Disbursements U. S. CIVIL SERVICE COMMISSION Civil service retirement and disability fund-Summary of cash receipts, disbursements, and balances for fiscal years 1921 through 1955 Receipts Fiscal year Interest on Total receipts 28, 122, 943 18 $19,950,000.00 31,889, 697 70 $13, 211, 143. 86 $155, 940, 643 95 -4, 379. 92 -13, 329. 10 Total. 4,989,927,747. 20 3,396,298,559. 57, 1,945,984,662. 38 10,332,210,969. 15 2,703,629,731. 44 123, 141, 820. 59 1,334,153,332. 78-109, 938. 52, 4,160,814.949. 29 +21, 754, 187. 75 ! Includes payments into the fund for purchase of creditable service. * Includes payments of accrued annuities to estates of deceased annuitants, and payments to survivor annuitants for the fiscal years 1941–48. $82, 985, 259 30 468, 755, 408 38 553, 121, 521.50 Includes $137,341.81 collections and $507.16 repayments in transit, credited by Treasury in July 1955, $50 in the accountable officer's cash fund, and accounts receivable as of June 30, 1955, in amount of $1,694,289. Senator CASE. In summary this is true, is it not, that the fund actually is not now actuarially sound on the basis of a current operation, a level premium operation? Mr. LAWTON. There is currently an unfunded deficiency of $13,400 million as of July 1, 1955. Senator CASE. Now, could you comment in the same vein on the degree to which the social security system is actuarially sound? Mr. LAWTON. I do not have those figures, the social security people are here; they could probably supply that. Senator LANGER. Let us go back to your other question, Senator Case. Will you read the question Mr. Case asked? Senator CASE. I think that has been answered in part. Senator CASE. I was trying to get for the record and for the education of ourselves and for the public, generally, an idea as to whether we had presently a sound retirement system, the basis on which it is Kept sound or the degree to which its soundness is doubtful, and to compare that with the social security system and the degree to which people relying on that may consider that it is actuarially sound also, because, it seems to me, obvious as everyone can see, that you cannot pay more out when you are receiving less or making a smaller contribution and that the difference must be ultimately the degree to which one or the other operation is not conducted on a sound basis from an actuarial point of view. Senator LANGER. Warren Irons can explain it. I wonder if we can get Warren Irons to give his viewpoint on this? Senator CASE. I am not saying that I believe it is necessarily desirable, although I think maybe it is, that we should have a fund in existence at all times able to meet careful calculated ultimate obligations. Perhaps we ought to be on a current basis, but we ought to know in either event to know what we are doing, making the decision of policy rather than having it made for us anywhere else or by ourselves making it without knowing what we are doing. Mr. YOUNG. May I just make a comment, Mr. Chairman? Mr. YOUNG. Of course, during the 2 years in which there were no appropriations made to the fund are the 2 years which this special committee was studying this problem. That was discussed a great deal with the appropriations committees here at the Capitol, and it was determined that everyone wanted to find out what these recommendations were going to be and how the financing of it should be dealt with. Then, in fiscal 1956, Congress did appropriate an amount to the fund and, of course, the budget this year also includes an appropriation to the fund for fiscal 1957. Mr. BRAWLEY. Mr. Young, on that point, is your bill 3041 your answer to financing the fund? Mr. YOUNG. What our bill states with respect to the financing is that the Civil Service Commission is responsible for recommending to the President what amount of appropriation should be on a basis of normal cost plus interest. Mr. BRAWLEY. Well, let us take your chart again. Let us go over to 1975 where you say that the cost under 3041 will rise to approximately $1,640 million. What will be the annual income for that year from employee contributions to the retirement fund? What will be the deficit at that time annually? Mr. YOUNG. It depends on what you appropriate in the meantime as to what your unfunded accrued liability will be at that point. Mr. BRAWLEY. Take it on the basis of the liability so far. Mr. YOUNG. I do not know as that is a fair assumption as to what you have done in the past. Certainly the record has been fairly spotty, I would think, in terms of any long-range established program for how much you are going to appropriate or contribute each year. Mr. BRAWLEY. Let us say it is a level contribution, which I doubt that it will ever be. Let us say, for instance, it is a level contribution, what will then be the deficit? Mr. YOUNG. May I ask Mr. Irons to reply to that? Mr. IRONS. To answer your question I want to be a little bit more specific. If you determine the level premium as such is displayed on this chart as 15.42 percent of payroll for the present act and if that amount is received by appropriations and by employee contributions and the Civil Service Retirement Act is neither amended nor liberalized, the present unfunder liability would remain unchanged. If the Government does not appropriate up to this level as set forth here, then the unfunded liability will increase. Mr. BRAWLEY. Well, it looks to me as if you are trying to pick up some extra money from these career employees if their contribution is raised to 72 percent and as I pointed out before, an average man at $4,500 stands to lose $800 of his retirement after 35 years service because he has outside employment. It seems to me you are trying to pick up some extra money there. Mr. IRONS. You hardly pick it up if you reduce the contribution rate from 6 to 312 which is part of the same operation. It is all part of the picture. Senator LANGER. Mr. Kerlin, do you have any comments on this? Mr. KERLIN. On this chart where you are referring to S. 3041 there is an increase in employee contributions every 5 years until 1970. How much longer would these increases continue if the chart had not stopped at 1970? Mr. LAWTON. This represents the maximum contribution from 1965 on under present law. Mr. BRAWLEY. Under present law? Mr. LAWTON. Certainly, which is 4 percent for each. Mr. BRAWLEY. But, if Congress decides 10 years from now to raise the contribution again on social security this would go up also, the employee's contribution would also go up, would it not? Mr. LAWTON. Certainly. Mr. BRAWLEY. In other words, the employee's contribution from here on out will be determined on the basis of what Congress says shall be paid into the social security fund? Mr. LAWTON. The same as the retirement fund. They are both the same. I mean, the same effect. If Congress can change the contribution rate in either one Mr. KERLIN. Except that the increases on the chart are based on paying for social security. Now, to put a relatively small group, in with many millions of employees from all possible vocations, any Federal employee might well wonder at what point the increases in his contribution might stop. Would they go to 12 or 14 percent or higher. Assuming that the social security program might turn out to be more costly than currently anticipated. Is that correct? Mr. LAWTON. Well, if the contribution rate is changed by Congress on the social security system and increased above 4 percent for the employer and for the employee, naturally the employee's rate will go up by whatever percentage or whatever amount Congress increases it. Mr. BRAWLEY. Without any additional benefits accruing to the employee? Mr. LAWTON. If Congress increased the rate without changing the benefits, that is true that has not been the history. Usually the rate has only gone up when the benefits have gone up. Mr. YOUNG. I have seen no indication for the Congress to disregard benefits for the employees. Mr. KERLIN. Let me try to turn to one of those. Today an employee contributes 6 percent and for that he receives a guaranty: (1) a refund of his money, or (2) an annuity when he reaches a certain age. Now, under this proposal his annuity is not going to be increased but a portion of that 6 percent-21% then 3, then 31⁄2-of the contribution is going to be diverted to social security; hence, the employee who works, 10, 15, years and through no fault of his own should be dismissed and asks for the refund, would he get the total 6 percent or the 6 percent less the 311⁄2 that went elsewhere? Mr. LAWTON. He would not get a refund from social security, he is just getting his refund of the amounts he contributed to the civil service system. If he contributed at a 32 percent rate for part of his salary, he would only get what he put in. Mr. KERLIN. Well, today he puts in 6 percent and gets certain benefits. He gets no more benefits, puts in the same amount but would get back 2, 212, 3, 311⁄2 less in his refund. Mr. LAWTON. He would put in less and get out less on a refund basis, sure. He would get back whatever he put in. If that amount is smaller, he-if he puts in less he gets back less, just as the $4,000-man get less than the $8,000 man. Mr. KERLIN. He is still going to put in 6 percent? Mr. LAWTON. Not under civil service retirement fund. He is putting in total Mr. KERLIN. But for the same purpose. Mr. YOUNG. Certainly, like 65 million other Americans. They do not get it back. Mr. KERLIN. There are two possible penalties. Is that not right, Warren? Mr. IRONS. Possibly two. Mr. KERLIN. Yes. Senator LANGER. Some more questions, Mr. Brawley? Mr. BRAWLEY. No, sir. Senator LANGER. Mr. Young, do you believe when the Federal employees get a pay increase then automatically the retirement should go up in proportion? Mr. YOUNG. Well, I think the general answer to that, Mr. Chairman, is the fact that Congress certainly increased the rates for retired employees, when was it, last year? Mr. IRONS. Yes. Mr. YOUNG. Last year, and is very keenly aware of that situation. Certainly it is the general policy of this administration to see to it insofar as it can, in terms of its resources and its budgetary limitations that all of our personnel legislation is as nearly comparable as we can make it with private industry and we would hope in many areas, at least, could be an example for what private industry ought to do. Senator LANGER. But it has got to be a separate bill, does it not, the retirement? Would you oppose an amendment to either one of these bills which would say that whenever the pay increases that automatically the retirement should be raised an equal percentage? Mr. YOUNG. I am not quite sure what you mean by retirement. Do you mean the amounts paid to retired employees on that? Senator LANGER. Yes. Mr. YOUNG. Well, I think it is something which ought to be considered if your pay increases are based on, let us say, changes in cost of living and that kind of element. That was the basis for this last action, of course, for retired employees. Senator LANGER. You would not oppose an amendment to either one of these bills which provided for an automatic increase for those who are retired? Mr. YOUNG. I would like to see how it would be worked out and how it would be drafted. But as a general principle, certainly, you have to look after your retired employees in terms of changes in the cost of living. I do not think there is any question about that. Senator LANGER. Any further question, Senator Case? Senator CASE. No, but just commenting on that question. That does suggest that, perhaps, you regard the retirement system not as something that is comparable to an annuity purchased by an individual on his own or even a private pension plan, but rather something to be taken or regarded as a benefit to employees regardless of actuarial soundness at any particular time. I think this is important for us to grasp because conceivably we could have a Federal retirement system that was just the same as an individual annuity plan that he paid for himself in which event he would put in X number of dollars and have an agreed amount payable on retirement and benefits and other contingencies which were fixed and determined and not changed no matter what happened to the cost of living. Or, you can have a Government plan which, generally speaking, keeps the level of the retired employee income consistent with the cost of living throughout the period which he draws that income. In that event you cannot, I suppose, have an actuarially sound system on a current basis though you may be able to approximate it. I am not sure that I can combine the two and have all the benefits of a savings plan and a plan for security, if you will, and I do not know that maybe we ought to attempt to get the benefits of both. if we can. But, I think, again, we ought to know what we are doing when we decide to try and do it. Senator LANGER. Do you think that should be on the basis of what they need on the part of these retired employees? Senator CASE. That is a reasonable way to do it. If that is done we have to recognize at all times that we are not operating an actuarially sound retirement system. |