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Outside of the compilation of a great deal of statistical data, the only achievement of the Kaplan Committee was to resurrect the bones of an oft-proposed and oft-interred plan-coordination of civil-service retirement and social security. The garb is slightly altered"The voice is Jacob's voice, but the hands are the hands of Esau." I hold in my hand 2 documents, 1 dated December 15, 1943, put out by Mr. Arthur J. Altmeyer, Chairman of the Social Security Board, titled "The Extension of Coverage Under the Old-Age and Survivors Insurance Program to Federal Civilian Employees." Fundamentally, there is little difference between this plan and the Kaplan plan the Kaplan plan is a modernized version, dressed in sheep's clothing, perhaps, but "Grandma, what big teeth you have!" The second plan is contained in a letter dated March 22, 1951, directed to Mr. I. W. Labovitz of the Bureau of the Budget, and signed by W. L. Mitchell, Acting Commissioner of Social Security. Basically, it is like the other two, but is a little more forthright. It declares its purpose to make civil-service retirement a supplementary system-no sheep's clothing here.

We

The plan of the Smathers committee was an excellent one. endorsed it. Little did we dream that it would fall far short of its mark and wind up only with a proposal for coordination. Here we have the 1943 plan; we could have taken it up then. We wind up 13 years and 217,800 dollars later with exactly the same program.

But what about the necessary blueprint for financing the fund, to take the financing out of the arena of conflict and put it on a stabilized basis? Yes, the Kaplan Committee did make a recommendation as to the method of financing in part 4 of the report. Lacking the assurance that it possessed in recommending coordination, the committee confessed its inadequacy when it came to setting up a method of financing; declared the committee:

The Committee on Retirement Policy for Federal Personnel was given only a limited period and limited funds to complete this study. Accordingly, most of the valuations made pursuant thereto were necessarily of an approximate nature and frequently involved actuarial assumptions and shortcuts.

The committee recommended a normal cost-plus-interest method of financing. It is interesting to observe what happened to the recommendation of the committee on its torturous journey through the Bureau of the Budget, the General Accounting Office, and other Government agencies.

I was informed last July that the recommendations of the Kaplan Committee on financing would be sent to the Congress that month. The battle of financing, however, was not resolved in administrative circles until a few weeks ago-and when normal cost-plus interest emerged, you would have thought it was a survivor of the Hiroshima blast. The recommendation is unrecognizable and useless. The provisions in the present law, as general and vague as they are, stand out above the provisions of S. 3041 as being exact and specific. S. 3041 provides the following method of financing:

(b) The Commission shall submit estimates of the appropriations necessary to finance the fund and to continue this Act in full force and effect. At the time of submission of such estimates, there shall be submitted to the President, for his consideration in connection with the preparation of the budget for each year, information on (1) the normal cost of financing the fund on a reserve basis, and (2) one year's interest on the unfunded accrued liability.

The end of the section.

The present law sets forth the following rule:

SEC. 16. The Civil Service Commission is hereby authorized and directed to select three actuaries, one of whom shall be the Government's actuary, to be known as the Board of Actuaries, whose duty it shall be to annually report upon the actual operations of this Act, with authority to recommend to the Civil Service Commission such changes as in their judgment may be deemed necessary to protect the public interest and maintain the system upon a sound financial basis, and they shall make a valuation of the "civil-service retirement and disability fund" at intervals of five years, or oftener if deemed necessary by the Civil Service Commission; they shall also prepare such tables as may be required by the Civil Service Commission for the purpose of computing annuities under this Act. The compensation of the members of the Board of Actuaries, exclusive of the Government actuary, shall be fixed by the Civil Service Commission. *** The Civil Service Commission shall submit estimates of the appropriations necessary to finance the retirement and disability fund and to continue this act in full force and effect.

A more specific provision is certainly required than the circuitous provisions of the present law and the proposals contained in S. 3041, that permit administrative evasion of the Government responsibility. Certainly a proposal such as is found in S. 3041, wherein one man, the Director of the Bureau of the Budget, shall decide what program will be followed, is most dangerous.

Awaiting the portentous recommendations of the Kaplan committee, the Congress made only a token appropriation in 1954, and in 1955 the Bureau of the Budget recommended a similar token appropriation, thereby increasing the deficiency of the fund. In 1956, the Bureau of the Budget again failed to submit a request for an appropriation. The Subcommittee on Appropriations headed by Congressman Thomas of Texas insisted that money be appropriated.

The one significant and apparently only worthwhile recommendation of the Kaplan committee was that the fund be financed on a normal cost-plus-interest basis. We can support that recommendation. This recommendation could not survive administrative analysis and fell victim to budgetary expedience.

Let us take a look at the history of the civil service retirement fund. The attached table tells the history of the civil service retirement fund up through 1954. The salary deductions paid by the employees have been sufficient to pay all benefits. The total benefits have amounted to something over $3 billion and the contributions by the employees since 1921 have amounted to $4,549,642,868.74. The total of all disbursements have amounted to a total of $3,733,019,822.66. The Government has appropriated a total of $3,362,619,829.63. The deficiency in the fund is due principally to the failure of Congress to appropriate the necessary amount of money for the fund. What the exact deficiency is no one can state with any degree of assurancethe Board of Actuaries used the figures of the Committee on Retirement Policy for Federal Personnel, the Committee in turn complained that their figures were based on assumptions and projections. In presenting their report on June 30, 1954, the Board of Actuaries offered the following comment:

This report, which has been prepared as of June 30, 1954, is the 34th Annual Report of the Board of Actuaries. A regular valuation of the fund is long overdue. The last regular quinquennial valuation of the fund to be prepared under the supervision of the Board of Actuaries was made as of June 30, 1940, and the appropriations for collecting the necessary records and making subse

quent quinquennial valuations as called for under the law have not been available. In connection with the work of the Committee on Retirement Policy for Federal Personnel, a valuation of the fund was prepared as of June 30, 1953, based on the records of a special 5-percent sample of all employees. Since the valuation so prepared is the latest valuation available, the Board has summarized the results of this valuation in this report and has based thereon its recommendations regarding the annual appropriations payable by the Govern

ment.

The Board of Actuaries estimated that the deficiency of the fund as of June 30, 1953, was $9,911 million.

Commenting on the condition of the civil service retirement fund, the Committee on Retirement Policy for Federal Personnel made the following observation:

The $5.6 billion of funds on hand at the end of the fiscal year 1953 is about twice as large as the $2.7 billion liability for paying benefits to currently retired employees and survivor beneficiaries. If there is added to the latter amount the total accumulated contributions-with interest-for employees in active service, the total is $5.9 billion, or somewhat more than the existing funds on hand.

The recommendations of the Board of Actuaries regarding contributions to the fund have been disregarded by the administrators of the fund during its earliest years; by Congress in some instances; and by the Bureau of the Budget through budgetary convenience. The following table shows the amounts recommended by the Board of Actuaries since the establishment of the retirement fund:

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2 Amourt subsequently adjusted because of passage of Public Law 426.

377, 760, 400 $397, 519, 200 691, 066, 800

6, 242, 899, 652

3 Amount adjusted on basis of 3 percent interest assumption by Kaplan committee to $663,956,800.

For the years 1921 through 1927 I lacked some of the figures and I had some. The first year they recommended $14 million, on the third report they recommended $24 million, so we estimated $18 million which is very conservative on the basis of the recommendations and by referring to the total of the amount recommended for appropriation by Congress by the Board of Actuaries is $6,242,899,652.

By referring to the chart previously mentioned you will see that the actual amount appropriated by the Congress for the 34 years of operation is $3,362,619,829.63, and the amount recommended by the Board of Actuaries to be appropriated was $6,242,899,652. To summarize, the appropriations were $2,880,279,822.37 less than the amounts recommended by the Board of Actuaries. If you add to this

sum the compound interest that was lost to the fund, you have an extremely large amount of money.

It is extremely difficult for employees under the civil service retirement system to understand why our system is singled out for attack. Perhaps it is because we do have the best operated plan in Govern

ment.

The following short tables shows the percentage of normal payroll costs of the following various funds, the percentage contribution of the employees, and the unfunded liability. (The above-mentioned table is as follows:)

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Mr. KEATING. There are 1,660,300 employees under civil-service retirement, the normal cost, according to the last valuation of the fund was 11.15 percent; the employees contribute 6 percent and the Government pays 5-their liability is 5.15 percent. The unfunded liability is $9,911 million.

In the Federal judicial plans it only covers 300. The normal cost is 19.72 percent of the payroll, no contribution by the employees and the unfunded liability amounts to $8,500,000.

There are 3,500,000 under the Uniformed Services Act, the normal cost of that plan, according to the Kaplan committee, is 9.49 percent and the unfunded liability is $18 billion, which is twice the unfunded liability of the civil-service retirement fund.

Foreign Service, there are only 1,463 employees, the normal cost is 25 percent, the employees contribute 5.50 percent, the Government pays 19.50 percent and they have an unfunded liability of $35 million.

The coordinated program presented by the Kaplan committee is not new. It has been presented and rejected many, many times. The Federal employees have the following sound substantial reasons for opposing coordination.

The civil-service retirement system was established by a law passed by Congress on May 22, 1920. This law was enacted after long efforts on the part of postal and Federal employees. Our association, the National Association of Letter Carriers, was organized in 1889. In the call issued for the organization convention, one of the fundamental objectives was to establish a retirement plan. A tremendous amount of effort went into the enactment of that law; many proposals were explored and rejected. The law that was finally enacted was one of the earliest and one of the finest retirement programs in existence anywhere. It has since been improved many times by careful amendment.

With the advent of social security in 1936, there has been a continued, persistent, and consistent effort on the part of certain people in Government and out of Government to coordinate the two systems. Basically, the programs are different. The Civil Service Commis

sion, in a report published February 19, 1952, made the following pertinent observations:

In the first place, the civil-service constribution is an individual, guaranteed savings fund. The employee or his survivors will receive, in the form of annuities, lump-sum payment, or a combination of these, at least as much as he has contributed, plus compound interest. Nobody loses; the worst you can do is break even.

On the contrary, the social-security tax is just that—a tax. You never get it back. You may or may not-get back benefits equal to it. Persons who shift to employment not covered by social security can lose every penny of taxes paid. Young women who, prior to marriage, work less than 10 years under social security acquire no old-age benefit rights unless they have subsequent covered employment.

It might be well to point out the motives that impel some to support coordination. In the report of the Committee on Retirement Policy for Federal Personnel, a quotation is presented from a speech made by Mr. Frank B. Cliffe, at the New England Conference on Social Security on October 27, 1953. The committee presented only a portion of his remarks. The quotation used placed him squarely in favor of coordination, but failed to include the following significant statement that tells why he favors coordination. Declared Mr. Cliffe:

The immediate coverage under the Old-Age and Survivors' Insurance Act is advocated to eliminate the competition between the systems for political favor through repeated alternate liberalizations at the expense of the taxpayers.

Mr. Cliffe, and his associates, as well as many others, favor a program of coordination of all retirement plans with social security and advocate that social security be placed on a pay-as-you-go basis, so that the people will feel the cost, and benefit payments will not be liberalized.

On the pay-as-you-go basis the U. S. News & World Report this past week reported that the social security paid out $5 billion and their receipts and contributions from employees and employers was only $5,700 million. So, they are fairly close to being on a pay-as-you-go basis right now.

The civil-service retirement

Senator CASE. Excuse me. Did that figure of receipts include interest, do you recall?

Mr. KEATING. They did not break it down and the reason I am giving my source is that I have not had a chance to look into it. I was curious on that, too, but that was the exact quotation in the U. S. News & World Report.

Senator CASE. Thank you.

Mr. KEATING. The civil-service retirement system is in a far better financial condition than social security. Benjamin B. Kendrick of the Life Insurance Association of America makes the following observation on social security:

To begin with, most people probably consider the $20 billion now in the trust fund to be a very large reserve. Indeed, the seeming magnitude of this sum undoubtedly serves as an incitement to proposals for benefit liberalization. * * Actually, the amount in the fund is wholly inadequate to cover the benefits the system will sooner or later have to pay, under present law, on account of OASI wage credits already acquired by participants. Prior to the 1954 amendments, the "deficit," which existed in this sense, amounted to some $200 billion. The amendments this year added a new "deficit" of about $50 billion, so the total "deficit" is now around $250 billion and increasing, for the time being, year by year.

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