of his own retirement by contribution from his salary, so that when he reaches the age of 70 years the fund he has accumulated will provide his retirement allowance. In such a case the only contribution of the Government, if any, will be the difference between the interest earned by his savings deposited in the Treasury and invested by the Government and the rate of 4 per cent per annum. So far as concerns this class of persons, there certainly can be no reasonable objection to the plan, and I doubt if any plan more beneficial both to the Government and to the employee could be devised.

EMPLOYEES NOW IN THE SERVICE.

It is evident that the application of the plan only to those who hereafter enter the service would not relieve the present condition due to superannuation nor save the Government from the constantly increasing loss from that cause. It is not practicable for those now 70 years of age, or for those nearing that age, to provide the cost of retirement entirely at their own expense. To meet the existing situation and to put a retirement plan into effect immediately there must be some contribution by the Government. This contribution need be little more in the aggregate than is now the Government's loss from inefficiency due to superannuation. After a comparatively short period of years the annual payments made by the Government will be less than the loss it would sustain if no plan were adopted.

It is proposed that an employee now in the service who has reached the age of 70 years shall be retired and be paid by the United States an annuity equal to one-half of his average annual pay for the last five years, but no such annuity to exceed $600. As to an employee less than 70 years of age, it is proposed that he shall be retired when he reaches 70 on an annuity equal to one-half of his average annual pay for the entire period of his service (no annuity to exceed $600), and that there shall be deducted from his pay until he reaches 70 years such an amount, not exceeding 8 per cent of his pay, as, with 4 per cent interest, will purchase his annuity. In the case of an employee who has but a few years to serve before reaching 70, some contribution by the Government will be necessary to supplement his savings in order to provide an annuity of a reasonable amount.

ANNUITIES LIMITED TO $600.

A retirement plan is only a means to an end and that end is an increase of efficiency in the public service. The Government is not required to take charge of an employee's finances, nor is it justified in doing so except so far as it is necessary to protect the Government against the inefficiency of the employee due to superannuation. It is my opinion, therefore, that a plan of retirement should be so djusted as to make the least possible demand upon the Government

and at the same time draw from his personal control as little of an employee's money as possible. The proposed plan meets these requirements. While the maximum annuity of $600 is not sufficient to provide the luxuries of life, it is enough to insure an employee against want, even if he has been so unfortunate as to have made no other provision for his declining years. It is sufficient also to render ineffectual the appeals so often made to the sympathy of administrative officers when they attempt to remove from office an employee who has become inefficient through old age. At the same time the amount withheld from an employee's salary in order to provide his annuity is not sufficient to justify the thrifty in complaining that they are being deprived of an excessive portion of their income which they could invest more profitably.

RATE OF INTEREST ON SAVINGS.

In any compulsory saving plan it is but just that the Government should guarantee a reasonable rate of interest to its employees. Four per cent is the rate now paid by the Government on deposits of enlisted men of the Army and Navy and it is the rate paid by many savings banks. The plan recommended by the commission contemplates the investment of the savings of employees in the highest class of securities and that the United States shall contribute such amount, if any, as may be needed to insure the employees receiving 4 per cent per

annum.

APPLICATION OF PLAN TO EMPLOYEES IN THE DISTRICT OF COLUMBIA.

I am convinced that the application of the plan should be limited for the present to the classified civil service in the executive departments and offices at Washington, where the loss from superannuation is the greatest. While any plan is in its experimental stage it should be kept within narrow limits. If successful in operation in Washington it can be extended as the needs of the service require.

COST TO THE GOVERNMENT.

It being conceded that no immediate benefit to the Government could accrue without some temporary help from it, I directed the Commission on Economy and Efficiency to make an investigation of the loss due to superannuation in the service at Washington. Its report sets forth in detail the results of this investigation. It has involved an examination of the efficiency of 22,754 employees, as such efficiency was reported by the departments. At no other time has such a thorough investigation been made of the service in Washington. An earnest effort was made to ascertain and to state in money the financial loss which is sustained from the inefficiency of aged persons in the service. While the loss shown as the result of

the investigation is undoubtedly much less than the actual loss from superannuation, the figures are sufficiently large to justify the Government in giving temporary aid in putting the plan into operation. Accepting the very conservative figures as to the loss now sustained, the inefficiency in the service which is due to old age can be wiped out immediately and permanently in Washington by an average annual expenditure during the next 20 years of $226,986 over and above the annual loss that will be sustained from superannuation if no plan is adopted for avoiding it. The accompanying report shows further that the saving to the Government that will result from the adoption of the proposed plan will equal, in the course of the succeeding 16 years, the entire cost of inaugurating the plan:

STRAIGHT PENSIONS NOT ADVISABLE.

I am firmly convinced that the proposed plan is superior to any form of straight pensions, in that an employee upon retirement at any time may avail himself of his savings with the accrued interest, or his representatives may do so in the event of his death, whereas any form of pension or gratuity from the Government must inevitably be considered as a part of compensation and is available only to those employees who succeed in living to a given age, in remaining in the service to that age, and in living a sufficient time beyond that age to receive in pension payments the value of their deferred pay. Avoiding, therefore, the dangers and disadvantages of the straight pension, the proposed plan commends itself as satisfactory from the viewpoint of the Government and the viewpoint of the employees. It is advantageous to the Government, since the efficiency of the service will be increased by providing the means of retiring those who have reached the age of decline. It is advantageous to the employees, since it protects them from want in old age with the least interference in their private affairs, and makes the service more attractive to the younger employees by facilitating promotions to higher salaries and grades at earlier ages than is possible under present conditions.

CONCLUSION.

A careful study of the existing situation with reference to superannuation, and a consideration of the worse conditions that will appear in the future, leads me again to commend the subject to the earnest consideration of the Congress. I believe that the plan proposed in the commission's carefully prepared and exhaustive report is the best that has been devised for meeting the present and future needs of the service, and therefore I urge the enactment of the necessary legislation to put it into effect at an early date.

THE WHITE HOUSE, May 6, 1912.

WM. H. TAFT

REPORT TO THE PRESIDENT

ON

RETIREMENT ALLOWANCES

SUBMITTED BY

THE COMMISSION ON ECONOMY AND EFFICIENCY

APRIL, 1912