$3,657, and at that age the annuity rate would be $1,066. annuity the Government would grant would be $343. he retires the smaller would be his annuity.

So that the The earlier

Mr. HARDY. In all cases it is intended to amount to an annuity that he could purchase at that age with the cash laid up to his credit. Mr. BROWN. It is never more than the money will buy. There is no obligation on the part of the Government to pay an annuity that is not earned, and that he has not the money on hand to pay for; and the annuity rate could be changed at any time if it were found to be inadequate.

Mr. MANN. Of course that is all on the theory that this is a pure business transaction, and not for the interests of the Government in getting rid of superannuation. The moment you get into that you get to the theory of giving an adequate amount for his support or to help support him.

Mr. BROWN. This bill is intended to be in the interest of the Government primarily.

The CHAIRMAN. Objection has been made to the plan on the ground that it is undesirable to retire any one on more than 50 per cent of pay. Mr. BROWN. There is not much foundation in that objection, because it would only be employees who had served more than thirtythree years who would retire on more than 50 per cent of pay. Since this plan is to put a premium on long service, and beginning at early ages, it seems to me it is in the interest of the service to pay a larger annuity for longer periods than thirty-three years.

The CHAIRMAN. Objection has been made to this plan on the ground that it would be an interminable task and very expensive to keep an individual account for each employee. What have you to say on that objection?

Mr. BROWN. When I was in Chicago a few days ago I made inquiry of several savings banks as to the number of individual accounts a bookkeeper can take care of, and I found that a very mediocre clerk can enter four, five, or six hundred items a day, take care of his necessary statement work and keep his accounts balanced, so that if we were to estimate that an ordinary Government employee could make 400 entries per day, and should work twenty-five days per month, it would follow that he could take care of 10,000 accounts; and if there were 150,000 employees from whose salaries deductions were being made, it would require 15 bookeepers to handle that part of the plan, and as you see the force required would not be very great.

Mr. MANN. Then why should not the cost of it be taken out of the fund instead of out of the Treasury Department?

Mr. BROWN. It would seem only fair that the Government should contribute something for the benefit it will receive from being able to dispose of superannuated material.

Mr. MANN. It is your position that it would cost very little. I think people who are familiar with the governmental service believe it will cost an exceedingly large amount.

Mr. BROWN. On what ground do they think that?

Mr. MANN. Anybody who has had experience with the Government service knows that.

Mr. BROWN. I am making an estimate of the number of accounts that a clerk would take care of on the low basis of 400 entries

per day.

Mr. MANN. But upon a basis entirely, dissimilar to the facts, how

ever.

Mr. BROWN. I do not know about that; I thought it was very similar. In the matter of entering these items it would be easier than making entries in the savings banks, because the names on the pay rolls in the Departments almost always appear in the same order, and instead of having to hunt up different pages, as is common in entering items in savings banks, the employee could run right straight along, making one entry after another, because his record would be in the same order each month.

The CHAIRMAN. In this connection, I wrote to a minister of Canada, where they have this system in operation, asking him if he could tell me what the expense was there, but he replied that it was infinitesimal, and that the number of accounts they have is very small. (Appendix L.)

Mr. HARDY. I should think that a great deal could be done in connection with the bookkeeping and the accounting by use of printed forms.

Mr. BROWN. But pay rolls as they are now printed have a column for deductions, and one of the disbursing officers here in Washington told me some days ago that these deductions from pay would mean practically no extra work, or very little, provided they were made in even figures, which of course could be very easily done.

Mr. MANN. How could that be done?

Mr. BROWN. These deductions from salaries should be made to even 10 cents, for instance.

Mr. MANN. How could you do that under the bill?

Mr. BROWN. That could be easily done by providing in the bill that the deductions from salaries should be to the nearest 10 cents or 5 It would not materially affect the results.

cents.

Mr. MANN. That is not in the bill?

Mr. BROWN. No; but this bill will probably be amended.

The CHAIRMAN. The question came up at one of the hearings whether this plan was not similar to fraternal life insurance and the resources equally inadequate. Is there any similarity between them?

Mr. BROWN. None whatever. The weakness in fraternal life insurance in the past has been due to the fact that their rates were based upon mortality of the members at the beginning of the organization. Naturally as the members grew older the rates increased, and the new members brought into the organization could never be in sufficient numbers to keep down the rates, so that ultimately the rate would. increase, and when they reached a certain point the members, not knowing where the increase was going to end, would naturally begin to look for insurance in standard reserve companies. Those who were good risks would step out, and the poor risks would be forced to remain, and that would result in an additional increase in rates, and finally the organization would fail because the rates would become so high that no one would pay them. There is no similarity between the plan under consideration and fraternal life insurance.

Mr. MANN. Will you give us the figures upon which you base your tables on expectancy of life? What is the expectancy of life at the age of 50, 55, and so on up in five-year periods?

38257-08-8

Mr. BROWN. The expectancy of life at 50 is 20.91 years; 55, 17.40 years; 60, 14.10 years; 65, 11.1 years; 70, 8.48 years; 75, 6.27 years; 80, 4.39 years; 85, 2.77 years; 90, 1.42 years.

I would like to say in that connection that this is the American table of mortality, and is the basis for computing life insurance rates used by the American companies. Now, annuity rates are quite the reverse of that, and a table contemplating greater longevity should be used and would be used. The table suggested by Mr. Flynn was the British Offices Life Annuity table, as that table represented practically the combined experience of the English companies from 1863 to 1893, about thirty years; and the expectation of life under that table is considerably longer than under the American table. The rates named by Mr. Flynn were based on that table with 3.5 per cent interest, but with no loading for expenses.

Mr. MANN. What is it under your table?

Mr. BROWN. I haven't that table here, and I have not been able to get it for you yet.

Mr. MANN. What table have you used in making your estimates? Mr. BROWN. I am glad you mentioned that. The American table of mortality was used in figuring the mortality of present employeesin other words, in making up the table of probable cost to the Government for annuities for past service, but the rates which Mr. Flynn recommended were based upon the English table I have mentioned. Mr. MANN. Who is Mr. Flynn?

Mr. BROWN. He is the assistant actuary of the Travelers' Insurance Company, and one of the most prominent young actuaries in the country. The reason that I have used the rates named by the Travelers' Insurance Company in talking about these annuities was because they are the figures that were incorporated in a report presented by the subcommittee of the Keep Commission, and I thought it was better to confine myself to one set of tables in order to avoid any confusion, but in actual practice a somewhat different table would be adopted.

Mr. MANN. You have submitted to members of the committee various tables showing the per cent required to be deducted from salaries at which you provide annuities at different ages. Upon what table of expectancy of life were those computations made?

Mr. BROWN. Those computations were based upon the rates charged by the Travelers' Insurance Company and other standard insurance companies for annuities at the ages named, and the rate of interest contemplated in those rates is 3 per cent. The exact mortality table that is used I am unable to tell you, because all of the rates named there are the result of various changes by the insurance company from time to time, and I don't know just exactly what mortality they are based upon.

Mr. MANN. In making these figures you do not know what the expectation of life is at these various ages?

Mr. BROWN. I did not base those figures on any expectation of life, I used the table that I knew was current with a number of leading insurance companies, such as The Travelers, the Mutual Benefit, the Pacific Mutual, the Phoenix Mutual, the Prudential, and the Union Central. Other companies, such as the National Life of Vermont, the Penn Mutual, and the Provident Life and Trust charge lower rates.

Mr. MANN. But they are based upon expectation of life?

Mr. BROWN. Yes.

Mr. MANN. And you do not know what table it is?

Mr. BROWN. What table the insurance company used I do not know; I could not easily determine it; it is a mixture of several tables of mortality.

Mr. MANN. Your basis is wholly some table that some insurance company now has?

Mr. BROWN. Yes; and that is a very safe basis to follow.

Mr. MANN. Well, no one can tell about that. How long since the insurance companies have been using the tables?

Mr. BROWN. Those rates have been in existence for a great many years. Mr. MANN. They have not been changed for a great many years? Mr. BROWN. No; not those rates.

Mr. MANN. And these are based upon 3 per cent?

Mr. BROWN. Yes.

Mr. MANN. Compound interest?

Mr. BROWN. Compound interest.

Mr. MANN. How much does $1 amount to in ten years at 4 per cent, compounded, for different years?

Mr. BROWN. I shall be glad to furnish the necessary interest tables for the record so that anyone will be able to compute the annuity for any age and length of service. (Appendix N.)

Mr. MANN. Yes; incorporate all of that.

Mr. BROWN. That, with the figures in the table that I handed you the other day, will enable anyone to figure any annuity.

APPENDIX A.

BILL PROPOSED BY HERBERT D. BROWN AND INTRODUCED BY HON. FREDERICK H. GIL

LETT, H. R. 18982, SIXTIETH CONGRESS.

[A BILL For the retirement of employees in the classified civil service of the Government.] Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That beginning with the first day of July next following the passage of this Act there shall be deducted and withheld from the monthly salary, pay, or compensation of every officer or employee of the United States to whom this Act applies an amount that will be sufficient, with interest thereon at four per centum per annum, compounded annually, to purchase from the United States, under the provisions of this Act, an annuity for every such employee on arrival at the age of retirement as hereinafter provided equal to one and one-half per centum of his annual salary, pay, or compensation for every full year of service or major fraction thereof between the date of the passage of this Act and the arrival of the employee at the age of retirement. The deductions hereby provided for shall be based on such annuity table as the Secretary of the Treasury may direct, and interest at the rate of four per centum per annum, compounded annually, and shall be varied to correspond to any change in the salary of the employee.

SEC. 2. That the amounts so deducted and withheld from the salary, pay, or compensation of each employee shall be deposited in the Treasury of the United States and shall be credited, together with interest at four per centum per annum, compounded annually, to an individual account of the employee from whose salary, pay, or compensation the deduction is made. The moneys so deducted and the income derived therefrom may be invested from time to time by the Secretary of the Treasury by the purchase of bonds of the United States, bonds or other interestbearing obligations of any State of the United States, or any legally authorized bonds issued for municipal purposes by any city in the United States which has been in existence as a city for a period of twenty-five years, and which for a period of ten years previous to such purchase by the Secretary of the Treasury has not defaulted in the payment of any part of either principal or interest of any funded debt authorized to be contracted by it, and which has at such date more than one hundred thousand inhabitants as established by the last national census, and whose net indebtedness does not exceed five per centum of the valuation of the taxable property therein, to be ascertained by the last preceding valuation of property for the assessment of taxes;

or the first-mortgage bonds of any railroad company, not including street-railway bonds, which, in compliance with existing law, reports regularly to the Interstate Commerce Commission a statement of its condition and earnings, and which has paid dividends of not less than four per centum per annum regularly and continuously on its entire capital stock for a period of not less than ten years previous to the purchase of the bonds by the Secretary of the Treasury. The moneys so deducted from salaries and the income derived therefrom shall be held and invested by the Secretary of the Treasury until paid out as hereinafter provided. Any deficiency in the fund hereby created to carry out the provisions of this act shall be paid out of any money in the Treasury not otherwise appropriated.

SEC. 3. That upon retiring at the age of retirement the employee may withdraw his savings, with the increment of interest as herein provided, under one of the following options, and receive in addition thereto such sum, if any, as may be apportioned by the Secretary of the Treasury out of interest accumulations in excess of the four per centum guaranteed by the provisions of this act, and such apportionment by the Secretary of the Treasury shall be conclusive:

Option I. In one sum.

Option II. In an annuity payable quarterly throughout life.

Option III. In an annuity payable quarterly throughout life, with the provision that in case of the death of the annuitant before he has received in annuities the amount of his savings, plus the interest credited thereon, the balance shall be paid to his estate. In determining at his death the amount due to his estate no account shall be taken of the annuities paid to him by the United States, as hereinafter provided. Option IV. In an annuity certain for a limited term of years, payable quarterly. If after retirement the employee does not avail himself of one of the foregoing options, but leaves the amount due him on deposit, interest at the rate of two per centum per annum on the original sum so left on deposit on retirement shall be credited thereto for a period not exceeding twenty years, and if not then withdrawn the money so left on deposit and the interest credited thereon shall be covered into the Treasury as a miscellaneous receipt.

SEC. 4. That upon absolute separation from the civil service prior to the retirement age, and only upon such separation, the employee may withdraw his savings, with the increment of interest credited thereon, in one sum, or, in case his savings amount to at least one thousand dollars, and he has been in the service not less than twenty years, he may withdraw the same under any one of the foregoing options computed on the basis of his attained age. In case of the death of an employee while in the service the amount of his savings, together with the interest credited thereon, shall be paid to his estate.

SEC. 5. That in case of reinstatement in the classified civil service of any person who at the time of his separation therefrom received a refund under section four of this act, his period of service for the purpose of retirement and of making the monthly deduction from his salary shall be computed from the date of such reinstatement, unless he shall within ninety days after reinstatement pay to the Secretary of the Treasury the amount refunded to him, in which case the same shall be replaced to the credit of his account, and the former period of service shall also be counted.

SEC. 6. That the retirement age herein referred to shall be sixty years for group one, sixty-five years for group two, and seventy years for group three. And the President of the United States shall designate the branches of the service to be included in each group.

SEC. 7. That every employee to whom this act applies shall be entitled, on reaching the retirement age, or having already passed that age, to retire from the service under the provisions hereinbefore contained, and also, in addition to the annuity herein provided for by his own contributions from his salary, to receive from the United States, during the remainder of his life, an annuity equal to one per centum for group one, one and one-fourth per centum for group two, and one and one-half per centum for group three of his average salary, pay, or compensation, during the last ten years of service, for every year that he shall have been in the service prior to the passage of this act; and the Secretary of the Tresaury is hereby authorized and directed to pay such annuity quarterly, from any money in the Treasury not otherwise appropriated, upon proper certification of the retirement of such employee by the appointing officer under whom he last served. Annuities from the United States for the period of service prior to the passage of this act shall be payable only on condition that the employee remains in the service until he reaches the age of retirement. On the death of the employee the payment of annuities provided for by this section shall cease and determine. Annuities payable by the United States under this section on salaries in excess of two thousand five hundred dollars per annum shall be based upon an annual salary of two thousand five hundred dollars.

SEC. 8. That the period of service upon which the annuity to be paid by the United States is based shall be computed from original employment, whether as a classified