Amendment No. 3 It is our opinion that the wording of S. 2875 would penalize the employees of the Panama Canal Zone and I am sure that it was not the intention of those who prepared this bill to do an injustice to anyone; therefore, we strongly recommend that a de nite provision be inserted in S. 2875 to protect the employees of the Panama Canal Zone, especially as to their 62 years of age retirement and their differential. Amendment No. 4 For many years the Government Employees' Council has advocated that the widows of those employees who retired between April 1, 1948 and October 1, 1949 should be eligible for an annuity. We likewise very definitely favor and support increases for all annuitants now on the roll. If at all possible would like to see S. 2875 amended to include these people but if not we strongly support legislation now pending before this committee to adjust these injustices. Amendment No. 5 We note that the effective date as outlined in section 5 on page 40 is January 1, 1957. With all the good things contained in S. 2875 we see no good reason why those retiring should be deprived of these privileges any longer than it is absolutely necessary; therefore, we recommend that this bill be amended to become effective either June 30, 1956 or September 30, 1956. Amendment No. 6 The Government Employees' Council respectfully urges this committee to add the following words in section 3 (c) page 9, line 11, after the word "or", "wh le serving as an officer of an employee organization, or". We sincerely recommend that the above six suggested amendments be incorporated in the subcommittee's recommendations to the full committee. With these mincr amendments, Mr. Chairman, we believe that S. 2875 should immediately be approved and enacted into law, and we assure you we will do all we can to assist the subcommittee and the full committee in bringing to a successful conclusion the intent and approach as offered by Senator Olin D. Johnston in the introduction of S. 2875. Mr. Chairman and members of the committee, S. 3041 and other bills affecting our retirement system are pending before this committee. We would like to publicly state that in our honest opinion the Federal retirement system and the social-security system were established for two distinct different purposes. Since the enactment of the social-security law it has constantly been a desire of some people to merge the Federal retirement system with the social-security system. We of the Government Employees' Council have consistently opposed this merger. In our opinion the provisions of S. 3041 may be called by any other name except merger, but actually it can be nothing short of a merger of the Fderal retirement system with the social-security system, and this we definitely oppose. Therefore, Mr. Chairman, I have been authorized by the officers and delegates of the Government Employees' Council to vigorously oppose the approach as outlined in S. 3041. There can be no justification and I cannot understand how it can be done cheaper by paying an employee or annuitant from 2 pockets instead of making the whole payment from 1 pocket. Mr. Chairman and members of this subcommittee, for more than 15 years I have appeared before the House and Senate committees on legislation and allied problems. Every time that amendments have been offered to the Federal retirement system some people always leave the impression that if the pending amendments are adopted it would wreck the financial structure of the Federal retirement system. Generally speaking the administration has always overestimated the cost of amendments to the Federal retirement system. I trust that the members of this committee and the Congress will keep in mind that for more than 35 years the employee deductions have more than paid for the benefits that have been paid to annuitants. In fact, the employee withhold.ngs have by more than $500 million exceeded the benefits paid to annuitants. In other words, the employees have more than financed the Federal retirement system. If the Congress had appropriated the moneys from year to year that have been requested the Federal retirement system balance today would be in staggering financial figures, as we now have in the fund more than $6 billion. With these facts before us we can see no justification why all the benefits that are provided for in S. 2875, including the Government Employees' Council amendments, cannot be financed under the present financial structure of the Federal retirement system, providing, of course, the Federal Government assumes their just and fair share of the financial responsibilities and the Congress appropriates money in keeping with good business administration. Mr. Chairman, would it be out of order for me to suggest that your committee be furnished the following financial figures over the past 35 years: (1) The amount that the actuaries recommended that the Federal Treasurer pay into the Federal retirement system. (2) The amount the administration in power or through the Budget Bureau have recommended to the Congress be appropriated for the Federal retirement system. (3) The amount appropriated by the Congress over the 35-year period. It is my opinion that this type of information will answer once and for all many of the questions that have come to the attention of this committee during these hearings. We are strongly convinced that the future would be much brighter and much more secure for Federal and postal employees to have enacted into law the provisions of S. 2875 with the amendments that we have suggested than to have enacted into law the provisions of S. 3041. It is possible and most probable that if S. 3041 should be enacted into law that in the near future the deductions from the Federal and postal employees' salaries would be much greater than if the provisions of S. 2875 with the suggested amendments were enacted into law. We strongly support the intent of S. 2875 and just as strongly oppose the intent of S. 3041. Mr. Chairman and members of the subcommittee, again we express our thanks to you for holding and expediting these hearings and assuring you that we always appreciate the opportunity of appearing before this committee and stating our position on pending legislation. Mr. BRAWLEY. Mr. Chairman, the next witness is Mr. Alfred Beiter. Mr. Beiter is wearing two hats today, I do not know which one he wants to put on first. Senator SCOTT. Give your name for the record. Mr. BEITER. Mr. Chairman, my name is Alfred F. Beiter, and I am legislative representative of the National Association of Retired Civil Employees and I also am the president of the National Customs Service Association. It is my understanding that I may be permitted to testify in behalf of the Customs Service Association immediately following my testimony for the retired employees. Senator Scorr. In other words, you are not going to testify for and against yourself at the same time? Mr. BEITER. Mr. Chairman, I have a statement that I would like to submit for the record and then I will proceed to give a summary of that statement. Senator SCOTT. That will be inserted in the record at this point. (The above-mentioned document is as follows:) BRIEF OF THE NATIONAL ASSOCIATION OF RETIRED CIVIL EMPLOYEES Mr. Chairman and members of the committee, my name is Alfred F. Beiter and I represent the National Association of Retired Civil Employees, an organization of retirees receiving annuities under the Civil Service Retirement and Disability Act. I am accompanied by a member of our legislative committee, Hon. Addison T. Smith, a former member of the House of Representatives for 20 years, and also by our national officers-Frank J. Wilson, president; Walton Ralph Edmonds, first vice president, and Clarence L. Williams, secretary. Our association celebrates its 35th birthday this month. It has a membership of 82,000 and has 553 chapters in the United States, the Panama Canal Zone and the Philippine Republic. The chapters in 16 States have organized State federations. We are here to endorse the provisions of the bill under consideration, S. 2875, to respectfully suggest certain amendments and to urge your committee to give expeditious and favorable consideration to the bill, and to the amendments we 75735-56-7 propose. We suggest an amendment to provide for annuity increases for the annuitants and survivors who may be on the civil-service retirement roll at the date of enactment of the bill. We propose an amendment about as follows: (a) "The annuity of any employee who, before the date of enactment of this Act, was retired and is receiving or entitled to receive an annuity from the fund, shall be increased, effective on the first day of the second month following enactment of the Act, by $100 plus $10 per each two full months elapsed between the commencing date of annuity and the date of enactment of this Act: Provided, That such increase in annuity shall not in any case exceed $300." (b) "The annuity of any survivor, except children covered in the next paragraph (c), who, on the date of enactment of this Act is receiving or is entitled to receive an annuity based on the service of a former employee, shall be increased, effective on the first day of the second month following the date of enactment of this Act, by $80." (c) "The annuity of any child who, on the date of enactment of this act, is receiving or is entitled to receive an annuity based on the service of his parent shall be increased by $50, effective on the first day of the second month following the date of enactment of this act: Provided, That the annuity of each such child shall not at any time exceed $1,200 divided by the number of child en then receiving annuity." This amendment is similar to certain provisions of section 15 of S. 1153 introduced at the 1st session of this 84th Congress by the chairman of the Senate Post Office and Civil Service Committee, Hon. Olin B. Johnston, except that the amount of the benefits proposed by Senator Johnston have been substantially reduced. This amendment follows the principle recommended by the Kaplan Committee, which states (p. 23 of Report No. 5) as follows: "The Committee believes that it is incumbent on the Congress when adjusting the current pay of Government employees, or when liberalizing the formula for future annuitants, to reexamine the benefits paid to annuitants already on the rolls with a view to adjusting their annuities as warranted." [Italics supplied.] S. 2875 as introduced does very appropriately liberalize the formula for future annuitants, but it does not provide for the adjustment of annuities for persons already on the rolls, hence, we deem it proper to request such an adjustment. This is one proposal of the Kaplan Committee which we believe will not be controversial and which is capable of action by Congress without prolonged study and delay. The Kaplan Committee had an exceptionally able staff to advise them with reference to financial soundness of the civil-service retirement fund. We do not feel that the Committee would have suggested that annuities of persons already retired be adjusted if such action would seriously weaken the fund. The Committee also had valuable advice upon which to base their recommendations from Government actuaries, accountants, high officials in the United States Civil Service Commission, and the Bureau of the Budget. THE GOVERNMENT'S OBLIGATION Retirees already on the rolls, even though recently added, retired on pay rates that had not been fully adjusted to the cost of living. Hence, the annuity was out of gear with living costs at its inception. The argument has been advanced that the annuities under the Civil Service Retirement Act are a contract, similar to an insurance annuity, and the Government is under no obligation to adjust them once they have been computed at the retirement date. Nevertheless, the 80th, 83d, and 84th Congresses passed bills granting annuity increases for the employees already retired. Perhaps the Government may have no contractual liability to adjust annuities to the cost of living, but the Federal Government does have a high moral and humane responsibility toward its retired employers because of their long and faithful service. That is the essence of a sound employer-employee relationship. Industry and business generally have voluntarily granted cost-of-living adjustments in the pensions of their retired employees, over and above the strict legal requirements of their pension systems. Some forward-looking corporations pay all the costs of the employee pension systems and some have provided escalator clauses so that as the most of living goes up the pensions are automatically adjusted to meet it. Recently, significant adjustments in wages, pensions, and working conditions were made by Ford Co. and the General Motors Corp. Under its contract General Motors granted increases of "at least" 28 percent in the pensions of employees already retired, and similar increases in the rates for those retiring in the future. The Ford Co. granted increases to employees already retired based on the pensioners' service credit at the time of retirement. Of course you are interested in the additional expense to the fund of the amendment we propose: It would cover about 250,000 employee annuitants already on the rolls. We believe the average increase would be around $200. On that basis the expense for the first year would approximate $50 million for that group. Each year thereafter the amount involved would rapidly decrease because of the very advanced age and correspondingly sharp death rate of these retirees. Many thousands of the retirees to be bene ited are in their late seventies or early eighties. Many are bedridden, shut-ins, partially disabled, or under the care of a doctor or nurse. Actuarial tables and other statistics indicate that their final years are approaching rapidly. This situation indicates that within a period of 10 years the successive decreases in payments will reduce the cost around 50 percent or more, and after that the continued decreases, due to deaths, will soon reduce the cost to close to a very nominal figure. The average life of an annuitant after retirement is between 11 and 12 years. The temporary financial drain on the fund through this period would not reduce it by any dangerous degree. The Kaplan Committee considered the fund so sound that it proposed that the income of the fund from the salary deduction be permanently decreased from 6 percent to 31⁄2 percent on amounts up to $4,200. This would be a cut of about 35 percent. The Kaplan Committee states that afte: this income cut is effected that the fund will still be able to pay the same benefits to the present retirees as under the present act. Such a reduction in salary deductions would be close to $1 billion in 10 years. If the income of the fund can be cut by such a very substantial amount during the next 10 years, does it not clearly follow that if the income is not cut and the salary deductions remain at 6 percent, that the fund can well afford to pay, during this temporary pe iod, the proposed increased annuities to the annuitants already retired and also liberalize the annuities of employees who will retire in the future? The cost of the increases in annuities for future retirees as provided for in S. 2875 will be very mode ate during the first few years it is in effect and the full impact of same will not be reached for from 20 to 25 years. For instance, assume that 30,000 employees retire during the first year and their retirement rate is 33% percent more than that of the retirees in past years (an average inc ease of about $C00 per year), the cost for the first year would be around $18 million. Of course, if at the end of 10, 15, or 20 years the condition of the fund and its future liabilities appears to warrant an increase in salary deductions the Congress may then follow previous precedents and raise the rate of deductions. Our association does not have the valuable services of actuaries, accountants, etc., such as served the Kaplan committee and the Civil Service Commission, to aid in determining the actuarial financial status of the fund, so we can reach no firm conclusion on such a basis. However, there is another available factor in studying the future of the fund, which is very important, and that is the actual financial history of the fund over a period of 35 years. This is reflected on the annual reports of the United States Civil Service Commission. These reports establish an extremely successful operation over that very long span of years, more than one-third of a century. The fund started in 1920 without 1 cent, and today the balance in the fund is close to $6.5 billion, despite the failure of the Government during about one-third of that period to make any appropriations to pay for its part of the cost to cover its liability to the fund. This unpaid amount, plus interest, is about $ Of particular interest to establish the very successful financial operation of the fund is exhibit No. 1, submitted herewith, covering the operations of the fund for 7 years, 1949 to 1955. It will be noted that the balance in the fund more than doubled in the 7-year period, increasing from $2,825 million to $6,193 million in spite of the failure of the Government to make an appropriation in 1954 or in 1955 to cover its part of the normal yearly payments. You will note the average annual increase of the fund in that 7-year period was $477 million. The indications are that in this fiscal year the balance will increase over one-half billion dollars. During the 35-year history of the fund, annuities have been successively increased by Congress. That the fund could well afford such increases is demonstrated by the successive large annual increases in the balance in the fund. At first thought that situation may surprise you, but we must remember that in effect the fund is a Government monopoly selling annuities to its employees. A Government monopoly is bound to be a financial success. If at any time the business needs more income because of increased liabilities brought about by legislation providing increased annuities the Congress increases the price of the annuities. The Congress has increased the price to its employees on three occasions (1926, 1942, 1948) and if it is advisable, the precedent heretofore established may again be followed. Therefore, it appears clear that the fund is bound to continue to be sound and a financial success. When I was a boy my father taught me that "experience is the best teacher." I urge the members of the committee to place due value on the successful experience in the operation of this monopoly business of selling annuities in which the retirement fund is engaged. Don't place too much exclusive dependence upon predictions, based upon actuarial tables, etc., that the fund cannot afford to pay additional benefits. "Look at the record," as Al Smith used to say. Carefully examine the past history of the business as reflected in its financial statements over the years. These statements cover a very successful experience of more than one-third of a century. The board of directors of this business were the Members of Congress during the past 35 years. During that 35 years they did not depend exclusively on the advice of actuaries when they considered important factors in relation to the business such as proposed annuity increases. Many times they disregarded the advice of the experts who claimed the liabilities of the fund were excessive, that it should be fully funded on an actuarial basis, and that it could not afford the increases under consideration. That the able Members of Congress displayed wise judgment by not depending completely on such advice is now evident by 35 years of successful operations. The conservative Government advisers made dire predictions for 35 years about the fund, but the sound judgment of the trustees-the Members of Congress-demonstrated that the experience of the fund is also a dependable yardstick to use in determining the future business policy of the fund. The experience reflected in the 35 years the fund has been in existence covers a period of sufficient duration to be of real value in planning its future activities as the average life of an employee after retirement is about 11 years, therefore, we have had 3 cycles of retirees. The average years of employment before retirement covers about 23 years, so we have had about 11⁄2 cycles of Government employment. While industry, insurance companies, and the Federal Government were forced to make very big cuts in salaries, etc., during the depression years, the fund was able to continue to pay the full amount of all annuities even though Congress had substantially increased the annuity benefits that were provided in the original act of 1920. There are three important factors to be considered in reference to the amendments we propose, as follows: (1) Are the proposed annuity increases for persons already on the rolls warranted and are they desirable to the Government? Based upon the amount required to allow the civil-service retiree and his wife to enjoy a very moderate American standard of living they are warranted and based upon the announced policy of the Government to encourage efficient young men and women to make a career of Government service, it does appear to be good administration desirable to the Government. (2) What will the increase cost the fund? About $55 million the first year for the annuitants now on the rolls. After the first year the amounts will be successively and substantially reduced because of deaths and in about 10 years a big proportion of the payments will have stopped. In another few years the payments will only require what may be regarded as a nominal amount. (3) Is the fund sound enough to afford the proposed increases and also to continue to meet its liabilities? The fund can afford to pay the proposed increases and continue to meet its liabilities. This appears evident from the report of the Kaplan committee recommending a 35-yercent reduction in the income of the fund, and it is confirmed by the administration bill S. 3041, introduced by Senator Carlson on January 25, proposing such a reduction. The basis for our statement that the Kaplan committee report and S. 3041 establishes that the fund can afford this additional drain is as follows: |