his annuity, on retirement, should be equal to 13 per cent of $2,000 for the years that he received that salary. The increase in the deduction from the employee's salary would be based on his net increase in salary and the number of years remaining before attaining the age of retirement. In this instance the employee's salary was increased from $1,200 to $2,000. The net increase was $800. If the promotion from $1,200 to $2,000 was made when he was 35 years of age he would still have thirty-five years to serve before retirement, and the amount of the increase in his annuity to correspond to his increase in salary would be ascertained by taking 1 per cent of the increase, $800, which would be $12, and multiplying it by 35, the remaining years of service, and this gives us $420. Now the cost of $420 annuity beginning at age 70 is ascertained by multiplying $420 by the price per $100 of an annuity beginning at age 70, which we will say is $742, the price per $100 charged by a number of the leading insurance companies. If an annuity of $100 costs $742, then 4.2 hundred will cost 4.2 times $742, or $3,116.40, and this is the additional amount of money that must be accumulated between the age of 35, when his salary was increased, and the retirement age of 70. By reference to an interest table we find that a deposit of $1 per month for thirty-five years, improved by 4 per cent compound interest, will amount to $902.87. Therefore, to provide the annuity corresponding to this employee's increase in salary of $800 will require a monthly deduction of as many dollars as $902.87 is contained in $3,116.40, which is $3.45, and this amount, plus the deduction of $3.57 that was being made before the increase in salary was made, gives us the proper deduction to be made after the increase in his salary took place. This makes a total monthly deduction of $7.02, or 4.21 per cent of the employee's salary thereafter, until another promotion takes place. In actual practice the process is much simpler than the one I have described, for the deductions from a salary of $100 beginning at all ages would be reduced to a set of tables, and to determine the increased deduction to be made when a promotion took place would require only a simple multiplication of the amount of the increase by a certain per cent shown in the table. In the illustration just considered the process would be simply that of multiplying the monthly increase of $66.67 (which is one-twelfth of $800) by 5.117. This process may be still further simplified by preparing a set of tables showing the amount to be deducted from various promotion salaries at various ages.

The CHAIRMAN. In other words, he would get a larger annuity? Mr. BROWN. Yes, sir; to correspond to his salary and length of service.

Mr. EDWARDS. Did I understand you to say that he would get back just what he had paid in, plus 4 per cent interest?

Mr. BROWN. Yes, sir; plus 4 per cent interest, compounded annually.

Mr. EDWARDS. No clerk would contribute to the annuity of another clerk, nor will the Government contribute more than the interest it allows?

Mr. BROWN. No clerk would receive any benefit from the contributions of any other employee. As I have amended the bill the Government guarantees 4 per cent interest on the savings of the employees. If the fund earned less than 4 per cent the Government would

pay the difference between the interest earned and 4 per cent. The bill also provides that the Government shall bear the expense of administering the fund.

Mr. HARDY. What provision have you made where the insured dies? Mr. BROWN. The contributions, with the interest credited to them, shall be returned at death.

Mr. HARDY. To his family or estate?

Mr. BROWN. To his estate.

Mr. EDWARDS. Any man, if he is thrifty, can get more than 4 per cent, and so I can not get the force of this scheme.

The CHAIRMAN. While it is true that a man could probably get more than 4 per cent interest, it has been found in experience that the men in Government positions will not save, and the result is that when they get old and incompetent and should be put out of the service Congress and the heads of the departments will not put them out of the service because they have not anything to live on, and it is considered merciless. This is really a proposition to make the Government employee save and protect himself from old age. Mr. BROWN. It is a compulsory savings arrangement.

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Mr. EDWARDS. But this is a free country and a man has the right to use his money as he wants to. I am frank to say that at present I can not see the force of the scheme. You might as well say: will make you save your money, whether you will or not.' Of course it is commendable to try to make them save. The CHAIRMAN. It is being done in Europe.

Mr. DOUGLAS. It is being done on the great railroads.

Mr. EDWARDS. That is somewhat of a charitable relief. I know that the Atlantic Coast Line has a hospital relief fund and that, I think, is a very good thing.

Mr. DOUGLAS. All the employees of the Pennsylvania Railroad Company, as I understand it, after they have been with the company a certain time are required to contribute to a fund for their own annuities.

The CHAIRMAN. And the railroad contributes a still further fund? Mr. DOUGLAS. Yes, sir.

Mr. EDWARDS. Are you not trying to get the Government into an insurance scheme?

Mr. BROWN. There is no element of insurance in this plan until the employee reaches the retirement age. If he elects to take an annuity at retirement then there is an element that you might call insurance, but up to that point it is merely a savings account.

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 CHAIRMAN. You will keep an account with each man?

Mr. BROWN. Yes, sir.

Mr. DAWSON. How many accounts will be necessary?
Mr. BROWN. About 150,000.

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 interest-bearing 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.

I took that from Senator Aldrich's currency bill.

Mr. DAWSON. Wherein does that provision differ from the savings bank provision, we will say, of the State of Connecticut?

Mr. BROWN. That is substantially the same, I think. Of course the State laws are much more elaborate, but these provisions are substantially the same as the Massachusetts savings-bank laws. Of course the Massachusetts savings-bank laws enumerate the bonds that may be purchased.

Mr. HARDY. They name the bonds and stocks of certain roads, etc.? Mr. BROWN. Yes, sir.

Mr. HARDY. At the end of twenty years, compounded at 4 per cent interest, how many times the contribution does the lump sum amount to?

Mr. BROWN. A deposit of $1 per annum for twenty years, compounded annually at 4 per cent, amounts to approximately $31.

Mr. HOLCOMBE. The Government employees do invest more or less. Almost all of them invest little sums in one thing or another. Many of them try investments in real estate, town lots, and things of that sort. They lack the experience and judgment. Their lives and occupations are such that they do not acquire business acumen. They are the victims of every possible kind of promoter and sharper, and whatever little surplus they painfully save from their salaries and make investments in ninety-nine cases out of a hundred is lost. That has been my observation in the Departments in twenty years. They do the best they can. Then at the end of a long life the Government has them on its hands as old people, who, if discharged, will be left to want and suffer.

Mr. SCOFIELD. I would like to emphasize the point that this bill is not drawn primarily in the interest of the Government clerk. It is drawn in the interest of the Government. It is to protect the Government by compelling a man when he comes into the service to guard against becoming a charge, as in practice we find to be the case, when he reaches a period where his usefulness if not departed is materially lessened. It is to guard against that. It is, to use a familiar quotation, "a condition and not a theory."

Mr. DAWSON. As a matter of fact we now have a very large per cent of the clerks who have reached that point in the service in Washington.

Mr. SCOFIELD. In my judgment, the superannuation difficulty in the Government service is not nearly so bad as a good many people seem to think. I think it will compare very favorably, and I speak from an observation of nearly a quarter of a century, with other occupations. The fact is that the Government wants their very best

and it should be enabled to get that by at least getting rid of people when their services have become lessened in value, so as allow new people to come in and to develop.

Mr. DOUGLAS. Then there is another thing. This bill applies to hundreds, if not thousands, of women who have no aptitude for investing and a good many of whom are not much inclined to save and whose condition becomes the most pathetic when they are old.

Mr. SCOFIELD. That is true, and they are frequently the sole support of dependent relatives.

Mr. HARDY. There is one suggestion which occurs to me. Is not the whole scheme practically a civil-pension list?

Mr. BROWN. No, sir; this plan is not, in any sense, a civil pension, for the reason that every employee provides for his own annuity on retirement by savings from his monthly salary. It might more properly be called a savings and annuity plan.

Mr. HARDY. And will not the Government after a while arrange its scale of wages or salaries so that the salary would be about the same with the deduction taken off as it would otherwise have been without that deduction?

Mr. DOUGLAS. But of course Congress is the Government.

Mr. BROWN (reading:)

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.

The CHAIRMAN. What is the purpose of that clause?

Mr. BROWN. The purpose of that clause is to provide for any deficiency that there might be between the income earned on the fund created by the deductions from salaries and the rate of interest guaranteed by the plan, 4 per cent.

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 apportionment by the Secretary of the Treasury shall be conclusive.

The CHAIRMAN. The purpose of that section is that if the fund earns more than 4 per cent they can give it to the persons whose money has earned it?

Mr. BROWN. Yes, sir.

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.

These are the optional settlements ordinarily contained in life insurance policies.

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 retire

ment 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.

Mr. DAWSON. You do not require the beneficiary to take advantage of any of those options, you say "may," not shall"?

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Mr. BROWN. I changed the bill to "may." If he leaves his money on deposit, he gets 2 per cent simple interest and the general fund would get the benefit of any earnings over and above that rate. Mr. HARDY. That is where he does not take the money?

Mr. BROWN. Yes, sir.

The CHAIRMAN. I see that you have left out the clause that the annuity shall be based on mortality tables, etc.?

Mr. BROWN. I changed the form; that is in the first paragraph of the bill, as I have changed it.

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.

Mr. EDWARDS. "Shall be paid to his estate." This is a provision, as I understand it, to care for the man and his family, or for the employee and his family. Of course, we are not amending the bill now, but I think when it is put into shape it should be changed so that the money is to be paid to his family.

Mr. DOUGLAS. And not to his creditors?

Mr. EDWARDS. Leave it to his wife or children or family.

The CHAIRMAN. Have you considered the question of when a man leaves the service after a short period that he should not forfeit his fund?

Mr. BROWN. The draft as I have it here contemplates that he shall be permitted to withdraw his savings, plus the interest thereon, upon absolute separation from the service at any time.

Mr. EDWARDS. What provision do you make about illness? Suppose a man is ill for a month or two months and he does not draw any salary, is there a forfeiture under that?

Mr. BROWN. No, sir; his account is credited when the deduction is made from his salary. If he draws no salary and no deduction is made, the amount to his credit is simply that much less.

Mr. DOUGLAS. There are no deductions made for illness?

Mr. BROWN. No, sir.

Mr. HOLCOMBE. An employee may have thirty days' annual leave and thirty days' sick leave, and after that period is exceeded then the deductions are made.

Mr. SCOFIELD. He can not under the law have leave with pay to exceed sixty days in any one year.

The CHAIRMAN. The class I was speaking of is the young men who come to town to study in the universities and who go into the service for two or three or four years and then expect to leave. My question was whether in those cases it would be fair that they should forfeit the accumulation; in other words, whether they should get the salary minus what they contributed?