Two things therefore seem clear from all these statements:

(1) That the interests of the service demand the elimination of the superannuated employee; and

(2) That elimination of the superannuated employee from the service after he has been poorly paid for years is not just unless it is accomplished by retirement of the employee on a competence.

This means that an adequate plan for the retirement of superannuated employees of the civil service is necessary as a logical complement of the civil-service law and that the absence of such a plan practically nullifies much of the good that the law would otherwise accomplish.

NUMEROUS RETIREMENT BILLS INTRODUCED IN CONGRESS.

The truth of this conclusion having long been recognized, many bills providing for the retirement of Government employees have been introduced in Congress. Some of the proposed measures have been carefully considered by the proper congressional committees, but until February 23, 1909, no bill had ever been favorably reported out of committee. The bill then reported to the House of Representatives by its Committee on Reform in the Civil Service, of which Hon. Frederick H. Gillett was chairman, was first considered at hearings held before that committee on March 10, 11, 13, 20, and 21, and on April 13, 1908. While lack of time prevented the members of the committee from investigating thoroughly some of the questions involved in the proposed measure and reporting on it before the close of the first session of the Sixtieth Congress, they agreed to take up the subject on the opening of the second session, and requested that further data bearing on the plan be prepared in the interval.

PLAN EMBODIED IN PERKINS, GILLETT, AND AUSTIN BILLS.

The plan under consideration is found embodied in three bills introduced in the House of Representatives in the spring of 1908 and known, respectively, as H. R. 17969, H. R. 18982, and H. R. 21261, a fourth bill favorably reported on February 23, 1909, and known as H. R. 28286, a fifth bill introduced in the Senate on April 21, 1909, and known as Senate bill 1944, a sixth bill favorably reported by the House committee on April 4, 1910, and known as H. R. 22013, and finally a seventh bill introduced for the second time April 4, 1911, as H. R. 729. The groundwork of the seven bills is identical, the differences being of minor consideration, though in some cases of no little importance. The proposed plan first found public expression in a preliminary report of the subcommittee on personnel of the Committee on Department Methods, commonly known as the "Keep

Commission," of which the author had formerly been a member, and was distributed in a circular sent out by the Civil Service Retirement Association on August 9, 1907. The bill drawn up to embody this plan was criticized by the National Civil Service Reform League in its convention held at Buffalo in November, 1907, for certain features relating to the interest which the Government was required to pay on the clerks' savings. To meet these objections the subcommittee modified these features, and the resulting bill, popularly known as the "Keep bill," was introduced in Congress on February 18, 1908, by Hon. Joseph A. Goulden, of New York, as H. R. 17969. Later, the objections of the League were met by the author in another way-in a bill introduced in Congress on March 10, 1908, by Hon. Frederick H. Gillett, and known as H. R. 18982. At the hearings held in the spring of 1908 members of the subcommittee of the Keep Commission, representatives of the Civil Service Retirement Association, and various individuals with ideas on the subject of retirement funds had an opportunity to speak for and against this plan and any other, and as a result of the sifting and weighing to which each clause of the two proposed bills was subjected a third bill was evolved, which was introduced on April 20 by Mr. Gillett, and is known as H. R. 21261.

After study of all the ideas advanced at these hearings and the history of retirement plans in other countries, the author prepared the text for a fourth bill, which is the one presented and discussed in this report. The full text of this proposed bill is found on page 210. It was introduced in the Senate on April 21, 1909, by Senator Perkins, formerly chairman of the Committee on Civil Service and Retrenchment, and is known as Senate bill 1944. In the meantime, late in the second session of the Sixtieth Congress (February 23, 1909), the House Committee on Reform in the Civil Service reported favorably a bill, which is known as H. R. 28286. It differs from the bill here discussed in providing that annuities for back services shall be paid out of a fund created by deductions from the salaries of new entrants and the salaries of those promoted, instead of by the Government. A new administration coming in and a special session of Congress being called a few days after this bill was favorably reported, no action could be taken on it. Late in the following session, the first session of the Sixty-first Congress, another bill (H. R. 22013) was favorably reported by the House committee (April 4, 1910). This bill approaches much more nearly to the ideal here discussed than did the bill favorably reported the previous year, for it provides, like Senate bill 1944, that annuities for back services shall be paid by the Government, but puts a limit of $600 a year on the amount that can be paid by the Government to any one individual. On the other hand, it makes extremely liberal provision for retirement in case of

disability, Both the bills favorably reported (H. R. 28286 and H. R. 22013) are frequently referred to as the "Gillett bill," but it should be noted that they differ radically in regard to the method proposed for paying annuities on past services, and that the second Gillett bill (H. R. 22013), the latest expression of the House committee's judgment,1 is identical in principle and in almost every detail also with the Perkins bill (S. 1944), here expounded. This report is, therefore, a report on the last 2 Gillett bill as well as the Perkins bill.3 Through all the modifications suggested in these several bills the plan itself remains unchanged. It divides itself naturally into two parts. Part I provides annuities for employees rendering service from now on. Part II provides annuities for employees who rendered service prior to the adoption of the plan. Part I is really the plan proper, since the operation of the second part will ultimately cease with the death or separation from the service of all the present employees.

Part I of the plan proposes that each employee in the classified civil service shall, on reaching the age of retirement, receive an annuity equal to 1 per cent of his salary for each year of his service, or, as it may be differently stated, an annuity equal to 1 per cent of the total compensation received by him during his entire service. The theoretical basis of this provision is the assumption that threequarters pay, or 75 per cent of his average salary, is a reasonable annuity for a person who has given his entire working life—that is about 50 years to the service. Dividing 75 per cent by 50 years of service, 1 per cent for each year of service is obtained as a basis for computing annuities for any period of service. The annuity is created by the employee himself, who is required to set aside during each month of his continuance in the service a sum sufficient with compound interest, at 3 per cent, to create that annuity at the age of retirement. These deductions from salary represent no fixed percentage of salary, but vary with the age of entrance into the service, ranging in the case of employees to be retired at the age of 70 from 4.3 per cent for the individual who enters the service at the age of 20 to 11.2 per cent for the individual who enters at the age of 69. The amount deducted remains constant throughout the years of service, except in case of promotion or demotion, when it is increased or decreased accordingly on the basis of the employee's attained age.

1 This is the bill indorsed by President Taft in his recent annual message.

2 Since this report went to press Mr. Gillett has introduced a third Gillett bill (H. R. 750, 62d Cong., 1st sess.), a bill which expresses more nearly his personal ideas than did either of the two previous bills bearing his name. It contains no disability clause, but provides that the Government shall pay 4 per cent interest on the employees' savings rather than only 3 per cent.

This is practically a report also on the Austin bill (H. R. 729), which was introduced in Congress by Hon. Richard W. Austin after this report was in proof. The Austin bill is based on the same principles and embodies the best features of both the Gillett and Perkins bills as to superannuation, providing in addition for an increase of salaries.

Each employee thus sets aside the amount of money necessary to create his own annuity only, without regard to the deposits of others, so that each one shall receive full return on the money which he thus accumulates. The funds necessary for the payment of the annuities are therefore furnished by the employees themselves, without expense to the Government, except that involved in the administration of the fund. The scheme is virtually a compulsory savings arrangement with the requirement that the savings in each case be sufficient for the purchase of an annuity at the age of retirement equal to 1 per cent of the aggregate salary.

In proposing that the Government pay 3 per cent interest on the savings of the employees, it was not felt that the plan could be criticized on the ground of expense to the Government if provision were made in the bill for the investment of the fund in public bonds. In a long period of years these bonds would probably yield more than 3 per cent interest, and provision is made that whatever is earned above the guaranteed rate of interest should be returned to the employees.1

On reaching the age of retirement, the employee may take his savings in one of three ways—in an annuity payable quarterly throughout life; in a smaller 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 legal heirs; and in one sum. The age of retirement varies, the service being divided for this purpose into three groups-the first group consisting of railway postal clerks who may retire at age 60, the second group consisting of letter carriers to be retired at age 65, and the third group comprising all the remaining branches of the service and to be retired at age 70. Since it is often to the advantage of the service that an old employee be retained because of some special knowledge or skill, provision is made for the retention of such an employee after the age retirement, for two years and for successive periods of two years each, on certificate of the head of the department in which he is employed that he is efficient and that his services are advantageous to the Government. Upon absolute separation from the service before reaching the age of retirement, whether by resignation or dismissal, and only in such event, the employee shall have the privilege of withdrawing his accumulations in one sum, or, if the amount to his credit be at least $1,000, he may use his savings to provide an annuity at his attained age. In case of the death of an employee while in the service, the amount to his credit shall be paid to his legal heirs.

1 In the opinion of the author, the Government could well afford to guarantee at least 4 per cent, and probably 5 per cent, as provided for in the Austin bill (H. R. 729).

The so-called Keep bill (H. R. 17969) contained a provision for retirement after 20 years' service on an annuity of 1 per cent of pay for each year of service in case of permanent disability. While a disability provision is recognized as very desirable in any scheme which aims at the improvement of the service, the provision was omitted from the two succeeding bills because no information as to its cost was available. An estimate of the cost of the limited provision contained in the Keep bill has, however, been made by the author and is presented in this report, with a suggestion as to how that cost could be met, also without expense to the Government. This estimate is based on German tables of disability, which are so extremely conservative, on account of conditions explained in the report, as to make the rates very high, and the estimate accordingly errs on the side of safety. It completely demonstrates, however, the feasibility of accepting the proposed disability clause as stated above, if the cost is met by the means suggested. A more liberal disability provision could doubtless be provided in time, when, through the operation of the plan, sufficient statistical data concerning the disability of the civil employees had been accumulated to warrant the construction of more moderate disability rates, based on the Government's own experience.1

COST OF PUTTING PROPOSED PLAN IN OPERATION.

Part II of the plan proposes, as set forth in the first bills, H. R. 17969 and H. R. 18982, and in the Senate bill here proposed and discussed, that the Government shall pay all employees now in the classified civil service an annuity on arrival at age 70 equal to 11⁄2 per cent of his salary for each year of service prior to the passage of the bill, and from that time on the employees shall provide their own annuities as arranged for in Part I of the plan. Part II, as set forth in the aforementioned bills, is thus kept consistent with the spirit of the plan proper, which is based on the principle that each employee shall provide his own annuity, no younger employee being taxed for the benefit of older employees. While not in any way essential to the adoption of the plan proper (Part I), Part II is naturally included in the whole scheme for two reasons: First, considerations of justice and humanity dictate that provision be made for those already superannuated in the service and those so near superannuation as to lack time to accumulate, through their own savings, a fund sufficient to give them an annuity on retirement; secondly, the lack of some such provision for past services would delay the full benefit to the

1 Since the above was written the second "Gillett bill " (H. R. 22013) has been favorably reported (Apr. 4, 1910), containing a disability provision which is much more liberal than that contained in the Keep bill. No estimate as to its cost has been made.