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You are Chief Actuary of the Social Security Administration.
Mr. MYERS. Senator Saltonstall, I am Chief Actuary of the Social Security Administration in the Department of Health, Education, and Welfare, but I am not here representing that Department. Rather, I am representing the Board of Actuaries that was established by the original law.
Senator SALTONSTALL. Is your salary partly paid by the Social Security Administration?
Mr. MYERS. My salary is completely paid by the Social Security Administration. "My function on this Board is in an ex-officio capacity. Senator SALTONSTALL. I see. So you
do this other service on the orders of the social security group?
I am not being critical; I am just trying to find out your relationship with the Departinent of Defense.
Mr. MYERS. As you say, there is no relationship with the Department of Defense at all. The law specifies that the person in my job shall be one of the members of the Board of Actuaries.
Senator SALTONSTALL. And, as such, you do not believe this bill, in its present status, is a sound bill or is a bill that the commitee ought to recommend ?
Mr. MYERS. We believe that the bill is a sound bill. We believe, however, that it could be improved in certain ways, and we further believe that passage of this bill in its present form would be a definite improvement in the program and would definitely be beneficial to the Government as a whole, by preventing certain financial losses that have occurred in the past.
Senator SALTONSTALL. But more work should be done on it to improve it, to improve its terms. Do you take that position ?
Mr. MYERS. I would say that we would like to see the bill passed at least as it is, and we would prefer some other changes in it, but we recognize that in this world there always needs to be certain compromises between conflicting views, and we think that this bill is a good bill.
Senator SALTONSTALL. What would be the result, then this is July—what would be the result, Admiral, if this bill was held up until the 2d session of this Congress and some further work was done
Admiral CLAREY. Well, sir, we, of course, are very anxious to get it through because of the liberalizing provisions in the bill, and we feel-and I think Mr. Myers does, too, sir—that the changes which are being made with reference to this group with less than 18 years' service is a significant change in the financial improvement of the bill. It was bad before, and it was for this reason that we have addressed ourselves in devising this recommendation to you specifically to this group, so that now, if these people in the 18-years-of-service-and-less category die from service-connected deaths, they will not participate in the program, and so many of them who do retire with less than 18 years of service die eventually of service-connected deaths, and their dependents are eligible for the dependents' indemnity compensation under the survivor's benefits bill; so many of these people are going to be eliminated under the provisions of this bill that I think Mr. Myers
agrees that there is a great financial improvement being made, even by this change here, sir.
Senator SALTONSTALL. Will this bill eliminate those who have caused a financial loss of $20 million ? Will this bill, if we pass it, eliminate that category?
Mr. MYERS. Yes, Senator Saltonstall. This bill would rectify that situation which, if the bill is not enacted, will continue to go on.
Senator SALTONSTALL. Then you say that while that would be truewe believe there is no necessity for even the restricted participation provided in section 6 of the bill.
Does that mean that you want to eliminate this category entirely from the bill by eliminating section 6?
Mr. MYERS. Our preference would be to do that, but we believe that even if this is not done, the bill does a very substantial job toward remedying the present situation.
Senator SALTONSTALL. And do you believe that if we leave section 6 in, that it is going to continue to carry a financial loss to the Government, or is it going to eliminate that loss?
Mr. MYERS. We believe that that loss will be eliminated. We believe that the new provisions can be controlled financially. Our recommendations are more what might be said to be from an actuarial policy or planning standpoint than from a financial standpoint.
Senator SALTONSTALL. Yes, but we are interested in both, I think, from what the chairman has just said. We do not want to pass an amendment to a bill here if we know, when we pass it, it is going to cause a financial loss, even though the bill is set up under a principle that it is not going to establish a financial loss.
You gentlemen now say that you think it may still establish a financial loss, or is that an incorrect statement ?
Mr. MYERS. I think, Senator Saltonstall, that there will not be any financial loss on this new category that is brought in, in section 6.
We just thought that from an actuarial policy or a program planning standpoint this was not a desirable thing, but from a cost standpoint, I do not thing it is a significant item.
Senator SALTONSTALL. Mr. Chairman, I thank you for the opportunity of asking these questions.
Why will any great loss be established if we hold this bill over until next January and give it consideration at that time?
Mr. MYERS. The reason there would be a continuing financial loss to the system is that persons with under 18 years of service could elect this program immediately upon becoming disabled and retiring, knowing that they were in very poor health and possibly on their deathbed. Thus, there would be very little collected in those cases the system and yet there would be a large amount paid out in benefits..
Senator SALTONSTALL. I think you, Mr. Chairman.
STATEMENT OF LOGAN E. HYSMITH, PERSONAL AFFAIRS OFFICER
IN THE DIRECTORATE OF MILITARY PERSONNEL, HEADQUARTERS, U.S. AIR FORCE
Mr. HYSMITH. Mr. Chairman and members of the committee, my name is Logan E. Hysmith. I am a personal affairs officer in the Directorate of Military Personnel, Headquarters, U.S. Air Force, and Air Force member, and presently chairman, of the Standing Committee for the Uniformed Services Contingency Option Act, established by the Secretary of Defense, pursuant to Executive Order 10499, November 15, 1953. This Executive order was issued by the President for the purpose of delegating to the Secretary of Defense the functions vested in the President by section 8 of the Uniformed Services Contingency Option Act of 1953, Public Law 239, 83d Congress (10 U.S.C. 1444). I am accompanied by Mr. Leroy J. Spence, Directorate of Personnel Planning, Headquarters, U.S. Air Force, Mr. R. L. Walter, Army member of this committee, and Lt. Comdr Paul Rickey, Navy member. In addition, other members of the committee who are present in the room are Maj. John Curd, U.S. Marine Corps; Capt. J. F. Bills, U.S. Coast Guard; and Capt. E. F. Hicks, U.S. Coast Guard and Geodetic Survey.
One of the committee's duties under our charter is to recommend to the Secretary of Defense such changes to the basic legislation as would, in the opinion of the committee and the several services, improve the operations of the act. These recommendations were contained in H.R. 4329, 87th Congress. However, during the hearing on this bill, certain changes were deemed appropriate and the result was the introduction and passage of H.R. 6668.
Before addressing myself to the bill, it appears appropriate to review the history of the Contingency Option Act. The U.S. Government provides members of its uniformed services with a retirement program, awarding retired pay to an individual based upon a variety of factors. A member retiring from the uniformed services may receive his retirement pay as long as he lives, but it does not pass on to his immediate survivors. A widow and dependent children would only be eligible for monthly income from the Veterans' Administration under the Servicemen's and Veterans Survivor Benefits Act, if the member's death in a retired status is considered by the Veterans Administration to have been service connected; that is, his death must have resulted from some condition which can be connected with his service in the uniformed services. Thus a healthy member having completed his career, retired, and been granted retired pay took the family income with him at death.
The Congress addressed itself to this problem in 1953 and after considerable study, a bill was developed which was enacted as Public Law 239, 83d Congress, the Uniformed Services Contingency Option Act of 1953, usually referred to today as USCOA. Under this act, the member may elect to receive a reduced amount of pay in retirement so that he may have the assurance that his widow and dependent children can continue to receive a portion of his retired pay upon his death. The Congress in tackling this problem, truly pioneered in this concept of survivor benefits. Public Law 239 established a period of time in which those members already in receipt of retired pay on the effective date of the act could elect to come under it. It also established that members in the active service would have to make a decision to participate before completing 18 years of service, computed for basic pay purposes. For those individuals then in the active service who had passed their 18th anniversary, a period of 1 year was given within which to make that election. During the first year of operation, 85,000 members were eligible to make election, and over 31,000, or approximately 37 percent, did so.
The Contingency Option Act has been in operation virtually unchanged for over 7 years. Although its operations to date have been very successful, certain facets susceptible to improvement have been noted. These can be divided into two classes; the first referring to the attractiveness of the act, that is, its appeal to the members of the uniformed services, and, second, its actuarial problems. The act was based on the requirement that it would be completely self-sustaining, without cost to the government, except for minor and scarcely identifiable administrative cost. Therefore, certain restrictions in the terms of participation were included with regard to election, modification, and revocation. These restrictions may be summarized as follows: First, in the event a member of the uniformed services failed to make an election prior to the completion of 18 years of service for pay purposes, he would not thereafter be permitted to participate. Second, once a member elected to participate in the act and thereafter modified or revoked his election, such action would not be effective should the member retire within 5 years of the date of such modification of revocation.
At the same time, one very generous provision was contained in the act which permitted members on active duty who were retired for physical disability with less than 18 years of service to elect to participate at the time of their retirement. Therefore, in order to maintain the actuarial soundness of the fund, the board of actuaries were forced to use multiple cost tables. One table applicable to those who were disabled, both personnel formerly retired and those to be retired in the future; two for those retired for other than physical disability, one of which was applicable to those retired prior to May 1, 1954, and one for those retired after that date. Thus a member electing to participate prior to completion of 18 years' service had no way of estimating with any degree of certainty under which table his annuity cost would be based upon his eventual retirement.
The two most frequent complaints from prospective participants have been the rigidity of the election modification (or change) and revocation requirements and the use of the multiple cost tables. The first of these is the subject of this legislation upon which hearings are being held today, and the second (with reference to multiple cost tables) has been the subject of action by the board of actuaries in promulgating, effective January 1, 1961, a single cost table applicable to personnel retiring with more than 20 years of service. In addition, they establish another table for personnel retiring with from 17 to 20 years of service (which could be only for those retiring for physical disability) and another extremely high cost table applicable to those retiring with less than 17 years of service which also could apply only to disability retirements.
Section 2 of the bill is a provision to redefine "active member" to bring it back in line with the definition contained in Public Law 239. A Comptroller General decision (B-121979, March 25, 1955) interprets subsequent legislation as not authorizing inactive members of the Reserve components to make an election. This has worked a peculiar hardship on the Public Health Service, since all of their reserves not on active duty are termed "inactive" even though they are in a category equivalent to the Ready Reserve of the Armed Forces. Many of the Inactive Reserve may actually be participating in the Reserve program of their service and being credited for the time spent in such status for retirement and pay purposes.
Section 2, H.R. 6668, reduces the 5-year waiting period which must elapse between the date of a modification or a revocation, and the date it can become effective, to 3 years. It also provides that should a member fail to make an election prior to the completion of 18 years of service for pay purposes, he may still make such an election; however, it cannot be effective if he retires within 3 years from that date. The Department of Defense believes the 3-year limitation is reasonable but there is a school of thought to the effect that a 2-year period would suffice. In many instances, it would be adequate. However, the board of actuaries originally opposed any change on this point. The 3-year period contained in H.R. 6668 was arrived at as a result of compromise and is one we consider to be appropriate.
This action also contains language to permit a member who is prevented from making an election by reason of military operations to thereafter make one. If, for reasons of this nature, a member is assigned to an isolated station, is missing, interned, besieged, or beleaguered and is thereby prevented from making an election, he may do so within 1 year after the condition which prevented the election ceases to exist.
Another provision of section 2 is concerned with void elections. Many instances have been noted where an election is considered as void because of failure to properly execute a form, designation of an ineligible beneficiary, or be witnessed or dated improperly to mention but a few of the several irregularities that could void the instrument of election. Where time permits, the form is returned for correction but in most instances it is not discovered until the deadline is passed. This provision would permit a valid corrected election to be made at any time within 90 days after the member is notified in writing the election is void.
Under the present law, if a member makes an election he may not withdraw or cancel it regardless of whether or not it is effective. If he desires to participate all he can do is retire before the revocation is effective if such retirement is authorized by law. This section also authorizes the making of a new election in such cases and provides that, for members with less than 18 years' service, a revocation, modification, or change is effective without imposing the 3-year waiting period.
In some instances, members who have been discharged are found to be eligible for retirement. If they have less than 20 years' service the retirement is for physical disability and retired pay is awarded retro