STATEMENT

BY DR. LLEWELLYN JORDAN, SECRETARY OF THE UNITED STATES CIVIL-SERVICE RETIREMENT ASSOCIATION.

Mr. Chairman and gentlemen of the committee, availing myself of the privilege accorded me by your chairman, I wish to incorporate the following as a part of the hearings held by your committee on February 20, 1914, upon the several retirement and reclassification bills now pending before your committee, in support of an equitable contributory plan of retirement:

[Extract from the Annual Report of the Secretary of War, 1913.]

RETIREMENT OF CIVIL-SERVICE EMPLOYEES.

Heads of departments and chiefs of bureaus have many times recommended the enactment of legislation for the retirement of civil-sevice employees, and I find that in four of the annual reports of my immediate predecessors in the War Office the principle of retirement for superannuated employees, in keeping with the growing trend of railroads and other great business organizations in this direction, has been strongly indorsed.

Conferences with the bureau chiefs of this department and a study of the subject generally lead me to the conclusion that some provision for retirement of faithful employees for superannuation at a prescribed age will work to the advantage of the Government in the civil service and is demanded if this service is to be administered on better business principles, as now recognized in the case of large private business organizations.

I find that the need for a retirement law has been pressed upon the attention of Congress at almost every session during the past 27 years. Since 1886, 72 bills on this subject have been introduced in Congress, but so far as I am advised none of these numerous retirement bills has ever been favorably reported from the committee to which it was referred, except the retirement measures introduced by Mr. Gillett, which were favorably reported to the House by the Committee on Reform in the Civil Service on February 23, 1909, and on April 4, 1910. Another measure introduced by Mr. Gillett during the special session of the Sixty-third Congress (House bill 3336) was referred to the same committee, but no further action has been taken.

The Gillett bills were all based upon the principle that it is for the interest of the Government to be relieved of its employees when by age they become unserviceable, or partially unserviceable; that it would lower the standard of the Government service if employees were dismissed when their usefulness becomes impaired by age unless they were assured against want; that it is the business of the employees themselves to make provision for their old age, and that the Government will hereafter, in its own interest, compel them so to do, in the case of employees who enter the service hereafter, by deduction from their monthly salaries of a sum sufficient to provide an adequate annuity, and for all employees under 70 who are now in the service, by deductions from their monthly salaries until they reach the age of 70, and where the deductions so made are insufficient for the purpose, by such contributions by the Government in addition thereto as may be necessary to provide an annuity not to exceed $600. In the case of employees 70 years or older, and therefore subject to immediate retirement, the Government to provide the entire annuity.

On April 7, 1913, Mr. Austin introduced a bill (H. R. 196, 63d Cong., 1st sess.), the material differences between this bill and the pending Gillett bill being that the Austin bill provides for a 15 per cent increase of salary and for interest on the employee's savings at the rate of 5 per cent instead of 4. The Austin bill also makes provision for retirement for disability, while the Gillett bill does not.

On May 6, 1912, President Taft transmitted to Congress, with his "unqualified approval," a retirement plan recommended by the President's Commission on Economy and Efficiency and embodied in a tentative draft of a bill which accompanied the commission's report. The essential differences between this bill and the pending Gillett bill are that its provisions were limited to the classified service in the District of Columbia, where, as stated by the President, "the loss from superannuation is greatest," the idea being to keep the plan within narrow limits during its experimental stage, with a view to its extension generally throughout the service if it should prove successful in the executive departments and offices at Washington and that the annuity was fixed at one-half of the average annual pay for the entire period of service for annual salaries of $1,200 or less and at $600 a year for annual salaries above $1,200.

The maximum cost to the Government for the annuities for persons thus retired is estimated by the President's Commission on Economy and Efficiency, under its plan, to be $16,112,603, extending over a period of about 40 years. This does not take into account the saving to the Government that would result from a discontinuance of the payment of that part of the salaries now paid to superannuated employees which is not earned.

A modified plan of retirement, which has been prepared as a result of the conferences with bureau chiefs above referred to is submitted herewith as Appendix F. In brief, this plan provides for the compulsory retirement of all employees of the classified departmental service in Washington at 70 years on an annuity of one-half of their annual pay, not to exceed a maximum of $600 where the Government pays any part of the annuity, or $900 when the employee provides it all, with the privilege of retirement between the ages of 65 and 70 on such smaller annuity as the funds to the credit of the employee will procure; all employees of the age of 70 or above in the service on the date of the approval of the act to be retired at the expense of the Government. The Gillett bills, the Austin bill, the Economy and Efficiency Commission bill, and the War Department plan all provide in effect for a compulsory savings form of retirement instead of a straight pension provided entirely by the Government.

I feel quite sure that it is practicable to save the Government money and to benefit the Government service by establishing a retirement system. I do not believe, however, that there is any possibility of such a system being provided for in the near future by any measure that will call for larger appropriations from the Federal Treasury than would be required to pay the annuities for those now in the service; that is, the entire annuity of all those who are now 70 years of age or over, and part of the annuity of all others now in the service who shall remain therein until they reach 70 years of age; and I think it wise that the maximum annuity of which the Government pays any part should be fixed at one-half the annual salary for employees with annual salary of $1,200 or less and at $600 for those whose annual salary exceeds $1,200. All persons who accept employment under the Federal civil service after the passage of a retirement act should do so under provisions of law which would compel the accumulation of a fund derived from monthly deductions from their salaries that would make it humanly possible for the Government to retire them at 70 years of age, or before that age should superannuation or other disability require it.

Mr. Hamill has introduced and strongly advocates a bill which was referred to the Committee on Reform in the Civil Service on May 15, 1913, which provides for a straight pension. Objections have been urged against a straight pension paid for entirely by the Government that in practice it has operated unsatisfactorily in countries where it has been tried, and that it has a tendency to defeat the primary interest of the Government in the matter, which is to produce a condition under which an employee of long and faithful service may without inhumanity be removed when he reaches a condition of incapacity to render effective service. Under the contributory plan an employee after a considerable length of service would receive periodically from the fund accumulated by his contributions a sum sufficient to keep him from actual want, whereas under the straight pension plan he can not derive any benefit from the pension until he reaches the prescribed age. In other words, under the straight pension plan there would be almost the same situation that confronts us now, namely, the retention in the service, through considerations of humanity, of persons who have become incapacitated for efficient service.

I submit herewith the report of the Chief of Staff, and the report made to him by the Chief of Coast Artillery; the reports of the heads of bureaus of the War Department; the reports of department commanders; the reports of the commissioners of the four military parks, of the superintendent of the Military Academy, and of the governor of Porto Rico.

The acts of the Philippine Commission and Legislature passed since those transmitted with the last annual report, and the report of the Philippine Commission, will shortly be transmitted.

LINDLEY M. GARRISON, Secretary of War.

APPENDIX F.

RETIREMENT OF CIVIL-SERVICE EMPLOYEES.

The recognition of the necessity for retirement appears to have originated with the Civil Service Commission, which called attention to the matter in its annual reports for 1893 and 1894, and repeatedly treated the subject in its subsequent reports, particularly in those for 1902, 1903, 1905, and 1908. Almost contemporaneously the movement found general support in the recommendations of bureau and department

heads. In the annual reports of the Secretary of the Interior for the years 1904, 1905, 1908, 1909, 1910, 1911, and 1912 the subject has received particular attention, and the annual reports of the other heads of departments since 1909 have set forth the pressing need of some general plan of retirement of superannuated employees both as a matter of justice to the employees and in the interests of the efficiency of the service. Reference may be made particularly to the annual reports for 1911 by the Secretary of the Treasury (p. 7), the Secretary of War (p. 33), the Postmaster General (p. 15), and the Secretary of the Interior (p. 17).

In respect to the War Department, Secretary Dickinson, in his annual report for 1909, recommended that some provision be made for retirement on annuities of employees who become superannuated in the service; and in his annual report for 1910 he renewed this recommendation, inviting attention to extracts from the annual report of the several bureau chiefs setting forth the need that some measures be taken to provide for the retirement of superannuated members of the civil service. Secretary Stimson, in his annual report for 1911, urged that provision be made for the retirement of superannuated employees, using the following language:

"While I am not prepared to express a decided conviction as between a straight-out Government pension and one to which the employee himself shall have contributed a portion, there is abundant proof that the Government, in effect, though indirectly, has for many years throughout its service maintained a pension system without retirement, and if it should now establish a pension system with retirement there is good reason to believe that in the long run it would not ouly suffer no pecuniary loss, but on the contrary would repay a substantial gain in the increased efficiency and improved morale of the service."

In his annual report for 1912 Secretary Stimson renewed this recommendation, expressing his regret of the attack on the retirement plan involved in the effort to establish a limited tenure of office, adding:

"I believe the effect of such legislation would have been to overflow the merit system. The tendency of the merit system, as established by the civil-service law, is to make service in the classified positions under the Government a life work or profession, and some sort of retirement is necessary just as it is in the Army, the Navy, the judiciary, if the best results are to be secured."

President Taft, in his annual message to Congress in 1909, under the caption of "reduction in cost of governmental administration," recommended legislation for the retirement of civil-service employees, coupling with it a recommendation for an increase in salary to meet the increased cost of living. In the following year he renewed the recommendation, referring to the Gillett bill (H. R. 22013, 62d Cong., 2d sess.) as the one in his judgment best calculated to solve satisfactorily the problem and in his message to Congress, December 21, 1911, he said:

"I have already advocated in my last annual message the adoption of a civil service retirement system, with the contributory features added to it, so as to reduce to a minimum the cost to the Government of the pensions to be paid. After considerable reflection I am very much opposed to a pension system that involves no contribution from the employees. I think the experience of other Governments justifies this view, but the crying necessity for some such contributory system, with possibly a governmental outlay in order to cover the initial cost, and to start the system going at once while the contributions are accumulating, is manifest on every side. Nothing will so much promote the economy and efficiency of the Government as such a system."

In his message to Congress dated March 6, 1912, the President transmitted a report of the Commission on Economy and Efficiency on the subject of retirement of superannuated employees in the classified service, with the statement that the plan proposed in the report of the commission had his "unqualified approval," because he believed it to be "sound in principle and just to the Government employees."

On February 18, 1908, the special committee on personnel of the Keep Commission (a commission appointed by the President June 2, 1905, on business methods in the executive departments), after careful consideration of this subject, presented a plan for the retirement of superannuated employees on the basis of monthly deductions from the salary of each employee to provide a fund for the purchase of an annuity on his retirement. More recently the subject has received thorough consideration by the President's Commission on Economy and Efficiency.

Responsive presumably to the recommendations of the Civil Service Commission, the bureau and department heads, the recommendation of the Keep Commission and of the President, the matter has received consideration at the hands of Members and committees of Congress. Since 1903 no less than 50 bills have been introduced in Congress for the retirement of the employees of the civil service; and the matter has been the subject of repeated hearings before committees of Congress.

Consulting the recommendations referred to above, and the legislation introduced we find that the plans for retirement of civil service employees which have been proposed or considered may be divided into three classes, as follows:

(a) The common fund plan, providing for uniform deductions of a given per cent of the salaries of employees for the creation of a common fund from which all employees on retiring at the age of 70 shall receive annuities-the amount of the annuity to be based either on length of service or a uniform annuity regardless of service.

(b) A straight pension plan, proposing retirement on annuities to be paid out of the Federal Treasury.

(c) The savings-fund plan, whereby the contributions of each employee are credited, with compound interest at the authorized rate, to his individual account, the amount of such deductions with interest to be used to purchase from the Government an annuity on retirement or to be withdrawn by himself or his representatives in case of his separation from the service by resignation, death, etc.

This plan has been suggested in the general discussion of the subject, but has never been proposed by any department or embodied in any bill before Congress. It is open to the serious objection that it is unjust to the younger employees, since it requires them to set aside a much larger per cent of their salaries in order to create the fund for the older men than would be necessary to provide annuities for themselves alone. The defect in this plan is apparent to every one conversant with the subject, and is very clearly set forth in the report of the National Civil Service Reform League, as follows:

"In general, any plan of uniform or ‘flat-rate' assessment, to begin practically at once to take care of the aged, does a great injustice to the younger employees. The old will receive support after they have paid but a few years, and can pay but a few years more even if assessments are continued on the retired receipts. The young will have to pay a much larger sum from their salaries than would be required for their old age alone. If, by any chance, the fund should prove to be too small, that would transpire only many years hence, when those now aged would have received their full allowances and passed from the stage. The others, the present younger employees, who would have borne the great brunt of expensive assessments, would thus be the ones to suffer, unless the Government made up the deficiency."

A plan of this kind was in force in England from 1822 to 1859, when the service became dissatisfied with the plan because of its inequitable provisions, and it was superseded by the straight pension plan, which has been in force since 1859.

Neither the Keep Commission nor the Commission on Economy and Efficiency have favored this plan nor has any legislation been introduced on this plan; and it may be dismissed without further consideration.

This plan has been favored by a number of the employees of the Government (most recently by the National Association of Civil Service Employees, mainly an association of letter carriers, organized April 5, 1913), for the reason that it would call for no contribution from their salaries. But the plan is opposed by the United States Civil Service Retirement Association, which has placed itself on record as favoring the savings fund plan with an increase in salary based on the increased cost of living. It was given legislative expression in the Hamill bill (H. R. 9242, 62d Cong., 1st sess.); reintroduced April 17, 1913, by Mr. Cary (H. R. 2922, 63d Cong., 1st sess.); in the Peters bill (H. R. 11661, 62d Cong., 1st sess.); the new Hamill bill, introduced May 15, 1913, as H. R. 5139 (63d Cong., 1st sess.); and the Penrose bill, introduced May 19, 1913, by Senator Penrose (S. 2203, 63d Cong., 1st sess.). All of these bills are drafted on the straight pension plan and their leading features are as follows:

Retirement authorized after service

(a) Thirty years or more (at the age of 60 years or over), at 50 per cent of average salary for last five years.

(b) Twenty-five years or more but less than thirty years (at age of 62 or over), at 45 per cent of average salary for last five years.

(c) Twenty years or more of service but less than 25 years (at age of 65 or over), at 40 per cent of average salary for last five years.

(2) Retirement for disability after not less than five years of service-From 5 to-10 years of service, 30 per cent; from 10 to 20 years of service, 40 per cent; 21 years and upward, 50 per cent.

The objections to this plan are that it would be very expensive to the Government as compared to the savings fund plan; and, moreover, the right conferred by law to retirement at the prescribed age would probably be regarded as part of the compensation of the employee, giving him if he should leave the service before reaching the age of retirement, a claim to a gratuity proportional to the length of service as compared with the service required by retirement; and giving his legal representatives the same right. Such has been the experience in England where the system has been in force

since 1859, and recently a change of the plan has been under consideration in that country-the service being dissatisfied with the plan partly on the ground that the plan has resulted in relatively lower salaries than obtain in those parts of the service to which it is not applicable. The comparative cost of the straight pension plan and the savings fund plan is given on pages 28 to 32 of the report of the Commission on Economy and Efficiency to the President dated April 18, 1912, and submitted to Congress by message of the President dated May 6, 1912. In addition to the excessive cost of the straight pension plan, it may be observed that the plan would make the dismissal of any inefficient employee difficult, since the employee would not only lose his position but also the benefit of the accrued service toward his retirement. In view of the public sentiment against a civil pension list, and the large expenditure which would be involved in the adoption of such a plan, it is not believed that there would be any prospect for favorable action on any bill providing for retirement of employees on annuities payable out of the Federal Treasury.

This plan was proposed by the subcommittee on personnel of the President's Committee on Departmental Methods known as the "Keep Commission;" and a bill drawn up to embody the plan after modification of the features was introduced in Congress on February 18, 1908, by Hon. Joseph A. Goulden as H. R. 17969, Sixtieth Congress, first session. The objections to this bill by the National Civil Service Reform League were met by a bill introduced on March 10, 1908, by Hon. Frederick H. Gillett and known as H. R. 18982, Sixtieth Congress, first session. As the result of the hearings on these bills in the spring of 1908 a third bill was introduced by Mr. Gillett on April 20, 1908, and known as H. R. 21261 (60th Cong., 1st sess.) At the second session of the Sixtieth Congress, on February 23, 1909, the House Committee on Reform in the Civil Service reported favorably a bill which was known as H. R. 28286; and at the same session a bill was introduced in the Senate on April 21, 1909, by Senator Perkins, known as S. 1944, which is substantially identical with the Gillett bill. At the second session of the Sixty-first Congress another bill (H. R. 22013) was introduced by Mr. Gillett and was favorably reported by the House committee on April 4, 1910, and at the first session of the Sixty-second Congress Mr. Gillett introduced H. R. 750, differing in minor particulars from his prior bill. At the same session the Austin bill (H. R. 729) was introduced by the Hon. Richard W. Austin. It is based on the same principles as the Gillett and Perkins bills as to superannuation, but provides in addition for an increase in salaries of about 15 per cent.

The esesntial features of this plan are found in the Gillett and Austin bills now pending, respectively, as H. R. 3336 (63d Cong., 1st sess.) and H. R. 196 (63d Cong., 1st sess.), and are as follows:

(1) Deductions for annuities.-Gillett bill: Of such amount monthly, as with 4 per cent interest compounded annually, will provide an annuity of 1 per cent of salary for every full year or major fraction thereof of service between passage of act and date of retirement-the same to be credited to the individual account of the employee and to be invested as provided in the bill.

Austin bill: Same, except that deductions draw 5 per cent instead of 4 per cent. (2) Retirement age. Sixty-five years for groups 1 and 2; 70 years for group 3, which comprises the general departmental service.

Until July 1, 1920, the employee may be retained in active service after age of retirement for two-year periods, renewable upon certificate of head of department as to his efficiency and willingness to be retained-with deductions of 10 per cent to be treated as other deductions.

(These provisions are common to the Austin and Gillett bills.)

(3) Upon retirement at authorized age, fund may be used or withdrawn as follows: Option 1: To purchase annuity payable quarterly for life.

Option 2: To purchase smaller annuity payable quarterly for life, with provision that any balance of savings not withdrawn in annuities prior to death shall be payable to his legal heirs.

Option 3: May be withdrawn in one sum.

(These provisions are common to the Austin and Gillett bills.)

(4) Upon separation prior to retirement, may withdraw savings and, if in the service six years or more, with compound interest at the authorized rate; in case of death before retirement savings and interest at authorized rate are payable to legal heirs. (These provisions are common to the Austin and Gillett bills.)

(5) Retirement for disability (Austin bill; none in Gillett bill).—Austin bill (secs. 8 and 9) provides for retirement from fund created by assessments (1) of 20 per cent of monthly pay on each new employee for first six months of service and (2) of increased amount of pay on promotion for three months.

The amount of the annuity on retirement for disability to be 14 per cent of total compensation during service prior to such retirement, but shall not be less than 20 per cent