RELUCTANCE OF CONGRESS TO PROVIDE FOR RETIREMENT OF CIVIL EMPLOYEES ON ACCOUNT OF EXPENSE.

Congress has not been willing to pass any of these bills. Its reluctance would seem to be due to the fact that it is not yet satisfied that the expense incident to establishing these plans-through the payment of annuities from the Federal Treasury to those who were too old to provide for themselves—is justified by the loss incurred through the inefficiency of aged employees. No calculations were made to show the saving that would result to the Government through removal of the superannuated as an offset to the expense necessarily incurred in retiring them. This calculation was not possible at the time, as no statistics showing the actual amount of work performed by the aged employees were available on which to base such calculations.

EXPENSE OF ESTABLISHING PROPOSED CONTRIBUTORY PLAN JUSTIFIED.

It can not be denied that any reasonably adequate plan of retirement will probably require for a number of years an appropriation fully equal to any reasonable estimate of the loss now suffered through the inefficiency of the aged. The commission believes, however, that such expenditure would be more than justified if at the time the plan takes effect a scale of deductions from the salaries of those below the age of retirement or thereafter entering the service is established which will result in the annual cost to the Government, say, in 20 years being reduced to an amount less than the loss that will then be incurred by the Government if no plan of retirement is adopted, and which ultimately, say by the time all employees now in the service are dead, will be completely self-supporting except for the cost of administration and any expense that might be incurred by the Government through failure to realize the rate of interest guaranteed on the deposits of the employees.

ARGUMENTS OF EMPLOYEES AGAINST CONTRIBUTORY PLAN ANSWERED.

Many of the employees have opposed these bills. Their opposition is based on the following arguments:

(1) That the deductions from salary would be burdensome and could only be met by an increase in salaries, which would be in effect a pension in disguise, since the Government would be meeting the expense of retiring its employees.

(2) That a cash sum to the credit of an employee, which could only be obtained by resignation, would offer a constant temptation to him to leave the service.

(3) That the rate of interest guaranteed on deposits of the employees is below the rate at which the employees can safely invest their own savings.

(4) That either of the two ways generally proposed on which an employee's account with the Government could be settled on his retirement from the service is objectionable; on the one hand, the granting of annuities on terms which mean the forfeiture of the accumulation not consumed in pension payments prior to death would cause dissatisfaction to his family, and on the other hand, the return in one cash sum of the entire amount to the credit of the employee at retirement would, in many cases, result in unwise investments and loss of savings, so that such employee would be worse off than if no plan of retirement had been provided for him.

(5) That the fund accumulated would finally become so large as to be a source of graft and political demoralization.

DEDUCTIONS FROM SALARIES OF EMPLOYEES NOW IN SERVICE SHOULD

BE LIMITED.

(1) In order to meet the objections of the employees concerning the amount of the monthly deductions required by the proposed contributory plans, the commission believes that the Government should not only agree to pay the full amount of annuities to all employees retiring immediately, but that it should also agree to make up any deficit in the sum which a maximum deduction of 8 per cent from the salary of any employee will provide. The commission believes that by limiting the deduction which may be made from the salary of any employee to 8 per cent the objection as to the amount of the deductions will, in the main, be removed. Certainly, if the salaries of any of the Government's employees are so low that the saving of 8 per cent of such salaries would work a hardship on any considerable number of employees, it is beyond argument that such salaries should be increased. If the margin between the amount of the salary and the cost of the bare necessities of life is so narrow as to make the saving of this amount impossible, then employees so situated are as certain to become a burden to the Government when age overtakes them as they are to live. It is manifest that the more quickly this condition is remedied by the payment of adequate salaries the less will be the future cost of superannuation. This commission would certainly recommend an increase of salaries, if such an increase is necessary to put the employees on a basis that would make it possible for them to save 8 per cent of their salaries. But the commission holds that such an increase, which would be a reward for services at the time they are rendered and for all those in the service, would be distinctly different from the grant of a straight pension, which would be a reward for services after they were rendered, and for only the very few who had lived to reach a certain age. As pointed out in the quotation from the report on civil-service retirement in Great Britain hereinafter referred to, the operation of compound interest would

make it possible to increase salaries and establish a contributory system of retirement at less cost to the employees than to give them a pension system under which the benefits are paid directly from the Treasury, but considered a part of the pay roll. An increase in salary is, therefore, decidedly not "a pension in disguise."

GOVERNMENT SHOULD NOT PENALIZE EMPLOYEES LEAVING SERVICE.

(2) The commission believes that there is little foundation in fact for the argument that a cash sum to the credit of an employee would cause him to leave the service. If a cash sum to his credit would enable him to better his condition outside the service, it is surely to his interest to have such a cash sum, rather than that a plan of retirement should be adopted which would attach a penalty to separation from the service, as would be the case if a civil pension were established under which an employee leaving the service would forfeit his partly earned pension. The commission believes that the Government should pay reasonable and fair compensation to its employees at the time the services are rendered, and should endeavor to hold its employees fairly in competition with private employers. No just Government will wish to do anything that could be construed as penalizing its employees.

GOVERNMENT SHOULD PAY LIBERAL RATE OF INTEREST ON ENFORCED

SAVINGS.

(3) The commission believes that the rate of interest guaranteed on deposits of the employees should not be below the rate at which the average employee can safely invest his savings. The rate of interest named in most of the contributory plans that have been proposed has been 34 per cent, compounded annually. The commission believes that it would be fair both to the Government and to the employees to guarantee a minimum rate of interest of 4 per cent, compounded annually, and that during a long period of years the Government would be able to realize nearly, if not quite, this rate of interest if the fund were invested in the securities prescribed in the contributory bills heretofore proposed. These bills authorize the investment of the fund in substantially the classes of bonds in which the New England savings banks may invest their funds. If any aid is to be given by the Government to a plan of retirement, other than that necessary to establish the plan, such aid can be given most equitably by guaranteeing the minimum rate of interest which shall be paid to the employees on their deposits. On short periods of service there is little difference between the results obtained at 34 and 4 per cent, but on long periods the results at 4 per cent are considerably greater than at 3 per cent. A higher rate of interest

would be desirable for two reasons: (1) It would mean lower monthly deductions from salaries, and (2) a considerably greater return to the employees who entered the service early in life and remained to the age of retirement than to the employees who entered late and retired early. It is believed also that the deposits of employees leaving the service or dying in the service should be returned with interest at 4 per cent, compounded annually, the same rate as it is proposed to pay to those who are retired for age.

BOTH ANNUITY AND CASH SETTLEMENTS SHOULD BE ARRANGED TO PROTECT INTERESTS OF EMPLOYEE.

(4) The commission believes that either of the two ways generally proposed for settling an employee's account on retiring is inadvisable, but that these settlements could be so adjusted that either one of them would be satisfactory.

The commission agrees with the arguments that annuities which mean the forfeiture of the accumulation not consumed in pension payments prior to death would cause dissatisfaction, and, therefore, believes that the annuities should be based on rates of premium which will enable the Government to return to the family of the deceased employee any balance to his credit not paid to him prior to his death.

The commission agrees with those who contend that the return in one cash sum of the entire amount to the credit of the employee at retirement would result, in many cases, in unwise investments and loss of savings, and believes that an employee leaving the service after the age of 60 should be paid the sum to his credit, when in excess of $600, in not less than 10 annual installments. The unpaid balance of such deposit should be credited annually with interest at 4 per cent.

NO DANGER IN SAVINGS FUND.

(5) The commission believes that there is little, if anything, in the history of any government to justify the argument that the fund accumulated under a contributory system would ultimately become so large as to cause graft and political demoralization. The system of postal savings banks, so well thought of in other countries as well as in the United States, provides for the accumulation of a trust fund at a far greater rate than would be possible under any plan of retirement based on savings of the employees. The neighboring Government of Canada has, moreover, not only created a trust fund by the establishment of postal savings banks, but, satisfied with its success in that field, has recently established a system of Government annuities which enables not merely officeholders, but any citizen of the country, to purchase annuities from the Government.

COMMISSION'S EFFORT TO ASCERTAIN ANNUAL LOSS TO GOVERNMENT THROUGH INEFFICIENCY OF AGED EMPLOYEES.

With these ideas in mind, this commission has endeavored to ascertain definitely the annual loss due to the incompetence of the aged employees, as nearly as it can be calculated, and to determine what expense the Government would be justified in incurring in order to wipe out that loss. It has also sought to modify the suggested bills in such a way as to answer the purpose of the Government in passing a retirement bill and at the same time meet the objections of the employees as far as possible.

The only statistics that have ever been compiled concerning the loss sustained by the Government through superannuation were collected by the Civil Service Commission in 1906 and covered only the classified service in the District of Columbia. They showed the loss for one year only, and were so presented that a satisfactory basis for calculating the probable future loss could not be derived from them. On the other hand, all of the statistics that have been prepared thus far concerning the cost of establishing the various. plans have covered the entire classified civil service and have been worked out to show the amount that would have to be appropriated by the Congress, not only the first year after the adoption of the plan but each year thereafter until all employees now in the service will have died. It will thus be seen that the statistics as to cost and those available as to loss were not comparable. The commission felt that the statistics as to loss should be made complete in order that both sides of the account could be presented, i. e., the amounts that will have to be appropriated annually, on one side, and the savings that will result from such appropriations, on the other side.

In order to consider both sides of the problem-the saving as well as the cost-the commission prepared a schedule, the form of which is shown as Appendix E of this report. The heads of departments and bureaus were requested to fill one of these schedules for each member of the permanent classified civil service in the departments and independent offices at Washington, D. C. (excluding all field of local service in the District of Columbia, but including persons covered by Schedule A of the civil-service rules, and including persons holding unclassified positions but having eligibility for transfer to the competitive classified service). Schedules covering 22,754 employees coming under this definition were returned to the commission, and the statistics presented in this report are based on the facts given in those schedules. They show that the loss from superannuation in the classified service in the District of Columbia