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retired pay on the effective date of the act could elect to come under it. It also established that members in the active service would have to make a decision to participate before completing 18 years of service, computed for basic pay purposes. For those individuals then in the active service who had passed their 18th anniversary, a period of

year was given within which to make that election. During the first year of operation, 85,000 members were eligible to make election, and over 31,000, or approximately 37 percent, did so.

The Contingency Option Act has been in operation virtually unchanged for over 7 years. Although its operations to date have been very successful, certain facets susceptible to improvement have been noted. These can be divided into two classes; the first referring to the attractiveness of the act, that is, its appeal to the members of the uniformed services, and, second, its actuarial problems. The act was based on the requirement that it would be completely self-sustaining, without cost to the government, except for minor and scarcely identifiable administrative cost. Therefore, certain restrictions in the terms of participation were included with regard to election, modification, and revocation. These restrictions may be summarized as follows: First, in the event a member of the uniformed services failed to make an election prior to the completion of 18 years of service for pay purposes, he would not thereafter be permitted to participate. Second, once a member elected to participate in the act and thereafter modified or revoked his election, such action would not be effective should the member retire within 5 years of the date of such modification of revocation.

At the same time, one very generous provision was contained in the act which permitted members on active duty who were retired for physical disability with less than 18 years of service to elect to participate at the time of their retirement. Therefore, in order to maintain the actuarial soundness of the fund, the board of actuaries were forced to use multiple cost tables. One table applicable to those who were disabled, both personnel formerly retired and those to be retired in the future; two for those retired for other than physical disability, one of which was applicable to those retired prior to May 1, 1954, and one for those retired after that date. Thus a member electing to participate prior to completion of 18 years service had no way of estimating with any degree of certainty under which table his annuity cost would be based upon his eventual retirement.

The two most frequent complaints from prospective participants have been the rigidity of the election modification (or change) and revocation requirements and the use of the multiple cost tables. The first of these is the subject of this legislation upon which hearings are being held today, and the second (with reference to multiple cost tables) has been the subject of action by the board of actuaries in promulgating, effective January 1, 1961, a single cost table applicable to personnel retiring with more than 20 years of service. In addition, they establish another table for personnel retiring with from 17 to 20 years of service (which could be only for those retiring for physical disability) and another extremely high cost table applicable to those retiring with less than 17 years of service which also could apply only to disability retirements.

Section 2 of the bill is a provision to redefine “active member" to bring it back in line with the definition contained in Public Law 239. A Comptroller General decision (B-121979, March 25, 1955) interprets subsequent legislation as not authorizing inactive members of the Reserve components to make an election. This has worked a peculiar hardship on the Public Health Service, since all of their reserves not on active duty are termed "inactive” even though they are in a category equivalent to the Ready Reserve of the Armed Forces. Many of the Inactive Reserve may actually be participating in the Reserve program of their service and being credited for the time spent in such status for retirement and pay purposes.

Section 2, H.R. 6668, reduces the 5-year waiting period which must elapse between the date of a modification or a revocation, and the date it can become effective, to 3 years. It also provides that should a member fail to make an election prior to the completion of 18 years of service for pay purposes, he may still make such an election; however, it cannot be effective if he retires within 3 years from that date. The Department of Defense believes the 3-year limitation is reasonable but there is a school of thought to the effect that a 2-year period would suffice. In many instances, it would be adequate. However, the board of actuaries originally opposed any change on this point. The 3-year period contained in H.R. 6668 was arrived at as a result of compromise and is one we consider to be appropriate.

This action also contains language to permit a member who is prevented from making an election by reason of military operations to thereafter make one. If, for reasons of this nature, a member is assigned to an isolated station, is missing, interned, besieged, or beleaguered and is thereby prevented from making an election, he may do so within 1 year after the condition which prevented the election ceases to exist.

Another provision of section 2 is concerned with void elections. Many instances have been noted where an election is considered as void because of failure to properly execute a form, designation of an ineligible beneficiary, or be witnessed or dated improperly to mention but a few of the several irregularities that could void the instrument of election. Where time permits, the form is returned for correction but in most instances it is not discovered until the deadline is passed. This provision would permit a valid corrected election to be made at any time within 90 days after the member is notified in writing the election is void.

Under the present law, if a member makes an election he may not withdraw or cancel it regardless of whether or not it is effective. If he desires to participate all he can do is retire before the revocation is effective if such retirement is authorized by law. This section also authorizes the making of a new election in such cases and provides that, for members with less than 18 years' service, a revocation, modification, or change is effective without imposing the 3-year waiting period.

In some instances, members who have been discharged are found to be eligible for retirement. If they have less than 20 years' service the retirement is for physical disability and retired pay is awarded retroactively. A provision is included to permit an election to be made within 90 days from the date of the awarding of the retired pay. Under advice of the Comptroller General we are now accepting elections if made within 30 days. This does not give sufficient time to process the case, compute costs and properly advise the individual.

Section 3 contains a provision to permit a member to allocate an annuity between a surviving spouse and his surviving children who are not children of that spouse. Fortunately, so far as we have knowledge, cases of this nature have been resolved amicably but we believe the member should have the right only to make such an allocation where this situation exists.

Section 3 also contains language to remove the 50 percent limitation on multiple options. This can best be explained by stating that under the law as written, a member may elect option 1 for one-fourth, and option 2 for one-fourth, however, the combined amount of the annuity may not exceed 50 percent of the reduced retired pay. By computing each annuity separately, which we are required to do, and then adding them, in some cases, the total exceeds 50 percent of the reduced retired pay. This requires each annuity to be adjusted downward in a sufficient amount to meet the 50 percent limitation. By removing it computation of costs could be simplified.

Following enactment of Public Law 239, this committee and the several services were made aware of certain hardship situations created by a member electing to participate without a full understanding of the impact the cost would have on their retired pay. These cases prompted enactment of Public Law 696, 83d Congress, granting the Secretaries of the several Departments authority to make determination of hardship in individual cases, and authorize their withdrawal from further participation.

These hardship situations still continue to arise. For that reason, section 4 was included in the bill to permit the Secretary concerned, under regulations prescribed under section 1444(a), title 10, to allow withdrawal from participation in hardship cases. This section follows closely the intent of Public Law 696 as permanent legislation, with the safeguard that additional monitorship by the Secretary of Defense is assured because of the delegation to him by Executive Order 10499, November 4, 1953, of the functions vested in the President to prescribe regulations by section 1444(a) of title 10, United States Code. As a further precaution section 5 of the act amends section 1444(b) relating to reports of administration to require a detailed account, including an actuarial analysis of every case in which relief is granted from participation in the act except those based upon administrative error.

Section 6 of this act is a new section (sec. 1445) which would grant authority to the Secretary concerned, under regulations prescribed under section 1444(a), to correct administrative errors. Except when procured by fraud the correction would be final and conclusive. This would permit the correction of purely administrative errors by the Secretary concerned without having to resort to considering them under authority granted by section 1552, title 10, United States Code.

One of the most critical situations that could be eliminated by enactment of this section is in connection with computation of service at the time of retirement. Several instances have been called to our attention where an individual is found to have more service than his records have indicated. Usually this is National Guard or Reserve time that has not been credited. In the recomputation, his election is frequently found to have been made after 18 years' service as corrected. In all fairness his election should be recognized and this section would grant this authority. There are other perfectly human errors by which an individual's service is improperly recorded which prejudice participation.

Section 6 also proposes to add another new section (sec. 1446) to provide a system of annuities to be paid only to survivors of personnel who retired with less than 18 years of service and who died of other than service-connected causes. All of the individuals in this category would have been retired for physical disability and if death is on account of service-connected causes as determined by the Veterans Administration, the survivors would be entitled to dependency and indemnity compensation. We refer to this section as "option"5"; however, we think it is best described as DIC protector.

This is how it would work: An individual retired with less than 18 years of service would be permitted to make the election at the time of retirement. If at the time of his death it was determined that dependency and indemnity compensation was payable by the Veterans Administration, then, no annuity would be paid. Instead the beneficiary would be refunded the amount of the member's contributions after first deducting the cost of term insurance for the amount of the annuity during the period that he participated. Much thought was given to this option; however, it was determined that something must be done to provide increased participation on the part of enlisted personnel, especially those retiring with less than 17 years of service and who, under the present cost tables, would find their cost of participation increased to almost prohibitive amounts. For example, a member retiring with 16 years of service at age 34 with a wife 3 years younger and a child 7, would have to pay $32.81 for each $100 of retired pay awarded him.

However, if this same individual is retired with 17 years' service his cost would be only $12.48 per month for each $100 of retired pay. It is believed that by introducing this new concept the cost could be materially reduced below this figure. The plan has the advantage of permitting the election to be made at the time of retirement, and would provide a cash payment to the widow should dependency and indemnity compensation be awarded.

For personnel retired with less than 18 years' service it would assure some income to the survivors in event of death without forfeiting from 25 to 50 percent of the retired pay awarded. This provision was developed by the Department of Defense at the request of the Bureau of the Budget.

Section 7 is a transitional provision. In section 2 the 5-year waiting period, before a change or revocation is effective, is reduced to 3 years. Section 7 provides that changes or revocations pending on the effective date of the law will be effective on that date or 3 years from the date of the change or revocation whichever is later.

Section 8 is a savings proviso applicable to personnel who have an effective election on the date of enactment and who may thereafter be retired for physical disability. Individuals in this situation would have applicable to them the provisions of chapter 73, title 10, United States Code (the chapter being amended), as it existed on the date of enactment except for a change or revocation coming under section 7 above. This would permit the payment of annuities to survivors who had a valid election in effect upon date of enactment even though retired prior to completion of 18 years. Otherwise the restrictions imposed by the new section 1446 would be applicable.

Chairman RUSSELL. Admiral Houser, I understand, wants to make a statement on this bill.

Have a seat, Admiral.
You may proceed, sir.

STATEMENT OF REAR ADM. HAROLD A. HOUSER, U.S. NAVY

(RETIRED), LEGISLATIVE COUNSEL OF THE RETIRED OFFICERS ASSOCIATION

Admiral HOUSER. Mr. Chairman and members of the committee; I am Rear Adm. Harold A. Houser, U.S. Navy, retired, legislative counsel of the Retired Officers Association, with headquarters in this city. Our association consists of over 49,000 members, representing retired officers of all of the seven uniformed services, including both Regulars and Reserves.

The association appreciates the opportunity to present its views in connection with the committee's consideration of the bill, H.R. 6668, a bill to amend title 10, United States Code, with respect to annuities based on retired or retainer pay, and for other purposes.

It appears that enactment of this bill would accomplish its purpose of increasing the attractiveness of the program established by the Uniformed Services Contingency Option Act of 1953. This law authorized members of the uniformed services to make an election whereby they agree to forego a certain amount of their retired pay in return for annuities their widows and other dependents receive upon the death of the persons concerned, after retirement. The Contingency Option Act set up a self-sustaining program involving no direct contribution on the part of the Government.

The receipt of the annuity provided by the above law was not intended by the Congress to prejudice the right of the recipient to receive any pension to which otherwise entitled under the existing law. The enactment of a subsequent law, however, did bring about this unfortunate result.

It is desired to invite the committee's attention to the language in the Contingency Option Act covering this point. It is found in section 11, and reads, as follows:

Annuities payable under this act shall be in addition to any pensions or other payments to which the beneficiary may now or hereafter be entitled under any other provision of law, and shall not be considered income under any law administered by the Veterans' Administration.

After the enactment of the above law, the heads of the uniformed services, through appropriate means, acquainted personnel of the several services as to the various provisions contained in that law. In so doing, it was made clear that the payments to be made under this law would not be interpreted as “income” in determining the qualifications for a pension.

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