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At this time, while Government employees' salaries are fixed almost the same as they were 30 years ago, private business is steadily increasing the compensation of its employees—the cost of living is mounting higher and higher each day, and despite the aforesaid fact the salaries of some Federal civilservice employees are now being reduced so much that these employees do not receive the much talked of $3 per day of the ordinary laborer, and as they are nearly all of advanced age, and most of them have families to support, cutting down their salaries is a terrific hardship.

Employees of the Government are required to keep their personal appearance up to a certain standard, and if they are to live decently and educate their children, insure their lives and property, belong to a church, a lodge, and an association, and do the many other things that an American workman considers his duty to society at large, it is a serious proposition to do it on $1,000 per annum; yet that is the tendency in certain departments of the Government, and it does not become nor do credit to this rich Government of ours, that can afford to lend billions to foreign governments, to be so parsimonious with its own employees.

It is a false economy and not consistent at a time when every employee is being asked to do his bit-to buy Liberty bonds, subscribe to the Red Crosswhen every citizen is asked to help the blind French soldiers—the suffering of all nations and doze of other charities, and every citizen loves to assist at this time, and Mr. Congressman, incidentally, the rent must be paid on the 1st of the month, food and clothing must be provided for those dependent on the employee who wants to be patriotic and do all these several things, and who may have to provide for a son's family when his boy is called to the front.

For years the different departments have been calling the attention of Congress to the evils of superannuation and been urging for the relief that a retirement law would give them, but while passing “River and Harbor bills " running up into the millions it has been strangely silent on the subject of providing a pension for those who have grown old in the service of the Government and become superannuated. It has sat silent while a witness to the dropping of old men from the pay rolls of the different departments. men whose only crime has been age, and the only charge made against them is that they have lived long enough and served long enough to be physically unable to work as well as they did 40 or 45 years ago.

It is wrong, all wrong! Yet to be fair to those who are responsible for the work of the different departments and branches of the Government service, we insist that the blame for this state of affairs lies with Congress. The departments are entitled to the relief a retirement law would give them. They can not give the services they should with 7,000 superannuated employees doing from 75 to 25 per cent of work.

Congress is to blame, and so if these Congressmen find themselves the recipient of hundreds of protests from those whose salaries are being reduced, they will please remember that it is because they have not acted on a subject that is to-day, and has been for several years, the most important social issue in private employment, and is the paramount issue among Federal employees.

Congress has allowed “big business” to show them the way to adopt up-to-date methods of handling their employees, and yet has not taken advantage of the proven benefits a pension law would bring to their own employees.

Something must and should be done to relieve the situation. Congress can not afford to sit passive and witness deserving employees, many of them veterans of the Civil War, reduced in salary so as to earn just an existence.

Retirement is the one issue to-day with the employees of the civil service and will continue to be until such a time that Congress places a just and equitable retirement pension law on the statute books of the United States, and so we hope that some forward movement or progress be advocated, even in the special session, in order that quick action may result as soon as Congress meets next December.

Give us preparedness for civil service!
A retirement law will prepare the Government for a more efficient service!
It will combine efficiency and economy with humanity!

The CHAIRMAN. I want to say at the outset that I have no plan of my own, because I have not studied the subject sufficiently to have any views about it, but I would like to have your idea now how many of these clerks would be affected.

Mr. GOLDSCHMIDT. Immediately?
The CHAIRMAN. Yes.
Mr. GOLDSCHMIDT. Roughly speaking, 7,000.

The CHAIRMAN. What is your idea about a retirement law with contributions by those in the service?

Mr. GOLDSCHMIDT. The contributory plan is what our association has been advocating for 18 years—that is, a law for retirement with the contributory feature.

The CHAIRMAN. You mean entirely contributory?

Mr. GOLDSCHMIDT. The contributory plan entirely. I will explain that. Exactly as the insurance companies through their actuaries figure out the cost of an insurance policy. You can not make a plan sound, fair, and equitable, that will stand the test of time unless you come right down to the notch on the dollar. That is, to make a study of everything about this question within a certain period of time figured by the life of the people in the service, etc., as the actuaries do for the insurance companies. This principle is applied to the Austin bill in the House which provides

The CHAIRMAN. Representative Austin, of Tennessee?

Mr. GOLDSCHMIDT. Yes, sir. Four per cent to eight per cent; at the present time our salaries could not stand it. That was introduced many years ago when the cost of living was not so high. We can not stand any such contribution to-day as we are right down to rock bottom on the cost of living. It is a fifty-fifty proposition we advocate now. If they must have a contribution from the employee, if the Government can not stand it all, they should divide the cost.

I am employed in the Postal Service. We did not come in for this 5 per cent increase, and here we are getting the same old salaries, liberty bonds to buy, our little bit to do, Red Cross help, taking care of the families of those we are related to, doing what we can to assist the Government in its time of need. We have thousands of ways to spend the little salaries we are getting at the present time. That is not exaggerated.

The CHAIRMAN. What position do you hold in the Post Office Department?

Mr. GOLDSCHMIDT. I am in the New York post office.

The CHAIRMAN. In the New York post office, under the Post Office Department?

Mr. GOLDSCHMIDT. Yes, sir.

The CHAIRMAN. You say that 5 and 10 per cent increase applies only to the Washington office?

Ér. GOLDSCHMIDT. It does not apply to any part of the Postal Service.

The CHAIRMAN. You mean it does not apply to any part of the Postal Service!

Mr. GOLDSCHMIDT. Yes, sir.
The CHAIRMAN. Does it apply to every other service?

Mr. GOLDSCHMIDT. I believe it applies to every other branch of the civil service.

Mr. THOMAS F. FLAHERTY (secretary of the National Federation of Post Office Employees). In the Senate the so-called Smoot amendment was inserted in the postal appropriation bill providing for 15 per cent increase to postal employees receiving $480 and under, and

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there are no such employees in the service, and further for a 10 per cent increase from $480 up and receiving less than $800. Aside from the few rural carriers and a few employees in the mail-bag repair shop, no postal employee will receive this benefit. Therefore the great army of the postal employees are not included.

The CHAIRMAN. In other words, it applies to every other department except the Postal Service?

Mr. FLAHERTY. Yes, sir.

Mr. GOLDSCHMIDT. Just a few words more. We have had that problem in New York City in our civil-service government there with the teachers, the firemen, the street cleaners, etc., employed by the city of New York. All of their pension features have been described in a document by a gentleman by the name of Paul Studensky, which I offer as a part of my remarks.

Mr. Studensky has given some study to this subject, and he has worked it out exactly what we have been advocating for a great many years. He also comes to this conclusion—that while the plan is

ound, the contribution must be so much to make it a sound plan. You can not ask the employee to give such a large amount of contribution, so he advocates a fifty-fifty plan and says it is the only just, fair, and equitable plan. This plan has been put through now in the nature of a teachers' pension bill for the city of New York.

The CHAIRMAN. Do you want the document put in the record of the hearing?

Mr. GOLDSCHMIDT. Yes, sir; I would like to have that put in the hearing.

The CHAIRMAN. Very well.
(The document referred to is here printed in full as follows:)

THE PENSION PROBLEM AND THE PHILOSOPHY OF CONTRIBUTIONS.

(By Paul Studensky, Bureau of Municipal Research, New York City.]

INTRODUCTION.

The first pension fund in this country was established about 60 years ago by the city of New York for policemen. Since then many States and cities have enacted retirement legislation, the number of retirement funds has increased to over 400, and many thousands of public employees have been covered by retirement provisions. Although the expansion of the movement has been rapid, it has by no means reached its limit. As yet a number of States and cities have not adopted any retirement legislation; the 300 pension funds for police and firemen do not include all employees of those two groups; the 100 teachers' pension funds cover only about half of the teachers; and the remaining funds, approximately 40, cover only a small fraction of all other classes of Federal, State, and municipal employees. The most significant fact about the expansion of the movement is that new ideas and methods are clashing with those heretofore prevailing. The pension movement is now reaching a critical point.

The condition of the existing retirement funds which were patterned one after the other is alarming. The recent collapse a number of them showed that all of similar structure have been unsound from the beginning, and must be reorganized. That they embody little or no public purpose and are the outcome of professional movements is indicated by the fact that almost 400 of them belong to the three best organized groups of public employees as against only 40 belonging to all others. Frequently the local leaders of these professions framed the bills and pushed them to passage while the Government and the public remained quiescent. Opposition was avoided by the promoters' argument that these systems would cost little and by provision for small con

tributions only. They did not know the real cost and, ostrichlike, did not care to engage an actuary to determine it, for this would have complicated the matter. They limited their object to establishing some retirement system and making a start, expecting that the future would correct their mistakes. But due to the force of inertia, natural optimism of the people, and continued ignorance of the true condition of the fund these mistakes are not corrected until they have borne their bitter fruits. Some of the funds were provided with definite statutory incomes. Because they had some unexpended cash on hand during the first few years when disbursements were small, they were looked upon as having a “reserve” and as being prosperous. Soon in a number of them the increasing disbursements exceeded the receipts, the reserves were drawn upon and rapidly depleted, benefits were suddenly reduced, and considerable hardship and disappointment was caused. The same fate will meet all other funds of this type unless they reorganize on a sound basis. Systems of another type are those which have no unexpended balances, the Government appropriating each year the amount neeiled for the payment of pensions of that year. Here the expectation was that the Government would support the system whatever its disbursements might amount to in the future. However, as they increased at an accelerating rate the Government was forced in a number of instances to abandon the unsound measures—and the beneficiaries were disappointed. This has recently happened in Pittsburgh, where the city discontinued granting new retirements for teachers and considered the establishment of a sound system.

At the present time, however, a really consistent endeavor is being inade to develop safe standards for pension funds.

The new ideas involve a recognition that a retirement system must serve not only a professional but also a public purpose and must be applied to all public employees; that it must be based upon an actuarial determination of cost, provided with adequare contributions and an adequate reserve and planned to be “as solid and permanent as a rock"; that all the facts must be squarely faced and discussed by all the parties involved and an agreement on a fair division of cost reached ; that a careful consideration by the legislature must take place; and that the system once established must be periodically surveyed by an actuary. The first in this country to appiy new methods to the retirement prohlem were Mr. H. D. Brown, of Washington, D. C., who prepared a series of remarkable reports,' and the Commission of Economy and Efficiency under Dr. F. A. Cleveland. At about the same time the Massachusetts Commission on Pensions made an investigation which resulted in the establishment of the first sound system in this country—that for the Massachusetts teachers. Next the bureau of municipal research made an actuarial investigation of the New York police pension fund and published an exhaustive report which resulted in the establishment of the commission on pensions in charge of the former director and pension experts of the bureau, to investigate all the nine pension funds of New York City and to prepare a plan of reorganization. This commission recently published three reports, which will have a tremendous influence upon the reorganization movement in this country and the first two of a series of bills to give effect to their recommendations. The Carnegie Foundation in its annual reports has made valuable contributions to the movement. The bureau of municipal research continued its work along the following lines: (1) The preparation of a handbook on the theory of the retirement problem, and of a book, the first of a series, on the history and practice of retirement systems in this country and abroad, which will soon appear in print; and (2) the building of the necessary technical force for the investigation of retirement systems and installation of sound pension measures.

In the present pamphlet an attempt is made to outline the philosophy of contributions, because the experience of pension campaigns has demonstrated that misunderstanding of the purposes underlying the establishment and maintenance of a retirement system is the main cause of disagreement between the Government and the employees. Fundamental principles must be agreed upon before discussing the entire framework of a proposed pension system. No attempt is made here to outline an ideal system. The fundamental principles discussed apply generally to all branches of the public service, to teachers, police, firemen, clerks, and laborers.

1 Published by the United States Government. -2

1777--17

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CHAPTER 1.—THE ESTABLISHMENT OF A RETIREMENT SYSTEM, THE DIFFERENT

OBJECTS SOUGHT, AND THE DISREGARD OF ACTUARIAL SOUNDNESS." In the absence of a retirement system the average employee who approaches old age faces a difficult situation. The amount of money he has succeeded in setting aside during his working years frequently is insufficient to secure for him an income on which he can live with reasonable comfort. The older and weaker he grows, the closer he clings to his position, fearing that if he resigns or is dismissed he will be in actual want.

Difficult, too, in the absence of a retirement system, is the position of the administrators of the government. On the one hand, their duty to the public is to eliminate the old employee who drags behind and retards the entire work, causing loss to the community. On the other hand, they see the injustice of dismissing an old employee without any provision for his maintenance and care after he has exhausted his forces in serving the government. Although in theory the government places the responsibility for saving and providing for old age upon the employee, the administrators frequently feel that the government is in a way responsible for the support of its employees when they are worn out. In the absence of a retirement system, the only thing the government can do for its employees is to retain them on the pay roll, although they are no longer fit to do the work. If dismissal is threatened, employees frequently exert political pressure to be retained. The government, in the absence of a retirement system, may vacillate between the two alternatives, sometimes retaining the deadwood on the payroll and making the service less efficient, at other times dismissing an invalid and perhaps doing an injustice to its employee.

The only effective remedy for this condition is the establishment of a retirement system. Sometimes the employees themselves, for the sake of their own welfare, establish a retirement association supported by membership dues. As the disbursements from their fund almost invariably increase after a few years and threaten to exceed its income, the employees finally call upon the government to contribute to the fund and to save it from depletion. Thus the teachers of Boston, in order to supplement their own fund, which was badly depleted, secured in 1908 the establishment of a fund supported entirely by the city; the New York and Brooklyn teachers secured, in 1898, a city subsidy in the form of a 5 per cent contribution from excise taxes; and the Buffalo teachers, in 1909, procured for their fund a city contribution equal to their own.

Frequently the government itself, to promote greater efficiency, establishes a retirement system free from dues on the part of its employees. As the pension payments increase, the government finds itself compelled to request the employees to participate in the expense. Austria presents an example of such a case. The Government of Austria established, in 1870, a retirement system for teachers without requesting them to contribute. In 1896, however, it introduced deductions from salary amounting to 3 per cent and increased them 10 years later to about 4 per cent of salary.

In many cases the employees and the government agree to establish and to support jointly a retirement system which will promote both the welfare of the employees and the efficiency of the service. For instance, in the United States among 92 State and local retirement systems for teachers, 78 systems are now supported jointly by the teachers and by the government.

It must be noted that in this country retirement systems have been generally established without actuarial estimates of their future liabilities and the adequacy of the income provided to meet them; they have, therefore, either approached insolvency 2 or, if a clause has been provided compelling 'the Go ernment to cover any deficiency that might develop, they have become an increasingly heavy burden on the community."

1 Chapters I-IV of this pamphlet originally appeared in the October, November, December, 1916, and February and March, 1917, issues of the American Teacher. Revisions have been made in the text and new sections added.

The teachers' retirement funds of New York, Boston, and Providence and Newport, R. I.

3 The New York police pension fund also presents an interesting illustration of such a condition. The fund was established in 1857, and was provided with an inadequate income, consisting of rewards and sale of unclaimed property. A number of laws increased the income by the application of various new revenues. One of the laws (1892) provided that any deficiency must be supplied by the board of estimate. The first deficiency, amounting to $197.000, appeared in 1904. During the 11 years since 1904 the annual deficiencies have rapidly increased, reaching, in 1915, $1,465,800, or almost 60 per cent of the total amount needed for the payment of pensions during that year. (Report on the police-pension fund of the city of New York, 1913, and report on the nine pension funds of the city of New York, 1916.)

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