Hearings Before the Committee on Reform in the Civil Service of the House of Representatives ...

The committee this day met (Hon. Frederick H. Gillett in the chair) for the consideration of measures to establish a retirement fund for superannuated employees in the classified civil service. The measures immediately before the committee were the report of the subcommittee on personnel, of the Committee on Department Methods, the so-called Keep Commission, with an accompanying bill (Appendix B), and the bill suggested by Mr. Herbert D. Brown, of Chicago, formerly of the Department of Commerce and Labor, and introduced by Hon. F. H. Gillett (Appendix A).

There were present: Messrs. Herbert D. Brown, of Chicago; John W. Holcombe, Interior Department; A. Zappone, Department of Agriculture; George W. Leadley, Department of Commerce and Labor; and John C. Scofield, War Department, of the Committee on Department Methods.

The CHAIRMAN. Mr. Brown, will you kindly explain your scheme to the committee?

STATEMENT OF MR. HERBERT D. BROWN, OF CHICAGO.

Mr. Chairman and gentlemen of the committee, it may not be out of place to preface what I have to say in regard to the retirement plan I wish to present to you by a brief reference to some of the other plans of retirement that have been proposed, in order that the basis of this plan may be more easily understood. When I first came to Washington, five or six years ago, the subject of retirement for the aged Government employees was receiving much attention, and a number of plans had been proposed. The subject being kindred to that of insurance, I was naturally interested in it. I accordingly made an examination of the various plans, and, on analysis, I found that, in a general way, they fell into two classes:

First, those proposing the payment of annuities to the superannuated out of the Federal Treasury; and,

Second, those proposing a uniform deduction of a given per centmore or less adequate for the purpose in view-from the salaries of all employees to create a general fund out of which to pay annuities to retiring employees. This second class may properly be subdivided into two divisions:

(a) Those proposing a uniform deduction of a given per cent from all salaries and the payment of annuities based upon length of service; and

(b) Those proposing a uniform deduction of a given per cent from all salaries and the payment of a uniform annuity regardless of length

of service.

The first group of plans-those proposing the payment of annuities out of the Federal Treasury-are, of course, civil pensions, and, in view of the public sentiment against such measures, need not be discussed.

The second group of plans-those proposing a uniform deduction of a given per cent from all salaries to provide a general fund out of which to pay annuities to employees aside, from their financial uncertainties, proved in every instance, on analysis, to be inequitable as between employees of different ages. This is true whether the annuity paid is uniform or is based on length of service.

To illustrate the unfairness of this group of plans, let us consider, first, the results of plans proposing a uniform deduction of a given per cent from all salaries and the payment of annuities based upon length of service. Let us see, for instance, if by making a uniform deduction of 5 per cent from salaries of $100 per month it will be possible to establish annuities for men entering the service at different ages on that salary, and what the annuities will amount to. Take two men entering the service, one aged 20 and the other aged 60, each receiving $100 a month, and deduct 5 per cent of that salary, or $5 a month, with the object of paying each man on retirement an annuity based on his length of service. Is it feasible? The man of 20 will have fifty years to serve before reaching the age of retirement and the man of 60 only ten years. Now, a deposit of $5 a month will earn much more interest in a period of fifty years than it will in ten years. Just what is the difference in this concrete case? Reference to an interest table shows us that a deposit of $5 a month for fifty years, improved by 4 per cent compound interest, amounts to $9,357.40, which is sufficient to purchase from most insurance companies a life annuity of $1,261.10, beginning at age 70, first payment in one year; but the same table shows also that a deduction of 5 per cent from the same salary beginning at the age of 60 years will provide a fund, on retirement at age 70, of only $735.90, and this amount would purchase an annuity at age 70 of but $99.18 a year, a sum too small to support any employee, however simple his needs. To make this plan practical it would therefore be necessary to put the deductions from all employees' salaries into a general fund and divide it among all the annuitants in proportion to their length of service. This arrangement would be exceedingly unfair, however, to the men who entered the service at an early age, as part of their savings would go to make up the annuities for the men already old in the service when the plan was put into operation, or who came into the service at an advanced age. Under such an arrangement the man who entered the service at 60 and served only ten years would be retired on more than $99.18 it is true, but to have it so, the man who had entered at 20 and worked for fifty years would have to give up part of the $1,261.10 his savings had earned and content himself with a smaller annuity, a plan that seems indefensible, as it actually takes the money of one man to put it into the pocket of another who is less meritorious, judged by the standard of length of service. (Appendix C, Table IV.)

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Hearings Before the Committee on Reform in the Civil Service of the House of ...