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of the total exits is due to withdrawals, 30 per cent to retirements, and 13 per cent to deaths while in the service.
49. The per cent of total service pensioners to the total of employees will always be small. Any computation that ignores the withdrawal rate will greatly exaggerate the ultimate pension payments when undertaking to forecast the future cost of any pension scheme.
50. To attempt to estimate the amount of pension payments 20, 30, or 50 years hence by reduction of present employees through deaths only will produce results far in excess of those actually realized.
51. The proportionate distribution of employees according to ages and years of service will not be greatly different in the next 30 years from that now existing, whether or not we have any pension scheme. The present distribution shows a very low average age for employees, as indicated below:
52. It will be observed that 145,288 of the total of 184,299 entered the service under 40 years of age, being 78.83 per cent, while 112,009 (61.25 per cent) are at present ages under 40. The number in service less than 20 years is 91.53 per cent of the total as shown below:
Under 5 years in service.
89, 395 45, 034 19, 065 15, 198
Total 20 to 24 years in service25 to 29 years in service30 to 34 years in service35 to 39 years in service40 years in service
7, 385 3, 825 2, 118 1, 229 1, 050
184, 299 53. In Senate Document No. 745 an official is quoted as stating that 8,082 civil-service employees are stricken from the rolls each year on account of deaths, withdrawals, and removals. I think it is within the facts to assume that not exceeding 1,050 exits are due to death, leaving about 7,000 loss to the service from withdrawals and removals. It can be safely assumed that retirement on pension would be substituted for present removals for inefficiency where physical condition, age, or service allowed the pension.
54. There is little doubt of the further fact that many aged and physically infirm, now carried on the rolls through sympathy and whose salaries are in the nature of compassionate allowances, would be retired as disability pensioners
to the benefit of the service and to the saving of from 50 to 70 per cent of the salaries of the large majority thus affected.
55. The result of inaugurating a pension plan, as proposed in House bill 9242, would be to somewhat reduce the rate of removal for inefficiency due to inability to perform duties on account of physical condition, and would greatly improve the service by permitting supervising officials (with human sympathy and compassion) to retire those physically inefficient who are now carried at salaries in excess of the value of service rendered, and in excess of the disability retirement pension provided in the bill.
56. From a comparison of average salaries at the advanced ages with those for younger ages, on the same length of service, it would appear that supervision now tends to reduction of pay where the latter is in effect a pension. No doubt this now is accomplished through transfer from one position to another of less responsibility or simpler duties and with correspondingly reduced pay. A similar (and just) method of treatment would induce retirements on pensions of 30, 40, and 50 per cent of average salaries in cases where the employees did not appreciate their failing powers and did not voluntarily retire.
57. The disability provision in the bill is most commendatory in the way of granting relief to the comparatively few at younger ages who become totally and permanently disabled, and is one of the most important provisions in the way of promoting efficiency without violating the promptings of human sympathy and compassion. Men who are accepted by the Government as servants and become inefficient by virtue of age before the period of service entitles them to a service pension should not be, and are not, summarily discharged. However, they now become a clog upon efficiency and an expense to the Government. The disability provisions in the bill would do justice to the aged employees and benefit the service by a relief not otherwise obtainable.
58. Because there are comparatively few cases of total permanent disability among the great mass of active employees there appears a disposition to slight or ignore the disability provision of the bill, which is one of its most important features (most important in so far as it affects the humanitarian treatment of employees), in ridding the service of the inefficient from physical disability, especially due to advanced age.
59. Excepting for the fact that I have given the question thought and consideration, there would be no material value to any general opinion expressed by me, and I assume your request for an expression is based upon a presumed knowledge of pension schemes.
60. For many years pension funds have existed and actual experience has demonstrated the need for them in public and private service.
61. The relation between the private employer and his employee differ from those of the Government toward the public servant, and there should be a different pension scheme in respect of these two classes of employees.
62. The Government should provide a direct pension for its civil-service employees, but the payment should not be based on the value of service rendered by the active employee.
63. As servants of the Government men are of varying value, according to natural ability, experience, skill, peculiar personal fitness, alertness, and general intelligence.
64. As pensioners of the Government all should have equal consideration as human beings deserving of retirement from long service into a comfortable state of existence for the remainder of life.
65. The amount necessary for a comfortable existence to the average aged or disabled person should be determined, and that amount should fix the pension for every retired employee. Each and every pensioner is a human being and a citizen, and no one of them should be favored above another.
66. Those capable of commanding large compensation while in active service naturally accustom themselves to conditions that require larger expenditures than demanded by the conditions of those receiving smaller pay. Undoubtedly it would be a greater personal sacrifice for those of the first class than for those of the second to adapt themselves to a moderate pension. That fact, of previous personal expenditures and previous pay received for valuable services, has influenced legislators in taking the salary as the basis for pensions.
67. There is no relation between the compensation to which an employee is entitled and the pension he should receive in order to prevent him from becoming an object of charity after devoting the energies of a lifetime to the public service:
68. No employee should be influenced by the character and amount of pension to the belief that he has any “ vested interest in the payment that might he
made to him. He should not be led to consider it as deferred payment through basing the assurance of it upon the salary he may now or hereafter receive.
69. Every employee should receive a salary commensurate with service rendered.
70. After faithful and efficient service has been rendered for a sufficient period of time, the Government should retire every employee under the guaranty of a comfortable existence for the remainder of life.
71. Those who have been able to earn a large salary should be held responsible for its proper expenditure. Knowing that the pension would be moderate and uniform for all pensioners, these employees would realize the necessity of saving for the future a portion of current salary if they desired to continue the luxuries of life after retirement.
72. The evils that have developed under direct-pension plans lave arisen from the erroneous basis of pension payments.
73. To grade the pension by previous salary begets extravagance amongst those who receive large salaries.
74. To grade the pension by previous salary leads to the idea that the pension is deferred pay," with resulting abuses.
75. To grade the pension by previous salary produces a wrong conception of the true nature of retirement allowances and the real purpose for which pensions are granted.
76. A fair and adequate salary is the due of everyone who can render efficient and satisfactory service.
77. A moderate pension assures comfort in old age, and this should be the last situation of every man and woman, regardless of past condition or previous service.
78. A universal pension is the social need.
79. In the absence of a governmental pension scheme for the whole body politic, the justice of a plan for those who spend their lives and energies in the public service is generally recognized.
80. The basic principles underlying the limited plan should not differ from those of a universal scheme along the lines of the recent superannuation plan adopted in Great Britain.
81. I am well aware that this opinion concerning the determination of a pension is not in accord with prevailing practices or proposed measures.
82. In providing the money for salaries the people at large pay for value received in the way of service.
83. In providing the money for pensions the people would contribute toward the maintenance in comfort of faithful servants. These contributions would be made in the spirit that has prompted recognition from just men since the beginning of service by one person to another.
84. After having received fair compensation for work performed, employees should not ask for more than the assurance of a comfortable and modest living after their retirement.
85. The people would commend an act of the Congress which made reasonable and moderate provision for superannuated and disabled civil-service employees.
86. On the other hand, it is doubtful whether or not the act would meet popular approval if the pension is virtually to replace the salary paid for service.
87. The employees should not permit selfish desire to get the better of sound discretion in the advocacy of pension payments.
88. They should look at the question from the viewpoint of the people who are to provide the funds.
89. The objections against direct pensions (many of which are vigorously presented in S. Doc. No. 745) logically could not be urged if the tendency to abuse were removed by making the retirement allowance unattractive except as a protection against want and destitution after earning capacity has failed.
90. A provident spirit and a habit of saving and a feeling of independence would be instilled, promoted, and encouraged when employees felt that they must lay by something for the future if they wanted more than a modest, comfortable living after retirement.
91. I dwell upon this thought because I believe it is the interest of employees to favor an act of the Congress which will meet popular approval and keep the ultimate annual payments within a reasonable amount not burdensome to the taxpayers. I try faithfully to serve those who employ me, my advice being according to my convictions, hence the earnestness of these lengthy comments.
THE CONTRIBUTION PLAN.
92. The Congress should not adopt any savings-bank and annuity plan, as proposed in S. 1944, H. R. 22013, or H. R. 729, or any other proposition which makes the Government the caretaker of money belonging to individuals, under a compulsory system of deposits. It is of questionable policy and a doubtful constitutional procedure.
93. Theoretically the plan may be indorsed as actuarially sound.
94. From the practical viewpoint I doubt if many actuaries would commend the plan to our Government, for three reasons:
First. The accumulation of a few thousand dollars subject to draft would cause men to withdraw to enter inviting (or apparently inviting) pursuits where efficiency coupled with a small capital would offer (or appear to offer) greater opportunities than continuing in the service. The tendency would be to lose the efficient and force the retention of the less efficient in the Government employ.
Second. When employees observed the working of the annuity plan very few would enter upon their pensions, but would demand cash payment on attaining the retirement age. Only those in good health and with the anticipation of many years of life would have any inducement to purchase an annuity with their accumulation,
To enter upon the pension (as proposed in bills before the Congress) would mean a forfeiture of the accumulation not consumed in pension payments prior to death. It would not be long before employees would condemn the annuity plan, when they saw retired associates, with $6,000 or $7,000 of accumulation, draw $75 or $1,000 in pensions and then die and have the remainder of the fund forfeited to the Government to enable it to continue payments to other pensions. A general repudiation of the annuity and a demand for cash settlement at age of retirement would cause the failure of the annuity scheme by subjecting the Government to loss on the persistent lives that entered upon their pensions. The life insurance companies of America and the Government of Great Britain have been losers through granting annuities.
Third. Fifty, sixty, or seventy years is a short period in the life of a repubilc which is expected to exist forever. At the end of some such period, in the prog. ress of the “ saving-bank and annuity” scheme, the Government would be in the position of a billionaire investor under the necessity of continually and forever holding safe securities in an amount equal to the enormous accumulation of its employees, and yielding interest income sufficient to enable it to keep its pledges with its enforced depositors. The mere suggestion of this future position condemns the policy as one wholly unsuited to any Government, especially one under republican form.
95. It is conceded that the great majority of employees from their present salaries could not afford the required deductions as proposed. It is further conceded that an increase in salaries is necessary to make the plan practical.
96. An increase of salaries to make the plan workable means that the Government must in fact provide for the annuities.
97. It is contended that even though this is true, the fact that the amount of the salary increase is invested gives the advantage of interest accumulation and makes the salary increase much less than the annual pension payments and therefore is a saving over the direct-pension plan.
98. The contention is supported by fact in the statement that it would require a smaller annual appropriation for each year during the accumulation period than for each year thereafter for annuity or pension payments (provided all of the retiring employees entered upon the pensions).
99. To secure this conditional saving the Government must tax the people for 20 to 50 years before the income is needed for distribution, and in the meantime must assume the responsibility of safely investing hundreds of millions of dollars, with required interest income of doubtful realization.
100. It would be better governmental policy and more nearly in accord with popular sentiment amongst the employees and the people to make direct appropriations as needed rather than anticipate some saving many years hence at the risk not only of financial losses incident to the investment of such vast sums, but at the risk of graft and of political demoralization resulting from the handling of the millions of accumulation, to say nothing of the moral and ethical nature of a political system which assumes control of the funds of individuals, nolens volens, and places them at the possible disposition of party manipulators.
101. Accepting assumptions and methods of computations set forth in public documents of the House and Senate, and using the data of Census Bulletin 94, it would appear that the total accumulation under proposed contribution plans ultimately would not fall much short of $1,000,000,000.
102. A rough estimate easily may be made from figures given in this report. Assuming an average annual salary of $1,200, an interest rate of 31 per cent, an average monthly deduction from salary of $6, and total employees of 184,299, the accumulation in 22 years would be about $444,000,000.
103. The accumulation would reach its maximum when the annual contributions by employees plus the annual interest income from invested funds equal the total annual payments, or somewhere between 50 and 80 years, according to circumstances affecting the accumulation arising out of interest accretions, management of the fund, and conditions in the service.
104. I present a rough (though accurate as to scale) diagram which, graphically illustrates the progress of accumulation in a pension fund and will reflect the general situation that may develop under proposed contribution plans.
105. The age of the fund is represented by the base line from 0 to 90 years.
106. The amounts of the accumulation, the payments, and the contributions are indicated by the points on the scale from 0 to 65; that is to say, the line from A to F represents the maximum accumulation; A to P the constant annual payments to pensioners; A to C the constant annual contributions; and C to P the constant annual interest income.
107. The diagram makes plain the necessity for an enormous accumulation, where the annual pension payments are large, by showing the relative amounts of annual contributions and annual interest income. The accumulation must be large to steadily and continuously produce the annual interest income, which latter will be from eight to eleven times the amount of the annual contributions, according to the rate of interest earned.
108. The people would never sanction å scheme that contemplated such accumulation as needed for the proposed savings bank and annuity plans. The plan is not within the legitimate functions of government, and the presence of the fund would invite abuses certain to develop.
ABB LANDIS, Nashville, Tenn. JANUARY 17, 1912.
(Diagram and Exhibit A omitted. See Hearings No. 4, 1912, before the House Committee on Reform in the Civil Service.)
EXPLANATION OF EXHIBIT A.
Attached hereto is a sheet of statistics showing the number of employees according to Census Bulletin 94 as of present ages, as of entry ages, and according to years of service. The totals for the numbers on the horizontal lines are given below, showing the employees at present ages. The totals for the columns (vertical summation) show the employees by years of service; the tota by agonal summation show the number of employe
ages of ntry into the service. The totals for the last column on the left-hand margin on the sheet show the employees subject to pensions immediately, and 5 years hence, 10 years hence, etc. :
3, 175 20 to 24 years.
18, 681 25 to 29 years,
29, 341 30 to 34 years.
31, 793 35 to 39 years.
29, 019 40 to 44 years.
21, 398 45 to 49 years.
17, 879 50 to 54 years..
11, 771 55 to 59 years.
7, 917 60 to 64 years.
6, 816 05 to 69 years.
4, 357 70 to 74 years.
1, 553 75 to 79 years.
462 80 years..