the Government's. They are always inequitable as between different classes of employees, since there is no definite relationship between what is given and what is received. The contribution rates are almost inevitably inadequate, leading to the ultimate insolvency of the fund, for while theoretically it may be a simple matter to fix a flat rate of contribution which will be adequate for a given problem, practically it is almost impossible, owing to the difficulty of valuation and the difficulty of keeping those in authority from changing the rules and benefits under a particular plan.

FLAT-RATE ASSESSMENT PLAN UNSATISFACTORY IN ENGLAND.

The British contributory scheme established in 1829 by treasury minute and confirmed by the superannuation act of 1834 was deservedly unpopular, because it was unjust and little better than a lottery. So bitter were the complaints made against it by the employees that it was abolished in 1857 and followed, two years later, under the superannuation act of 1859, by the straight pension system of the last half century, which has also been found unsatisfactory, as explained above, and modified under the superannuation act of 1909. The contributory scheme required a flat contribution of 21 per cent of salary from all employees receiving less than £100 per annum, quite regardless of the age of the employee or any other condition, and 5 per cent from all receiving more than £100. The contributions of all employees were not merely commingled, as is generally the case where there is a flat-rate assessment; they were inextinguishably merged in the general exchequer. Not being funded or set aside for the accumulation of interest, it was not even known whether the sum total contributed was sufficient to pay the benefits allowed under the plan. There was a general impression that the rates were more than adequate to provide the benefits, and that the Government was making money at the expense of its employees. It is sometimes said that the British contributory plan was abandoned because the fund was found to be hopelessly insolvent. Such was not at all the case, for, in the first place, there was no fund to be insolvent, and, in the second place, it was. not known until about a year after the repeal of the superannuation act of 1834, when the investigating actuaries made their report, that the rates of deduction from salaries had been inadequate to provide the benefits under the act. Had there been a fund, it is true, however, that it would have become insolvent. The fact that eminent actuaries had generally shared the popular impression that the rates were more than adequate, until a minute and laborious investigation showed that quite the contrary was the fact is striking proof of the difficulty of fixing a flat rate of contribution which will be adequate in a given problem. The

discovery that the contributions were inadequate merely showed the British public, however, a new weakness in a plan they had already set aside for other reasons.

The plan was condemned by employees and actuaries alike as inequitable as between different classes of employees. It made no provision for the refund of contributions in case of retirement or in case of death before reaching pensionable age. This confiscation of contributions was felt to be a particular hardship when an employee died in harness leaving a family in want, after having contributed for years to the supposed superannuation fund. No serious objection was expressed to the principle of deductions from salaries; it was only the confiscation of those deductions that met with opposition. A large body of the employees in fact presented a petition asking that the deductions be continued, but that they be returned the employees in the shape of insurance for their families. The fact that was resented was the fact that only one contributor out of every seven received any benefit from thus contributing part of his salary year after year, the other six dying or leaving the service before reaching the age at which they could claim a superannuation allowance. The system was denounced as a tontine. The situation was thus summed up by Dr. William Farr, chief of the Statistical Office of the Department of the Registrar General, and a famous actuary, before a select committee appointed by Parliament to investigate the subject, in the following words:

Under this arrangement for granting allowances out of deductions you necessarily have to take the deductions from men who never derive any benefit whatever from the fund. This is, I conceive, an insuperable objection to the system. The families of the men who die are harshly dealt with; you take from the widow and fatherless children the deductions of the men who die to enable you to pension those who live. Now, it is impossible to convince the widows or the orphan children of the officers who die in the service that it is just to deprive them of the advantage derived from the contribution of the parent to enable you to pay the superannuation allowances of those officers who are so fortunate as to live.1

FLAT-RATE ASSESSMENT PLAN UNSATISFACTORY IN AUSTRALIA.

Particularly instructive, too, as showing the usual inadequacy and inequity of a contributory plan based on a flat-rate assessment is the experience of the colony of New South Wales, Australia. A plan was established there in 1884 which provided for a general deduction of 4 per cent from salaries, with a Government subsidy of £20,000 a year for five years. No provision was made for paying the annuities on back services, and the Government subsidy of £100,000 was not sufficient to cover them, nor was the 4 per cent deduc

1 See Report on Civil Service Superannuation.

1856. Minutes of Evidence, p. 176.

tion sufficient to cover future liabilities. Unsound thus in its very constitution from the beginning, the fund was hastened to its demise by being improperly administered, as explained on page 46, to further the ends of politicians. The very first valuation, made only five years after its establishment, showed the fund to be insolvent, and at the end of eleven years the plan was accordingly abandoned. Even had it been properly administered, it must have ultimately come to grief, owing to the inadequacy of the contribution rates and the debt with which it was burdened at the outset, and even had the subsidy been sufficiently high and the rates quite adequate to meet all demands, the plan would have been unsatisfactory as inequitable between individual members, the amounts contributed in each case not being commensurate with the amounts received.1

FLAT-RATE ASSESSMENT PLAN UNSATISFACTORY IN CANADA.

The Dominion of Canada has passed two unsatisfactory laws, both based on flat-rate assessments of salary for the benefit of its superannuated civil employees. The first one, known as the superannuation act of 1870, was enacted three years after the formation of the Dominion and was based on flat-rate deductions from salary. Like all such plans, it is subject to the criticism of having been inadequate and inequitable. The deduction from salary was fixed at the rate of 4 per cent per annum on salaries of over $600 a year and at 2 per cent on those of less than that amount. Grossly inadequate as these rates were, they were still further reduced in 1873 from 4 to 2 per cent and from 2 to 21 per cent. Since there was no intention on the part of the Government to make the contributions adequate for the whole expense of superannuation, it is perhaps hardly fair to criticize the law on that score, though proper to point out that had there been a superannuation fund, it must have become insolvent. Owing to the lowness of the rate of contribution, the employees were fairly well satisfied with the law, their criticisms being confined to one point only. They rebelled against the confiscation of those contributions, small as they were. The law made no provision for the refund of contributions in event of retirement before pensionable age, and this, taken in conjunction with its failure to make provision for widows and orphans, was held to be an injustice. It was thought that the abatements from salary should be returned to the dependents of the civil servant in the event of his death before pensionable age, and a campaign was made against the law on this ground. The history of superannuation schemes the world over shows that employees are never content with a plan which requires the forfeiture of their contributions, and it is against all the instincts of human nature that

1 See Civil Service Retirement, New South Wales, Australia, S. Doc. 420.

they should be, especially when deductions from salary are made under compulsion.

The overthrow of the Canadian superannuation act was accomplished, however, on other grounds than the complaint brought by the civil employees. The contribution rates being inadequate to pay for the benefits allowed, the deficit had to be made up by the Government, and to this extent the contributory scheme under the act of 1870 was simply a civil pension. As already explained on page 45, it became the prey of political parties, advantage being freely taken by partisan leaders of those clauses in the act which allowed the removal of employees from the service on "abolition terms" and the addition of years to the period of their service when calculating the amount of superannuation allowance due them. The result of these abuses was that the superannuation system became a great expense to the country. The question became a political issue and undoubtedly contributed to the defeat of the Conservative party in the elections of 1896. The Liberal party came into power then pledged to effect a reform, and in fulfillment of its pledge closed the superannuation act of 1870 to all new entrants into the civil service and passed in lieu thereof the retirement act of 1898, which is now in force and has proved quite as unsatisfactory, in a different way, as will be explained later on.

FLAT-RATE ASSESSMENT PLAN UNSATISFACTORY IN FRANCE.

France has had in operation since 1853 a retirement plan for civil employees, which is based on a flat-rate deduction of 5 per cent from salary, and illustrates the weakness of all such plans. To the pension fund thus created are also added deductions from the salaries of new entrants and deductions from promotion salaries, but even with these additional contributions from the employees, such are the uncertain and incalculable elements of any plan which requires commingling of assets that the public treasury, in 1902, was devoting 80,000,000 francs a year to civil pensions, with every prospect that unless there were modifications in the law the amount would finally reach 129,000,000 francs; so that the retirement plan in vogue for civil employees is virtually a civil pension. In addition to this, the plan is unsatisfactory to the beneficiaries themselves because of arbitrary and unjust distinctions made between employees of different ages and classes, there being no fixed relation between the amount which the particular employee contributes and the amount he may receive from the fund.1

1 See "Quelques observations sur les pensions de retraite des fonctionnaires civils et les projets de réforme," by Georges Cahen, in "Revue Politique et Parlementaire," Sept. 10, 1902, p. 497.

SAVINGS AND ANNUITY PLAN BASED ON ADEQUATE INDIVIDUAL CONTRIBUTIONS THE IDEAL PLAN.

Not one of all the foreign retirement schemes, so far as known, would seem to offer us a model. Germany, like England, grants a straight pension to its civil employees, while other countries, such as France, Holland, Belgium, Austria, and Turkey, have plans which require flat-rate assessments on salaries. All civil pension and general fund assessment plans being discarded as undesirable and inequitable, the investigator is brought, by a process of elimination, to consider as the soundest, the most equitable, and the most expedient plan of retirement for civil-service employees a savings bank or "savings and annuity plan" based on deductions from salary that are sufficient in each case for the purchase of an adequate annuity at the age of retirement. This is in accordance with the fundamental principles laid down at the beginning of this chapter, that the funds necessary for the payment of annuities on all services rendered after the adoption of the plan must be provided by the employees themselves by means of contributions which shall be sufficient to provide an adequate annuity, based on length of service and amount of salary, and which are so arranged as to be in no case excessive. The funds necessary for the payment of annuities on all services rendered prior to the adoption of the plan must be furnished by the Government, a sharp distinction thus being made, in the interests of the younger members of the service, between past services and future services.

SAVINGS-BANK PLAN APPROVED BY WELL-KNOWN ACTUARIES.

The simplicity of the savings-bank idea may account for the fact that it has escaped special consideration, and yet it has been suggested before and approved by well-known actuaries.

The subject of pension funds, for instance, is discussed by Mr. Miles M. Dawson, a consulting actuary of New York, in an article in the Railway Age, in which he brings out the enormous perplexities and difficulties of the pension systems usually in force, especially those in which the fund is created partly by contributions from the employees and partly by contributions from the employers. He supports his statements largely by a quotation from the highest British authority on the subject, Mr. Henry W. Manly, ex-president of the Institute of Actuaries, actuary manager of the "Old Equitable," and author of the most valuable actuarial treatise upon pension funds. Mr. Dawson's conclusion is that

Theoretically a pension fund could be created by exacting only the percentage of each salary which was found equivalent, as an increase of the whole pay roll, to the value of the pension. Practically this can not be done satisfactorily, because the employer must guarantee the sufficiency of the fund or leave its