301. (a) Section 3 of the Railro ad Unemployment Insu ranc e Ac t is 

amended to read as follow s:

“q u a lif yi n g cond iti on

“ Sec. 3. An employee sha ll be a ‘qualified employee’ if the Board finds tha t 

his compensation wil l have been not less than $750 with respect to the base 

year, and, if such employee has had no compensation prior to such yea r, tha t 

he will have had compensation with respect to each and not less than seven 

months in such y ear .”
4 RAILROAD RET IREMENT AND UNEM PLOYMENT INSURANCE

(b) The amendment made by subsection (a) shall be fully effective with 

respect to base years after 1963. With respect to the base year 1963, they 

shall be applicable only to an employee concerning whom the Railroad Retirement Board finds tha t his compensation in tha t portion of the calendar year 

1963 preceding the first day of the calendar month next following the month 

of enactment of this Act will have been less than $500.

Sec. 302. (a) Section 4 (a -2) (i) of the Railroad Unemployment Insurance Act 

is amended to read as follows :

“ (i)(A) subject to the provisions of subdivision (B) hereof, any of the 

days in the period beginning with the day with respect to which the Board 

finds tha t he left work voluntarily, and continuing until he has been paid 

compensation of not less than $750 with respect to time afte r the beginning 

of such period;

“ (B) if the Board finds that he left work voluntarily with good cause, 

the provisions of subdivision (A) shall not apply, with respect to him, to 

any day in a registration period if such period does not include any day 

which is in a period for which he could receive benefits under an unemployment compensation law other than this Act, and he so certifies. Such 

certification shall, in the absence of evidence to the contrary, be accepted 

subject to the penalty provisions of section 9(a) of this Ac t;”.

(b) The amendment made by subsection (a) shall be effective only with respect to an employee who leaves work voluntarily afte r the date of enactment 

of this Act.

Sec. 303. (a) Effective with respect to compensation paid afte r December 31, 

1963, section 8(a ) of the Railroad Unemployment Insurance Act is amended by 

striking out “3%” in the table and inserting in lieu thereof “4”.

(b) Effective with respect to contributions collected by the Railroad Retirement Board pursu ant to section 8 (f) of the Railroad Unemployment Insurance 

Act on compensation paid after December 31, 1963, that par t of such contributions equal one-fourth of 1 per centum of the compensation on which such contributions are based shall, notwithstanding the provisions of section 10(b) of 

such Act. be applied by the Board exclusively for transfers from the railroad 

unemployment insurance account to the general fund of the Treasury until the 

full amount advanced from the general fund of the Treasury to the railroad 

unemployment insurance account pursuant to section 4 of the Temporary Extended Railroad Unemployment Insurance Benefits Act of 1961 has bee repaid.

(c) The last sentence of section 4 of the Temporary Extended Railroad Unemployment Insurance Benefits Act of 1961 is hereby repealed, effective with 

respect to contributions collected on compensation paid afte r December 31, 1963.

Sec. 304. Effective with respect to contributions collected by the Railroad 

Retirement Board afte r December 31, 1961, section 8(f) of the Railroad Unemployment Insurance Act is amended by striking out “0.2 per centum” and inserting in lieu thereof “0.25 per centum”.

Sec. 305. Effective after June 30, 1964, section 10(d) of the Railroad Unemployment Insurance Act is amended by striking out “the rate of 3 per centum per 

annum” and inserting in lieu thereof “a rate for each fiscal year equal to the 

average rate of interest borne by all special obligations held by the Railroad 

Retirement Account on the last day of the preceding fiscal year, rounded to the 

nearest multiple of one-eighth of 1 per centum”.

Executive Office ofthe President,

Bureau of the Budget, 

Washington, D.C., September 11,1963.

Hon. Oren Harris,

Chairman, Committee on Interstate and Foreign Commerce, House of Representatives, Longworth House Office Building, Washington, D.C.

Dear Mr. Chairman : This is in reply to your request for a report on H.R.

8100, which amends the existing provisions governing the railroad retirement 

and unemployment insurance systems.

Over the past several years, there has been a serious deterioration in the 

level of railroad employment and payrolls. As a result there has been a heavy 

loss of revenues to these programs.

The railroad unemployment insurance system, financed by a payroll tax on 

employers only, now* owes over $300 million which it has borrowed to meet its 

obligations to railroad workers. H.R. 8100 would provide additional income to
RAILROAD RET IREMENT AND UNEM PLOYMENT INSURANCE O

the sys tem by ra isin g th e ma xim um co ntrib ution ra te pe rm an en tly to 4 pe rcen t 

an d by tig hten ing up th e eli gib ility requ ire men ts for unem plo ym ent ins urance.. 

The la tter pro vision would increase th e qu alify ing base ye ar ea rn ings requ ireme nt fro m $500 to $750, w ith the proviso th at a new en tr an t to ra ilro ad emp loyme nt m ust h ave a t leas t 7 m onths of service in th e b ase ye ar.

The se rev isions would re su lt in a ne t ga in to th e fund of $20 millio n a year. 

Althou gh th is amou nt wou ld imp rov e th e financ ing of the ra ilr oa d une mp loy me nt 

insu ranc e sys tem as com par ed with ex istin g law , we believe th at it will not 

enable repa ym en t of th e de bt to th e ra ilro ad re tir em en t accoun t w ith in a 

rea sonable period. Th e bill wou ld, th e Bo ard ha s es tim ate d, end th e nee d 

fo r fu rt her borrowing by 1906. However, t he debt could be repa id only gr ad ua lly 

over a long perio d of 30 to 35 years .

Th is sho uld be com par ed with H.R. 3310, which the Bo ard tran sm itte d to 

Con gres s with the ad m in istrat io n's approv al. It wou ld raise the mo nth ly wage 

base to $450 an d increa se the payroll contrib ution to 4% per cen t. Th e Bo ard 

ha s estim ated th at this bill would increase inco me to the sys tem by ab ou t $40 

mil lion a ye ar and wou ld enable repa ym ent of the ex ist ing debt in 15 years. 

To as su re ad eq ua te resolut ion of the fin anc ial difficu lties of the ra ilro ad unem ­

plo ym ent insu ranc e system , we believe th a t measures to increa se inco me by at 

le as t as much as H.R . 3310 ar e neces sary. Par ticu la rly sinc e the de bt is owed 

to the ra ilro ad re tir em en t accoun t, wh ich also faces fin anc ial problem s, we 

qu estio n any approa ch which would lea ve th e ra ilro ad unem plo ym ent insu ranc e 

system unable to repa y it in a comp ara tiv ely s ho rt per iod of time.

The ra ilro ad re tir em en t system now ha s an ac tu ar ia l deficiency of 1.79 pe rcent of payroll or $77 mil lion a year. This bill wou ld increase the ma xim um 

mo nth ly comp ens ation on wh ich r etirem en t pa yroll co ntrib utions ar e based fro m 

$400 to $450. It would rev ise the method fo r de ter mi nin g the Go vernme nt’s 

obligation fo r fu tu re m ili ta ry servic e cred its an d th us pave the way fo r liq ui da ting ex isting obligations to the account.

The bill wou ld change the inv estm en t polic y of th e re tir em en t accoun t from 

th e cu rr en t fixed 3-p erc ent ra te to the av er ag e m ar ke t yie ld ra te . Th e average 

marke t yie ld form ula wa s ado pte d fo r th e OASDI tr ust fu nd s in 1960 and for 

the civil service re tir em en t fun d in 1961.

These pro pos ed rev isions would red uce the ac tu ar ia l deficit to ab ou t 0.51 pe rcent of payroll or $24 million per yea r, which is with in the lim its of tol erance 

in ac tu ar ia l estim ating. We endorse the foregoin g am endm ents as desir ab le 

pro gram rev ision s th at wou ld contrib ute to a sound fina ncing of the ra ilro ad 

re tir em en t s ystem.

Th ere ar e two pro vis ion s of H.R. 8100 to which th e Bu reau of th e Bu dget is 

opposed. The fir st is th e gu aran teed min imum in te re st yie ld fo r inv estm en ts 

of the ra ilro ad re tir em en t accoun t. In rece nt years , inv estm en t policies governing th e major Fe de ra l re tir em en t fu nd s have been cha nged to inco rporate 

th e princ ipl e th at th e ra te of in te re st on new inve stm en ts of the se fu nd s sho uld 

equa l the ra te of re tu rn which w ould be reali zed by inv estor s who pu rcha se lo ngterm Go vernment se cu rit ies in the open ma rket. Th is “ave rage m ar ke t yie ld” 

princ iple avo ids ei th er a fin ancia l ad va ntag e or disa dv an tage to these fun ds. 

H.R. 8100 d ep ar ts from th is policy by pro vid ing th at in no e ve nt shall the ra te of 

in te re st be less th an 3 per cen t. Neither th e OASDI tr ust fund no r the civil 

servi ce re tir em en t fund have a gu aran teed minim um in te re st yield. Suc h a 

gu ar an tee would ma ke it possible for the tr ust f un ds to ea rn more th an wou ld be 

receive d by pr ivate inv estor s in long -term Govern me nt sec urities.

The second fe at ur e of the bill to which we ar e opposed is the im mediat e rollov er of ex ist ing inv estm en ts to the new ra te s. At the tim e th e av erag e m ar ke t 

yie ld form ula was adopted for the OAS DI and civil service re tir em en t fund s, 

it was decided th at ex istin g inv estm en ts would be ad ju sted to the new policy 

thr ou gh a gr ad ua l an d or de rly tran si tio n over a period of years. In 1960 a 15- 

ye ar tran si tion period wa s adopted for th e OAS DI fu n d s; in 1961 Con gress 

adopted a 10-year rol lov er per iod for the civil ser vic e re tir em en t fund (P ub lic 

Law 87-35 0). In co nt ra st to the se de sir ab le tra ns iti on s. H.R . 8100 w ould allo w 

imme dia te con version to th e hig her ra te s of all obligations now hel d by th e 

accoun t. If adopted , th is policy would increase Fe de ral in te re st pa ym en ts to 

the accoun t by abou t $24 million in the firs t yea r. Moreover, it could elicit 

sim ila r dema nds by the ot he r major tr ust fu nd s which, if ado pte d, would re su lt 

in adde d in te re st cos ts to th e gene ral fund of an es tim ated $240 millio n in the 

fir st ye ar an d a to ta l cost of ove r $1.4 billion.

We recognize th at th e pr ef er en tia l trea tm en t emb odie d in H.R. 8100 would 

re su lt in fu rt her red uc ing th e ac tu ar ia l defic iency in the ra ilro ad re tire m en t

2 3 -9 6 2— 63 ----- 2
6 RAILROAD RE TI RE MEN T AND UN EM PL OY MEN T INS UR AN CE

ac co un t abou t $8 m illion per year on a lev el ba sis. How ev er, we be lie ve th a t 

su ch in cr ea se d inc om e shou ld no t be ba se d on a po lic y whi ch wou ld in eff ect re ­

quir e sp ec ia l c ontr ib utions from the g en er al t ax pay er.

In su m m ar y, we urg e mor e ad eq uat e pr ov isio ns fo r fina nc in g th e un em pl oy ­

m en t in su ra nce pr og ra m an d we urg e again st en ac tm en t of th e pr ov isio ns which 

g u ara n te e a 3-pe rc en t in te re st ra te an d pr ov id e an im m ed ia te ro llo ve r of in ­

ve st m en ts . The se re vi sion s wou ld bri ng H.R. 8100 in to ac co rd w ith th e pr og ra m 

of th e P re si den t.

Si nc er ely yo ur s,

W ilfred II. R om me l,

Assistan t Director for Legislative Reference.

Railroad Ret ir em en t B oard,

Chicago, III., Au gus t 30,1963.

H on. Oren H arris,

Chairman, Comm ittee on Inter sta te and Foreign Commerce, Longicortli House

Office Building, Washington. D.C.

Hear Mr. H a r ris : Thi s is th e re port of th e R ai lr oad R et ir em en t B oa rd on th e 

bi ll H.R . 8100, in trod uc ed by you on Aug us t 15,196 3.

As yo u know , th e ra il ro ad re ti re m ent system is es ta blish ed on an es se ntial ly 

lev el contr ib ution ba sis which re quir es tin* ac cu m ul at io n and m ai nte nan ce of 

la rg e ac tu a ri a l rese rves . Ther e is no w an actu a ri al de fic it in th e fina nc ing of th e 

sy stem of abou t $77 m ill ion a y ear or 1.79 pe rc en t of ta xable pa yr ol l. Th e ra il ­

ro ad un em pl oy men t in su ra nce sy stem is fina nc ed on a re la tivel y sh ort -t er m bas is 

be ca us e ob liga tion s fo r be ne fit s ca nnot la st beyond a lim ited pe riod follo wing th e 

qual if yin g ye ar . Thi s sy stem has now an actu al ac co un ting de ficit of ov er $300 

mill ion. T hi s is ap pro xim at el y th e am oun t pre se nt ly o wing to th e r ail ro ad r e ti re ­

m en t ac co un t from which th e sy stem has bo rrow ed fu nds under th e au th o ri ty 

pr ov id ed b y law .

W he n io Se ptem be r of 1901 th e P re sid en t sig ne d in to law th e bi ll (P ub lic Law 

87-285 ) effe ctin g cert ain re la ti vely m in or im pr ov em en ts in th e be ne fit st ru ctu re of th e R ai lroa d R et ir em ent Ac t, he re qu es te d th a t a pr og ra m be deve lope d 

to corr ec t th e ex is ting de fic its in th e fin an cing of th e ra il ro ad re ti re m ent an d unem pl oy m en t in su ra nce system s. The Boa rd , of co urse , had alr eady reco gn ized 

th e ne ed fo r su ch a pr og ra m . T hi s bill, if e na ct ed in to law , wou ld su bst anti all y 

ac co m plish th a t ob jective. Thi s wou ld be do ne th ro ugh an in cr ea se in th e lim it 

on ta xable co m pe ns atio n unde r th e R ai lr oad R et ir em en t T ax Ac t (acc om pa nied 

by a si m il ar in cr ea se in cre ditab le co m pe ns atio n under th e R ai lr oad R et ir em en t 

Act) : effectin g cert ain ch an ge s in th e pr ov isio ns re sp ec ting th e fin an cing of m ilita ry s er vi ce c re dits in th e R ai lr oad R et ir em en t Act which wou ld r em ov e th e ba sis 

fo r th e Gov er nm en t’s ob ject io ns to appro pri ati ons co ve ring am ou nts al re ady 

ow ing fo r th es e c re d it s ; ch an gi ng (lie metho d of det er m in in g in te re st ra te s fo r 

th e sp ec ia l ob liga tion s he ld by th e ra il ro ad re ti re m ent account; in cr ea si ng th e 

m ax im um co ntr ib ution ra te under th e R ai lr oad Une mploy m en t In su ra nce A ct; 

in cr ea si ng th e am oun t of co m pe ns atio n re qui re d in th e ba se y ear to qual if y fo r 

be ne fit s under th e R ai lr oad Une mploy m en t In su ra nce Act, an d re quir in g n ew e ntr a n ts in to th e sy stem al so to ha ve co mpe ns atio n fo r a m in im um nu m be r of 

m on th s in th e ba se y ear to q u ali fy : and th ro ugh ch an gi ng th e pr ov isio ns w ith 

resi>ect to em ploy ees wh o volu nta ri ly leav e work, th e effect of which wo uld be 

to dis quali fy em ploy ees wh o volu nta ri ly leav e wor k fo r mor e days which wou ld 

oth er w is e be da ys of un em pl oy m en t fo r which be ne fit s wou ld be pa ya ble.

T he ov er al l eff ec ts wou ld be (1 ) to re du ce th e a c tu a ri a l defic ien cy of th e re ­

ti re m en t sy stem to $16 mill ion a y ear or 0.34 per ce nt of ta xable pa yr ol l, an d 

(2 ) to el im in at e th e ne ed fo r fu rth e r bo rrow in g by th e un em pl oy m en t sy stem 

from th e ra il ro ad re ti re m ent ac co un t an d to perm it re pay m en t of th e exis ting 

lo an s ov er a pe rio d of ye ar s. If th e bi ll is en ac te d in 1963 th e ad dit io nal re ti re ­

m en t ta x es fo r th e cale ndar year 1964 wou ld am ou nt to $58 mill ion, h alf pai d 

by em ploy ee s an d h alf by em ploy ers. The addit io nal contr ib utions to be pai d 

by em pl oy er s fo r th e su ppo rt of th e un em pl oy m en t in su ra nce sy stem wou ld 

am ount to $10.8 mill ion a yea r. Sa vi ng s to th e sy stem fr om th e ch an ge as to 

th e am ount of co mpe ns atio n re quir ed w ith re sp ec t to a ba se y ear to qual if y fo r 

th e en su in g benefit year and as to th e re qui re m en t fo r ne w en tr an ts wo uld be 

$6 mill ion a ye ar . Sa vi ng s from th e re vi sion of th e dis qual if yin g pr ov isio ns 

re la ti v e to em ploy ees who volu nta ri ly le av e wor k wou ld be $3.5 mill ion a yea r.
RAILROAD RET IREMENT AND UNEMPLOYM ENT INSURANCE 7

These together res ult in an improvement in the financial condition of the system 

by $20.3 million a year.

The hill would amend the Railro ad Retirem ent Act, the Railro ad Retirem ent 

Tax Act, the Railroad Unemployment Insurance Act, and the Tem porary Extended Railroa d Unemployment Ins ura nce Benefits Act of 1901 in the following 

resp ec ts:

TH E RAILROAD RETIR EM ENT ACT

1. The limit on creditable compensation used with respect to months after 

approval of the act for determining benefits would be increased from the p rese nt 

$400 a month to $450 for each employee. This change is needed in order th at 

the lim it on creditable compensation be equal to the lim it on taxable compensation the latte r of which would be increased to provide added revenue. (See 

statem ent on Railro ad Retire ment Tax Act.) The increase in cred itable compensatio n would, of course, produce higher benefits and, therefore, added costs 

but the benefit increase s would be slow in materializ ing to any sizable degree because the increased compensation limit for the d etermination of benefit amounts 

would only apply to months in the future . Benefits for those who are alread y 

retired would not be increased at all by the extension of the limit, unless they 

return to railroad service and acquire additio nal cre dits on which a recomputation of annu ity would be based.

The retirement and disability annuity form ula is so fram ed that the low portion of average earnings produces a rela tively larger pa rt of the benefit tha n the 

high portion. The lowest fac tor in the form ula (1.67 percent) is applied to th at 

pa rt of the average monthly compensation which is over $150. Since for f uture 

reti rem ents the average monthly compensation will generally exceed $150 even 

und er the p rese nt limit, the lowest percentage facto r in the form ula would apply 

to the additional average monthly compensation th at the extension of the lim it 

would produce. On the oth er hand, the tax rate applies evenly to all the taxable compensation. Also the effect of the increase in the limit on taxable compensatio n would ari se in full immediately according to the tax rat es in effect. 

Therefore, the increase in the limit on credita ble compensation would not add 

costs even on a longrun basis which would amount to as much as the increas e 

in the limit on taxable compensation would add in revenue. (See statem ent on 

Railro ad Retirem ent Tax Act.)

Even after the increase in the compensation limit the perce ntage of total payroll which would be creditable would remain rela tively low going from 76 to 82. 

At the time the Railro ad Ret irement Act of 1937 was enacted the lim it on 

monthly creditable compensation was $300 and the percentage almost 99. Although the limit on compensation was increased to $350 in 1954 and then to $400 

in 1959, the i>ercentage has declined stea dily over the years because of in crea sing 

wage rates.

2. Under present provisions of law the Government is requ ired to pay to the 

railroad retirement accou nt with respect to creditable milita ry service rend ered 

af ter 1936 the equivalent of the total taxes th at would have been paid if the 

employee had earn ed $160 in tax able compensation as a railro ad employee du ring 

each month of milita ry service, less, as to such service rend ered after 1956, the 

amount of the taxes paid thereon for social security purposes. An act ual cost 

basis would be sub stituted to begin with milita ry service rendered af ter June 

1963 (Government paym ents fo r the c rediting of military service before 1937 have 

always been determined on an actual cost basis and will continue to be so deter ­

min ed). This means (hat as benefits are awa rded, the Government would be 

charged with the actuarial value of that portion of the benefits att rib utable to 

military service rend ered before 1937 or after June 1963, including for the la tte r 

perio d only an amount sufficient to cover a proportion ate s hare of a dm inistrative 

costs and of the int ere st charges on the unfunded accrued liab ility of the ra ilroad retirem ent system, as determined by the B oar d’s actu arial valuations. The 

adjustment, fac tor would be computed from the ratio of the total net level costs 

of the system to the portion thereof rema ining after the deduction of admini str ative expenses and intere st charges on the unfu nded accrued liab ility as modified 

for the effects of the financial inte rchange with the social secu rity system. On 

the basis of the las t actuarial valuation this overhead factor would hav e been 

25 percent.

Also, the bill would do away with the Government’s obligations to make duplicate paym ents to both the railroad retirem ent a nd the social secu rity systems for 

cer tain cred its based on m ilitary service rend ered before 1957.
8 RAILROAD RET IREMENT AND UNEMPLOYMENT INSURANCE

After these changes are effected it is understood the Government will no longer 

object to installment appropriations by the Congress to the railroad retirem ent 

account to liquidate about $160 million which it now owes to the railroad retirement system with respect to creditable military service already rendered.

Additional changes in the military service provisions would be to permit the 

payment of benefits attributed to military service for 12 months before credit is 

claimed instead of 6 months as at present and to clarify provisions to show 

plainly that military service can be credited toward survivor benefits (it has been 

so credited under an administrative ruling).

3. The 3-percent rate of interest which the present law provides for the special 

obligations issued for the railroad retirem ent account, has since about 1956 been 

less than the rate the Treasury must pay to borrow funds through medium- and 

long-term general obligations. The yield to matu rity based on market price of 

medium- and long-term U.S. Government obligations has also exceeded 3 percent. 

To rectify this situation the bill provides for an interest rate determined from 

the average market yield on outstanding marketable Treasury obligations having 

an unexpired maturity of 3 or more years. A rate would be determined each 

month for funds newly invested during the month. This method of determination 

would now produce an interest rate of about 3% percent but what i t will be in 

future years is, of course, not certain. There would be a floor of 3 percent on the 

rate. In other words, if at any time the formula would produce a rate of less 

than 3 percent the rate for obligations issued at the time would be 3 percent. 

The rates of interest for newly invested funds in the social security and civil 

service retirement trust funds are now determined by an almost identical formula, but there is no floor on the ra te for those funds.

The bill would authorize the Secretary of the Treasury to retire all the 

special obligations held by the account on the date of approval of the act and 

to issue in lieu thereof special obligations bearing interest at a rate determined 

under the method specified in the preceding paragraph.

TH E RAILROAD RETIR EMENT TAX ACT

The maximum compensation base on which the tax rates for employees, employers, and employee representatives apply would be increased from $400 

to $450 a month effective with respect to compensation paid for services rendered 

after the month of approval of the act. This coincides with the increase in 

the maximum of creditable compensation under the Railroad Retirement Act 

for benefit purposes. The financial effects of this change are discussed in 

the statem ent on immediate and long-range effects on the retirem ent program. 

TH E RAILROAD UN EM PLOY ME NT INS UR AN CE ACT

1. The maximum contribution rate (the contributions are paid only by employers) would be increased from the present 3% to 4 percent applicable with 

respect to compensation paid for months after 1963.

2. The amount of compensation needed with respect to a base year for an 

employee to qualify for benefits in the related benefit year would be increased 

from $500 to $750. In addition an individual who had engaged in no covered 

employment before the base year could qualify only if he is paid compensation 

for not less than 7 months in the base year. This change would be effective 

as to base years afte r 1962 except it would not operate to prevent an employee 

from qualifying in the base year 1963 for the benefit year 1964-65 if he was 

paid $500 or more in compensation with respect to tha t portion of such base 

year which precedes the month following the month of enactment of the 

act.

3. An employee who left work voluntarily without good cause would not 

be considered as having days of unemployment during the period beginning 

at the time he so left his work and continuing until he had been paid with 

respect to time after the period begins not less than $750 in compensation. 

With respect to unemployment afte r he has had such compensation, the employee would be in exactly the same position in which he would have been 

if he had not been disqualified. This disqualification provision would not 

apply if the Board finds he left work voluntarily with good cause except tha t 

in such a case the employee would not be considered as having days of unemployment under the Railroad Unemployment Insurance Act with respect 

to any day in a registration period if such period includes a day which is 

in a period for which he could receive benefits under an unemployment law
RAILROAD RET IREMENT AND UNEMPLOYM ENT INSURANCE 9

oth er tha n the Railroa d Unemployment Insurance Act. This amendment would 

be effective with respect to an employee who leaves work vol untarily af ter the 

enac tment d ate of the bill.

The added contributions produced by the increas e in the maximum rate and 

the savings from the other changes would cause an improvement in the financial 

condition of the railroad unemployment and sickness in suranc e system, sufficient, 

it is estimated, to obviate the need for fu rthe r borrowing from the railro ad 

retireme nt accou nt and in time to liqu idate the indebtedness to th at account. 

When the amounts borrow ed from the railro ad retireme nt account have been 

repaid and funds are accu mulated in the railro ad unemployment insuranc e 

accou nt (stabilization of employment in the railro ad industry, even though at 

a low level number of employees as compared with past years, would accelerate 

the eve ntual accumulation of funds in the accou nt) the sliding scale contribution 

rate, which would continue in effect, would even tually cause the ra te to go below 

the maximum. (See “Explanation and Analysis of Effects on the Railroad 

Unemployment and Sickness Ins ura nce System.” )

4. The bill would chang e the intere st ra te applicable to fund s borrowed from 

the railroad retireme nt account for the paymen t of unemployment and sickness 

benefits from the present rate of 3 percent to a rate determined for the fiscal year 

by the average ra te of int ere st borne by all special obligations in the railro ad 

retirem ent accou nt on the las t day of the preceding fiscal year. The rate would 

be rounded to the neare st multiple of one-eighth of 1 percent. This provision 

would become effective after June 30. 1904. This change would res ult in the 

intere st rates on the borrowed funds being approximately equal to the average 

of the rat es borne by the special obligations held by the railro ad retirem ent 

account.

5. The present allocatio n from contributions of an amount equal to 0.2 p ercent 

of taxa ble pay roll for adm inistrative expenses of the unemployment and sickness 

insurance program has proven to be insufficient. The bill would increase this 

alloc ation to 0.25 ]>ereent effective as to all contributions collected after 1961 

withou t rega rd to the period with respect to which the compensation on which the 

contributio ns were collected, was paid. It is estimated th at w ithout this change 

the funds in the railroad unemployment insu rance adm inistration fund would 

be exhausted some time this year. There is no provision for borro wing fun ds 

for administrative purposes as there is for the paym ent of unemployment and 

sickness benefits. Thu s the urgent need for this increase, as well as its ret roactive app lication, is apparent.

TEM POR ARY EXTENDED RAILROAD UNE M PL OY MEN T IN SU RANCE BE NE FI TS ACT OF 1 9 6 1

The bill would elim inate the las t sentence of section 4 of the Tem porary Extended Railro ad Unemployment Ins ura nce Benefits Act of 1961 (Public Law 

S7-7 ). The sentence would be elim inate d merely to avoid duplicatio n. Section 

5 of th at act fixed the contribution rate for 1962 and 1963 at 4 perc ent in effect 

adding one-fourth perc ent for this period to the reg ula r maximum. Provisions 

are included in the bill to cause th at p art of the contributions equal to one-fourth 

percent of the compensation paid for months af ter 1963 on which the con trib utions are based to be applied to repay the amount advanced from the general 

fund of the Tre asu ry for the paym ent of temporary extended benefits until the 

full amount advanced is repaid. In effect the sentence to be elim inated make s 

the same provision.

IM MED IA TE AN D LONG-RANG E EFFE CT S ON THE RE TIR EM EN T PROGRAM

1. Immedia te effects

The imme diate effects of the proposed legislation on benefit paym ents under 

the Railro ad Retirement Act will be negligible. This is because the bill does 

not change the benefit form ulas or the earnings base fo r service rend ered before 

the enactment date of the bill. The benefits now payable will, therefore, not be 

affected and this will have the res ult of increasing benefit paym ents very littl e 

over the next several years.

As for future accessions to the benefit rolls, the incre ase in the earnings base 

from .$400 to $450 a month will gradua lly incre ase the retirement benefits for 

employees earning more tha n $400 a month. The maximum increas e in ann uity 

will be 83V6 cents per month for each year of service rend ered af ter the month 

of enactment of the bill. Illustra tiv e figures for the possible increas es in 

retirement ann uities in future years are given below. These figures were com-
10 RAILROAD RETIREMENT AND UNEMPLOYMENT INSURANCE

puted on the assumption th at the higher earn ings base will become effective on 

Jun e 1, 1963. Figures for possible increase s in survivor benefits ar e not shown 

because these will be less significant.

R et irem en t o n J une 1 of—

1963..

1965..

1970.. 

1980 2

1990 2

M ax im um m ont hly ret irem en t annuity

Pr es en t law H .R . 8100 Inc rea se 1

$211.30 $211.30 $0.00

214. 80 216.30 1.50

245. 90 251. 50 5.60

306. 40 320. 40 14.00

323.10 345. 80 22.70

1

 Sm all diff erences be tw een th e figures sh ow n an d correspo nding multip les of 8 3 cents are du e to the 

ro un ding prov isions of th e act .

2

 A ssu ming 40 ye ars of cre ditable s ervice.

As for retirement taxes, the effect of the high er earn ings base will be felt 

immediately, both by the payers of these taxes and the Railro ad Retirem ent 

Account. The progress of additio nal taxes through the years (assuming an 

effective date of Jun e 1,1963) is estimated to be as follows:

Calen da r ye ar

Co mbine d 

tax r ate 

(pe rce nt)

M ax im um

for

em plo yee

(m on th ly)

Tot al for indu st ry in ye ar 1 (millio ns)

Tot al Em plo yees Em ploy ers

1963____ ____________________ 14.50 $3.63 $33.8 $16.9 $16.9

1964____ _____________________ 14.50 3.63 58.0 29.0 29.0

1965__________________________ 16.25 4.06 65.0 32.5 32.5

1966-67 . . . 17.25 4.31 69.0 34.5 34. 5

1968 and su bs eq ue nt ___________ 18.25 4.56 73.0 36.5 36.5

1

 Based on th e as su mption th at th e an nu al taxa ble pa yr oll will be $4,300,000,000 for the pr es en t $400 

lim it, an d $4,700,000,000 for the $450 lim it.

It is obvious th at employees in the lower wage brackets (up to $400 a month) 

will not have to pay any additional retireme nt taxes. It is estimated th at 

roughly one-fourth of the presen t employees fall in thi s category. The rem aining thre e-fourths will have to pay some add itional taxes ranging from a low 

of a few cents per month to a high shown in the table appearing immediately 

above. As sta ted before, the add itio nal retireme nt taxes will generate worthwhile additio nal benefits.

The chang e in the method of financing milita ry service credits will have no 

appreciable immediate effect on the financial condition of the system. However, 

the immediate and long-range effects of the new investme nt policy will be considerable. This change will materially reduce the ac tua ria l deficiency of the 

system as w ill be shown subsequently in this report.

2. Long-range effects

The amendments would g reatly improve th e actua ria l condition of the railroa d 

retireme nt system by reducing the deficiency in financing from $77 to $16 million 

a year. The l atter figure is 0.34 percent of taxa ble payroll assumed for the bill. 

This would be accomplished mainly by incre asing the income from payroll taxes 

and from inter est earn ings on the fund s in the Railroad Ret irement Account. 

The income from the financial interchang e with the social security fOASDI) 

system would not be affected because the operations und er the financial interchange a re governed by social secu rity rather tha n railro ad retirement law.

The most impor tant source of add itional income is the broadening of the 

earnings ba se ; that is, the increase in the limit on credita ble and taxable compensation from $400 to $450 a month per employee. The effects of this change 

expressed in term s of level (actua ria l average) annual amounts will be as 

follows: (1) the taxable payroll for an assumed future railro ad labor force of 

850,000 employees will be inc reased by $400 million, thus producing a $4.7 billion 

taxable payroll instead of the $4.3 billion assum ed in the eighth ac tuarial valuation for the $400 earnings base; (2) the add itional benefit costs will be $40 

million; and (3) the add itio nal tax income will come to $71 million. Thus, 

there will be a net savings of some $31 million a year which amounts to 0.66 

percent of a ta xable payroll of $4.7 billion.
RAILROAD RETIREMENT AND UNEMPLOYMENT INSURANCE 11

The second source of add itio nal income which would be provided by the 

amendments is the change in the investment policy f or the funds in the Railro ad 

Retirem ent Account. (Th is policy is esse ntially the same as th at introduce d 

in 1961 for the Civil Service Retirem ent Fund by Public Law 87-350.) In considering the possible effects of the new investme nt policy on average future 

int ere st rates over the long run, notice was taken of the fac t th at recent OASDI 

ac tua ria l estimates are based on an intere st rate of 3.25 percent. The investment policy for OASDI is sim ilar to the one provided in the bill with the only 

ma terial differences being the length of the period for the rollover of exis ting 

funds and the provision for a lloor on intere st rates which OASDI does not 

have.

The basic 3% perc ent rate was adj ust ed by: (1) adding 0.03 for the fact 

th at the Railroa d Retirement Account has no securities yielding less tha n 3 

perc ent whereas the OASDI trus t fund s had by the end of 1962 some $13.7 billion 

in 2*& and 2% percent special issues, (2) adding anoth er 0.10 for the immediate 

conversion of railro ad retirement funds as compared with 15 years ins titu ted 

by Tre asu ry action for the OASDI funds, and (3) adding ano ther 0.05 for the 

guara nte e that the int ere st ra te shall not be less tha n 3 percent. These three 

adjustments resu lted in a valuation ra te of 3.43 percent, which was used for 

purposes of the present cost estimates.

The cost estimates for the bill ar e summ arize d in the following tab le :

Cost estim ate and principal cost figures f or II.R . 8100—retirement program only

Item

Payroll

reference

(billions)

Cost figures

Percent of 

payroll

Amount per 

year(m illions )

Actuarial deficiency for present law__ ____________________ $4.3 1.79 $77

New inve stm ent policy ■_____ . _ _ __ ______ __________ 4.3 -. 5 8 -2 5

Accrued m ilitary service app rop riat ion s_____ _____________ 4.3 » - .1 2 - 5

Remainin'? actuarial deficiency:

Present earnings base ($400)___ ____________________ 4.5 1.09 47

Proposed earnings base ($450)________________________ 4.7 1.00 47

Net gain from hielier ea rnin es b a s e _______ _________ 4.7 -.6 6 -3 1

Principal cost figures for proposed program:

Actuarial de fic ien cy___ _______ _______________ ____ 3.4 16

N et level costs . . _______________________________ 18.18 854

Equiv ale nt level ta x rate____ _________________ __ 17.84 838

1

 Assumine a valuation interest ra te of 3.43 percent.

2

 —0.10 for a $4.7 billion payroll.

The sta rting point is the actu arial deficiency arrived at in the eighth actua ria l 

valuation (1.69 percen t of tax able payroll) adj ust ed by the addition of 0.10 percentage points for inad equ ate financing during 1960-62 and for the effects of 

the 1961 am endm ents to the Railroad Retirement and Social Security Acts. The 

resulting 1.79 figure rela tes to a $4.3 billion payroll. Then, reduction s totalin g 

0.70 percent of taxable payroll (0.58 plus 0.12) are introduced for the increase 

in the int ere st rate and the expected receipt of accrued milita ry service appropriations, respectively. The remaining 1.09-percent deficiency relating to a 

$4.3 billion payroll is then converted to 1 percent for the $4.7 billion payroll which 

would be applicable because of the higher earnin gs base. (The d olla r amount of 

the deficiency is the same for both percentages.) Next, ano ther 0.66 reduc tion in 

level costs is taken for the gains resulting from the $450 earn ings base. The 

overall resu lt is t ha t the ac tua ria l deficiency fo r the amended railroad retireme nt 

prog ram would be 0.34 perc ent of the new tax able payroll which is equivalent to 

$16 million a year. The net level cost of th e system a s of Janu ary 1, 1963, would 

be 18.18 percent of ta xable payroll. This figure represe nts the tax income which 

would be requ ired for an exa ct actua ria l balan ce between income and outgo. 

Since the level tax income is only 17.84 percent, an actua ria l imbalance of 0.34 

percent of tax able payroll results.

It will be noted th at the cost estimate for the bill allows for a slig ht redu ction 

in f uture net costs on account of expected milita ry service app ropriations. This 

was done on the grounds th at the eighth ac tuarial valuation disrega rded this 

item because of the uncer tainty then surrounding the actu al receipt of this 

money by the railro ad retireme nt account. This uncer tainty is removed by the 

bill.
12 RAILROAD RET IREMENT AND UNEM PLOYMENT INSURANCE

Another point worth noting is tha t the present cost estimate does not show 

a cost reduction due to the eventual repayment of the funds borrowed by the 

unemployment insurance account which would be facilitated by the amendments 

to the Railroad Unemployment Insurance Act. The reason for this is that 

these loans have been treated as full-fledged assets of the railroad retirement 

account in all actuarial cost estimates. Thus, there are no new funds which 

had not been accounted for in previous cost estimates.

Except for the interest rate and the adjustm ent of payrolls for the higher 

earnings base, the major assumptions underlying the cost estimates here presented a re the same as those used in the last actuarial valuation of the railroad 

retirement system (as of December 31, 1959). This is in accord with the commonly accepted practice of not changing actuarial assumptions between complete 

valuations. Within the framework of these assumptions, the bill would produce a condition of reasonable actuarial soundness, since a deficiency of about 

0.5 percent of taxable payroll is within the limits of permissible actuarial tolerance in relation to an overall cost figure of 18.18 percent. There is a strong 

possibility that one of the major assumptions used; namely, the assumption 

relating to the level of future employment in the railroad industry, is too optimistic. This matte r as well as other matters having a bearing on future level 

costs will be thoroughly reviewed and reexamined in the next ac tuarial valuation 

which is scheduled for completion by the middle of 1964. While it is impossible 

to foretell the results of the next valuation, it seems reasonable to assume that 

the cost figures relating to the present Railroad Retirement Act as it would 

be amended by the bill will lie in the same general area as the cost figures 

cited in this report.

EX PL A NA TI O N AN D A N A LY SIS OF EF FE CTS ON T H E RA ILR OA D U N E M PLO Y M E N T IN S U R ­

ANCE SY ST EM

The amendments to the Railroad Unemployment Insurance Act would (1) 

raise the maximum contribution rate from 3.75 to 4 iiereent, (2) increase the 

amount of contributions set aside for administration of the law from 0.2 to 0.25 

percent of taxable payroll, (3) increase the qualifying base-year earnings requirement to $750, with a proviso tha t a new entrant to railroad employment 

must have at least 7 months of service in the base year, and (4) strengthen the 

disqualification for voluntary quit without good cause and require that an employee who quits with good cause must first exhaust his rights (if any) to 

unemployment benefits under other laws before being eligible for payment for 

days of unemployment under the Railroad Unemployment Insurance Act. The 

first change would be effective as to compensation paid with respect to months 

afte r 1963, and the second would be retroactive to apply to all contributions 

collected afte r 1961. The third change would be effective as to base years afte r 

1962 with an exception as to the base year 1963 for employees who are paid $506 

or more in compensation with respect to tha t portion of the year 1963 before 

the first day of the month following the month of enactment of the bill. The 

fourth change would be effective as to cases where individuals leave work 

following the date of enactment of the bill. A fifth change, to provide for a flexible intere st r ate on funds borrowed from the railroad retirem ent account, would 

be necessitated by the proposed change in the investment policy for tha t account. 

For funds borrowed from the railroad retirement account, the interest rate for 

each fiscal year would be the average rate for all special obligations held 

by the railroad retirement account on the last day of the preceding fiscal year, 

rounded to the nearest one-eighth percent. This change would become effective 

on July 1. 1964.

The effects of the proposed changes on the railroad unemployment insurance 

account and the railroad unemployment insurance administration fund are 

based on the assumption that, in the years immediately ahead, employment 

covered under the Railroad Unemployment Insurance Act will average about 

850,000 and that there will not be an unusually large volume of unemployment 

in any year. For the Railroad Unemployment Insurance Act, the limit on 

taxable and creditable compensation would remain $400 a month. Thus, the 

assumed average taxable payroll for the next several years remains at $4.3 

billion, as under the present law.

Reduction in benefits

At the benefit level assumed for the next 5 years, the change in base year 

qualifying requirements would reduce the amount of benefit payments for 

unemployment and sickness by about $6 million a year. However, the full
RAILROAD RETIR EMENT AND UNEMPLOYMENT INSURANCE 13

effect of this amendment on benefit payments would not occur until after June 

30, 1965, because 1964 would be the first full base year in which the new qualifying requirement would apply without exception. The change in disqualification 

provisions for voluntary quits would reduce the amount of unemployment benefits 

by about $3.5 million a year. Thus, the total reduction in benefits would be 

about $9.5 million.

Increase in contribution rate

The maximum contribution rate in the schedule in the Railroad Unemployment Insurance Act is now 3.75 percent. This rate is applicable to taxable payrolls in a calendar year if the balance in the railro ad unemployment insurance 

account (including for this purpose the balance in the administration fund) on 

the preceding September 30 is under $300 million. The contribution rate had been 

increased to 4 percent for calendar years 1962 and 1963 by the Temporary Extended Railroad Unemployment Insurance Benefits Act of 1961. However, the 

additional contributions provided by this law are being used to repay the advance 

received from the general fund of the U.S. Treasury for payment under that 

act of temporary extended benefits to railroad employees.

The change would increase the maximum contribution rate for calendar years 

after 1963 to 4 percent. There would otherwise be no change in the existing 

schedule of contribution rates.

The effect of the increase in the maximum contribution rate would be to 

increase the estimated amount of contributions to be paid by covered employers 

by an average of $10.8 million a year. Of this amount, $8.6 million would go 

into the unemployment insurance account and $2.2 million into the administration 

fund. This would be sufficient additional income so that, on the basis of the 

estimated level annual amount of benefits (as reduced by the proposed amendments), the loans from the railroad retirem ent account would gradually be 

repaid.

Change in appropriation for administration

Under the present law, an amount equal to 0.2 percent of the taxpable payroll is set aside from contributions for payment of the administrative expenses 

of the unemployment and sickness benefit programs. The change would increase 

this amount to 0.25 percent of the taxable payroll, wtih respect to contributions collected after 1961. This would provide about $3 million immediately 

for transfer from the unemployment insurance account to the administration 

fund and would increase the estimated amount of contributions available to the 

administration fund in futu re years by an average of some $2.2 million a ye ar ; 

that is, from about $8.6 million to $10.8 million a year.

Change in interest rate on borrowed funds

The rate of inte rest on funds borrowed from the railro ad retirement account would increase afte r June 30, 1964, to an estimated average of 3.5 percent, reflecting the change in investments of the railroad retirement account. 

However, this proposed change in interest rate would have only a minor effect 

on the futu re cost of the unemployment and sickness benefit programs. It is 

estimated tha t in the 5 years following the effective date the additional interest 

paid to the railroad retirement account as a result of this proposed change 

would average about $1.5 million a year. In later years, the additional amount 

of interest would decrease, as repayment of principal reduces the amount owed 

to the railroad retirement account.

Effect on railroad unemployment insurance account

On June 30, 1963, the railroad unemployment insurance account had a net 

deficit of $307.3 million. The deficit consisted of $314 million owed to the rai lroad retirem ent account and the $7.1 million remaining unpaid from the advance of $30 million from the U.S. Treasury for payment of temporary extended benefits, less a cash balance of $13.8 million. It is estimated that if 

there is no change in the financing of the Railroad Unemployment Insurance 

Act, the deficit in the railroad unemployment insurance account would increase 

further to about $360 million by June 30,1968.

As explained above, the proposed amendments, when they become fully effective, would increase the annual income to the unemployment insurance account by some $8.6 million, while reducing the benefit cost of the system by 

about $9.5 million, or an overall net gain of approximately $18 million a year. 

Over the first 5 years, the estimated net result of the changes would be to reduce the deficit in the unemployment account on June 30, 1968, from about

23 -9 62 — 63----- 3
14 RAILROAD RET IREMENT AND UNEMPLOYMENT INSURANCE

$360 million to about $295 milli on. This takes into accou nt the change in the 

inter est rate on the funds borrowed from the railroad retirement accoun t and 

the fa ct tha t the fu ll effect of the amendments would not he realized immediately .

A project ion of the rail roa d unemployment insurance account beyond 1988 

has not been made. Within the framework of the general assump tions of 

rail roa d employment and payr olls that have been used, there could be wide va riation s from year to year in the amount of unemployment benefit disbursemen ts 

and in the income to the system. In the present unsettled condition of the 

rail roa d indus try, such fac tor s as mergers, changes in traffic patte rns, or a recession might cause larg e temporary increases in benefits for unemployment. 

On the other hand, there migh t be an extended period of relative stabili ty of 

employment or of gradua lly risin g employment, with low benefit costs. In 

fa ct , even the project ion for the nex t 5 years is subject to a very large relat ive 

error.

Nevertheless , on the basis of experien ce in the most recent years, it would 

appear tha t the a ddit iona l contributions from the higher contrib ution rate would 

resu lt in a total income more than adequate to pay fut ure benefit costs on the 

basis of the benefit provisions as modified by this bill. I f railroad employment 

should stabilize, the deficit would continue to decrease and would ultimately be wiped out.

Ef fec t on admin istr atio n fu nd

On Jun e 30, 1963, the balance in the railr oad unemployment insurance admin-, 

istratio u fund was $2.7 m illion . For futu re years, under the present provisions 

of the act, it is estimated tha t income to the administration fund from contr ibutions will averag e about $8.6 millio n a year, compared with estimate d admin-, 

istrative costs of $9 m illion or more. Unles s some chang e is made, it is obvious 

tha t the fund s ava ilab le for adm inist ratio n wil l be inadequate in the near 

future .

The recommendation to chang e the percentage of tax abl e payr oll to be set 

aside for admi nistr ation would increase the income to the administr ation fund 

from contributions to an estima ted $10.8 millio n a year . As under present law, 

the excess of income over adm inistrat ive disbursements would remain in the 

administratio n fund until the balanc e in this fun d is built up to $6 million . 

The rea fter , at the end of each fiscal year, any excess over $6 million in the 

adm inist ratio n fund would be transferr ed to the benefit account. The retroact ive effective date of this proposed change would prevent exhau stion of funds 

for administ ratio n before contribution s on current payr olls could be collected.

STA TEME NT OF BOARD MEM BERS

Ther e is an impor tant and urgent need for legi slative action to remove substa nti all y the existin g deficit in the financing of the railroad retirement system 

and to provide sufficient addition al income to the railroad unemployment insurance system so tha t fur the r borrowing wil l not be required and the exis ting 

loan s can be liquida ted gra dua lly.

An actu arial deficit in Ihe longrun financing of the railr oad retirement system 

can be tolerated perhaps for a short while withou t great harm, but the longer 

the deficit continues, the stronge r are the measures required to rec tify the 

situation.

The actu al acco unti ng deficit in the financ ing of the unemployment and sick ­

ness insurance program has required the borrowing of funds from the railroad 

retirem ent accoun t under the auth orit y provided by law . Ther e is now owing 

over $300 m illion to the railroad retirement accoun t by the unemployment insu rance system. Some action is obviously necessar y quite soon to remove the growing deficit in the financ ing of this system.

After thorough consid eration of the matter, the Board has concluded tha t the 

program which the bill would put into effect represents a most pra ctic al and 

effective way of solving the problem. An agreeme nt has been reached with the 

Bureau of the Budget in respect of the provisions affecting the railroad retir ement system th at each measure is reasonable, except f or the 3 percent floor on the 

interes t rate and the immediate conversion of the specia l obligations, and will 

serve to strengthe n cons truct ively the fina ncia l condition of the system. Th e 

Treasur y Departmen t has approved of the measure to provide a new method 

of determining interest rate s but not the floor on the rate and the immediate 

conversion. Both the Bureau of the Budget and the Tre asu ry are understood 

to oppose these two feat ures. The tota l effect would be to reduce the deficit in
RAILROAD RET IREMENT AND UNEMPLOYM ENT INSURANCE 15

the financing of the railro ad retireme nt system from $77 million to $16 million 

a year, or from 1.79 percent of taxable payroll to 0.34 percent, a point within 

limits of actua ria l tolerance. The changes would permit the railro ad unemployment insurance system to operate without an accounting deficit and to repa y 

even tually the e xisting loans.

The m easures consist o f:

1. An increase in the limit on taxable compensation from $400 to $450 a month 

und er the Railro ad Retirem ent Tax Act and a like increase for cred itable compensation under the R ailr oad Retirem ent A ct ;

2. Revisions of the provisions in respect of the financing of credits for milita ry 

service (which would determine the Government’s obligation for credits for 

fu ture milita ry service on a modified added cost basis and end the liab ility 

for paym ents to both the railro ad retirement system and the social secu rity 

system for the same credits thu s removing the basis for the Government’s objections for the Congress to appro priate fun ds now owing for past milita ry 

service credits) ;

3. A change to provide a new method of dete rmining the intere st rat es on the 

special obligations in the railro ad retireme nt acco unt (to cause the rates to 

accord in general with the average investment yield to ma turity prevailing on 

medium and long-term Tre asu ry obligations) with retention of the present rate 

of 3 perce nt as a floor beneath which the rate could not fall and to provide for 

an immediate conversion of the special obligations in the account into obligations 

bearing an in ter est r ate determined u nder the new metho d;

4. An increase in the maximum contribution rate und er the Railro ad Unemployment Ins ura nce Act from 3% percent to 4 perc ent effective as to compensation paid for months a fter 3963 ;

5. A chang e from $500 to $750 in the amount of compensation for a base 

year after 1962 an employee must have to qualify for benefits, except the 

change would not apply for the base year 1963 in cases of employees who are 

paid compensation of $500 or more with respect to th at portion of the base yea r 1963 before th e month following the month of enactment of the bill.

6. A revision of the provisions with respect to employees who leave work 

voluntarily to disqua lify them for payments for days of unemployment during 

the period beginning w ith the time they so leave work and continuing unt il the 

time they have been paid compensation with respect to such period of $750 

or more, but this provision would not disq ualify an employee found by the 

Board to have lef t work with good cause during any reg istr ation period which 

does not include a day in a period with respect to which he could receive 

unemployment benefits under a law oth er than the Railroa d Unemployment 

Ins ura nce A ct ; a nd

7. A change in the a mount allocable from contributions collected for administra tio n of the rai lro ad unemployment and sickness insurance system from an 

amount equal to 0.2 percent of the taxable payroll to 0.25 percent thereof, retroactive so a s to apply to all contributions collected a fte r 1961.

Board members Healy and Lyon strongly urge a favo rable report on and 

enactment of the bill in its e ntirety.

Chairman Habermeyer also strongly urge s favo rable consideration and action 

as to the bill except as to the two mea sures not included in the agre ement with 

the Bureau of the Budget and the Tre asu ry Department, namely, the provision 

for the 3-percent floor on the int ere st ra te and the immediate conversion of the 

special obligations held by the railro ad retireme nt account. However, these 

two measures would obviously stre ngthen furth er the financial condition of 

the system and for this reason he would not object to th eir adoption.

A report by the Railro ad Ret irem ent Board on the iden tical bill S. 2056, 

introduced in the Senate by Mr. Burdick, has been cleared with the Bureau of 

the Budget, which advised us a s follow s:

“* * * alth ough the re would be no objection to the presentation to the committee of such rep ort as you may deem appropriate, the Bureau of the Budget 

does not endorse the limited financial improvement which S. 2056 would provide 

for the railroad unemployment insu rance system. With respect to the retirement 

provisions of the bill, you are advised th at the Treas ury Department and the 

Bureau of the Budget are subm ittin g reports which recommend again st the 

guaranteed minimum int ere st rate and which favors the adoption of an orde rly 

period for conversion of existing investments. These changes would prov ide 

sub stantially similar treatm ent for the major tr us t funds.”

By direc tion of the Board.

Lawrence Garland, 

Secretary of the Board.
16 RAILROAD RETIR EMENT AND UNEM PLOYMENT INSURANCE

U.S. Dep ar tm en t of Labor,

Off ic e of th e Secretary, 

Washington, September 13, 1963.

Hon. Oren Harris,

Chairman, Committee on Inter state and Foreign Commerce,

House of Representatives,

Washington, D.C.

Dear Mr. Chairman: The Department of Labor would like to take this occasion to express for the record our views with respect to certain disqualification 

featu res of amendments to the Railroad Unemployment Insurance Act made by 

H.R. 8100, the bill to improve the financing of the railroad retirem ent and railroad unemployment insurance systems, both of which have large deficits.

Without commenting on the technical features of the financing provisions of 

H.R. 8100, we do support improving the financing of both these systems. We 

note t hat the bill carries the endorsement of both railroad management and railroad labor organizations, as well as the members of the Railroad Retirement 

Board, which administers the two systems.

The Department would merely like to go on record as stating tha t enactment 

of these disqualification provisions for the railroad industry would not imply 

that the Federal Government would have no objection if such provisions were 

adopted widely in the regular State unemployment insurance laws as a par t of 

the regular Federal-State unemployment insurance system with which this Departm ent is so directly concerned. As we understand it, the disqualification 

provisions would work as follows: A railro ad worker who is separated involuntarily from his railroad job, takes another job in a nonrailroad industry, and 

then voluntarily quits the latter job without good cause is disqualified from 

receiving any railroad unemployment insurance until he earns $750 more in 

railroad employment following the voluntary quit. The disqualification would 

bar him from his railroad benefits even if, afte r his voluntary quit, he had had 

another nonrailroad job from which he was laid off for lack of work, so that 

his voluntary quit is not the cause of his present unemployment.

Moreover, if such a worker quit his nonrailroad job with good cause, he could 

not receive railroad unemployment insurance until he had exhausted any State 

unemployment insurance to which he might be entitled. Since his nonrailroad 

earnings in such a situation are likely to be low, his State benefit would generally 

be considerably below the railro ad benefit to w’hich he was entitled. Under 

existing law, the worker would not be required to draw the lower benefit first. 

Even under the proposal, a laid-off worker could choose which benefit to draw. 

Only the one who left any job voluntarily with good cause would be required to 

draw the State benefit, no matter how small it was, for the appropriate number 

of weeks provided by the State law before he could begin to draw his more 

substantial railroad unemployment insurance benefits. Thus, a penalty would 

be imposed on the worker even though he is found to have acted with good cause.

These provisions are extremely severe. No unemployment insurance law disqualifies a worker for a voluntary quit with good cause. This Department has 

consistently taken the position tha t a worker who voluntarily leaves his job 

without good cause should be disqualified for only a limited number of weeks, 

rather than making him ineligible until he has requalified through substantial 

new earnings. We have also consistently held that the disqualification period 

should be linked in time to the disqualifying act, so that a worker unemployed 

because of an involuntary separation is not disqualified for an act in connection 

with some prior separation unrelated to his current unemployment.

This position is based on the principle tha t the unemployment insurance disqualification is not intended as a punishment for a wrongful act, but is merely 

a device for limiting the insured risk to exclude unemployment brought about 

by a voluntary action taken by the claimant without good cause. This principle 

is generally accepted, even when the disqualification is more severe than we 

recommend, and is accompanied by the concept that benefits should not be paid 

on the basis of work which the individual could have kept but for his own action 

taken without good cause.

This Department would regret any implication of endorsement of the disqualification provisions of H.R. 8100 for the regular Federal-State unemployment insurance system. We would therefore appreciate it if these views were 

made a part of the committee’s printed record of this bill.
RAILROAD RETIREMENT AND UNEMPLOYMENT INSURANCE 17

While the Departme nt of Labor supports the bill, subject to the foregoing comments, we also wish to p oint out th at the Bureau of the Budget and the T reasury 

Department have commented on fea tur es of the financing arrangements.

Yours sincerely,

*

Secretary of Labor.

The Chairman. Earlier this year 1 introduced a bill, H.R. 3310, 

requested by the administration. I also introduced a bill, H.R. 4885, 

recommended by the railway labor executives. During the time that 

followed, in conferences with people who were interested in the problem, it was obvious to me th at the matter could probably be resolved, 

and satisfactorily, to all concerned.

There were a number of discussions held, and as a result of these 

discussions I am glad to state for the record that agreement was 

reached by those primarily interested in the program. I want to hear 

and now express my high commendation and the thanks of the committee, because in view of some of the experiences that we have had 

recently we welcome unanimity among the groups involved here. I 

can truth fully say with a deep feeling of joy and satisfaction that we 

are glad to have this meeting this morning. At the request of the 

Association of American Railroads, American Sho rt Line Railro ad 

Association, and the Railway Labor Executives’ Association, I intr oduced H.R. 8100. This bill is designed to improve the financial position of the railroad retirement system. It is also designed to do something about the railroa d unemployment insurance system.

It was suggested to me a day or two ago that certain of you were 

going to take so many minutes or so long to express your views. Certain others were going to take, I assume so much time to do the same 

thing. The third group is going to take so much time to go over the 

same thing again. Now, gentlemen, I have had experience in the 

practice of law myself, and I learned early in my experience that when 

you get your case won it is a pretty good time to stop. So the purpose 

of this meeting this morning is to make a record because we have followed the traditional policy in this committee to make a record on all 

legislation that was reported. So we want to make a record, b ut we 

also want to have an executive session of this committee this morning. 

I have sent out notices to the members advising them of tha t situation. 

So the old saying is that a hint to the wise ought to be sufficient, so let 

us start.

Mr. Friedel. Mr. Chairman, I want to say I have no questions to 

ask.

The Chairman. I was hoping tha t the members of the committee 

would get the hint, too, as well as everybody else.

Mr. Younger. Mr. Chairman, may I speak for our side of the aisle 

and compliment all of those concerned with their unanimity on this 

cause, as most of you know, for a long time I have been concerned 

about the retirem ent fund of the railroad system, and the deficit th at 

has occurred each year. I am glad to see this solution. I thin k now 

tha t we have unanim ity, we should make the record and get action as 

soon as possible.

The Chairman. I thank the gentleman for his comment and app ropriately so. But I would also like to follow it with a comment that the 

fact tha t there is so much unanimity on this is not going to lessen too 

much our concern about the condition of the railroad retirement fund.
18 RAILROAD RET IREMENT AND UNEMPLOYMENT INSURANCE

That is another problem. Tt is our duty to give consideration to that 

problem. I hope this legislation will help, but I don’t think it will 

resolve this completely.

Mr. Younger. No.

The Chairman. The first witness will be lion. Howard W. Hab ermeyer. Chairman of the Railroad Retirement Board.

STATEMENT OF HON. HOWARD W. HABEBMEYEB, CHAIRMAN, 

THE RAILROAD RETIREMEN T BOARD

Mr. Habermeyer. Good morning, Mr. Chairman, and members of 

the committee. For the record, taking the hint you threw out, I have a 

statement prepared that I would like to have introduced into the 

record.

The Chairman. Than k you. Let it be filed for the record.

(The statement referred to follows:)

Sta tem en t of H oward W . H ab er mey er , C h a ir m a n . R ailroad R etir em en t

B oar d, on B eh a l f of H im s e l f . Mr. T. M. H f.aly . and M r. A. E. L yon, Ma nagem ent an d L abor M em be rs of t h e B oard, R es pe cti vel y

Mr. C hai rm an an d mem be rs of th e co mmitt ee , my na m e is H ow ar d W. H ah er - 

m ey er an d I am C ha irm an of th e R ai lr oad R et ir em ent Boa rd . I hav e be en 

w ith th e R ai lr oad R et ir em ent B oar d sin ce May 11, 1936. an d ha ve been th e 

ch air m an of th e Boa rd sinc e Nov em be r 24. 1956. It is my ple asu re an d ho no r 

to ap p ear ag ai n be fo re th is co m m ittee to di sc us s pr op os al s to im prov e an d 

st re ngth en th e ra il ro ad re ti re m ent an d ra il ro ad un em pl oy m en t in su ra nce sy stem . a s pr ov id ed in II.R. SI 00.

B ef or e proc ee ding w ith my testim on y. I sh ou ld lik e to file fo r th e re co rd a 

su m m ar y w ith co st es ti m ate s of th e hi lls which ha ve be en in trod uc ed in th e 

Hou se in th is session of th e Con gress to am en d th e R ail ro ad R et ir em en t Act, 

th e R ail ro ad R et ir em en t T ax Act, an d th e R ai lr oad Une mploy m en t In su ra nce 

Act. T he B oa rd h as re port ed to your co m m itt ee on 28 hills incl ud ed in th is 

su m m ar y, an d you will no te th a t th e bo ar d una ni m ou sl y op po sed th e en ac tm en t 

of all th os e hi lls th a t wou ld in cr ea se be ne fit s w ithout pr ov id in g fo r th e re ve nu e 

ne ed ed to m ee t th e ad dit io nal co sts . I sh al l sa y no mor e ab out th os e hi lls ex ­

ce pt to a nsw er q ue stio ns w ith re gard to them .

Co ming no w to the bil l. H.R . 8190, I wish to ca ll your att enti on to w hat is of 

ch ie f co nc ern to all of us. na mely, th a t bot h th e ra il ro ad re ti re m ent an d ra il ­

ro ad un em pl oy m en t in su ra nce sy stem s ha ve been oper at in g fo r som e tim e under 

finan ci al de fic its . It is ge ner al ly r ec og nize d, I believe, th a t su ch a co nd iti on ca nno t be allo wed to co nt in ue . In Sep tem be r of 1961. whe n th e P re si dent of th e 

U ni te d S ta te s sign ed in to la w th e hill (P ubl ic Law 87 -28 5) pr ov id in g fo r re ­

du ce d be ne fits fo r men ag ed 62 to 64 an d effecting cert ain oth er im pr ov em en ts in 

the be ne fit str u ctu re of th e R ai lr oad R et ir em ent Act, he dir ec te d th e R ai lr oad 

R eti re m ent B oa rd to de ve lop a pr og ra m to plac e th e sy stem s on a soun d 

fina nc ial ba sis. Such a ur og ra m has be en de velop ed an d is in co rp or at ed in th e 

bill, H.R . 8100. The hill if e na ct ed wou ld ac co mplish sa ti sf acto ri ly th e ob jective.

The ra il ro ad re ti re m en t sy stem , be ca us e of it s natu re , is fin an ce d on a bas is 

which re quir es th e ac cu m ul at io n an d m ai nt en an ce of la rg e actu a ri al re se rv es . 

The sy st em ’s b as ic inco me is de rive d from pa yr ol l ta xes which a re pai d in eq ua l 

am ou nt s by em ploy ers in th e ra il ro ad in dust ry an d th eir em ploy ees. A defic it 

in th e fin an cing of th is sy stem do es no t im pa ir th e abil it y of th e sy stem to m ee t 

it s ob liga tion s fo r be ne fit s so long as fu nds are av ai la ble in th e re se rv e. H ow ­

ev er. fa il u re to pr ov id e fo r ad equate cu rr en t fina nc ing wou ld affe ct ad ve rs el y th e 

ca pa ci ty of th e sy ste m to pa y be ne fit s in th e d is ta n t fu tu re . Tt is ob viou s th a t 

th e lo ng er a de fic it is allowed to co nt in ue th e mor e d ra sti c wou ld he th e m ea sur es re qu ir ed to plac e th e sy stem on a fina nc ially so un d ba sis. The pre se nt defic it is in th e am ou nt of a bou t $77 mill ion a yea r. E nac tm ent of H.R . 8100 wo uld 

re du ce th e d eficit fro m $77 to $16 m ill ion a ye ar .

The ba sic inc om e of th e ra il ro ad un em pl oy m en t in su ra nce sy st em is de riv ed 

from co nt ri but io ns pa id by em pl oy ers in th e ra il ro ad in dust ry w ith re sp ec t t<? 

co m pe ns atio n pa id to e mp loyees. T he e mploy ee s do n ot pay c ontr ib utions . T his
RAILROAD RET IREMENT AND UNEM PLOYMENT INSURANCE 19

syst em is financed on a rela tively short-term basis since obligations, if any, of 

this system to an employee are satisfied within a relatively sho rt time af ter 

he qualifies by receiving a specified minimum of compensation with respect to 

a calend ar year. There is now an accounting deficit in the financing of this 

system of over $300 million. Funds which have been needed to pay benefits have 

been secured through loans from the railroa d retirem ent account, under autho rity 

provided by law. These loans, which now exceed $300 million, must be repaid 

with intere st at the same rate in general as th at borne by the other obligations 

held by the account. The loans, therefore, have not adversely affected the 

financial condition of the railroa d retireme nt system and will not unless allowed 

to increase inordinately. However, aga in for obvious reasons, the deficit in 

the financing of this system must be removed. It is estimated th at enactmen t 

of II.R. 8100 would provide an additio nal $10.8 million a year from employers 

in contributions and save $9.5 million in benefit costs which would enable this 

system soon to meet all obligations for benefits witho ut resorting to furth er 

borrowing and to liqu idate gradually the ex istin g loans.

I shall now proceed to a discussion of the provisions of the bill H.R. 8100.

AMEN DM ENTS TO THE RAILROAD RE TIR EM EN T ACT OF 1 9 3 7 AN D RAILROAD

RE TIR EM EN T TA X ACT

Increase in compensation lim it

The maximum of compensation which could be cred ited toward benefits would 

be increased from the present $400 a month for each employee to $450, applicable 

with respe ct to compensation received for services rendered in months after the 

date of approval of the act. The maximum for tax able compensation would be 

increase d to the same extent to produce increase d revenue. Higher benefits 

would be produced by the increase in the maximum compensation but only for 

those employees who retir e in the future . It is estimated th at the increase 

in the limit on the taxable compensation would produce $71 million a year in 

add itio nal reven ue on a level basis as compared with $40 million a year the 

increase would add to the costs of benefit payments. This leaves $31 million to 

apply tow ard the redu ction of the deficit.

The increase in the compensation limit will produce more revenue, not only 

immediately but also in the long run, that the costs it will add to the system 

because the lowest facto r in the ann uity computation formula, which is 1.67 

percent, is applied to average monthly compensation in excess of $150. Most 

employees who retir e now and in the future will have a verage monthly compensation in excess of th at amount, even without an increase in the maximum compensation base. On the oth er han d the tax rate in effect at any particu lar time 

applies evenly to all the taxable compensation. Moreover, the extension of the 

lim it on compensation will increase costs rela tively slowly. This is because 

the change will have relativ ely l ittle effect on the a verage monthly compensation 

and hence on the benefits of those who retire in the near future as compared 

with the effect on those who retire later. Only in cases where employees 

retir e who have worked for some time under the higher limit will there 

be much effect. Of course, those who retire soon will have paid taxes on the 

higher base only for a rela tively sho rt time. However, the full effect of the 

increas e in reven ue will tak e place immediately, since employers and activ e 

employees will pay tax es on a basis up to the higher compensation lim it beginning with the month after approval of the act.

It is apparen t j us t from the f ac t th at the yearly costs of the incre ase in benefits from the extended limits on compensation, exceed the additional amount 

th at the employees will pay by $4.5 million ($40 millio n minus $35.5 million (onehalf of $71 m illion)) that employees will on the average receive additio nal benefits worth more tha n the increase d amount they will pay in taxes.

A year of work und er the higher base at the full maxim um taxable a nd cre ditable compensation will add 83% cents to the monthly ann uity amount of an 

employee. The increase can add only $54.75 to an employee’s ann ual tax es at 

the highest scheduled rate of 9% perc ent which would go into effect in 1968. 

Under th e ra te now in effect of 7% percent there can be added only $543.50 a year. 

Thus, in the case of a man who works und er the higher lim it only 1 year, the 

approximate yearly increase in his ann uity of $10 because of tha t yea r will, over 

a period of about 13 years , which is the average life expectancy of a man at the 

retireme nt age of 65, add about $130 to his total ann uity payments. The compensatio n limit increase will the refore be to the adv antage of the average employee. The fact th at the employers pay taxes equal to those of the employees
20 RAILROAD RETIR EMENT AND UNEM PLOYMENT INSURANCE

accounts, of course, for the result tha t the increase in the compensation limit 

will reduce the deficit by $31 million a year and yet provide the employees with 

additional benefits worth more than the increased amount they will pay in 

taxes. Moreover, under section 5(f) (2) of the Railroad Retirem ent Act, there 

is payable after an employee’s death a lump sum to his designee or survivors 

which is in an amount slightly in excess of the total taxes paid by him under the 

Railroad Retirement Tax Act minus all benefits paid to him or to others on the 

basis of his service. This provides definite assurance tha t there will be no loss 

of railroad retirem ent taxes paid by an employee.

It is estimated tha t one-fourth of the employees will not have to pay any 

additional amounts and the remaining three-fourths will pay amounts ranging 

from a few cents per month to $4.56 a month when the highest scheduled tax 

rate of 9% percent goes into effect in 1968. Under the tax rate now in effect 

the maximum monthly increase would be $3.63.

When the Railroad Retirement Act of 1937 was enacted the percentage of total 

payroll tha t was creditable and taxable was almost 99 under the $300 maximum 

then in effect. The maximum on compensation was increased to $350 in 1954 

and then to $400 in 1959, but notwithstanding these increases the percentage 

has declined steadily through the years because of increased wages. The change 

would increase the percentage from 76 to 82.

J/ ilitary service credits

As the law now stands the Government is obligated to pay the railroad retirement account for creditable military service rendered aft er 1936, an amount 

equal to the total taxes which would have been paid on $160 in taxable compensation if the serviceman had earned tha t amount as a railroad employee during 

each month of military service. With respect to military service rendered after 

1956, the Government obligation is reduced by the amount of taxes paid with 

respect to the serviceman’s pay for social security purposes. The Government’s 

obligation for m ilitary service credits acquired after June 1963 would be changed 

so as to be determined on the basis of a modified actual cost of the benefits based 

on such service. Government payments for military service credits acquired 

before 1937 will continue, as they always have been, on an actual cost basis. 

Under the actual cost method, as benefits are awarded, the Government will be 

charged with the actuarial value of that portion of the benefits attrib utab le to 

military service rendered before 1937 and after June 1963.

For the period after June 1963, however, an additional amount sufficient to 

cover a proportionate share of administrative costs and of the interest charges 

on the unfunded accrued liability of the railroad retire ment system, as determined by the Board’s ac tuarial valuations, would be included. The amount to 

be added would be computed from the ratio of the total net level 

costs of the system to the par t thereof remaining afte r the deduction 

of administrative expenses and interest charges on the unfunded accrued liability as modified for the effects of the financial interchange with the social 

security system. This added factor would have been 25 percent on the basis of 

the last actuarial valuation. A simplified illustration may be useful. Assume, 

for the purpose of the illustration only, that the total net level costs of the system 

are $750 million a year and assume tha t administrative expenses and interest 

charges on the unfunded accrued liability, as modified for the effects of the 

interchange with the social security system, are $150 million. After deducting 

the lat ter amount $600 million is left. The ratio is $750 million to $600 million 

or 5 to 4. Now assume tha t $20 a month is added to an individual’s annuity 

because of military service credits acquired after June 1963. This amount of 

$20 would be increased to $25 by applying to i t the ratio of 5 to 4. This is, of 

course, the same as saying tha t $20 would be increased by 25 percent. The 

actu aria l value of $25 a month as an annuity would be determined by the use 

of mortality tables to produce the amount which would be charged to the Government for the military service af ter June 1963.

Also the law would be changed so that the Government’s obligation to make 

duplicate payments to both the railroad retirem ent and the social security systems for certain credits based on military service rendered before 1957 would 

be removed. It has been agreed tha t afte r these changes are made the Government will no longer object to appropriations by the Congress of about $160 million to the railroad retirement account which it now owes with respect to the 

creditable military service already rendered. The military service appropriations 

would produce $5 million a year on a level basis to apply toward the reduction 

of the deficit.
RAILROAD RET IREMENT AND UNEM PLOYMENT INSURANCE 21

The military service provisions would be changed so tha t benefits attributed 

to military service may be added to annuities accruing in 12 months before 

credit is claimed instead of in 6 months as at present. Military service is now 

credited toward survivor benefits under an administrative ruling and clarifying 

provisions would be added to provide expressly what is now merely implicit. 

Interest rates

The 3-percent rate of interest borne by the special obligation issued to the 

railroad retirement account by the Treasury under present law has since about 

1956 been considerably less than the interest rate the Treasury has been required 

to pay in order to borrow funds through medium- and long-term general obligations. The marke t yield on marketable U.S. obligations of a medium- and longterm character has. of course, also been considerably above 3 percent. This 

situation would be met by the provision for a rate of interest on the special 

obligations of the account determined from the average market yield on outstanding marketable Treasury obligations with 3 or more years to run until 

maturity. The in terest rate so determined would now come to about 3% percent. 

The rate would not be less than 3 percent even if the new formula, but for this 

guarantee, would produce a lower amount. The in terest rate s on newly invested 

funds in the social security and civil service retirement tru st funds are now 

derived through a formula tha t is almost identical, except tha t those funds do 

not have a floor on the rates.

Upon enactment of the bill the Treasury would retire the special obligations 

then held by the account and issue new special obligations bearing an interest 

rate determined under the new formula.

The Bureau of the Budget and the Treasury Department have approved of 

the provisions of the bill as to interest rates on the special obligations held by 

the account except as to the 3-percent floor and the immediate conversion rather 

than a conversion over a period of time. Under these circumstances I cannot 

consistently endorse these two provisions, nevertheless, since they would obviously add to the improvement in the financial condition of the system I do not 

object to their adoption. Mr. Healy and Mr. Lyon, the management and labor 

members of the Board, respectively, however, strongly favor and urge the inclusion of these two provisions. I shall now state for them the reasons that cause 

them to believe tha t their position is fully justified.

The 3-percent rate now applicable to the special obligations issued to the 

railroad retirem ent account was established in 1937 and has been continued 

ever since. In 1937 the prevailing yield on marketable Government obligations 

was less than 3 percent and the fact tha t a 3-percent rate was then grante d 

to the railroad retirement system, indicates a congressional policy for aiding 

the system to tha t extent. The fact the system will now be allowed an interest 

rate in line with the yield available generally from Government obligations, 

having 3 or more years to run before maturity, constitutes no reason for 

refusing to continue the 3-percent rate as a floor for the system. In the period 

from 1936 through 1940 the railroad retirement system paid $282 million more 

in benefits than the social security system. Although the payroll of the railroad 

retirement system was only 6% percent of that of the social security system for 

1940, the railroad retirem ent system paid nearly twice the amount of benefits the 

social security system paid for tha t year, when the social security system first 

began to pay monthly benefits. The costs of relief payments by the Federal 

Government were less by millions during those early years of the railroad 

retirement system because high taxes were paid by employees and employers 

in the railroad industry in order to provide income for its retired persons, many 

of whom would have otherwise received relief. This circumstance was acknowledged when a minimum rate of 3 percent was set for the Government to 

pay for the use of the reserve funds of the system. This commitment by the 

Congress should not be abandoned since nothing has happened to wa rrant a 

conclusion tha t the attitude of Congress toward the railroad retirem ent system 

has changed in this respect. The floor on the rate is extremely important to 

the system because in making actuarial valuations for the system the projected 

interest rate can be increased by 0.05 percent if the possibility of the drop in 

the interest rate below 3 percent does not have to be taken into account. Yet 

as a real and practical ma tter the floor would provide little or no foreseeable 

risk to the Government. This follows from the fact that there is general 

agreement tha t it is extremely unlikely that the investment yield on general 

Government obligations of a medium- and long-term maturity will fall below 

3 percent. At the most it is generally believed tha t such yields, if they do

23-9 62— 63-------4
22 RAILROAD RETIR EMENT AND UNEMPLOYMENT INSURANCE

fall below 3 percent, will not rem ain so for other tha n a sho rt period. Since 

the special obligations have a set ma tur ity date it would be likely that during 

such periods litt le or no obligations would ma tur e and there would be no new 

funds to invest. Thus, such yield could be below 3 percent for a time and still 

not h ave any effect on the ra tes for th e special obligations.

An immediate conversion of the 3-i»ercent special obligations now held into 

such obligations hearing a rate determined under the new form ula would only 

to some extent make up for the fac t th at the system has since about 1956 

receiv ed a lower int ere st rate on fun ds of the system, which the Government 

ha s borrowed, tha n the Government has paid on amo unts it has borrowed 

thro ugh medium- and long-term general obligations. The imm ediate conversion 

would enab le the Board to increase the projected intere st ra te by ano ther 0.07 

per cen t in making the actua ria l valuations for the system. These two provisio ns would permit the use of a projected intere st rate of 3.43 percent as 

compared with a rate of 3.31 percent without them (3.43 percent minus 0.12 

percen t) and would thu s res ult in a decrease in the deficit by $8 million more 

a y ear th an the decrease the bill would accomplish withou t them.

The social security and civil service trus t funds do not have a floor on the 

interest rate. However, these funds have an advantage as compared with the 

railro ad retirem ent account in th at t heir rates are determined from the average 

investm ent yield on Government obligations having 4 or more yea rs to run to 

matur ity whereas the rat es for our fund would be determined from those 

having 3 or more yea rs to run. The longer average period to ma tur ity ordinarily tends to produce a higher rate. Also the obligations held by these funds 

are being converted into obligations bearing an int ere st ra te in line with the 

average current investment yield on general Government obligations having 

a medium or long term to run until ma tur ity b ut the ir conversion periods began 

some time ago and we under stand th at considerable amounts have alre ady been 

invested in obligations bearing rates in line with curre nt inve stment yields on 

general Government obligations. Moreover, the amounts involved in an immediate conversion for these fund s would be larg e whereas the amount invested 

in special obligations for the railro ad retirem ent account th at would be involved in an immediate conversion is rela tively quite small. It is not unlikely 

th at obligations have alre ady been converted for social security funds rep resenting an amount sub stantially equal to or even in excess of the amount of 

the special obligations now held by the railroad retireme nt accou nt (about $3.2 

billion ). We und erstand th at the conversion for the social security funds began 

in I960. Furth er, the systems to which the other funds are rela ted, aside from 

being much larger, differ in many ways from the railro ad retirem ent system. 

With their constan tly expanding coverage they have no particu lar financial 

problems, certain ly they have none of an acute nature, such as that with which 

we are confronted. Therefore, the absence of these two fea tur es for the other 

systems provides no reason of any consequence for not adopting these measures 

for the railro ad retireme nt system. Surely to do so would have no adve rse 

effect, w hateve r on the o ther systems. In view of the heavy burden on the ta xpay ers who supp ort the railro ad reti rem ent system (th e tax es are substantially 

Higher th an those for the social security sys tem ), the fact tha t legislation is now 

needed to increase the taxes and the fac t th at the Government has had the use 

of reserve fund s of the system for about 7 or 8 y ears at a cost less tha n it has 

been required to pay for fun ds borrowed through medium- and long-term general 

obligations and the other considerations, an immediate conversion of the special 

obligations is more than amply justified.

A sum mar y of the effects the hill would have on the finan cial condition of the

railroad retirem ent system

The new investme nt provisions would reduce the present deficit of $77 million 

a yea r by $25 million. The military service appropriations, which would be realized after the changes in the military service provisions, would reduce the deficit by $5 million. As a res ult of the milita ry service and investme nt changes 

togethe r the present yearly deficit of $77 million would be reduced to $47 million. 

A fu rth er decrease of the deficit in the yearly amount of $31 million would be 

achieved through the increase of the compensation lim it to $450. It is to be 

noted here tha t the increase in the compensation limit would not reduce th e deficit by this much but for the effect on the compensation lim it increase of the i nterest ra te changes.

After all these changes the prese nt deficit of $77 million a year or 1.79 perc ent 

of the $4.3 billion estimated tax able payroll und er the pre sen t $400 compensa-
RAILROAD RETIREMENT AND UNEMPLOYMENT INSURANCE 23

tion limit would be reduced to $16 million a year or 0.34 percent of the $4.7 billion estimated taxable payroll under the new $450 compensation limit. In view 

of the total costs of the system of 18.18 percent of taxable payroll on a level 

basis, a deficit of 0.34 percent is regarded as being well within the limits of actuarial tolerance.

AMENDMEN TS TO THE RAILROAD UNEMPLOYM ENT INSURA NCE ACT

Maximum contribution rate

The maximum contribution rate would be increased from the present 3% percent to 4 percent applicable with respect to compensation paid for services 

rendered afte r 1963. Contributions are, of course, paid only by employers. The 

increase in the maximum rate to 4 percent would, it is estimated, produce about 

$10.8 million a year more in contributions.

Base year qualifying conditions

The amount of compensation for a base year needed to qualify an employee for 

benefits in the next ensuing benefit year would be increased from $500 to $750. 

In addition, an individual who had never been paid compensation for a period 

before such year would qualify only if he was paid at least $750 in compensation with respect to not less than 7 months in such base year. This change would 

be effective as to base years after 1962, except an employee who was paid compensation in the amount of $500 or more with respect to t ha t portion of the base 

year 1963 before the month following the month of enactment of the bill will not 

need to be paid more compensation to qualify; also, such an employee, if he is 

a new entrant into the railroad industry need not be paid compensation for 7 

or more months in 1963 in order for him to qualify for the next ensuing benefit 

year. The Board estimates tha t this provision will result in a saving to the 

system of $6 million a year in benefit costs.

Disqualification for employees who voluntarily leave work

The bill would cause an employee who left work voluntarily to be disqualified 

for days of unemployment with respect to any day afte r he so left work until 

he had been paid compensation with respect to time after he so left work in 

the amount of a t least $750. With respect to days of unemployment afte r that 

condition was met his rights to unemployment benefits would be the same as if 

he had not been disqualified. In cases in which the Board finds that he left work 

voluntarily with good cause the disqualification would apply only for days in a 

registration period which includes a day for which he could receive unemployment benefits under a law other than the Railroad Unemployment Insurance 

Act. This would ordinarily require such an employee to exhaust rights to State 

unemployment benefits before he could receive benefits for days of unemployment under the Railroad Unemployment Insurance Act. The Board estimates 

tha t this provision would save the system $3.5 million a year in benefit costs.

The three changes together would, according to the estimates, improve the 

financial condition of the system by $20.3 million. This would enable the system 

soon to pay all benefits without furth er borrowing from the railroad retirement 

account and leave enough to gradually liquidate the existing loans. This is, 

of course, highly important.

Interest rate on funds borrowed from the railroad retirement account

Obviously, in order for the railroad retirem ent account to lose nothing because 

of the loans to the unemployment insurance system the interest rate on such 

loans should continue to correspond generally to the interest rates on the obligations held by the railroad retirement account. A continuation of that correspondence would be effected by providing an interest rate on the loans determined 

for the fiscal year from the average rate of interest borne by all special obligations in the railroad retirement account on the last day of Ihe preceding fiscal 

year. This change would become effective with respect to amounts owing after 

June 30,1964.

Allocations out of contributions to the railroad unemployment insurance administration fund

Administrative expenses for the railroad unemployment insurance system are 

derived from an allocation from the contributions collected, in an amount equal 

to 0.2 percent of the taxable payroll. This allocation has proven to be insufficient 

and it would be increased by the bill to 0.25 percent, effective as to all contributions collected after 1961 irrespective of the period with respect to which the
24 RAILROAD RETIREMENT AND UNEMPLOYMENT INSURANCE

compensation, on which the contributions were collected, was paid. If this 

change is not effected, and nothing else is done to increase the funds available 

for administrative expenses, such funds would be exhausted some time this year. 

Funds for administrative purposes cannot be borrowed from the railroad retirement account as they can for the payment of unemployment and sickness benefits. This increase and its retroactive application are clearly urgently needed.

AMENDMEN TS TO THE TEMPORARY EXTENDED UNEM PLOYMENT INS URANCE BENEFITS

ACT OF 19 61

Section 5 of the Temporary Extended Unemployment Insurance Benefits Act of 

1961 (Public Law 87-7) fixed the contribution rate for 1962 and 1963 at 4 percent, in effect adding one-fourth of 1 percent for this period to the maximum. 

The bill provides tha t a par t of the contributions equal to one-fourth of 1 percent 

of the compensation paid for services rendered afte r 1963 be applied to repay 

the amount advanced from the general fund of the Treasury for the payment 

of temporary extended benefits until the full amount advanced is repaid. The 

last sentence of section 4 of tha t law which in effect provides the same would be 

repealed merely to avoid duplication.

co nclu si on

The Board firmly believes that these systems should be maintained on a sound 

financial basis. The necessity of removing the deficits is a responsibility that 

cannot be avoided and action to this end should not, in our opinion, be delayed. 

After long and careful consideration of the problem, we have concluded that the 

program which would be p ut into effect by this bill represents the most logical 

and reasonable way of remedying the situation. The Board, therefore, strongly 

urges prompt and favorable consideration of the bill and its enactment into law.

Principal provisions and level costs of bills introduced in the 1st session of the

88th Congress to amend the Railroad Retirem ent, Railroad Retirement Tax,

and the Railroad Unemployment Insuranc e A cts 1

 (bills introduce d throuqh Any. 19, 1963)

Bill and sponsor Principal provisions

Estim ated additional costs

Percent 

of taxable 

pa yr oll2

Dollars 

per year 

(millions)

H.R. 573;

Mr. Multer. Provides full re tirm ent annu itie s after 40 years of service regardless of age. 0.35 $15

H. R. 593;

Mr. Siler.

H.W . 628;

(o) Provides full retirme nt annu itie s at age 60 or after 30 years of 

service regardless of age.

(6) Adds a new minimum for ann uit ants retiring under (a) in the 

amoun t of the average mo nth ly compensation in the 5 

consecutive years of higest earnings.

Identical to H .W. 593...... ........

3.60 155

Mr. Holland.

H. R. 788;

Mr. Kun kel.

H.R. 802;

Mr. Poff.

Prov ides th at spouses of disability annuitants u nder age 65 be 

eligible for spouses’ benefits.

(а) Prov ides full retire ment annuities at age 60 with 30 years of

service or after 35 years of service regardless of age.

(б) Replaces the 1924-31 base period for determining the prior

service average monthly compensation by 5 years of highest 

earnings before 1937.

.10 4

H.R. 803;

(c) Changes the limit on creditable compensation to $350 a month 

retroac tive ly (curre nt service assumed to continue at $400). 2.00 86

Provides full an nuitie s to m en with 30 years of service at age 62.. Mr. Poff. .85 37

H.R. 804;

Mr. Poff.

(a) Repeals the reduction in spouses’ benefits by amoun ts of 

certain social sec urity benefits, retro active to October 1951.

H.R . 809; Mrs.

(6) Repeals the dual benefit restriction on surv ivors’ benefits 

(already repealed).

Identical to H.R. 593____________

.33 14

St. George.

H. R. 810; M rs.

St. George.

H R. 916;

Mr. Poff.

Provides th at spouses of an nu ita nts who have been forced ou t of 

the railroad indu str y because of age be eligible to full benefits 

regardless of spouse’s age (assumed to app ly to all a nn uitan ts 

retiring at ages 65 and over).

(a) Repeals requirem ents for relinqu ishm ent of rights a nd cessation of work in case of an employer othe r than a railroad.

.55 24

(6) Permits work after retirem ent for last employer if no t a railroad. .22 9

See footnotes at end o f table.
RAILROAD RET IREMENT AND UNEMPLOYMENT INSURANCE 25

Principal provisions and level costs of bills introduced in the 1st session of the

88th Congress to amend the Railroad Retirement, Railroad Retirement Tax,

and the Railroad Unemployment Insurance Ac ts' {bills introduced through

Aug. 18, 1863)—Continued

Estim ate d additional costs

Bill and sponsor Principa l provisions

Percent 

of taxable 

pa yr ol l1

Dollars 

per year 

(millions)'

H. R. 1036;

Mr. Bow.

H.R. 1602;

Mr. Friedel.

H.R . 1830;

Mr. Powell.

H. R. 2541;

Mr. Tollefson

H.R . 2542;

Mr. Tollefson

H. R. 2543;

Mr. Tollefson,

H.R . 2544;

Mr. Tollefson.

H.R . 2615;

Mr. Rains.

Increases retirement an nu ity or pension by the amoun t of a 

spouse’s an nu ity for any beneficiary whose spouse is deceased 

and who has children in his care.

Changes amount of outside earnings allowable for survivo rs to 

$1,800 a year.

(а) Provides: (1) full retirm ent annuties at age 60 with 30 years of

service, (2) reduced retirem ent ann uities at age 55 w ith 30 

years of service, (3) min imu m an nu ity of the average 

mo nth ly compensaton in the 5 highest years for employees 

with 30 years of service, and (4) maxim um annuity of $300.

(б) Raises lim it on taxable earnings to $700 a m on th................... .

(c) Prov ides th at if railroad retirement fund falls below $3,000-

000,000, total earnings including bonuses, stock options, 

etc., be taxed. If this does not restore fund to $3,000,000,000, 

Congress is to appropriate add itional funds from general 

revenue.

(d) Changes m inim um in tere st r ate to 4 percent............ . ..............

Identical to H. R. 810............................................................................

Ide ntical to H .R. 803. 

Identical to H. R. 804. 

Identical to H.R . 593.

0.04

0.4

2

(’) (’)

H.R . 2892; M r. 

Mc Millan.

H.R . 3310;

Mr. Harris.

H.R . 3708; M r. 

O’Konski.

H.R . 4161;

Mr. Dorn.

H.R . 4546; Mrs. 

St. George.

H.R . 4708;

Mr. Pepper.

H.R . 4885;

Mr. Harris.

Prov ides th at railroad retirem ent annuitie s a nd pensions should 

not count as income for purposes of VA pensions (pertinent in 

cases of rai lroa d retirement benefits based in pa rt on milita ry 

service).

Prov ides for paym ent in lump sum of reductions mad e in annuities 

certified as joint-and-su rvivor ann uities where election was revoked or deem ed revoked because of death of spouse.

(а) Increases limi t on creditable an d taxab le compensation t o $450

a month under bot h the retirement an d une mployment 

insurance programs.

(б) Changes the metho d of financing military service credits for

mi lita ry service performed after Jun e 1963 to an actua rial cost 

basis an d eliminates duplicate pay ments by the Treasury 

for past mi lita ry service.

(c) Makes th e interest rate on special Tre asu ry obligations issued

to the railro ad re tire ment account equ al to the average market yield on all U.S. obligations with at least 3 years to 

maturity . Conversion to the new policy would be over a 

10-year period; funds on loan to the une mployment insu rance account would earn interest at the average r ate for all 

retirement funds i nvested in special issues.

(d) Increases t he ma ximum con trib ution r ate for R ailroad Unem ­

ployment In surance Act from 3?^ perc ent to 4J4 percent.

(e) Allocates 0.25 percent of taxab le payroll (instead of 0.20 percent) for adm inistration of the Railroa d Une mploym ent 

Insurance Act:

Level costs for amende d retire ment program :

Ne t costs of benefits___________________ _________

Equiv ale nt level t ax r ate________________________

Remaining ac tuarial deficiency-----------------------------

Add itional income for U ISI program_________ ________

Add itional benefits for UI SI program _________________

Provisions have identical effects as those in H.R . 916.....................

Identical to H .R . 803...........................................................................

Per mit s work after reti rem ent for last employer if not a railroad bu t 

reta ins requiremenl s for cessation of service or relinquishm ent of 

rights to return to service.

Prov ides for free rail tra nsp ortation for annu ita nts, pensioners, 

an d their depende nts, an d for >6 fare on “restricted” trains.

Same provisions as in H. R. 3310 except for add itio n of a 3-percent 

minim um inte rest rat e an d for imm edia te rein ves tment of all 

special notes in accordance with n ew policy:

Level costs for amende d retirem ent program :

Ne t costs of benefits.

(«) (<)

(’) (’)

«18.37 

« 17.86 

• 0. 51

C) C)

863

839

24

39

(’)

.15

(»)

«18.18 Equiv ale nt level tax rate ................... . ................................... I • 17.84

........................... * ’ «.34

See footnotes a t end of table.

Remaining actu arial deficiency.

Effect on UI SI program same as under H .R . 3310.

854

838

16
26 RAILROAD RETIR EMENT AND UNEMPLOYMENT INSURANCE

Principal provisions and level costs of bills introduced in the 1st session of the

88th Congress to amend, the Railroad Retirement, Railroad Retirement Tax,

and the Railroad Unemployment Insurance Act s1 (bills introduced through

Aug. 19, 1968)—Continued

Estim ate d add itional costs

Bill and sponsor

Principa l provisions

Percen t 

of taxable 

pa yr ol l2

Dollars 

per year 

(millions)

H.R . 6483;

Mr. Perkins.

H.R . 5484;

Mr. Perkins.

H .R . 5598;

Mr. Bennett.

H.R . 5963;

Mr. Olsen.

H.R . 7106;

Mr. Olsen.

(а) Per mits o ccup ational dis ability retirem ent after 10 years o f _____

service regardless of age.

(б) Per mit s ann uity to spouse of disa bility an nu ita nt regardless 0.60

of age of either.

(а) Increases retirem ent ann uities (not SSAM’s) by 10 pe rcent__________

(б) Increases basic amoun ts for widows’ benefits b y 20 pe rc en t.. 2.00

Identical to H .R . 4885_____________________ _______________________

Identical to H.R . 4708______________________ __________ _____

26

86

H.R . 7707;

Mr. R oberts.

H.R . 8100; 

Mr. H arris .

Provides for free trans por tation for annuit ants, pensioners, and 

their dependents an d for fare on “ rest ricted” trains. Em ­

ployees with less than 15 year s of ra ilroad service furn ishe d 

with this service a t discretion of railroad.

Provides t ha t railroad retirem ent annuities an d pensions should 

no t count as income for purposes of laws administered by th e 

Veterans’ Administration (pertinent in cases of railroad retirement benefits based in part on military service).

(а) Increases lim it on creditable and taxable compensation to

$450 a mont h under the ret irement program.

(б) Changes the method of financing military service credits for

milita ry service performed after .Tune 1963 to an actuarial 

cost basis and eliminates duplicate pay me nts by the 

Tre asu ry for past m ilitary service.

(c) Makes the inter est rate on special Treasu ry obligations issued

to the railroad retirem ent account equal to the average 

ma rke t yield on all U.S. obligations with at least 3 years 

to maturity bu t reta ins a 3-percent m inim um. Conversion to the new policy would be im mediate; funds on loan 

to the une mployment insurance account would earn intere st a t the average rate for all retirem ent funds inv ested 

in special issues.

(d) Increases the maxim um contrib ution rate for R ailroad Un ­

emp loym ent Insurance Act from 3% percent to 4 percent.

(e) Allocates 0.25 percent of taxable payroll (instead of 0.20 p ercent) for a dministra tion of th e Railroad Unemploym ent 

Insurance Act.

(/ ) Increases the qualifyin g base yea r earning s requ irem ent to 

$750, with a proviso th at a new en tra nt to railroad employm ent mu st have at least 7 months of service in the 

base year und er the Railroa d Une mploym ent Insurance 

Act.

(?) Strengthe ns the disqualification for volu nta ry quit under the 

Railroad Une mployment Insurance Act.

Leve l costs for amended retirem ent program:

Ne t costs of benefits___________________________

Eq uiv ale nt level tax ra te............ . ................... ...........

Remaining actuarial deficiency_________________

Add itional income for UI-SI pr ogra m_______________

Additional benefits for UI-SI program_______________

(’) (•)

(10) O’)

«18.18 

• 17.84

«. 34

854

838

16

10.8

-9 .5

1

 Includes only bills referred to Com mittee on I nte rst ate an d Foreign Commerce.

* Unless otherwise noted, relates to a pa yroll of $4,300,000,000 a yea r with a $400 m onthl y limit on cre ditable compensation.

’ Because of subsidy feature, no cost estim ate prepared.

< Negligible saving.

* Cost actua rially negligible.

• Relates to a pay roll of $4,700,000,000 a year with a $450 monthly lim it on cred itable compensation.

7

 Relatively sm all.

• No cost effect.

’ No effect on costs.

10 Negligible savings.

Air. Habermeyer. I would like to highlight the situations included 

in this legislation. As you know, in September 1961 the President of 

the United States called attention to the financial difficulties of both 

(he railroad retirement and the railroad unemployment insurance 

funds and asked that something be done to correct the situation. With 

tha t in mind we went to work and finally produced this bill, H.R. 8100,
RAILROAD RETIR EMENT AND UNEM PLOYMENT INSURANCE 27

which is by and large supported by all concerned with the program. 

We have three general problems.

One, the railroad retirement system is operating at a deficiency of 

1.79 percent of taxable payroll or expressed in terms of dollars, $77 

million a year. The unemployment insurance system has been operating at an actual deficiency and because of exhaustion of funds we have 

had to borrow in accordance with auth ority granted by the Congress 

about $300 million from the railroad retirement account in order to 

support the benefit program under the Unemployment Insurance Act.

The Chairman. Over what period of time ?

Mr. Habermeyer. Since fiscal 1959-60. We are also limited by law 

to the amount of moneys that we can use to administer the unemployment insurance program. Under the present law we are limited to 

using two-tenths of 1 percent of taxable payroll. With the employment in the railroad industry declining, and with the unemployment 

program consequently expanding, we do not have sufficient funds with 

which to operate the railroad unemployment insurance system. Without an accumulation of a $6 million fund as provided by the law that 

we could carry over, we would not have been able to operate to the 

present time. Within the next few months we will run out of funds 

to administer tha t program. II.R . 8100 substantially corrects all three 

of these situations. With respect to the retirement program, we are 

going to get additional revenue by increasing the taxable payroll from 

$400 a month to $450 a month. We are also going to receive a more 

reasonable interest rate on our reserve funds from the Treasury Department. They will compute interest on a new formula which will 

give our funds the approximate average yield the Treasury is having 

to pay on a current basis for the moneys th at they borrow, and will 

raise our interest rate from around 3 percent that we have at the present 

time to the current rate which is about 3% and 4 percent.

The Chairman. I s tha t the provision tha t the Bureau of the Budget 

raises a question about ?

Mr. Habermeyer. Yes, that is a point th at the Bureau of the Budget 

raised a question on. Not on the formula, but this bill provides that 

the moneys we now have to be invested which amount to about $3.2 

billion would be rolled into these higher interest obligations immediately. The Bureau of the Budget would like to spread it over a 

number of years. Then this bill also resolves the problem tha t we 

have with the Bureau of the Budget with respect to payment to the 

railroad retirement account of certain moneys for military service 

credits.

The Government owes our account now in the neighborhood of $160 

million, and this legislation reflects an agreement between the board 

and the Bureau of the Budget for us to receive the money. Those 

provisions will reduce the deficiency in the railroad retirem ent system 

from $77 million a year to about $16 million a year, and expressed 

in terms of taxable payroll to about 0.34 percent from 1.79 percent 

a year. In the actuary’s view this is within the actuarial tolerance 

limit and would p ut us back on a reasonably sound basis under tha t 

system. With respect to the unemployment insurance system we 

get additional revenues by increasing the permanent maximum contribu tion rate from 3% percent to a permanent 4 percent. This would 

provide about $10.8 million additional funds for the system. There
28 RAILROAD RETIR EMENT AND UNEM PLOY MENT INSURANCE

are some restrictive measures introduced into this legislation. One 

would increase the qualifying provision for a man to draw benefits 

whereby he would have to have earned $750 in the base year instead 

of $500 as it is now provided in the law.

Also, if he is a new entran t into the railroad industry, coming into 

the industry for the first time, he will have to earn that $750 in 

the base year and have to work in at least 7 months in tha t year. 

That restriction will benefit the fund by about $6 million a year. In 

addition, a man who quits work without good cause would be denied 

benefits under our system until he retu rns to the railroad indus try and 

earns $750.

If he quits work and it is determined tha t it was with good cause, 

he would be required first to use any State unemployment benefits to 

which he might be entitled before being entitled to benefits under our 

system. If he was not entitled to State benefits he would come under 

our system immediately.

The Chairman. He would or wouldn’t ?

Mr. Habermeyer. He would. Those provisions will save the fund 

about $3i/2

 million, so t hat together we will improve the situation in 

the unemployment insurance account about $20.3 million a year.

Mr. Younger. Under what conditions would he come within the 

State ?

Mr. Habermeyer. He would be entitled to State benefits if he had 

earned enough credits under the State system to make him entitled to 

State benefits.

Mr. Younger. Before he became an employee of the railroad?

Mr. Habermeyer. He might have done it at the same time he was 

an employee of the railroads. He might be moonlighting. We would 

ask him to use the State credits rather than the railroad unemployment credits. These provisions would put the unemployment insurance system into a position where we are sure we would 

be able to pay all benefits, administrative costs, and interest to the 

retirement fund and in the near future start making small payments 

on the moneys already borrowed from the railroad retirement system. 

In correcting the third item that I mentioned, it allows the Board 

to use 0.25 percent of the taxable payroll under the Unemployment 

Insurance Act for administrative purposes. This in our opinion will 

allow us sufficient funds to operate the system.

So that H.R. 8100 substantially takes care of all of the deficiencies 

that we are now facing in the railroad retirement system, and speaking on behalf of the other two members of the Board, I urge the committee to give us favorable consideration.

The Chairman. Thank you, Mr. Habermeyer.

Mr. Younger. Are you paying interest on the $300 million?

Mr. Habermeyer. Yes, sir. We will pay the same interest on the 

moneys we borrowed for the unemployment insurance as the Treasury 

will pay us on the moneys they borrowed.

Mr. Younger. Thank you.

The Chairman. Thank you very much.

Mr. George M. Harrison, chief executive, Brotherhood of Railway 

Clerks. Mr. Harrison, it is good to see you and we welcome vou to 

the committee.
RAILROAD RETIR EMENT AND UNEMPLOYM ENT INSURANCE 29

STATEMENT OF GEORGE M. HARRISON, CHIEF EXECUTIVE. 

BROTHERHOOD OF RAIL WAY CLERKS

Mr. Harrison. Honorable chairman and members of the committee, 

I appreciate this opportunity to appear here this morning before this 

committee in support of IT.K. 8100. I shall not make any extended 

statement. I do want to say, however, that II.K. 8100, is the result 

of the agreement reached between the railroad associations representing substantially all the railroad corporations of the country, and the 

labor unions represented through the Railway Labor Executives 

Association.

I have filed a formal statement with the clerk of the committee.

The Chairman. Let it be included in the record at this point.

(The statement referred to follows:)

Statement of George M. Harrison on Beha lf of th e 24 Standard Railway Labor Organizations Represent ing Substantially All Railroad E mployees

in th e United States

My name is George M. Harrison. I am chie f executive officer of the Broth erhood of Railway & Steamship Clerks, Fre igh t Han dlers, Express & Station 

Employes, with offices at 1015 Vine Street, Cinc innati, Ohio. I am, and have 

been for many years, chairman of the Railro ad Ret irem ent and Railroad 

Unemployment Insura nce Committee of the Railway Labor Executives’ Association. I app ear here as spokesman for th at association, representing the 24 

sta nd ard rail way labor orga niza tions whose chie f executives are members of 

the association. These organiz ations have in memb ership sub stantially all 

railroad employees in the United States.

The organiz ations represen ted here through Railway Labor Exec utives’ Association a re :

American Railway Sui>ervisors’ Association.

American T rain D ispatchers’ Association.

Brotherhood of Locomotive Engineers.

Brotherhood of Locomotive Firemen & Enginemeu.

Brotherhood of Maintenance of Way Employes.

Brotherhood of Railro ad Signalmen.

Brotherhood of Railroa d Trainm en.

Brotherhood Railw ay Carmen of America.

Brotherhood of R ailway & Steamship Clerks, Fre igh t Handlers, Express & 

Station Employes.

Brotherhood of Sleeping C ar Porters.

Hotel & Re sta uran t Employees & Ba rtenders Inter natio nal Union. 

Inter natio nal Association of M achinists.

Inter natio nal Brotherhood of Boilerma kers, Iro n Ship Builders, Blacksmiths, F org ers & Helpers.

Inter natio nal Brotherhood of Electrica l Workers.

Inter natio nal Brotherhood of Firemen & Oilers.

Inter natio nal Organization Masters, M ates & Pilots of America.

National M arine Enginee rs’ Beneficial Association.

Order of R ailw ay Conductors & Brakemen.

Railro ad Yardm asters of America.

Railway Em ployes’ De partme nt, AFL-CIO.

Sheet M etal Workers’ Internatio nal Association.

Seafa rers’ Internatio nal Union.

Switchmen’s Union of North America.

The O rder of Railroad Telegraphers.

The Railway Labor Executiv es’ Association sponsored the first railro ad retire ment legislation, which was enacted in 1934, and again sponsored the legislation enacted in 1935.

Th ere after our association negotiated the agre eme nt with the Association of 

American Rai lroads which resulte d in the joint proposal of the 1937 legislation. 

Th at legislation, as amended, established the railroad retireme nt system as it 

is now in effect.
30 RAILROAD RET IREMENT AND UNEM PLOYMENT INSURANCE

Vir tua lly all amendments to that legis latio n tha t have been adopted since 

tha t time have been proposed by and met with the approval of the Railw ay 

Labo r Exe cut ives’ Asso ciation. The association also sponsored the Railroa d 

Unemployment Insu ranc e Ac t, and the amendments tha t have been made thereto 

from time to time.

The committee on rail roa d retirem ent and unemployment insurance of 

the associatio n devotes constant attention to matters pertaining to the func tion ­

ing of the railroad retirem ent and unemployment insurance systems. From 

time to time tha t committee has recommended to the association tha t there are 

cert ain mala djus tments in the systems which require the proposal of amendatory 

legislation. Af ter discussion within the association, suitable legislation has 

been proposed and u sually enacted.

When ever our association has deemed it desirable to recommend to Congress 

legislation amend atory of the Railroad Retiremen t or Unemp loymen t Insu ranc e 

Acts , it has been our policy first to determine whether agreeme nt could be 

reached with the represen tatives of railr oad managemen ts on recommendations 

to be made jointl y by labor and management to the Congress. On numbers 

of occasio ns, going back to the establishment of the present rail roa d retirem ent 

system in 1937. it has been found possible to reach such agreeme nt and joint 

recommendations have been made. On other occasions it was found afte r discussion and negotiation tha t agreement was not possible, and sometimes, the 

divergence of interest between employers and employees was so obvious as not 

to war ran t any hope of agreement. When agreeme nt was not possible, the 

represe ntative s of labor and manageme nt have made their separate and genera lly shar ply conflicting recommendations. Bu t whenever the represen tatives 

of the employees and the employees have been able to agree on joint recommendations, Congress has alwa ys found them to be also in the public interes t 

and has enacted them into law.

The bill H .R . 8100, in support o f which I appear here, had its origin in our 

concern over inadequacy of financ ing of both the railr oad retirement and unemployment insurance systems. We believe tha t the situa tion with which we 

were concerned would be of like concern to the railr oads. We found this to 

be so. Af te r discussion with the represe ntative s of manage ment, it was found 

tha t agreement could be reached on joi nt recommendations. Those join t recommendatio ns a re set fo rth in the join t s tateme nt in the let ter to you, Mr. Cha irman, 

from the Ra ilw ay Labo r Exe cuti ves’ Asso ciation, the Association of Amer ican 

Ra ilro ads , and the Amer ican Shor t Lin e Asso ciatio n, and are contained in H .R . 

8100. Th is hill is recommended to you and its prompt enactme nt is urged upon 

you unanim ously by the railr oad indu stry . The joi nt lette r to which I have 

refer red sets fort h the reasons for our recommendations in some detail and 

I will therefore summarize them only briefly in this statement.

The retirement system has an act uaria l deficit of $77 million a year, or 1.79 

percent of taxable pa yr oll: and the unemployment system has an actu al accounting defic it of more than $300 millio n. The effect of this bill would be to reduce 

the actuar ial deficiency in the railr oad retirement system to well within the 

range of act ua ria l tolerance, to eliminate soon the need for furt her borrowing 

by the unemployment insurance system from the railroad retirem ent system, 

and to p ermit gra dua l repayme nt of the exist ing loans.

It has alw ays been the policy of our associa tion to main tain the two systems 

on a sound finan cial basis. Acco rdin gly, we have been givi ng very serious attention for some time to form ula ting the legi slative proposals best suitab le to 

resto ring the two systems to a reasonably sound finan cial basis. Our concern 

about the inadequate financ ing of the two systems is shared by the President o f 

the U nite d Stat es, who, in September 1961, almost 2 years ago, requested the R ai lroad Retirement Boa rd to develop a program which would remove the exis ting 

deficits in the two systems. I am glad to say tha t the bill H .R . 8100 wil l achieve 

wha t the Pres iden t requested.

INC REASE IN MAX IM UM TAXABLE AND CREDITABLE MO NT HL Y COMPENSATIO N FOR TH E 

RAILROAD RETIR EM EN T SYSTEM

This bill does not propose any increase in the exi stin g tax rates for the ra ilroad retirem ent system, which a re now 7/4 percent of payr oll up to $400 a month 

on employers and employees. The add itional tax revenue which this hill would 

provide would come fr om the increase in the present maxim um taxable monthly 

compensation from $400 to $450 a month. An employee whose monthly compensation does not exceed $400 will not be affect ed by this proposal. Where the
RAILROAD RETIREMENT AND UNEMPLOYMENT INSURANCE 31

monthly compensation is over $400, however, the employee will be required 

to pay the preva iling tax rate on compensation up to $450 a month. Correspondingly, such an employee will be credited with this additio nal compensation in 

the computation of his annuity and in the computation of survivor benefits. 

We have a deficit in financing now, in part, because the taxes collected are not 

enough to pay for present benefits; hence, the increase d tax collections must 

go in sub stantial pa rt to paying for presently provided benefits, while nevertheless giving appro priate recognition in the form of higher benefits for those who 

are requ ired to pay the add itio nal taxes. Under section 5 of the bill the compensatio n limit increase will result in add itional compensation to be taken into 

account in computing the residual lump sum benefit provided in section 5( f) (2) 

of the act, which assure s th at total benefits paid an individual or his surv ivors 

will never be less than the tota l taxes he has paid, plus an allowance for in te re st 

This extension of the maximum monthly compensation limit would increase 

ann ual reven ue to the system on a level basis by $71 million, and increase benefit 

costs by $40 million. The increase in the compensation limit will thu s produce 

more in benefits to employees (costing $40 million) tha n the $35.5 million 

(one-half of $71 million ) adde d taxes th ey would pay.

It is estim ated th at one-fourth of the employees will not have to pay any add itional amounts and the rem aining three-fourths will pay amounts ranging 

from a few cents per month to $4.56 a month when the high est scheduled tax 

ra te of 9 Vs perc ent goes into effect in 1968. Under the tax rate now in effect 

the maximum monthly increase would be $3.63. In r eturn for these added taxes, 

1 yea r of work under the higher base at th e full maximum taxable and credita ble 

compensation will add 83y2

 cents to the monthly ann uity amount of an employee. The increase can add only $54.75 to an employee’s ann ual taxes at 

the high est scheduled rate of 9 Vs perc ent which would go into effect in 1968. 

Under the rate now in effect of 7V4 percent the re can be added only $43.50 

a year. Thus, in the case of a man who works und er the higher limit only 1 

year, the approximate yearly increase in his annuity of $10 because of th at 

year will, over a period of about 13 years, which is the average life expectancy 

of a man of 65, add about $130 to his total ann uity payments. The compensation limit increase will therefo re be to the adv antage of the average employee, 

and at the same time will reduce the deficit in the railro ad retireme nt system 

by $31 million a year.

MILITA RY SERVICE CREDITS

When military service in an emergency period int errupts railro ad service, 

it is creditable tow ard ann uities under the Railro ad Retirem ent Act. The Government is now obligated to pay for cred itable milita ry service rend ered after 

1936 the tota l taxes th at would have been paid if the employee had earn ed $160 

in railro ad service for each month of such milita ry service, except th at with 

respect to milita ry service rend ered after 1956, the amount due is reduced by 

the amount of tax es paid thereon for social security purposes. The bill would 

subst itute an act ual cost basis for reim bursing the railro ad retirement accou nt 

for c rediting military service rend ered after Jun e 1963, similar to the provisions 

of present law for paym ents as to milita ry service rend ered before 1937. In 

computing the actual cost of crediting military service after Jun e 1963, however, there would be added to the increases in benefit paym ents directly resulting from the c rediting of such service a facto r to cover a proportionate sha re of 

the adminis trative expenses and the int ere st charge on the unfu nded liability 

of the system.

Because of these amendments, the Bureau of the Budget would no longer 

object to app ropriations by the Congress of amounts totaling about $160 million 

which the Government now owes to the railroad retireme nt system for past 

milita ry service cred its. The payment into the railro ad retirem ent account of 

this $160 million will result in a net income to the acco unt of $5 million a year.

INT ER ES T RATES

Under the present law. the intere st yield on the special obligations issued for 

the railroad retirem ent account is 3 percent. Yet. since about 1956, th e T rea sur y 

has paid more tha n 3 perc ent on fund s it has borrowed thro ugh medium- and 

long-term general obligations. To remedy in pa rt this inequity to the railro ad 

retirem ent account, the bill provides for th e imm ediate conversion of the p res ent 

3-percent special obligations into special obligations with int ere st rates determined from the average marke t yield on the outstanding marketable Treasury
32 RAILROAD RETIREMENT AND UNEMPLOYMENT INSURANCE

obligations having an unex pired maturity of 3 or more years. The int ere st rate 

on future investments will be determined in the same way. If thi s method of 

determ ination were in effect the int ere st on such special obligations issued now 

would be abo ut 3% percent. The bill would retain the present 3-percent rate as 

a minimum guarantee.

The added income to the ra ilroad retireme nt account from this provision alone 

would be $25 million a year.

NE T EFFECT OF THE AM ENDM ENTS

Tlie combined effect of the thr ee changes would be a redu ction of the $77 million deficit by $61 million ($31 million from the increase in the compensation 

limit, $5 million from the app ropriations for milita ry service cred its, and $25 

million from the change in the in terest rate provisions) to $16 million a year on a 

level basis. Expressed in percentages, the reduction would be from 1.79 perce nt 

of the $4.3 billion estimated taxable payroll under the pre sen t $400 monthly 

compensation limit to 0.34 percent of the $4.7 billion estimated taxable payroll 

und er the new $450 monthly compensation limit.

THE 3-PERCENT M IN IM UM GUARANTEE

There is general agreement th at the re is no susbtan tia l likelih ood currently 

foreseeable of the average ma rke t yield of Government obligation s having an 

unexpired ma tur ity of 3 or more yea rs falling below 3 percent, so th at the 3-percent guara nte e provided in the bill involves little or no risk to the Government. 

But its importance to the railro ad retireme nt system is quite clear. The Railroad Retirement Board must tak e into account the possibility of some dista nt 

future drop below 3 percent in the average marke t yield. Consequently, the interest rate th at would be used by the Board in cost estimates under the gua rantee 

would be 0.05 percent more than would be used without it. The 3-percent floor on 

the rate ha s been in effect since the beginning of the railro ad r etirem ent system in 

1937, when the prevailing yield on Government obligations was below 3 percent. 

The adoption of the 3-percent rate as ear ly as 1937 a t a time when the prevailing 

yields on Government obligations were lower tha n th at is evidence of the congressional policy to aid the railroad retireme nt system to this extent. Through 

the yea rs 1937-40, the railroad retireme nt system reduced considerably the cost 

of the Government’s relief program by paying in benefits to railro ad employees 

$282 million more than was paid by the social secu rity system. The mere fac t 

that the Congress would now provide the special obligations in th e ra ilro ad retirement account with the same form ula for earnin g inte res t rat es as i t has provided 

for other trus t funds, is no reason for nullifying the long standing congressional 

policy of providing a 3-percent floor on the intere st to be earn ed by the special 

obligations in the railro ad retir ement account.

IMME DIAT E CONVERSION

For several yea rs the obligations newly issued to the social secu rity and civil 

service retireme nt funds have earned intere st at rates equal to the average 

ma rke t yield on obligations which are not due or callable for 4 years. The 4- 

yea r m aturity tends to produce high er int ere st rates tha n the provision in the bill 

as to matu rities of 3 or more years , which gives an advantage to the other funds. 

Moreover, for the past 7 o r 8 years the Feder al Government has gained at the 

expense of the railro ad retireme nt system from paying only 3 percent on the 

special obligations in the railro ad retireme nt account when it paid more tha n 

th at on funds borrowed through general obligations. The imm ediate conversion 

would warrant actua ria l computations being made on a long-range projected 

intere st rate 0.07 percent higher than would be used i f conversion wTere deferred. This togethe r with the 0.05-percent increase in the projected rate resulting from 

the re ntentio n of the 3-percent floor would warrant the use of a 3.43-percent rat e 

as against 3.31 perc ent witho ut the 3-percent guara nte e and the immediate 

conversion. This high er rate would reduce the deficit by anoth er $8 million, 

and would leave a remaining deficit of only $16 millio n or 0.34 percen t of payroll, as again st $24 million or 0.51 percent of payroll if, as, I und erstand, has been 

proposed, the 3-percent minimum guara ntee and the immediate conversion provisions were eliminated. While both these amounts are within the limits of 

ac tua ria l tolerance applicable in judging the soundness of the railro ad retir ement system, the proposal to elim inate these two provisions would leave a deficit
RAILROAD RETIR EMENT AND UNEM PLOYMENT INSURANCE 33

about 50 percent greater than would the bill. I believe that, with complete 

justice and equity to the Government as the borrower of our reserves, the 

additional margin of safety provided by the bill can and should be enacted.

AMENDM ENTS TO THE RAILROAD UNEM PLOYMENT INSURA NCE ACT

No increase in monthly compensation limit—Increase in maximum contribution

rate

While the maximum monthly compensation limit would be increased from $400 

to $450 for the railro ad retirement system, there would be no increase in the 

compensation limit for the railroad unemployment insurance system. The maximum contribution rate, however, would be increased from the present 3% percent to 4 percent applicable with respect to compensation paid for services 

rendered after 1963. Contributions are, of course, paid only by employers. The 

increase in the maximum rate to 4 percent would, it is estimated, produce about 

$10.8 million a year more in contributions.

Base year qualifying conditions

The amount of compensation in a base year now required to qualify an employee for benefits in the next ensuing benefit year is $500. The bill would 

increase this amount to $750. In addition, an individual who is a new e ntrant 

into the railroad industry, would qualify only if he was paid compensation with 

respect to not less than 7 months in the base year.

These amendments would be fully effective for all base years af ter 1963. With 

respect to base year 1963, the amendments would be applicable only in cases in 

which the Board finds tha t the employee had less than $500 compensation in th at 

portion of the base year 1963 which precedes the first day of the month next 

following the month of enactment.

It is estimated tha t these amendments will result in a saving to the system 

of $6 million a year in benefit costs.

Disqualification for leaving work voluntarily

Under present law, an individual who leaves work voluntarily is not considered as having days of unemployment with respect to any of the first 30 

(lays afte r his leaving if the Board finds that he left work voluntarily without 

good cause. The bill would change this to provide that an individual who 

leaves work voluntarily without good cause shall not be considered as having 

days of unemployment for a period beginning with the day he so left and 

continuing until he has been paid compensation of not less than $750 with 

respect to time afte r the beginning of such period. With respect to days of 

unemployment af ter he has had such compensation his rights to unemployment 

benefits would be the same as if he had not been disqualified. In cases in 

which the Board finds that the employee left work voluntarily with good cause 

the disqualification would apply only for days in a registration period which 

includes a day for which he could receive unemployment benefits under a law 

other than the Railroad Unemployment Insurance Act. This would ordinarily 

require such an employee to exhaust rights to State unemployment benefits 

before he could receive benefits for days of unemployment under the Railroad 

Unemployment Insurance Act.

It is estimated that this amendment would save the system $3.5 million a 

year in benefit costs. Thus, the three changes together would improve the 

financial condition of the system by $20.3 million ($10.8 million, $6 million, 

and $3.5 million) a year. This, it is estimated, would enable the system soon 

to pay all benefits without further borrowing from the railroad retirement 

account and leave enough to liquidate gradually the existing indebtedness of 

the system to the railroad retirement account.

Our joining in recommendations to increase the minimum qualifying employment as a basis for benefits and to extend the disqualification for voluntarily 

leaving employment must not be regarded as any modification of our longestablished and firm conviction tha t wage earners who are available for work 

but to whom suitable work is not available should be protected by unemployment 

insurance regardless of the events tha t may have preceded their arrival at 

tha t predicament. There are involved here, however, considerations as to the 

equitable allocation of the responsibility for providing that protection between 

the railro ad industry and employers covered by the Federal-State system applicable to other industries. We have joined in these recommendations through 

the necessity of recognizing that some savings in benefits payments must be made
34 RAILROAD RET IREMENT AND UNEMPLOYMENT INSURANCE

to avoid an immediate increase in contribution rates above the 4 percent that 

the railroads have agreed to. Because of the insufficiency of benefits available 

under the Federal-State system, employers in other major industries have had 

to agree to general supplemental unemployment benefits which in combination 

with the cost of statutory benefits exceed the contributions railroad employers 

are required to make to the railroad unemployment insurance account. But 

we have taken into consideration the fact tha t the railro ad industry is the 

only one in which all employers will be required by law to pay as much as 

4 percent on wages up to $400 per month. It is our expectation tha t the recommended amendments to the Railroad Unemployment Insurance Act will not 

result in any diminution of the overall unemployment insurance protection 

available to workers within or outside of the railroad industry.

OTHER AM EN DM EN TS TO TH E RAILROAD UN EM PLOY ME NT IN SU RA NC E ACT

New interest rate on fun ds borrowed from the railroad retirement account

In order to avoid any losses to the railroad retirement account from the

loans to the unemployment insurance system, the bill provides that the interest 

rate on such loans should continue to correspond generally to the interest rates 

on the obligations held by the account.

The railroad unemployment insurance administration fund

Funds for administrative expenses of the railroad unemployment insurance

system are now provided from an allocation from the contributions collected 

of an amount equal to 0.2 percent of the taxable payroll. This allocation has 

proven to be insufficient and the bill would increase it to 0.25 percent, effective 

as to all contributions collected after 1901.

URGENT NEED FOR ACTION

I wish to emphasize very strongly the need for immediate action on this bill 

There can be little disagreement tha t the deficits in the two systems cannot 

he allowed to continue. The longer they continue the more serious would be 

the measures required in the futu re to place the systems in financially sound 

condition. I sincerely hope tha t you will make a prompt and favorable report 

on the bill in order tha t the much needed legislation to place the two systems 

in a reasonably sound financial condition can be enacted into law in this session 

of the Congress.

Mr. Chairman and members of the committee, I thank you very much for 

the attention you have given me.

Mr. Harrison. We have here, as the chairman has stated, a unanimous agreement between the employers and the employees and the 

Railroad Retirement Board that generally reflects the wishes of the 

President of the United States to find a solution for the financial 

difficulties of the railroad retirement and unemployment insurance 

funds. I hope the committee will accept this unanimous agreement 

reached among all parties at interest and give us favorable consideration of the hill so we may get it enacted at this session of the Congress.

I am available for any question th at any of the committee members 

may wish to ask, and I again express my appreciation for this opportunity to appear in support of this bill.

The Chairman. Mr. Harrison, thank you very much for your appearance here this morning and your statement, which has been included in the record, supplementing the inform ation just given by 

Mr. Habermeyer of the Board. Since you represent the Railway 

Labor Executives Association, I think T would like to ask for a further 

statement. Included with the statement of Mr. Ilaberm eyer is a list 

of the bills which have been introduced by various Members of the 

House, and referred to this committee. The list gives the number of 

the bill and the sponsor, the principal provisions, the estimated additional cost, including the percent of taxable payroll, and dollars
RAILROAD RETIR EMENT AND UNEMPLOYMENT INSURANCE 35

per year. I know that it would be u nfair for me to ask for you to 

try to analyze all of these proposals. But is it not true that the Railway Labor Executives Association takes into consideration these v arious bills tha t have been proposed and takes a posit ion on them with 

reference to the advisability as well as the feasibility of their being 

included as amendments to the Railroad Retirement Act?

Mr. H arrison. I would like to say in a general way, Mr. Chairman, 

I have been chairman of the Railway Labor Executives Association 

committee charged with the responsibility of looking afte r the operations of the railroad retirement and unemployment insurance system 

since th e system was inaug urated in 1937. I have been lief ore this 

committee on many occasions, as the chairman will recall. Consequently, the committee has kept up with the bills that have been introduced from time to time to amend the railroad retirem ent and/o r 

unemployment insurance systems. While many of the bills proposed 

contain benefits that we would all like to see paid to railroad employees, those of us who are charged with the responsibility of maintaining the financial in tegrity of this system realize that many of the 

changes proposed in these bills cannot be made without providing 

additional finances.

We are of the opinion tha t with the present tax schedules in the 

present system tha t we should not at this time provide benefits tha t 

will brin g about a furthe r increase in the tax rate schedule, and for 

that reason we have not supported any of the bills that are now pending 

and which are included on the list, Mr. Chairman, tha t you just called 

to my attention.

The Chairman. T asked this question at this time for the benefit of 

all of us. We are importuned by our colleagues and bv mail coming 

from people with honest and good intentions wanting more and more. 

We must assume responsibility along with you and your organization, 

as well as others involved, for protecting the integ rity, as you have 

so well indicated, of this fund.

I raise this question at this time because we are going to be asked 

by our colleagues from time to time on the floor of the House in 

consideration of this, “Why don’t you give full annuities at age 60 for 

30 years of service?” As an example. Also, include the 5 consecutive years of highest earnings which so many would like to have. As 

an example that would cost the fund. T am told, about 3.6 percent of 

the payroll which would be a tremendous increase in the payroll tax 

of both the employees and the industry. I think we must be aware 

of this situation, and for tha t reason T asked fhe question at this 

point.

Mr. Harrison. Yes. I would say. Mr. Chairman, to pinpoint the 

situation tha t our present condition is one of catching up because of 

factors tha t operated to brin g about the present deficit in the fund. 

We think our prim ary responsibility is to maintain the financial 

integrity and soundness of the fund at this time. Perhaps as the 

situation improves and the economy expands, and the volume of employment, goes up and other areas are improved, there may be an 

opportunity to make some improvements in our benefit system. But 

at the present time we are concerned to the point of overriding everythin g else with the financial integ rity and we want to solve tha t 

problem now. We appreciate the sympathetic consideration of the 

Members of the House that have introduced these other bills.
36 RAILROAD RET IREMENT AND UNEM PLOYMENT INSURANCE

We would all like to have more benefits, but the realistic aspect of 

the problem is that we have to find the money to pay for them. At the 

present time we don’t have the money to pay for them.

The Chairman. Are there any further questions? If not, thank 

you very much, Mr. Harrison.

Mr. Harrison. Thank you very much, Mr. Chairman and members of the committee.

The Chairman. Mr. Daniel I’. Loomis, president of the Association 

of American Railroads.

STA TEMENT OF DA NIEL P. LOOMIS, PR ES IDEN T, TH E ASSOCIATION 

OF AMERICAN RAILROADS

Mr. Loomis. Mr. Chairman, I have filed a statement with the committee, which I would like to ask be incorporated in the record.

The Chairman. Let it be included in the record at this point.

(The statement referred to follows:)

Statement of Daniel P. Loomis, Presid ent, Association of American

R ailroads

My name is Daniel P. Loomis. I am president of the Association of American 

Railroads with headquarters in Washington, D.C. The Association of American Railroads is a voluntary, unincorporated association of railroads. Its 

membership is made up of ra ilroads operating 94 percent of the total mileage of 

all railroads in the United States and having operating revenues of about 96 

percent of the total operating revenues of all railroads in the United States.

My brief statement today on behalf of the association and its members is in 

support of H.R. 8100, a measure tha t would amend the railroad retirem ent and 

railroad unemployment insurance systems. In addition to having the support of 

the railroads represented by the association for which I speak, II.R. 8100 has 

the sponsorship of the American Short Line Railroad Association and also 

tha t of the standard railway labor organizations represented by the Railway 

Labor Execeutives’ Association. The bill resulted from a series of conferences 

between representatives of the labor organizations and the railroads. During 

the course of those conferences, which lasted over a iieriod of several months, 

many suggestions were made for changes in both the retirem ent and unemployment insurance systems and eventually a bill tha t had the approval of both 

labor and management was prepared and was sent on August 13, 1963, to Chairman H arris of your committee. Accompanying the bill was a letter spelling out 

in some detail the changes in the retirem ent and unemployment insurance systems contained in the draft bill and explaining the reasons for such suggested 

changes. The le tter was signed by Mr. G. E. Leighty, chairman, Railway Labor 

Executives’ Association, by Mr. D. L. Manion, president, the American Short Line 

Railroad Association, and by me as president of the Association of American 

Railroads. At this time I request that the August 13 letter addressed to Chairman Harris be made a part of this record. (Copy of letter attached.)

Subsequently, Chairman Harris had the “agreed bill’’ introduced. It is that 

bill, H.R. 8100, that is the subject of these hearings.

As I said previously, the August 13 lette r spells out in rather complete detail 

the changes proposed by the “agreed bill.” It is not my intention to go into any 

detail regarding the proposed amendments in the retirem ent and unemployment 

insurance systems. However, I shall refer briefly to the background of the 

proposed legislation and to those more important provisions.

According to the actuaries of the Railroad Retirem ent Board, the railroad 

retirement system is now running on a level cost basis at an actuarial deficit 

of about $77 million a year or 1.79 percent of taxable payroll. In addition, the 

unemployment insurance system has for the past several years had to borrow 

funds from the railroad retirement account to meet obligations for the payment 

of unemployment and sickness benefits under the unemployment insurance system and tha t borrowed amount has now increased until the unemployment insurance system owes the retirement system something more than $300 million. 

At the direction of the board of directors of th e Association of American Rail-
RAILROAD RET IREMENT AND UNEMPLOYMENT INSURANCE 37

roads, representativ es of th at association on several occasions met with representatives of the stan dard railwa y labor organiz ations in an effort to agree on 

legislation th at would place both the retireme nt and unemployment systems in a 

solvent condition. Both sides finally reach ed agreement in July 1963, and thereafter a bill was prepared in line with the principles agreed upon and it is that 

bill th at was sent to Chairman Harris on August 13, and it was that bill that 

became H.R. 8100.

The bill would reduce the railro ad retireme nt system’s ac tua ria l deficit of 

$77 million to $16 million a year, a figure well within the limits of actuarial 

tolerance. This reduction in the ac tuarial deficit would be accomplished by 

making several changes in the presen t law. Slightly more tha n one-half of the 

reduction in the deficit would result from a change in the maximum credita ble 

and taxable monthly compensation per employee from $400 to $450 a month. 

This increase in the taxable compensation base would bring about additional 

ann ual reven ues of $71 million. Of this amount, $40 million a yea r would be 

spen t in increa sed benefits by reason of the fac t th at the creditable compensation 

base would be increased. The net reduction in the deficit would therefore 

amount to $31 millio n a year and this amount subtracted from the existing 

actua ria l deficit of $77 million would reduc e th at deficit to $46 million. The 

bill would also change the method u nde r which the Fed era l Government pays for 

th at par t of a railro ad r etirem ent benefit th at is based on a n employee’s milita ry 

service and would also esta blish a new inve stment policy as to the railroad 

retireme nt account, now amounting to some $4 billion, in order th at th e in terest on 

th at am ount would be subs tantially increased. The amen dments of the railroad 

retireme nt system, other than the increas e in the monthly compensation base 

from $400 to $450 a month, would provide additional revenues of $30 million, thus 

dropping th e actu arial deficit to $16 million a year.

The proposed amendments to the railro ad unemployment insu rance system 

would place th at system in a position where it could pay those benefits provided for under th at system, provide an ade qua te amount of money fo r administra tiv e purposes, make unnecessary any fu rthe r borrowing by the unemployment insurance system from the retirem ent system , and permit the gradua l 

repa yment of the amount alread y borrowed from the retirem ent system by the 

unemployment insurance system. The improvement in the financial iiosition 

of the railro ad unemployment insurance system would be accomplished in two 

ways. The bill would provide additio nal tax revenues of $10.8 million and 

would also provide $9.5 million in savings resulting from a decrease in benefit payments. The add itio nal revenue plus the savin gs would therefo re improve 

the unemployment insurance system by over $20 million a year. The present 

permanen t maximum tax rate assessed again st employers under the unemployment insu rance system is 3% percent applied to compensation of up to $400 

a month per employee. At the p resent time the maximum tax rate is 4 percent. 

Th at rate however is only a temporary ra te and is due to terminate at the 

end of 1963. H.R. 8100 would make the 4 perc ent rate a perman ent maximum 

contribution rate. This is the tax change th at would provide the additional 

$10.8 million a year in revenues. The savings of $9.5 million to the railroad 

unemployment insu rance system provided in the bill would be brou ght about 

by changing the amount of money a person needs to earn to qualify f or benefits, 

by requiring a new en tra nt to work in 7 different months in his first cale nda r 

year of employment before he can qualify and by changing those provisions of the 

presen t statut e und er which a person who voluntarily leaves his work becomes 

entitle d to benefits. At the presen t time one needs to earn $509 in his base year 

in order to qualify for benefits in his benefit year. The bill would req uire him 

to earn $750 in his base year in order to qualify. In addition a new en tra nt in 

railroad work—t ha t is, a person who enters railroad work for the first time— 

would have to ear n compensation in at least 7 different months in his first 

calend ar yea r of work in order to qualify for benefits. H.R. 8100 would also 

provide th at any individual who voluntarily leaves his work witho ut good 

cause will, in ord er to qualify for unemployment benefits, have to return to 

work covered by the railro ad unemployment insu rance system and earn $750. 

Fu rth er, an individual who leaves his work with good caus e will not be entitled to 

benefits und er the railro ad system if, at the time he makes application for such 

benefits, he is qualified for unemployment compensation under a law oth er tha n 

the railroa d law. Under the prese nt law one who leaves his railro ad work wi thout good cause—for example, one who simply quits because he doesn’t car e to 

work—needs only to wa it for 30 days after he qui ts and then he can tu rn to 

the railro ad unemployment insurance system for unemployment benefits.
38 RAILROAD RET IREMENT AND UNEM PLOYMENT INSURANCE

As I have said, one of the provisions in the agreed bill would require such 

a person to obtain a job covered by tlie railroad unemployment insurance system and earn $750 before he could qualify for unemployment benefits. Under 

the present law a person who quits with good cause can immediately apply 

for railroad benefits. There are occasions on which such a person obtains 

other work and subsequently becomes unemployed. This may be many months 

afte r lie has left his railroad job. Under the present law he can turn to the 

railro ad system for unemployment benefits. Under the bill one who voluntarily 

quits with good cause can still turn to the railroad system for unemployment 

benefits but only if he is not entitled to benefits under some other compensation 

statute. The effect of these amendments, tha t would provide savings to the 

unemployment insurance account, would be to require more realistic qualifying 

requirements in order for one to be entitled to benefits under the Unemployment Insurance Act and to limit to some extent the right of those who voluntarily leave railroad work to obtain benefits under that system if they are 

unemployed.

I think it is clear tha t II.R. 8100 sets forth improvements in the financing of 

both the railroad retirement and unemployment insurance systems. It is equally 

clear tha t the bill H.R. 8100 which has the unqualified support of the labor 

organizations and the railroads, will provide those needed improvements, and 

I recommend t hat your committe favorably report the measure in order tha t it 

may be passed by the Congress and therefore bring both of the railroad systems 

into a position of solvency.

A B IL L To am en d th e R ai lr oad R et ir em en t A ct of 193 7, th e R ai lr oad R etire m en t Tax Ac t, 

th e R ai lr oa d Une m ploy m en t In su ra nce Ac t. an d th e T em por ar y Ext en de d R ai lr oa d 

Une m pl oy m en t In su ra nce Ben efits A ct of 1961 to in cr ea se th e cr ed itab le an d ta xa bl e 

co m pe ns at io n, an d fo r oth er pu rp os es

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

of America in Conyress assembled,

TITLE I—AMENDMENTS TO THE RAILROAD RETIREMENT ACT OF 1937

Section 1. Section 3(a ) of the Railroad Retirement Act of 1937 is amended 

by striking “$250” and inserting in lieu thereof “$300”.

Sec. 2. Section 3(c) of the Railroad Retirement Act of 1937 is amended by

Inserting in the second sentence thereof, before the phrase “, shall be recognized” 

the following: “and before the calendar month next following the month in which 

this Act was amended in 1903, or in excess of $450 for any month after the 

month in which this Act was so amended”.

Sec. 3. Section 4(k) of the Railroad Retirement Act of 1937 is amended by 

striking “by the individual who rendered such military service”, and by striking 

“six months” and inserting in lieu thereof “twelve months”.

Sec. 4. Section 4(n) of the Railroad Retirement Act of 1937 is amended—

(1) by inserting aft er “January 1, 1937,” wherever it appears in that 

section the following: “and after June 30, 19G3,” ;

(2) by striking in the first sentence thereof “after December 1956” and 

inserting in lieu thereof “after December 31, 1956, and before July 1, 1903,” ;

(3) by striking the second, third, and fourth sentences thereof and substitu ting therefor the following: “The additional cost of crediting military 

service rendered prior to January 1, 1937, and afte r June 30, 1903, shall be 

determined as follows: (i) determine the difference between the actuarial 

value of the benefit payable under this Act based in par t on military service 

and the actuarial value of the benefit which would be payable to the same 

individual without regard to military service; (ii) with respect to military 

service rendered after June 30, 1903, adjust such difference by applying 

thereto the ratio of the total net level cost of all benefits under this Act to the 

portion thereof remaining aft er the exclusion of administrative expenses 

and interest charges on the unfunded accrued liability after taking into 

account the effects of section 5(k ) (2) ; (iii) subtract the actuarial value 

of such benefit based on the individual’s m ilitary service as is includible in 

determinations made pursuant to section 5( k) (2 ). In calculating these 

actuarial values, the Board shall use such mortality tables and actuarial 

factors as it finds appropriate; the ratio referred to in pa rt (ii) of the 

preceding sentence shall be determined from time to time by the Board on 

the basis of actuarial estimates made in accordance with section 15; and 

-all actuarial values shall be calculated as of the date on which the benefit
RAILROAD RETIREMENT AND UNEMPLOYMENT INSURANCE 39

"based on milita ry service begins to accru e and shall not therea fte r l»e 

subject to change. All actuarial calculations in thi s subsection shall take 

into a ccount intere st a t the rate used in the actua ria l estimates referred to in 

the preceding sentence.” ;

(4) by striking from the seventh sentence thereof all but the period 

after the word “thereon” ;

(5) by changing the eighth sentence thereo f to read as follow s: “In 

determining p ursuant to section 5(k) (2) for any fiscal year the total amount 

to be credited from the Railro ad Retirement Account to (he Fed eral Old-Age 

and Survivors Insura nce Tr ust Fund and the Fed eral Disability Ins ura nce 

Tr ust Fund, cre dit shall be given such Account for the amount of the taxes 

described in clause (3) (B) of the first sentence of this subsection and the 

amount of such taxes with respe ct to military service after Jun e 30, 1963.” ; 

and

(6) by ins erting at the end of such subsection (n) the following: “The 

amount auth oriz ed to be app ropriated to the Railro ad Retirement Account 

pursu ant to clause (2) of the first sentence of this subsection shall be 

reduced by the amounts credited to such Account pursu ant to section 5(k) 

(2) for milita ry service rendered before Janu ary 1, 1957, and the amounts 

so cred ited shall be considered as addition al costs within the meaning of 

section 217(g) of the Social Security Act. In any determination made 

pursu ant to section 5(k) ( 2), no furth er charges shall be made against the 

Tr ust Funds esta blished by the Social Security Act for milita ry service 

rendered before Janu ary 1, 1957, and with respect to which app ropriat ions 

authorized by clau se (2) of the first sentence of thi s subsection shall have 

been cred ited to the Railroa d Retirement Account, but the additio nal benefit 

paym ents incurred by such Tr ust Funds by reaso n of such militar y service 

shall be taken into account in making any such determ ination .”

Sec. 5. Section 5( f) (2) of the Railroad Retirem ent Act of 1937 is am ended by 

inserting after the phrase “so amended” in the parentheses the follow ing : “and 

before the calend ar month next following the month in which this Act was 

amended in 1963, and in excess of $450 for any month after the month in which 

thi s Act was so amende d”.

Sec. 6. Subpa ragraph (9) of section 5(1 ) of the Railro ad Retirem ent Act 

of 1937 is amended by striking the word “and” where it app ears the third time 

in such subparagraph , by inserting af ter the phrase "so amended” the following : “and before the calend ar month next following the month in which this 

Act was amended in 1963, and any excess over $450 for any ca lendar month after 

the month in which this Act w as so am ended”, and by striking “$400” w here this 

figure appears the second time in such subparagr aph and inserting in lieu thereof “$450”. Sub paragraph (10) of section 5(1) of the Railroa d Retirem ent Act 

of 1937 is amended by striking “$400” where thi s figure appears in such subparag rap h and inse rtin g in lieu thereof “$450”.

Sec. 7. (a) Section 15 of the Railroa d Retirem ent Act of 1937 is amended by 

striking the third sentence from subsection (a) thereof. The said section 

is fu rth er amended by striking subsection (b) and inserting in lieu thereof the 

follow ing :

“ (b) At the requ est and direction of the Board, it shall be the duty of the 

Secretary of the Tre asu ry to invest such portion of the amounts credited to the 

Account as, in the judg men t of the Board, is not imme diately requ ired for the 

paym ent of annuities, pensions, and death benefits. Such investments may be 

made only in interest-be arin g obligations of the United States or in obligations 

guara nte ed as to both principa l and intere st by the United State s. For such 

purpose such obligations may be acqu ired—

“ (1) on original issue a t th e issue p rice ; or

“ (2) by purc hasing of outstan ding obligations at the ma rke t price. The 

purposes for which obligations of the United States may be issued und er 

the Second Liberty Bond Act, a s amended, are hereby exten ded to autho rize 

the issuance at par of special obligations exclusively to the Account. Such 

obligations issued for purchase by the Account sha ll have ma tur ities fixed 

with due regard for the needs of the Account, and shall bea r intere st at a 

rate equal to the average ma rke t yield, computed as of the end of the calendar 

month next preceding the date of such issue, borne by all marketable intere st-bearing obligations of the United States then forming a pa rt of the 

public debt th at are not due or callable until after the exp iration of three 

yea rs from the end of such calend ar month, except th at where such rate is
40 RAILROAD RETIR EMENT AND UNEM PLOYMENT INSURANCE

not a multiple of one-eighth of 1 per centum, the rate of interest on such 

obligations shall be the multiple of one-eighth of 1 per centum nearest such 

ra te : Provided, Tha t the rate of interest on such obligations shall in no 

case be less than 3 per centum per annum. The Secretary of the Treasury 

may purchase other interest-bearing obligations of the United States, or 

obligations guaranteed as to both principal and interest by the United States, 

on original issue or at the market price only if he determines tha t such 

purchases are in the public interest, provided tha t the investment yield of 

such obligations shall not be less than the interest rate determined in accordance with the preceding sentence. If it is in the interest of the Account 

so to do, the Secretary of the Treasury may sell and dispose of obligations in 

the Account and he may sell obligations acquired by the Account (other than 

special obligations issued exclusively to the Account) at the market price. 

Special obligations issued exclusively to the Account shall, at the request of 

the Board, be redeemed at par plus accrued interest. All amounts credited 

to the Account shall be available for all purposes of the Account.”

(b) The Secretary of the Treasury is authorized to retire the special obligations held by the Account on the date of approval of this Act and to issue in lieu 

thereof special obligations with an interest rate determined as provided for in 

section 15(b) of the Railroad Retirement Act as amended by this Act.

Sec. 8. Effective dates.—The provisions of sections 1, 2, 5, and 6 of this Act 

shall be effective with respect to annuities accruing and deaths occurring after 

the month in which this Act is approved. The provisions of section 3 shall be 

effective with respect to annuities awarded on or afte r the date of approval of 

this Act. The provisions of section 7(a ) shall be effective on the date of the 

approval of this Act.

TITL E II —AMENDMENTS TO THE RAILROAD RETIREMENT TAX 

ACT

Sec. 201. Sections 3201 and 3211 of the Railroad Retirem ent Tax Act are 

amended by inserting before the colon in each such section the following: 

“before the calendar month next following the month in which this provision 

was amended in 1963, and $450 for any calendar month afte r the month in 

which this provision was so amended”.

Sec. 202. Sections 3202 and 3221 of the Railroad Retirement Tax Act are 

amended by inserting after “$400” wherever this figure appears in each such 

section the following: “before the calendar month next following the month in 

which this provision was amended in 1963, and $450 for any calendar month 

aft er the month in which this provision was so amended,”.

TITL E II I—AMENDMENTS TO THE RAILROAD UNEMPLOYMENT INSURANCE ACT AND THE TEMPORARY EXTENDED RAILROAD UNEMPLOYMENT INSURANCE BENEFITS ACT OF 1961

Sec. 301. (a) Section 3 of the Railroad Unemployment Insurance Act is 

amended to read as follows:

“Sec. 3. An employee shall be a ‘qualified employee’ if the Board finds that 

his compensation will have been not less than $750 with respect to the base 

year, and if such employee has had no compensation prior to such year, tha t 

he will have had compensation with respect to each of not less than seven 

months in such year.”

(b) The amendments made by subsection (a) shall be fully effective with respect to base years after 1963. With respect to the base year 1963, they shall 

be applicable only to an employee concerning whom the Board finds that his 

compensation in tha t portion of the calendar year 1963 preceding the first day 

of the calendar month next following the month of enactment of this Act will 

have been less than $500.

Sec. 302. (a) Section 4(a -2) (i) of the Railroad Unemployment Insurance 

Act is amended to read as follows :

“(i) (A ) subject to the provisions of subdivision (B) hereof, any o f the days in the period beginning with the day with respect to which the 

Board finds tha t he left work voluntarily, and continuing until he has been 

paid compensation of not less than $750 with respect to time afte r the beginning of such period;

“ (B) if the Board finds tha t he left work voluntarily with good cause, 

the provisions of subdivision (A) above shall not apply, with respect to-
RAILROAD RET IREMENT AND UNEMPLOYMENT INSURANCE 41

him, to any day in a registration period if such period does not include any 

day which is in a period for which he could receive benefits under an unemployment compensation law other than this Act, and he so certifies. 

Such certification shall, in the absence of evidence to the contrary, be accepted subject to the penalty provisions of section 9(a) of this Act.”

(b) The amendments made by subsection (a) shall be effective with respect 

to an employee who leaves work voluntarily after the enactment date of this 

Act

Sec. 303. (a) Effective w ith respect to compensation paid afte r December 31, 

1903, section 8(a ) of the Railroad Unemployment Insurance Act is amended 

by striking from the table thereof the figure “3%” and inserting in lieu there ­

of “4”.

(b) Effective with respect to contributions collected by the Board pursuant 

to section 8(f ) on compensation paid afte r December 31, 1963, tha t par t of 

such contributions equal to one-fourth of 1 per centum of the compensation 

on which such contributions are based shall, notwithstanding the provisions of 

section 10(b) of the Railroad Unemployment Insurance Act, be applied by the 

Board exclusively for transfers from the railroad unemployment insurance account to the general fund of the Treasury until the full amount advanced 

from the general fund of the Treasury to the railroad unemployment insurance account pursuant to section 4 of the Temporary Extended Railroad Unemployment Insurance Benefits Act of 1961 has been repaid. The last sentence of 

section 4 of the Temporary Extended Railroad Unemployment Insurance Benefits 

Act of 1961 is hereby repealed effective with respect to contributions collected on 

compensation paid aft er December 31, 1963.

Sec. 304. Effective with respect to contributions collected by the Railroad 

Retirem ent Board after December 31, 1961, section 8(f) of the Railroad Unemployment Insurance Act is amended by striking “0.2 per centum” and inserting in lieu thereof “0.25 i>er centum”.

Sec. 305. Effective after June 30, 1964, section 10(d) of the Railroad Unemployment Insurance Act is amended by striking “the rate of 3 per centum per 

annum” and inserting in lieu thereof “a rate for each fiscal year equal to the 

average rate of interest borne by all special obligations held by the railroad 

retirement account on the last day, of the preceding fiscal year, rounded to 

the nearest multiple of one-eighth of 1 per centum”.

Mr. Loomis. I)o I understand tha t the joint letter of August 13, 

addressed to the chairman, from the Railway Labor Executives’ Association, and the Association of American Railroads, and the American Short Line Railroad Association, will also be a part of the 

record ?

The Chairman. I don’t believe I have it.

Mr. Loomis. It is attached to my statement which I have filed 

with the committee this morning.

The Chairman. I think I would like to have a copy of it and take 

it out of the context of your statement if you would permit and let 

it go into the record itself so it would probably be a little more 

pronounced in order to call attention to it, if it is all right with you.

Mr. Loomis. That would be perfectly satisfactory.

The C hairman. Let that be done, then.

(The letter referred to follows:)

Wash ing ton, D.C., Aug ust IS, 1963.

lion. Oken Harris.

Chairman, Comm ittee on Int ersta te and Foreign Commerce, Room 133b, Longworth House Office Building, Washington, D.C.

Dear Mr. Harris: We, the Association of American Railroads (representing 

substantially all class I railroads in the United States), The American Short 

Lines Railroad Association (representing approximately 250 common car rier 

railroad s), and the Railway Labor Executives’ Association (representing substantially all railroad employees in the United States) have agreed on recommending to the Congress the enactment of a proposed bill, a draft of which is 

enclosed, to provide more adequate financing of the railroad retirement and 

the railroad unemployment insurance systems. We would appreciate an early
42 RAILROAD RET IREMENT AND UNEMPLOYMENT INSURANCE

Introduction of this bill and a prom pt favo rable rep ort there on in order to 

provide urgently needed improvements in the financing of the two systems, as 

shown below.

DEFICIT IN TH E RAILROAD RETIR EM ENT SYSTEM

The re is now an actua ria l deficit in the railro ad retirem ent system of about 

$77 million a year or 1.79 percent of taxable payroll. This does not mean that 

there are not enough fund s available for benefits currently payable under the 

ac t; it does mean that unless app rop riate measures are taken to elim inate this 

deficit the some $4 billion reserve in the account now would be exh austed in 

several decades, and the rea fter funds would not be available for the payment 

of benefits. The bill would reduce this deficit to well within the range of 

ac tuarial tolera nce ; namely, to $16 million a year or 0.34 perc ent of taxable 

payroll. This reduction would be accomplished (1) by increasing the taxable 

and creditable maximum monthly compensation from $400 to $450, (2) indirectly from certain changes in the milita ry service provisions of the Railro ad 

Retirem ent Act, and (3) by providing a new formula for int ere st rates on 

special obligations issued by the Treas ury to the Railro ad Ret irem ent Account.

INC REASE IN MAX IM UM MO NT HL Y COMPE NSA TIO N

The bill would increase the limits on tax able and creditable compensation 

from $100 to $450 a month with respe ct to compensation paid for months after 

the month of enactment. This extension would increase annual reven ue to the 

system on a level basis by $71 million, and increas e benefit costs by $40 million 

a year, resulting in a net reduction in the deficit of $31 million a year. It is 

estimated th at one-fourth of the employees would pay nothing more since the ir 

monthly wages do not exceed $400. Others would pay various amounts ranging 

from a low of a few cents a month up to a high of $4.56 add itio nal per month 

based on the tax rate of 9% percent to go into effect in 1968. Under the present 

rate of 714 percent the high will be $3.63 per month where the compensation 

reaches the new monthly limit of $450.

One-half of the $71 million additio nal revenue will be paid by the employers 

and one-half by the employees. The employees’ sha re will, of course, be $35.5 

million, but they will receive add itio nal benefits costing $40 million, or $4.5 

million more than they will have paid in additional taxes.

A year of work und er the higher base at full compensation will add 83% 

cents to the monthly ann uity amount of an employee. The increase can add 

only $54.75 to an employee’s annual taxes at the highest scheduled ra te of 9% 

perc ent which would go into effect in 1968. Under the rate now in effect of 7% 

percent there can be added only $43.50 a year. Thus, in the case of a man 

who works und er the higher limit only 1 year, the approximate yea rly increase 

of $10 in his ann uity because of th at year will, over a period of about 13 

years, which is the life expectancy of a man at the retirem ent age of 65, 

add an average of about $130 to his total annuity payments. The compensation limit increase will, therefore, be to the adv antage of the average employee. 

This comes abo ut obviously from the fac t th at the employer pays taxes equal 

to th at of the employee. In any event, und er section 5(f ) (2) of the Railroal Retirem ent Act, a lump sum slightly in excess of the total taxes paid 

by an employee und er the Railro ad Retirem ent Tax Act. minus all benefits paid 

to him or to others on the basis of his service, is payable after his death 

to his designee or survivors. This is clear assurance aga inst any loss of railroad retireme nt tax es paid by an employee.

To summarize, the increase in the monthly taxable and cred itable compensation from $400 to $450 for the railroad reti rem ent system will res ult in 

additional worthwhile benefits to employees, and will reduce the actua ria l 

deficit in the system from $77 million a yea r to $46 million a year.

MILIT AR Y SERVICE CREDITS

The Railroad Retirem ent Act provides for crediting toward ann uities and 

lump-sum benefits all months of certain military service. With respect to 

such service rendered prior to 1937, the Fed era l Government reimburses the 

Railroad Retirem ent Account for th at pa rt of the cost of his ann uity based on 

his military service. The amount of the Government’s obligation in such case is 

neither determ ined nor paid before the benefit (on the basis of such militar y 

service) is awarded. The life expectancy of the person entitled to monthly
RAILROAD RET IREMENT AND UNEMPLOYMENT INSURANCE 4 3

benefits based in part on milita ry service and the amoun t of such benefits at tr ibuted to militar y service determine the amount to be paid by the Government. Such determination is not subject to change regardless o f whether the 

individ ual dies before or aft er his assumed life expec tancy.

With respect to milita ry service rendered aft er 1936 and before 1957, the 

Fed era l Govern ment reimburses the Railro ad Retire ment Acco unt on a 

current tax basis, tha t is, the Governm ent pays an amount equal to the 

employer and employee taxe s (payable by covered employers and employees 

under the Rai lroad Retir emen t Ta x Ac t) on $160, the amount a railr oad 

employee is deemed to earn in each month of creditable militar y service. 

Wi th respect to credi table milita ry service in this period, the Governm ent owes 

the Railro ad Retir emen t Acco unt about $160 milli on. Because of the Gov ­

ernment’s obligation to the social security system for the same militar y service, 

the Bureau of the Bud get has opposed an appro priatio n of the amount owing 

the Railro ad Retirement Acco unt.

With respect to milita ry service rendered in the period aft er 1956, the Gov ­

ernment’s oblig ation is also on a current tax basis , except tha t the amount 

owing the railr oad retirement account is reduced by the amount payable 

to the socia l security system for the same milita ry service.

In order to remove the objections of the Bur eau of the Bud get to appropriations to the railroad retirem ent accoun t of amount s tota ling about $160 

million due the account, this bill would amend section 4(n) of the Rai lroad 

Retirement Ac t. The amendment provides tha t with respect to milita ry 

service rendered aft er June 30, 1963. the Government’s obligation for the 

cred iting of such service toward benefits under the Railro ad Retiremen t Act 

would be on an add ition al cost basis, the same as with respect to militar y 

service rendered before 1937, excep t tha t with respect to mil itar y service 

rendered after Ju ne 30, 1963, the amount which the Govern ment will have to 

pay into the railr oad retirem ent account as add ition al cost (determined the 

same as with respect to milita ry service rendered before 1937) will be increased by an amount sufficient to cover a proport ionate share of the administrative expenses and the interest charges on the unfunded liab ilit y of the 

railroad retirem ent system.. Th is addition al amou nt would be computed from 

the ratio of the level costs of the system to the portion there of remaining after 

the deduction of adm inis trative expenses and inter est charge s on the unfunded liabil ity as modified for the effects of the finan cial interchange 

with the social security system. On the basis of the las t act uaria l valua ­

tion, this addition al amoun t would come to about 25 percent. Another amendment in the bill would remove all possibilitie s of duplicat e payments by the 

Govern ment to the railr oad retirem ent system and the social security system 

for the same milita ry service credits.

The Railro ad Retirem ent Board , which adm inisters the Railro ad Retir emen t 

Ac t, has been assured by the Bureau of the Budge t tha t upon the enactmen t 

of these amendments, the Bur eau wil l no longer object to appropriations to 

the railr oad retirement account of amounts tota ling about $160 million , with 

intere st, due the railr oad retirement accoun t. Th is appropriation will result 

in an additional income to the railroad retirement account of $5 millio n a 

year . This will reduce the defic it in the railroad retirem ent system of $46 

million a year lef t aft er the effect of the increase in the compensation lim it 

($77 millio n minus $31 m illion) to $41 millio n a year.

INTEREST RATES

More than three -fourths of the fund s in the railroad retirement account 

are now invested in specia l oblig ation s of the Tre asury which earn 3 percent 

interes t. The bill would require tha t special obliga tions issued to the ra ilroad retirement account bear an interest rate equal to the average inve stment yield of all marke table Treasury obliga tions having an unexp ired 

mat urity of 3 or more years. The bill would retain the present 3-percent rate 

as a minimum guarantee . Th is new form ula would produce a rate at the 

present time of about 3% percent. The bill would also require the Tre asu ry to 

conver t, upon enactm ent of the bill, the 3-percent specia l obliga tions now in 

the railr oad retirem ent account into new speci al obliga tions with inte rest 

determined under the new form ula.

Thsi chang e in inter est rates, includin g the retention of the 3-percent rate 

as a floor, and the immediate conversion of the present 3 percent specia l obli gations into the new obliga tions, would add to the railroad retirem ent accou nt
44 RAILROAD RET IREMENT AND UNEM PLOYMENT INSURANCE

about $25 million a year on a longrun basis. This will reduce the deficit in 

the railroad retirement system of $41 million a year left aft er the effect of the 

increase in the compensation limit and the appropriation resulting from the 

revision of the military service provisions ($77 million minus $31 million 

minus $5 million) to $16 million a year, which is well within the limits of 

actuarial tolerance.

THE 3-PERCENT MI NIMU M GUARANTEE

It is very important for the railroad retirement system that the present 3- 

percent rate be retained as a minimum guarantee. Section 15 of the Railroad 

Retirement Act requires the Railroad Retirement Board to make actuarial 

valuations of the railroad retirem ent system once every 3 years. Upon enactment of this bill, the Board would assume tha t the special Treasury obligations 

in the Railroad Retirement Account would earn interest at the rate of 3.43 

percent a year on a level basis. If the 3-percent guarantee were eliminated 

from the bill, the Board would have to take into account the possibility tha t 

the average market yield would sometimes fall below 3 percent (even though 

this is very unlikely) and assume an interest rate of 3.38 instead of 3.43 

percent. The congressional policy to aid the railro ad retirement system to the 

extent of providing for it a 3-percent guarantee is evident from the fact that 

such guarantee has been in the act since the beginning of the system in 1937, 

when the prevailing investment yield on general Government obligations was 

well below 3 percent. The railroad system began paying monthly benefits from 

its inception, as contrasted with social security, which began paying only in 

1940, and even then in very limited amounts. With a payroll only 6% percent 

tha t of OASI in 1940, the railroad system paid nearly twice the benefits of 

OASI that year. For the 4 years 1937--40, inclusive, the railro ad system 

paid $282 million more than OASI in benefits. The Federal expenditures for 

relief, during those early years in particular, were less by many millions by 

virtue of the fact tha t the railroad industry, to the added burden both of the 

employees and carriers, paid high contributions to take care of its retired 

persons, many of whom would have otherwise been on relief. This was recognized by the Federal commitment in the Railroad Retirement Act, putting 

a 3-percent floor on the interest the Government would pay for the use of the 

railroad retirement reserve funds. This commitment should continue to 

be kept. Nothing has happened to w arrant the assumption that this considered 

attitude of Congress toward the railro ad retirement system has changed in this 

respect.

IMMEDIA TE CONVERSION OF SPECIAL 3-PERCENT OBLIGATIONS INTO OBLIGATIONS WIT H

INTEREST BATES UNDER TH E NEW FORMULA

It is equally important that the provision in the bill for the immediate conversion of the present 3-percent special obligations into the new special obligations bearing interest under the new formula be adopted. In the absence of 

such immediate conversion, the Board would have to assume an interest rate 

on the funds in the special obligations in the Railroad Retirem ent Account of 

3.36 instead of 3.43 percent. Moreover, if, in addition, the 3-percent minimum 

guarantee were not adopted, the Board would have to assume an interest 

rate of 3.31 percent instead of 3.43; and this would result in a projected loss 

to the Railroad Retirem ent Account of $8 million a year.

In view of the heavy burden on the taxpayers who support the railro ad 

retirem ent system, as evidenced by their taxes being substantially greater 

than those assessed under the social security system, as well as the fact tha t 

legislation further increasing such railro ad taxes is now needed, it seems only 

equitable that the railroad system discontinue as soon as possible what in 

effect amounts to a subsidy to the Federal Government resulting from the 

Government’s using railroad retirement funds and paying less than the going 

rate of interest. Immediate conversion of the railroad retirement account 

is entirely appropriate.

The obligations, newly issued to the social security system, and the civil 

service retirement systems have, for several years, earned interest at rates 

equal to the average marke t yield on obligations which are not due or callable 

for 4 years. The provision in this bill as to maturities of 3 or more years, 

places the Railroad Retirement Account at a disadvantage in comparison to 

the two other funds, the interest rate s of which are determined from obligations having 4 years to run. The retention of the 3-percent rate as a floor,
RAILROAD RET IREMENT AND UNEM PLOYMENT INSURANCE 45

and the immediate conversion of the present special obligations in the Railroad Retirement Account, as provided in this bill, would have no adverse 

effect on the social security and the civil service systems. Special consideration should be given the railroad retirement system because the Railroad Retirement Account has lost, ever since 1956, to the same extent tha t the Government has gained from the fact that the Treasury paid no more than 3 i>ercent 

on the special obligations in the Railroad Retirement Account, but had to pay 

more on funds borrowed through general obligations.

We submit tha t upon consideration of all the equities involved, the 3-percent 

guarantee and the immediate conversion provisions in the bill should be 

adopted.

SU M M A R Y OF TIT LES I AN D I I OF T H E BIL L

(1) The additional income to the railroad retirement system from the change 

in the maximum creditable and taxable monthly comi»ensation from $400 to 

$450, would amount to $31 million a year.

(2) The income to the system from the resulting appropriations to the Railroad Retirement Account for military service, would be $5 million a year.

(3) The new investment policy, including the 3-percent minimum guarantee 

and the immediate conversion of the present 3-percent special obligations into 

obligations earning interest under the new formula, would net the system $25 

million a year.

The result of the amendments provided in titles I and II of the bill would be 

that the $77 million deficit in the railroad retirem ent system would be reduced by $61 million ($31 million plus $5 million plus $25 million) to $16 

million a year.

T H E RA ILR OA D U N EM PLO Y M EN T IN SU R A N C E SY ST EM

The benefits provided under the Railroad Unemployment Insurance Act are 

financed through contributions payable exclusively by employers. The current contribution rate is 4 percent on compensation up to $400 a month per 

employee, consisting of 3% percent imposed by section 8 of the act and onequarter percent imposed by the Temporary Extended Railroad Unemployment 

Insurance Benefits Act of 1901. This one-quarter percent, however, will not 

apply to compensation paid after December 31,1903.

For the past several years, the railroad unemployment insurance account has 

had to borrow funds to meet the obligations of the Railroad Unemployment 

Insurance Act. This borrowing was pursu ant to authority vested in the Railroad Retirement Board by Public Law 80-28, to borrow funds from the Railroad Retirement Account for the payment of benefits under the Railroad 

Unemployment Insurance Act. At the present time, the amount owing from the 

railroad unemployment insurance account to the Railroad Retirement Account 

is more than $300 million.

In order to make it unnecessary for further borrowing of funds from the 

railro ad retirement account, and to permit gradual repayment of the indebtedness to the account, the bill would increase the contribution rate from the 

maximum 3% to 4 percent of payroll up to $400 a month per employee effective 

with respect to compensation paid after December 31, 1963. While the maximum taxable and creditable compensation base would be increased from $400 

to $450 a month for the railroad retirem ent system, there would be no increase 

in the base for the ra ilroad unemployment insurance system.

It is estimated tha t the increase in contribution rate from 3% to 4 percent 

would bring to the railroad unemployment insurance system additional revenues 

amounting to $10.8 million a year.

The bill would amend section 3 of the Railroad Unemployment Insurance Act 

to increase from $500 to $750 the amount required to qualify for benefits under 

the act. In addition, a new entrant, in order to qualify, would have to have 

been paid “compensation” for not less than 7 months in the base year. These 

amendments would be fully effective with respect to base years aft er 1963. With 

respect, to the base year 1963. they would be applicable oidy in cases in which 

the Board finds tha t the employee had less than $500 compensation in that portion of the base year 1963 preceding the first day of the month next following 

the month of enactment. To illu stra te:

(1) An employee’s base year compensation (including pay for time lost) is 

the first compensation he ever had in the service of an employer under the 

act. In such case, beside earning the qualifying amount of at least $750, he
46 RAILROAD RET IREMENT AND UNEMPLOYMENT INSURANCE

must have some o f his compensation paid with respect to not less than 7 separate 

months in the base year. If. however, the employee has had compensation at 

any time before the base year, he would not he a new entrant in tha t base year, 

and thus only the qua lify ing amount of $750 would apply and it would he immaterial in how many months he earned compensation.

(2) Assume that the hill is enacted in Aug ust of 1963. I f the employee had 

been paid such compensation of not less than $500 in the period Janu ar y 1 

to August 31, 1963. he would qualif y for benefits in the benefit year 1964-65 

regardless of whether addition al compensation was paid him and, if he was a 

new entr ant, regardless of whether compensation was paid him with respect 

to not less than 7 months in 1963. Bu t if as of August 31, he had compensation 

of less than $500. he could not qua lify in the 1964-65 benefit year unless during 

the 1963 base year he had at least $750 of such compensation and, if he was a 

new entr ant, he also had the compensation paid with respect to not less than 

7 months in 1963.

It is estima ted tha t these amendments would result in savin gs to the railr oad 

unemployment insurance system of about $6 million a year .

The bill would also amend section 4( a-2) (i) of the Ra ilro ad Unemplo yment 

Insu ranc e Ac t to provide that an indi vidu al who volu ntar ily leaves his work 

witho ut good cause shall not be considered as having days of unemployment for 

a period beginnin g with the day he so lef t and contin uing unt il he has been 

paid “compensation” of not less than $750 with respect to time aft er the beginn ing of such period. Wi th respect to unemployment aft er he has had such 

compensation, the employee would be in exa ctly the same position in which 

he would have been if he had not been disqualified. Fo r example, an indiv idua l 

lef t his work withou t good cause. He applied for benefits under the railroad 

system. Benefits would be denied unless aft er such leav ing he had subsequent employment covered by the railr oad system and was paid tota l compensation (includi ng pay for time lost) of at leas t $750 with respect to that 

employment.

The disqu alification described in the preceding paragraph wil l not apply 

if the Railro ad Retirement Boa rd finds tha t the employee lef t work volu ntar ily 

with good cause, except tha t in such case, the employee would not be considered as having days of unemployment under the Railro ad Unemployment 

Insu ranc e Ac t with respect to any day in a regis tratio n period if such period 

includes a day which is in a period for which he could receive benefits under 

an unemployment law other than the Railro ad Unemployment Insu ranc e Act . 

Th is amendment would be effective with respect to an employee who leaves work 

voluntarily after the enactmen t date of the bill.

Unde r present law, an indi vidu al who leaves work voluntarily is not considered as havin g days of unemployment with respect to any of the first 30 

days aft er he so quit if the Board finds tha t he lef t work volu ntar ily “ without 

good cau se.” The amendment would completely disq ualify such an indiv idua l 

from hav ing a day of unemployment with respect to any day aft er he so lef t 

unt il he has been paid at least $750 in compensation for services rendered, 

inclu ding time lost, after he so lef t. Moreover, even if the Boa rd finds that 

he lef t work voluntarily “ with good cause ” he would not be considered as having a day of unemployment under the Railro ad Unemplo yment Insu ranc e Act 

with respect to any day aft er he so lef t witho ut first exh austing his rights to 

unemployment benefits under any other unemployment law . To illustra te:

An employee left railr oad work voluntarily “ with good cause,” and after 

working in employment covered under a Sta te unemployment compensation 

law, he is laid off. Even though he was laid off from his nonr ailroa d job with ­

out fau lt on his part, he could not be considered as havi ng a day of unemployment under the Rai lroad Unemployment Insu ranc e Ac t with respect to any 

day aft er he so lef t witho ut first exh aus ting whatever rights to benefits he 

may have under the Sta te law whether on the basis of his las t work or some 

other work covered under the Sta te law. If . however, he lef t his las t employment covered under the Sta te law witho ut good cause, he would be disqualified 

from havi ng a day of unemployment under the Ra ilro ad Unemployment 

Insurance Act with respect to any day aft er he so lef t unless and until he 

has been paid compensation (includin g pay for time lost) of $750.

Section 4 (a -2 )( i) as amended by the bill would broaden the scope of this 

section to lengthen the disqu alification period. As amended, this section 

would require investigation of any claim disclos ing a possible voluntary leaving 

of work either with or without good cause unless the disqu alificatio n period
RAILROAD RETIREMENT AND UNEMPLOYMENT INSURANCE 47

had been terminated as above described. In cases of a finding that such leaving 

was for good cause, unless the claimant certifies tha t he lacks qualifying work 

to receive, or lias exhausted, his rights to benefits under any other law and 

there is no evidence to the contrary, this matter would also require investigation. Consequently the findings, claim forms, and guidelines for administerin g this section, will require appropriate detailed revisions, in conformity 

with revised provisions of the section.

It is estimated tha t the amendment of section 4(a -2) (i), as above described 

would save the railroad unemployment insurance system $3.5 million a year.

The additional revenues of $10.8 million plus the $0.5 million savings ($6 

million and $3.5 million) would improve the railroad unemployment insurance system by $20.3 million a year. This, it is estimated, would provide sufficient funds for current benefits under the act and some excess for gradual 

repayment of the indebtedness of the railroad unemployment insurance system 

to the railroad retirem ent account.

Section 10(d) of the Railroad Unemployment Insurance Act provides tha t the 

amounts borrowed from the railroad retirem ent account shall be repaid from 

the railroad unemployment insurance account with interest at the rate of 3 

percent per annum. In view of the new formula for interest rates to be borne 

by the special obligations in the railroad retirement account, the bill would 

substitute for the 3-percent rate, the rates tha t would generally equal the rates 

borne by the new special obligations in the railroad retirem ent account. This 

amendment would be effective with respect to interest on amounts owing after 

June 30, 1904.

Section 8(f ) of the Railroad Unemployment Insurance Act provides tha t 

such part of the contributions collected under the act as equals 0.2 percent of 

total compensation on which the contributions are based shall be deposited in 

the railroad unemployment insurance administration fund for administrative 

expenses. This has proved to be insufficient and the bill would change the 

0.2 percent to a 0.25 percent effective as to all contributions collected by the 

Board afte r 1901.

AM EN DM EN TS TO THE TEMP ORARY EXTENDED RAILROAD UN EM PLOY ME NT INSU RA NC E 

BE NE FITS ACT OF 19 61

The last sentence of section 4 of the Temporary Extended Railroad Unemployment Insurance Benefits Act of 1901 provides for repayment to the 

Treasury of the amounts borrowed by the Board to finance the temporary 

benefits provided by this act. The bill would repeal this sentence effective with 

respect to contributions collected on compensation paid afte r December 31, 

1903, and provide, instead, tha t such part of such contributions as equals 

one-fourth of 1 per centum of the compensation on which the contributions are 

based shall be applied by the Board exclusively for such repayment.

SUMM AR Y OF TIT LE I I I OF TH E BIL L

(1) The additional income to the railro ad unemployment insurance system 

from the increase in the maximum contribution rate payable by employers from 

3% to 4 percent of payroll up to $100 a month, would amount to $10.8 

million.

(2) The savings to the system from the amendment of section 3 of the 

Railroad Unemployment Insurance Act would amount to $6 million.

(3) The savings to the system from the amendment of section 4(a -2) (i) of 

the Railroad Unemployment Insurance Act would amount to $3.5 million.

(4) The additional income to the railroad unemployment insurance administration fund from the amendment of section 8(f ) of the Railroad Unemployment Insurance Act would be about $2 million a year.

The expected results of the amendments provided in title III would be that 

no further borrowing of funds from the railroad retirem ent account would 

be necessary for the payment of benefits under the Railroad Unemployment 

Insurance Act, gradual repayment of the amount due the railroad retirement 

account from the railroad unemployment insurance system would be possible, 

and sufficient funds would be available for administrative expenses of the Railroad Unemployment Insurance Act.

It is essential tha t the amendments proposed by this bill be enacted in this 

session of Congress in order (1) to place the railroad retirement system in 

substantially sound financial condition, (2) to make unnecessary further borrowing from the railroad retirement account for the payment of benefits under
48 RAILROAD RETIREMENT AND UNEMPLOYMENT INSURANCE

the Railro ad Unemployment Ins ura nce Act, (3) to permit a gradua l repa yment of the more tha n $300 million indebtedness of the railroad unemployment, 

insu rance system to the railro ad retireme nt account, and (4) to make ava ilable urgently needed funds for administration of the Railro ad Unemployment 

Ins ura nce Act.

Sincerely yours,

Association of A merican R ailroads,

D. P. Loom is,

President.

Railw ay Labor E xecutives’ Association,

G. E. Leig hty,

Chairman.

T he American Short Line Railroad Association,

D. L. Manion ,

Preside nt.

Mr. Loomis. I do not think I need to take the committee’s time 

to make any other comment, except to say tha t the committees 

representing the Association of American Railroads and the Railway 

Labor Executives Association started meeting on this problem late 

in March. Those meetings continued oil' and on until the latter part 

of July. Many avenues were explored. We had the actual and full 

cooperation and assistance of the Railroad Retirement Board and 

its staff, and late in Jul y we reached agreement on principle and 

then got down to agreeing on the bill which was sent to the chairman and which has become H.R. 8100.

I think it is considerable of an achievement th at we have been able 

to come together on this bill and I sincerely hope the committee 

will take tha t into consideration in its deliberations. 1 am available 

for any questions.

The Chairman. Mr. Loomis, let me say the committee will take 

tha t into consideration and give great weight to it.

Mr. Loomis. Thank you, sir.

The Chairman. I can speak, I know, for every member of this 

committee when I say tha t we do compliment you and the others 

for this outstanding achievement, demonstrating again how the 

people who are primarily involved in this very g reat problem involving one of our most outstanding industries can resolve their differences when they really put themselves to it.

Mr. L oomis. Thank you.

The Chairman. I compliment you highly and want to thank you 

Are there any other questions by members ?

Mr. Younger. I have just one, Mr. Chairman.

Mr. Loomis. Tha t seat has not gotten cold since you were here 

before. We appreciate it. In arriv ing at these figures have you 

taken into consideration the fact, which is a fact, tha t over a period 

of years there has been a declining number of emplovees ?

Mr. Loomis. Yes.

Mr. Younger. That has been taken into consideration in connection with the figures that you have arrived at?

Mr. L oomis. Yes. All the figures were furnished by the Railroad 

Retirement Board, and I understand tha t has been taken into 

account.

Mr. Y ounger. Thank you very much.

The Chairman. Are there any further questions? If not, Mr. 

Loomis, thank you so much.

Mr. D. L. Manion, president, American Short Line Railroad 

Association.
RAILROAD RET IREMENT AND UNEM PLOY MENT INSURANCE 49

STATEMENT OF D. L. MANION, PRESIDENT, AMERICAN SHORT 

LIN E RAILROAD ASSOCIATION

Mr. Manion. Mr. Chairman, members of the committee, my name 

is D. L. Manion. I am president of the American Short Line Railroad Association with oifices at 2000 Massachusetts Avenue here in 

the city.

The American Short Line Railroad Association is a nonprofit unincorporated association of 251 common carriers by rail, representing an 

investment of $1.6 billion, and operating over 14,300 miles of first 

main track.

During 1962, the last year for which we have statistics, the member 

lines of this association employed about 38,900 persons who were 

paid over $242 million in wages, and these railroads paid about $6A

million in taxes.

In behalf of the member lines of this association, I appear in support of H.R. 8100, and wish to endorse the statement tha t Mr. Loomis 

just made and the statement tha t he has filed. As he has testified, I 

joined Mr. Loomis and Air. Leighty, in signing the letter dated August 13, 1963, to Chairman Harris, which letter has been made a 

part of this record. In view of the contents of tha t letter and Mr. 

Loomis’ testimony I do not desire to be repetitious and would therefore advise the committee that the position of this association is similar to that of the Association of American Railroads and tha t I endorse Mr. Loomis’ statement.

Thank you.

The Chairman. Air. Manion, thank you very much. Do you have 

a formal statement you want to file for the record?

Air. Manion. I have no formal statement that I wish to file. I 

endorse Mr. Loomis’ statement completely and do not wish to take 

any more of the committee’s time.

The Chairman. Thank you very much. As I said to Air. Loomis a 

moment ago, and to Air. Harrison and Air. Habermeyer, this committee wants to extend its thanks to your industry and your organizations for the resolution of this problem to do something about a 

very great problem tha t needs attention.

You have shown and demonstrated tha t when the problem should 

be met you have done so, and we compliment you for it.

Mr. Manion. Thank you.

The Chairman. Are there any further questions?

If not, thank you very much.

Air. Robert B. Byrnes, AVashington representative, National Railroad Pension Forum.

STATEMENT OF ROBERT B. BYRNES, WASHINGTON REPRESENTATIVE , NATIONAL RAILROAD PENSION FORUM

Mr. Byrnes. Air. Chairman and members of the committee, my 

name is Robert B. Byrnes. I live at 1703 Rhode Islan d Avenue 

NAY, AVashington, D.C. I am a retired railroad clerk, formerly with 

the Baltimore & Ohio R ailroad, now employed by the National Railroad Pension Forum, Inc., of Chicago, as the ir AVashington representative. I have been instructed by Forum President George Fin negan to favor passage of H.R. 8100 in order to restore the Railroad
50 RAILROAD RET IREMENT AND UNEM PLOYMENT INSURANCE

Retirement System to adequate financial self-sufficiency, as was recommended by President Kennedy.

I have been asked to advise the committee th at railroad employees 

will not be pleased with a tax increase and the reduction in their 

take-home pay, especially when none of the benefits th at railroaders 

have long hoped for are to be granted. Our organization has been 

trying to get four major improvements in the Railro ad Retirement 

Act. Bills proposing amendments tha t will brin g about those improvements have been filed with this committee. Our membership has 

been hopeful that your committee would enact one or more of these 

improvements during this session. Since we recognize the urgency 

of passage of the legislation now under consideration all tha t we can 

hope for is that early in the next session you will give consideration 

to the changes so earnestly desired by many railroad employees. The 

statement made by Mr. Harrison answers this question.

Many employees will resent the proposed increase in the wage base 

from $400 to $450 a month because it will be the means of reducing 

the amount of the supplemental annuity they expect from the railroad 

companies. Some of the supplementary annuity plans provided by 

the railroads require a premium to be paid by the employee on 

monthly income earned in excess of the wage base used in railroad 

retirement. Many men and women who qualify for pension privileges 

now, under the $400 a month wage base, will henceforth be ineligible 

for participation in the company pension plan unless they earn more 

than $450 a month. In fact, under the proposed increase wage base, 

an employee may earn up to $449.99 in a month and be deprived of 

his right for a supplemental annuity. And a monthly wage slightly 

under $450 is a typical income for a great many railroaders.

But such an increase in the wage base will effect all railroad employees and will bring about a reduction in many future annuities. 

The pension plan in use on three large railroad companies in this area 

requires that a premium be withheld on earnings above the wage base. 

When the wage base is increased the amount of money to be credited 

to the employees supplemental annuity account decreases. Consequently, when he retires, the pension plan account is calculated on a 

smaller amount than would be the. case if the wage base remained at 

its original figure. By increasing the wage base you are disqualifying 

many employees from participation in their company's pension plan 

and you are also bringing about a reduction in the amount of supplemental annuity tha t each eligible participant will receive.

We do not know how the actuaries of the Railroad Retirement 

Board arrived at their decision to increase the wage base. It is 

not being done for the railroad unemployment insurance account and 

it is not proposed for the social security system. My question is: 

Why now allow the wage base to remain as i t is and increase the tax 

on the $400 a month wage base so that the railroad retirement system 

will benefit in the same amount proposed by the bill ?

We suggest that the Railroad Retirement Tax Act be amended to 

a PPly taxes of a little more than 16 percent on a $400 wage base. 

In tha t way the desired objective will have been achieved but with 

less pain to a great many railroad workers in all branches of employment. Furthermore each and every employee will help to increase the income for the railroad retirement system.
RAILROAD RET IREMENT AND UNEMPLOYMENT INSURANCE 51

H.R. 8100 proposes an increased interest rate on the reserve fund 

of the railroad retirement account. Some members of the committee may remember that Mr. Tom Stack, former president of our organization, suggested such a course a number of times during past 

hearings on railroad retirement legislation before this committee. 

His suggestions were not accepted. Indeed they were called intemperate by a distinguished Congressman. I am sure tha t Mr. Stack 

will be pleased to know tha t what was rejected a few years ago is 

being accepted now as sound and valid policy.

Gentlemen, I want to express the sincere gratitude of the membership of the National Railroad Pension Forum, Inc., for the 

kindness and consideration this committee has always given the 

views of our spokesmen.

Thank you.

The Chairman. Thank you, Mr. Byrnes. We recall the innumerable appearances of Mr. Stack before the committee, and I think 

many of us recall his visits to our offices in which he discussed the 

interests of the members of your organization in the various proposals. I hope you will convey to him our very best wishes.

Mr. Byrnes. Thank you.

Mr. Younger. I have just one question. How many members do 

you have in your organization ?

Mr. Byrnes. At the present time, including the members last 

year, around 36,000. "We consider a man no longer a member if he 

doesn’t pay his dues during the year because very likely the dues 

will come in at the end of the year.

Mr. Younger. Tha t is all.

The Chairman. Are there any other questions by members of the 

committee? If not, tha nk you very much.

Air. Byrnes. Thank you, Mr. Chairman. I would like permission 

to have my statement included in the record.

The Chairman. If there is no objection, it will appear at this 

point.

(The statement mentioned follows:)

Sta te me nt by Mb. R obert B. B yr nes of th e Nation al R ailroad P en sion

F oru m, I nc., Chic ago, I I I.

Mr. Chairman and members of the committee, my name is Robert B. Byrnes. 

I live at 1703 Rhode Island Avenue NW., Washington, D.C. I am a retired 

railro ad clerk, formerly with the Baltimore & Ohio Railroad, now employed by 

the National Railroad Pension Forum, Inc., of Chicago, as their Washington 

representative. I have been instructed by Forum President George Finnigan 

to favor passage of H.R. 8100 in order to restore the railroad retirement system 

to adequate financial self-sufficiency, as was recommended by President Kennedy.

I have been asked to advise the committee th at railroad employees will not be 

pleased with a tax increase and the reduction in their take-home pay. especially 

when none of the benefits that railroaders have long hoped for are to be granted. 

Our organization has been trying to get four major improvements in the Railroad Retirement Act. Bills proposing amendments tha t will bring about those 

improvements have been filed with this committee. Our membership has been 

hopeful tha t your committee would enact one or more of these improvements 

during this session. Since we recognize the urgency of passage of the legislation 

now under consideration all tha t we can hope for is tha t early in the next session you will give consideration to the changes so earnestly desired by many 

railroad employees. The statement made by Mr. Harrison answers this question.

Many employees will resent the proposed increase in the wage base from 

$400 to $450 a month because it will be the means of reducing the amount of the
52 RAILROAD RET IREMENT AND UNEM PLOYMENT INSURANCE

supplemental annuity they expect from the railro ad companies. Some of the 

supplementary annuity plans provided by the railroads require a premium to be 

paid by the employee on monthly income earned in excess of the wage base used 

in railroad retirement. Many men and women who qualify for pension privileges now, under the $400 a month wage base, will henceforth be ineligible 

for participation in their company pension plan unless they earn more than 

$450 a month. In fact, under the proposed increased wage base, an employee 

may earn up to $440.09 in a month and be deprived of his right for a supplemental annuity. And a monthly wage slightly under $450 is a typical income 

for a great many railroaders.

But such an increase in the wage base will effect all railroad employees and 

will bring about a reduction in many future annuities. The pension plan in 

use on three large railroad companies in this area requires tha t a premium 

be withheld on earnings above the wage base. When the wage base is increased the amount of money to be credited to the employees supplemental 

annuity account decreases. Consequently, when he retires, the pension plan 

account is calculated on a smaller amount than would be the case if the wage 

base remained at its original figure. By increasing the wage base you are 

disqualifying many employees from participation in their company's pension 

plan and you are also bringing about a reduction in the amount of supplemental 

annuity tha t each eligible particip ant will receive.

We do not know how the actuaries of the Railroad Retirement Board ar ­

rived at their decision to increase the wage base. It is not being done for the 

railroad unemployment insurance account and it is not proposed for the social 

security system. My question i s : Why not allow the wage base to remain as it 

is and increase the tax on the $400 a month wage base so that the railroad 

retirement system will benefit in the same amount proposed by the bill?

We suggest that the Railroad Retirement Tax Act be amended to apply taxes 

of a little more than 10 percent on a $400 wage base. In that way the desired 

objective will have been achieved but with less pain to a great many railroad 

workers in all branches of employment. Furthermore each and every employee 

will help to increase the income to the railroad retirem ent system.

H.R. 8100 proposes an increased interest rate on the reserve fund of the railroad retirement account. Some members of the committee may remember t hat 

Mr. Tom Stack, former president of our organization, suggested such a course 

a number of times during past hearings on railroad retirement legislation before 

this committee. His suggestions were not accepted. Indeed they were called 

intemperate by a distinguished Congressman. I am sure tha t Mr. Stack will 

be pleased to know that what was rejected a few years ago is being accepted 

now as sound and valid policy.

Gentlemen, I want to express the sincere gratitude of the membership of the 

National Railroad Pension Forum. Inc., for the kindness and consideration 

this committee has always given the views of our spokesmen. Thank you.

The Chairman. I have statements for the record by Mr. George 

Finn igan, president, National Railroad Pension Forum, and Mr. 

Clarence B. Carter, national secretary of the Railroad Pension 

Conference.

(The statements follo w:)

Sta tem en t of Georg e F in n ig a n , P res id en t of t h e N ati onal R ail road P en sio n

F orum, I n c.

Mr. Chairman and members of the committee, my name is George W. 

Finnigan. I reside at 2832 East 78th Street, Chicago, Ill. I am president of 

the National Railroad Pension Forum, Inc., the national headquarters of which 

are located at 2403 East 75th Street, Chicago, Ill.

I speak on behalf of some 35,000 railroad employees and former railroad 

employees, who have a large stake in the welfare and stability of the railroad 

retirem ent system and its intended purpose; that of providing security for 

the railroad worker, when his days of labor have been accomplished and for 

the protection of his survivors, in event of the death of the employee. Twentyfour hundred of our membership are retired employees and miscellaneous exrailroad employees, who have made dues contribution for the current year. 

The balance are workers, of every station, in every craft, in every type of 

job on large and small railroads and affiliated agencies over the country.
RAILROAD RETIREMENT AND UNEMPLOYMENT INSURANCE 53

Our executive board is guided by the needs and pleas of the membership. 

Our contact with the members is in person, by mail and through active forum 

group leaders in hundreds of work areas. In my position, I am bound to 

follow the direction of the executive group, in the pursuit of practical, feasible 

and reasonable improvements in the Railroad Retirement Act and the elimination of inequities in the program.

I am aware of the need fo r bolstering the financial structure of the railroad 

retirem ent system, at this time. I believe tha t passage of bill H.R. 8100 

will accomplish the necessary and I recommend its passage.

With due concern, I realize tha t bill H.R. 8100 is founded on necessity, as 

pointed up in the remarks of President Kennedy, when he signed Public Law 

87-285, in September of 1961. I am further concerned by the fact tha t the 

existing condition did not arise overnight but has been building up for 7 

or 8 years, with little or no action to avert the crisis. Avenues were open to 

increase the revenue to the retirement fund. The rate of interest paid by the 

Government, for use of the railroad retirement funds, has been inappropriate 

for many years and not compatible with interest rates throughout the banking field. The interest paid on retirement funds have not been and are not 

now on a parity with tha t earned by social security and Federal civil service 

retirement reserves. Further, railroads in financial difficulties have borrowed 

hundreds of millions of dollars, from outside financial sources, over the last 5 

years, under the Federal loan guarantee provision of the Transportation Act 

of 1958, the interest on which was considerably in excess of the 3 percent 

received for use of railroad retirement reserves. All of these moneys could 

have been borrowed from railroad retirem ent reserves, on authority given by 

the Congress in section 7(a), section 15, subsection (b), of the Railroad Retirement Act, at a handsome advantage to the fund, the employees and to the 

railroads.

While I am happy to see long overdue action on the proposal to adjust the 

interest rate, as advocated by the National Railroad Pension Forum, as far 

back as the hearings before this committee and the Senate Committee on Labor 

and Public Welfare, in 1957, I exceedingly regret that some of the income 

anticipated from the adoption of bill H.R. 8100 is not directed toward removal 

of discrepancies or for an improved retirem ent program.

The most important of the discrepancies in need of correction, is the “dual 

restriction on spouse benefits” provision, the elimination of which is proposed in 

H.R. 804 and other bills of identical purpose, which have been referred to this 

committee. The collection of taxes from the employee and her employer, 

which taxes late r serve to deprive the worker of railroad retirement benefits, 

for which she otherwise qualifies, is rank discrimination. There is other strong 

evidence of the discriminatory nature of this provision, which I shall be 

happy to furnish at any time tha t bill H.R. 804 is to be considered. The cost 

to remove this unjust feature would be covered many times by the anticipated 

income from H.R. 8100.

Rightfully and humanely, a portion of the anticipated additional income 

should be used to increase some of the lower annuities and survivors’ benefits, 

more particularly, the widows’ benefits.

Reduction in the number of railroad employees and the burden of the 

unfunded benefits have saddled the veteran railworker with a tremendous 

burden over the years and instead of increasing the burden, it should have 

been possible by this time, to lower the retirement age to age 62, as proposed 

in bill H.R. 4161 and others of identical purpose, now in the hands of this 

committee.

Removal of the “last employer” clause, as outlined in bill H.R. 3708 and 

others of identical purpose, now in the hands of this committee, should definitely be accomplished. A study of the unf air and detrimental consequences 

of tha t provision justify prompt action to right the wrong by striking this 

provision from the act.

A dual standard is in effect with respect to the treatment of railroad 

retirement annu itants who apply for nonservice connected veterans’ benefits. 

Bill H.R. 2615 and others of identical purpose, now before this committee, 

would exempt railro ad retirement annuities from being reported as income, 

when applying for veterans’ benefits, for those who retire afte r July 1, 1960, 

as was the case for those who retired before tha t date. This change in the 

act would cost the railroad retirem ent system nothing.
54 RAILROAD RET IREMENT AND UNEMPLOYMENT INSURANCE

Our position, with respe ct to ma tte rs concerning railro ad retirem ent, is 

unique, in th at we are influenced by neither labor union lead ership nor ra ilroad management hut advance the views of a surprising percentage of railroad employees, who have no voice and who ar e not consulted or otherwise 

represente d, when changes in the ir retirem ent program or the cost thereof 

are u nde r consideratio n.

As a final thought, with which some of you may be in accord, I am reluctant 

to subscribe to the prac tice of allowing the prin cipa ls involved to con stru ct 

proposed legislation in detail, then ask for immediate action, as prep ared , as 

appeare d to be the case with bill II.R. 8100 and the companion hill in the 

Senate. I feel cer tain that the secu rities deale rs, lobbyists for a corp orate 

group, a minority body or a segment of the underworld would not he encouraged to constru ct legislation with respe ct to their activities and then ask 

for imme diate passage in toto. This would seem to esta blish the opportunity 

for a tilted law, which may pass detection in hasty handling, simply because 

it is claimed that all partie s concerned a re in agreement.

Many thanks to the chairman and to the members for the opportu nity to 

present my views and the views of a large percentage of the ran k and file 

workers.

Statem ent of Clarence B. Carter. National Secretary, Railroad P ension

Conference

Mr. Chairman and members of the committee, you will soon be deliberating 

on legislation designed to incre ase the amount of railro ad retirem ent levied 

on m anagement and their employees.

The Railroad Retirement Board claims a tax boost is necessary because the 

actuaries, “figure the retireme nt system is underfinanced by about $77 million 

a year.” This deficit, the Boa rd declares, “is of a long-range actua ria l ch arac ter” (Labor, August 3,1963).

The RRB also adm its “the re will be sufficient fund s available to pay all benefits for the next several decades, even though this long-range deficit is not removed” (Labor, August 3,1963).

The Railroad Retirem ent Pension Conference is not opposed to the principle 

of tax ing incomes over $4,800 a year. The cost of retirement benefits for our 

senior citizens is a burden upon all of us. And, one should carry the burden 

in proportion to his ability to pay.

In view of the caus e of the long-range deficit in our retirem ent account, 

the question i s : Whose taxes should be increased to meet this deficit?

In thi s particu lar instance, the Railroad Retirement Pension Conference protests the proposal to increase the retirem ent tax levied on the worker. However, were Congress to enact II.R. 1830, introduced by Representative Adam 

Clayton Powell, chairman of the House Labor Committee, which provides 

optional retirem ent at age 60, plus increasing the average retirem ent ann uity 

from $134 monthly to $200 monthly, then, we would not be opposed to the 

proposed retirement t ax boost.

The deficit in question is a management-created deficit, therefore, in all 

fairne ss to the employees, any tax increase needed to offset this managementcreated deficit should be paid entirely by th e carriers.

As the RRB has said, the deficit is “due chiefly to the drop in railroad 

employment,” or in other words, from managem ent’s policy to reduce the work 

force for profit.

Rai l workers from all crafts feel th at the carriers can well afford to pay 

the entire cost to offset the so-called, long-range deficit from the millions of 

dollars they will be saving in wages from those laid off due to the rules 

changes.

PRESE NT FINA NC IN G OF RAILROAD RETIR EM ENT BASICALL Y WRONG

The time has come when Congress should ena ct legislation th at will provide 

for the refinancing of our social railroad retireme nt system. The Railroad 

Pension Conference proposes the followin g:

1. Finance railroad retireme nt from the general revenues.

2. Management to pay twice the amount of tax ation as paid by the employee.

At present our publicly adm inistered social railroad retirement system is

financed as though it were a priva te insurance which is in business for profit, 

and which in tur n needs high prem iums (taxes ) and huge reserves.
RAILROAD RET IREMENT AND UNEMPLOYM ENT INSURANCE 55

Railroad retirem ent is financed on a level-cost ba sis ; tha t is, if payrolls are 

taxed at a fixed rate, and the interest accumulated on taxes until benefits are 

due, our retirement fund will either grow enormously, or become bankrupt, 

depending on the tax rate and the scale of benefits. If the tax rate is set jus t 

right, at a certain time in the future, tax collections and interest income will 

exactly match benefit payments, and will continue to do so indefinitely.

Our retirement tax dollar is split three ways—to pay for those who retire d prior to 1937, and those who became eligible for retirem ent in 1937, but paid 

nothing into the fund; (2) present benefits; (3) to build a reserve fund for 

investment purposes to help maintain the retirement system for future employees (those yet to be born).

Level-cost financing has become too costly for the employee, and is standing 

in the way of improved benefits. We now pay the astronomical tax of 7’/

t

 per­ cent on the first $4,800 of our yearly wage. In January 1965 the tax will jump 

to 8 percent, and in Janu ary I960 to 8% percent, and in January 1969 to 9 

percent. And it will probably continue to rise as management abolishes more 

jobs.

It is now evident we need to depart from level-cost financing and replace it 

with complete financing from the general revenues.

Financing from the general revenues is socially justified. We are not dealing 

with private insurance which must proportion benefits to premiums. Private 

insurance is not concerned with social responsibilities; it cannot without jeopardizing its solvency. Social insurance, however, involves Government policy, 

operating on the whole of society. Social insurance can adju st policies and 

benefits as social needs require.

Financing from the general revenues is not to imply we are to cease to pay 

a retirem ent tax. As already stated above, the Railroad Retirement Pension 

Conference is not opposed to taxing incomes over $4,800 a year. But we do 

say tha t management should pay twice the amount of taxation as paid by the 

employee which will lead to a reduction in the amount of tax as paid by the 

overtaxed employees.

The United States of America is far behind other nations in financing retirement. Some nations paying part of their retirement systems include: Belgium, 

Brazil, Chile, Nationalist China, Leopoldville, Cuba. Cyprus, Denmark. Dominican 

Republic, Ecuador (40 percent), West Germany, Hungary, Iceland (52 percent), 

Ireland, Italy, Japan, Luxembourg (50 percent), New Zealand (annual deficit), 

Norway, Peru, South Africa (all ), United Kingdom, Uruguay, Sweden (70 

percent). (“Social Security Programs Throughout the World—1961”—published by the Social Security Administration). Many of these countries are receiving 

•considerable financial aid from Uncle Sam. While we seem willing to help them 

in financing retirement, we do not do it for ourselves.

TWO-TO-ONE TAXATION IS JUSTIF IED

Two-to-one taxation (management to pay twice the amount of taxation as 

paid by the employee) was at one time law when Congress enacted the 1934-35 

Railroad Retirement Acts (50-50 taxation was forced on us by management 

in 1937).

The authors of the 1934-35 Railroad Retirem ent Acts, and Congress at 

tha t time, clearly foresaw the wisdom, the need, and the justification for 2-to1 tax payment. Especially so, since our retirem ent system took over those on 

the car rier ’s private pension rolls, without any extra contribution from management. Also, the carriers failed to contribute anything for those who immediately went on pension when the law was enacted. This caused the original 

debt, known as the unfunded liability. Thus the employee was forced to 

pay one-half of the cost of this management-created liability.

The gross unfairness of the 1937 agreement was thoroughly exposed by the 

late U.S. Congressman “Bob” Grosser, the fath er of railroad retirement. And 

the brotherhoods have also branded this agreement as a tough bargain.

The late Congressman Grosser said—the carriers—“did not arrange for an extra contribution on their pa rt as was done by all major industries and the 

Federal Government to its own employees. Since the obligation of these two 

obligations (mentioned above Ed.) are those of the railroads only, they should 

have been borne by the railroads themselves, but railroad employees have 

paid, and are continuing to pay one-half of these obligations.” This has 

cost the employees millions of dollars which they should not have had to pay.
56 RAILROAD RET IREMENT AND UNEMPLOYMENT INSURANCE

UNFUN DED LIABILITY

Under the present setup, only the interest due yearly is paid on the unfunded 

liability—on a 50-50 basis between management and the employee. All future 

employees (even those yet unborn) are obligated to pay the yearly interest 

due on this management-created liability. Theoretically speaking, were there 

no unfunded liability, the U.S. Treasury would be paying us 3 percent interest 

on some $8 billion (the reserve fund in the railroad retirem ent account) instead 

of some $4 billion.

Two-to-one tax payment will free the employees from the burden of paying 50 

percent of management’s obligation to their former employees, as it would be 

possible to reduce the amount of tax paid by the employee.

Equal taxation is not only grossly unfair, as the late Congressman Grosser 

has noted, but it has no relationship to today’s work force. In 1050, some 1.2 

million employees were paying toward the cost of our retirement system. 

Today, about 700,000 are financing benefits for some 900,000 beneficiaries. And 

within a few short years, beneficiaries will outnumber the taxpayers by 2 to 1.

Industries in many nations pay a higher retirement tax than is paid by the 

employee; some of these nations are : Argentina, Ceylon, Nationalist China, 

Dominican Republic, Ecuador, France, Greece, G uine a; employer pays all : Iran, 

Iraq, Hungary, Italy, Israel, Libya, Mexico, Morocco, Nicaragua, Norway; 

employer pays 75 percent: Paraguay, Peru, Portugal, Spain, Turkey, United 

Arab Republic, Upper Volta, and Uraguay. (Social Security Programs 

Throughout the World, 1961—Social Security Administration.)

REPEAL SECTION 308 PUBLIC LAW 8 6 -2 8

Rail workers from all crafts urge Congress to prohibit the loaning of 

funds from our railroad retirement account to pay management’s unemployment 

bill.

Thousands of railroaders through lodges resolutions, and lette rs to Congress, 

have urged the repeal of section 308 since its enactment in May 1959.

The payment of unemployment benefits is the sole responsibility of management, it is in no way an employee obligation.

Management now owes our retirement account over $300 million, and it will 

take at least 15 years to repay, providing there is a tax boost, and that unemployment “doesn’t increase further during that time” according to the Railroad Retirem ent Board (Wall Street Journal, May 1, 1963).

To alleviate the deficit in the unemployment insurance account, the Railroad 

Retirem ent Board has proposed a small tax boost on management, from 4 to 

4Vt percent of each employee’s monthly wage..

This piddling tax boost is insufficient and will not absorb the deficit in the 

unemployment insurance account, as more layoffs are coming when the rules 

changes become effective.

The Railroad Pension Conference urges Congress to increase management’s 

unemployment insurance tax to 6 i>ercent on the first $450 of each employee’s 

monthly compensation.

The deficit in the unemployment insurance account was chiefly due to Congress reducing the tax levied on management from 3 percent to one-half of 1 

percent, in 1948. Mr. A. E. Lyon, labor representative on the Retirement 

Board stated : “The estimates made then were bad estimates” (Wall Street 

Journal, May 1, 1963).

In 1948, the Railroad Retirement Board protested reducing the unemployment tax levied on the carriers. They stated : “The 3-percent tax should continue in effect rath er than let the excess fund go to the employers in the 

way of a reward to which they are not entitled, tha t excess should be used 

where possible to bring about more substantial benefits” (Mr. Schreiber, to 

the Senate Labor Committee, May 19, 1948).

The Retirement Board also testified: “It would be a serious backward step 

in the development of railroad social insurance * * * step for which there is 

no justification in view of the needs of railroad employees or the condition of 

the railroad industry. It would be contrary to modern trends in social security.” The Railroad Pension Conference fully supported the testimony of the 

Retirement Board in 1948.
RAILROAD RETIREMENT AND UNEMPLOYMENT INSURANCE 57

CONGRESS SH OU LD ENAC T H .B . 1 8 3 0

In view of the above circumstances mentioned, and the plig ht of those whose 

jobs will be abolished by the work rules, we urge Congress to ena ct the Powell 

bill H.R. 1830. Optional retireme nt at age 00 is needed to improve the job 

opportu nities of the younger employees, as well as an insu rance protectio n to 

the senior employees who face permanen t unemployment from the rules 

changes.

We also urge the 88th Congress to ena ct legislation th at will finance ra ilroad retirement from the general revenues, as well as 2 to 1 tax ation provided 

by the 1934-35 Railroad Retirem ent Acts.

The Chairman. This will conclude the hearings on this subject, 

with special thanks of the committee to all of you gentlemen who 

have appeared here this morning.

(Whereupon, a t 10:55 a.m. the committee adjourned.)