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leted so that there will be further reporting of the activities so that study and analysis of them can be made by the Board of Actuaries.
Admiral CLAREY. That was one of the changes to which I referred in a general way, Senator, to which we have no fundamental objection.
Senator SALTONSTALL. You believe, Admiral, that this will stimulate the interest of married enlisted men to participate in this plan?
Admiral CLAREY. Overall, yes, sir.
Senator SALTONSTALL. And it will do so without cost to the Govern-. ment?
Admiral CLAREY. Yes, sir.
Senator SALTONSTALL. Mr. Chairman, I appreciate the opportunity. I did not mean to ask so many questions.
Chairman RUSSELL. That is all right. I want you to develop all you can about the bill.
Senator SALTONTALL. I do not have any further questions.
Mr. MYERS. Mr. Chairman, I have a formal statement that I pre-. pared. It is relatively short. If time permits, I would like to go over it. It covers some of the same points that we have discussed, but it may also cover some additional material.
Chairman RUSSELL. All right, sir, if you will proceed as expeditiously as possible.
Mr. MYERS. I should like to present a brief report on the operation of the Uniformed Services Contingency Option Act program, togetherwith the unanimous views of the Board of Actuaries upon the proposed changes contained in H.R. 6668.
During the last 5 years, there has been an increase in the number of members electing to participate in the program; in the last 2 years, the increase has been substantial. There has been a slight increase in the number of retirants under the program each year, although the percentage of participation has remained about the same: at slightly more than 10 percent of total retirements. Of course, members without dependents would have no interest in the program, and we do not know the proportion of retirants with dependents. It is generally desirable to increase participation, which would at the same time afford a broader base for the financial operations.
The operation of the program has been reasonably close to the results expected when it was inaugurated, except with respect to disability retirants with less than 18 years of service for pay purposes. For those who have retired in this category, the system has had a fiñancial loss of about $20 million, considering both benefits paid in the past and those that will be payable in the future. The Board of Actuaries has consistently recommended that this category be eliminated from the program. We believe that there is no necessity foreven the restricted participation provided in section 6 of the bill. This program designed for career servicemen should not be utilized in an attempt to fill a gap in other separately administered programs.
In the past we have recommended that the basis for participation in the program should be by advance election of 5 years, with no benefit coverage during that period or before completion of 20 years of
service. At the same time, the present limiting point of 18 years of service behind which election cannot be made would be eliminated. The bill would reopen the program to members who have completed 18 years of service, provided that their elections are not effective for retirements occurring within 3 years after the date of election. The bill would also permit changes and revocations to become effective after 3 years and would permit a member who has made a revocation to make a new election. Although these changes are not what we have recommended in the past, we believe that they will definitely strengthen the program.
We are not in favor of the provision added by section 4 permitting withdrawal of retired persons from the system for severe financial hardship,” although we recognize that the reporting requirements contained in section 5 will permit some measure of control of abuse. We fail to see that requiring members to continue to participate might violate equity since the rates are actuarially determined so that they will be equitable.
We are concerned that the provisions for correction of administrative deficiencies, contained in section 6 of the bill, may be extended beyond correction of clerical errors and incontrovertible mistakes. Any such extension would be most undesirable. Limitation of the provisions might be strengthened by adding the requirement that corrective actions must be analyzed in our annual report. This could be accomplished by deleting the last sentence of section 5.
The Board has no objection to the technical and transitional provisions included in the bill.
There is, however, one other technical point that concerns us; namely, that in the codification of the original law, one matter was made considerably less clear and precise. This could readily be handled in the committee report.
I have given your staff a statement on this point.
If we decide to pass this bill—and I do not know whether we will or not--suppose we eliminated this section which you feel is less than 18 years of service. That is section 6 where you say:
We believe there is no necessity for even the restricted participation provided in section 6 of the bill.
What would happen if we eliminated section 6 of the bill and passed the rest of the bill?
Mr. MYERS. Senator Saltonstall, I think that the Board of Actuaries would definitely prefer that, although we see the disadvantage, from what you might say a public relations standpoint, in the members of the armed service not having available to some extent a privilege which they had before; namely, of coming under a system when they have less than 18 years of service.
From a financial standpoint, this would definitely, in our opinion, be an improvement.
Senator SALTONSTALL. Mr. Myers, may I ask you this question:
You are speaking for the Board of Actuaries of the Uniformed Services Contingency Option Act. May I ask, most respectfully, what is your responsibility with relation to this?
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 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 by 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