DISABILITY PROVISION IN SO-CALLED KEEP BILL. The disability provision found in section 6 of H. R. 17969 provides that an employee who has served the Government for not less than 20 years may retire on an annuity equal to 1 per cent of the aggregate salary he has received, in case of disability "not due to vicious habits or by reason of exigencies of service, but without fault or delinquency on his part, or on his own application after 40 years' service." NECESSITY OF DETERMINING COST OF DISABILITY BENEFIT. While a disability clause is recognized as a desirable feature of any retirement bill, the aforesaid provision does not wholly meet the requirements. The clause providing for retirement on the employee's own application after 40 years' service virtually means general retirement at the ages of 60 to 65 instead of 65 and 70, and would therefore materially increase the cost to the Government for annuities for back services. Neither could any provision for retirement in case of disability, however satisfactory in theory, be regarded as desirable in the absence of figures to show what such a provision would cost. DIFFICULTY OF DETERMINING COST OF DISABILITY BENEFIT. The first step necessary then in determining the feasibility of including in the retirement measure a provision for disability is to ascertain what such a provision would be likely to cost. The great difficulty in the way of estimating this cost is the fact that there is no satisfactory basis for such computation. No reliable tables of disability based upon the experience of American lives have as yet been compiled. Several German tables have been prepared based on the experience of various industries, including the different branches of the German railways and including the employees in German coal mines, but none of these tables can suitably be used as the basis for the required estimate. While they have been compiled in a most scientific manner, it is generally recognized that they show too high a rate of invalidity to serve as a satisfactory basis for computing the cost of disability among ordinary American lives, such as civil-service employees. This is because, in the first place, they are all based on extra-hazardous occupations, and, in the second place, because disability is made to include superannuation. The most superficial study of these tables-including even the most reliable ones—shows that disability has been generally confused with superannuation in the older ages, and the rates based on them are in consequence inordinately high. GERMAN DISABILITY EXPERIENCE BEST AVAILABLE. That the German tables show too high a rate of invalidity is recognized apparently by German actuaries, for J. Karup in a chapter on disability in his well-known work "Reform des Rechnungswesens der Gothaer Lebensversicherungsbank" calls attention to the fact that the disability experience of German railroad employees is not reliable, and recommends that observations made from 1868 to 1876 be disregarded because "pensioning and invalidity were treated then as of equal significance." Overconservative, however, as we know they are, rates based on the German tables of disability are the most reliable that are available for computing the cost of a disability provision. The tables of Zimmermann, based on the experience of the various branches of the employees of German railways, have accordingly been used to estimate the cost of the disability benefit proposed in the Keep bill (H. R. 17969). These tables cover an experience extending over the years 1873 to 1887, and although they include three years, 1873 to 1876, of the period, 1868 to 1876, quoted above by Karup as one when the superannuated were erroneously classed with the disabled, they are, nevertheless, generally recommended by Karup, Hamza, and other leading actuaries of Germany as the safest of available experiences, their fault being, indeed, an excess of safety rather than a lack of it.1 1 Recently, since the above text was written, tables which could be used for the calculation of the cost of a disability feature for that class of the civil service retiring at age 70 have been published, based upon the experience of the Knights of Maccabees. The experience upon the members of this fraternal order should approach more nearly upon that of the above-mentioned class of the civil service. From a cursory examination of the rates derived from this experience it is evident that the cost of disability benefits would show a considerable decrease from the cost obtained on the German experience which has been made the basis of these calculations. TABLE XXIV.-Showing rates based on German disability experience to provide an annuity of $100 (first payment immediate) to age indicated upon occurrence of total and permanent disability.1 1 These rates were computed by Mr. Benedict D. Flynn, assistant actuary, The Travelers Insurance Company, Hartford, Conn., in January, 1909. ESTIMATED COST OF DISABILITY PROVISION IN SO-CALLED KEEP BILL. The disability benefit proposed in the Keep bill is arranged on a basis similar to that used in calculating retirements; that is, retirement by reason of total disability and after not less than 20 years' service on 1 per cent of the employee's total compensation during the service prior to the taking effect of this act. That would mean a disability benefit of 30 per cent of pay in the case of the employee who had been in the service 20 years, 45 per cent of pay in the case of the employee who had been in the service 30 years, and so on. While this arrangement might, in many cases, be inadequate, it could be recommended for the Government as a safe and conservative beginning. The cost the first year of such a provision based on the foregoing rates, to run from the date of disability to the respective ages of retirement, is shown in the following table to be $1,157,298. TABLE XXV.-Showing cost of disability provision in Keep bill, but limited to run from date of disability to age of retirement. Amount required to provide all general employees who have been in the service Amount required to provide all employees who have been in the service not less than 20 years disability allowances equal to 1.5 per cent of salary for each year of service, to run from date of disability to ages stated above, according to occupation ($771,532 × 1.5). $625, 762 92, 279 53, 491 771, 532 1, 157, 298 NOTE. The amount $152,981.80, opposite 65 years, in column (a) of the above table, is the sum of all annuities of persons who have been in the service 20 years or more, as shown in the last column of illustrative Table XXIX beginning with the item of $5,448 (p. 163). Other amounts in columns (a), (d), and (g) are the sums of annuities of employees of various ages and classes who have been in the service 20 years or more. ONE-YEAR TERM RATES USED IN CALCULATION. The rates that were used in calculating these premiums are one-year term rates based on the German disability experience to provide an annuity of $100, first payment immediate, upon the occurrence of total and permanent disability and continuing to the age of retirement. The life annuity table used in the calculation was based upon the American Experience Table of Mortality. As the expectation of life shown by that table is greater than the fact in the case of permanently disabled persons, and as it is well known that the life of a person totally disabled-particularly in the younger ages-is not so good as that of the normal person, it follows that annuities based on the American Experience Table of Mortality will give higher values than necessary. It will be seen, therefore, that in every way the disability rates applied to the various groups of civil-service employees at present ages for present salaries for estimating the total cost of a disability provision in connection with the retirement plan were more than adequate and conservative. The one-year term rates used in the calculations are open to objection on one score. The cost of the disability provision on the one-year term basis would undoubtedly increase for a few years. To use level premium rates, however, for the calculation of the disability cost, especially with the very inadequate data as to the rate of disability among the civil employees, would be complicated and unsatisfactory. The better plan would be to employ one-year term rates based on the German disability experience for the first few years until the experience of the enormous civilservice organization could furnish data for determining the cost of its own disability benefits. HOW COST OF DISABILITY PROVISION CAN BE MET. The cost of such a disability provision being thus approximately ascertained, the important question of how this cost can be met remains for consideration. At the hearings held in 1908, the suggestion was made that annuities for services rendered prior to the adoption of the plan might be paid out of deductions from the salaries of new entrants and deductions from salary increases of those promoted, after the plan followed by the French Government.1 The suggestion was embodied in sections 6, 7, and 9 of H. R. 21261, as a substitute for the provision in the two preceding bills that the annuities for these services be paid out of appropriations made by the Government. Since then, the House committee, by reporting favorably H. R. 22013, has receded from this position, and returned to the original plan of providing that annuities for back services be paid 1 See Hearings before the Committee on Reform in the Civil Service, House of Representatives, Retirement Fund for Superannuated Employees in the Civil Service, p. 81. 74196°-S. Doc. 745, 61-3-10 |