METHOD OF CALCULATING FUTURE LOSS TO GOVERNMENT FROM SUPERANNUATION.

Having adopted the age of 70 as the age of retirement, it will be necessary to consider briefly the method of treating the statistics of the departments in calculating the future loss which the Government will sustain from superannuation if no retirement plan is adopted. (The statistics themselves show the amount of the loss at the present time.) While the percentages of loss due to superannuation given in Table VII, printed above, show a general tendency to increase after age 70, yet they present irregularities wholly inconsistent with nature, due to the fact, as stated above, that in the advanced ages the number of persons reported on is so small as not to give true averages, and because of the fact that with increasing age comes greater variation in the mental and physical activity of individuals. It would be wholly inconsistent with nature to assume, as the table shows, for example, that a greater degree of efficiency exists among persons 84 years of age than exists among persons 83 years of age. These irregularities may be made to counterbalance each other, however, by graduation, using either a mathematical formula or the graphic method, or a combination of the two. In selecting a method of graduating statistics of this sort it is essential to select a method which will remove the inconsistencies, and yet follow faithfully the general tendencies of the ungraduated material.

The method adopted by the commission for accomplishing this purpose was a combination of a modification of a formula first used by Woolhouse, the eminent English actuary, in graduating certain English mortality tables, and the graphic method. The greatest irregularities shown in the table were removed by two applications of this modification of Woolhouse's formula.

The results of the second graduation were then plotted on crosssection paper ruled 10 by 10 to the centimeter and the remaining irregularities removed graphically by means of a spline. The ungraduated per cents, together with the results of the first and second graduations and the final results obtained by the use of the spline, are shown in the diagram on the page following.

Having established the per cent of salary unearned at age 70 and all ages above 70, it was possible, by making certain assumptions, to calculate with fair accuracy the probable future loss which the Government will sustain from superannuation during a period of years to come if no plan of retirement is adopted. In this calculation it was assumed that the per cent of salary now unearned at a given age will also be unearned by employees hereafter reaching that Since the heads of departments and bureaus were requested in filling the schedules to give the ages of employees at last birthday,

age.

it was also assumed that employees, on the average, were six months older than the ages reported. For calculating the probability of living from the various ages to age 70, the American Experience Table of Mortality was used because that table was thought to represent fairly the probable mortality among Government employees up to age 70, but for calculating the probability of living from age 70, the Combined or Actuaries' Table of Mortality was used because it shows a greater expectation of life after the age of 70 than does the American table and was therefore a more conservative basis for the calculation.

The following table shows the annual loss which the Government will sustain during the next 36 years if no plan of retirement is adopted: TABLE VIII. Showing the annual loss that will be sustained by the Government during the next 36 years if no plan is adopted for retiring employees now in the classified civil service in the District of Columbia when 70 years of age.

1 The amount of the loss reported by the departments and independent Government establishments is shown at the bottom of Table VI, on p. 41, as $220,954. This amount represents the annual loss on Nov. 30, 1911, while the loss shown above represents the loss that will take place during the following year. The difference in the amounts represents the increase that will take place during the year.

COMMISSION'S EFFORT TO DETERMINE WHAT EXPENSE THE GovERNMENT IS JUSTIFIED IN INCURRING TO AVOID LOSS FROM SUPERANNUATION.

Having ascertained the amount of the loss which the Government will sustain among employees 70 years of age and over if no plan of retirement is adopted, the next step was to determine what expense the Government may reasonably incur in order to avoid that loss. Very little study of the problem suffices to show that the amount of loss sustained by the Government from superannuation is not great enough to justify the enormous expense of a straight pension system, especially when the effect on the service is considered. Although the loss due to superannuation will increase as long as the service continues

to grow, the cost of a straight pension will increase much more rapidly, being twice as great the first year as the loss from superannuation and continuing to grow at a greater rate than the loss from superannuation. There are in the departments at Washington 951 employees 70 years of age or older who would be eligible for retirement immediately. If each of these employees were pensioned at half pay with a maximum of $600 a year, the cost the first year would be approximately $468,960, while the loss, as shown in the foregoing table, is only $228,387. This additional outlay of $240,573 the first year, and an increasing amount each year thereafter, can not be justified on any ground, when the abuses sure to result from a civil pension are considered. It is probable, of course, that the losses reported by the departments were greatly understated, but even if the loss is twice as great, or $456,774 a year, it still would not warrant the establishment of a plan of retirement the probable future cost of which can not be calculated.

A straight-pension plan being dismissed from consideration, the alternative is a contributory plan. We have seen that even a contributory plan that will ultimately be self-supporting can not be established without some expense to the Government. The Government will have to incur expense in two ways: (1) In retiring employees who are at or above the retirement age when the plan takes effect, who will have no time to save the money on which to retire themselves; and (2) in assisting in the retirement of employees who are below the retirement age when the plan takes effect, and who will not have enough time to accumulate the whole of the amount necessary to retire themselves. In considering the amount that the Government can properly appropriate for such a purpose, two factors besides the loss from superannuation must be taken into account. They are the maximum deduction which can reasonably be withheld from the employee's salary and the minimum annuity which must be provided the employee on retirement in order to make practicable his elimination from the service when he reaches the age at which inefficiency usually begins to show.

In the opinion of the commission, 8 per cent of salary is the maximum amount which should be withheld from employees already in the service. Employees entering hereafter should be required, however, to lay aside whatever per cent of salary is necessary to provide the required retiring allowance. Reference to Table XI, on pages 54 and 55, will show that the deductions from the salaries of new entrants will not be burdensome except in the case of those who enter at advanced age. The commission thinks that the entrance of aged people into the service should be discouraged.

In the opinion of the commission the minimum annuity which should be adopted is half pay, with a maximum of $600. The com

mission believes that a scale of annuities governed entirely by salary and length of service would in many cases retire employees who entered the service late in life on annuities wholly inadequate for their maintenance, however simple their needs might be, while on the other hand, employees who had received large salaries for long periods might be retired on annuities considerably in excess of the amounts necessary to maintain them. The commission believes that a plan of retirement should be merely a means to an end, and that that end is greater efficiency in the public service through the retirement of employees after they have passed their period of greatest usefulness, and that this should be accomplished with as little tax upon either the employees or the Public Treasury as is possible. It is not the duty of the Government to assume control of the finances of the employees beyond the point that is necessary to protect itself against the retention through sympathy of employees who are no longer capable of earning their salaries. The commission believes that a fair annuity on which employees may be retired if retained in the service to age 70 is one-half pay, with a maximum annuity of $600. While $600 is not sufficient to purchase the luxuries of life, it is nevertheless sufficient to save the employee from destitution, even if he has been so unfortunate as to make no other provision for his declining years.

PLAN PRESENTED BY THE COMMISSION.

Having determined the amount of loss which the Government is now sustaining through the inefficiency of the aged, and settled on the maximum deduction from salaries which can be required, and the maximum annuity that should be provided, the problem was to show what it would cost to establish a savings and annuity plan with such limitations and to compare that cost with the present loss through superannuation. The plan therefore provides for the retirement of all classified civil-service employees in the District of Columbia, at the age of 70, on half pay, with a maximum annuity of $600, the annuity to be paid by the Federal Government in the case of those retiring immediately, but by contributions from their salaries in the case of all others, the Government to pay 4 per cent interest on all contributions, and the contributions never to exceed, in the case of those now in the service, 8 per cent of salary, the Government to provide the difference whenever such deduction is not sufficient to provide the annuity. (For the deductions from salary at various ages, see Table XI, pp. 54 and 55.) The total cost of such annuities, minus the amount contributed by the employees, would be the amount which the Government would be required to contribute. The following table shows these three items.