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except fraud or willful intent of the member making the election, he may make a corrected election at any time within 90 days after he is notified in writing that the election is void. A corrected election made under this subsection is effective as of the date of the voided election it replaces." SEC. 3. Section 1434 of title 10, United States Code is amended

(1) by amending subsection (b) to read as follows: “(b) A person may elect to provide both the annuity provided in clause (1) of subsection (a) and that provided in clause (2) of subsection (a), but he may elect only 25 or 1242 percent of his reduced retired or retainer pay for each annuity. The reduction in his retired or retainer pay on account of each annuity, and the amount of each annuity, shall be determined in the same manner that it would be determined if the other annuity had not been elected."; and

(2) by adding the following new subsection at the end thereof: "(d) Under regulations prescribed under section 1444 (a) of this title, a person may, before or after becoming entitled to retired or retainer pay, provide for allocating, during the period of the surviving spouse's eligibility, a part of the annuity under subsection (a) (3) for payment to those of his surviving children who are not children of that spouse.' SEC. 4. Section 1436 of title 10, United States Code, is amended

(1) by adding the following at the end of the catchline: "; withdrawal for severe financial hardship”;

(2) by inserting the designation “(a)” before the words “The reduction" at the beginning; and

(3) by adding the following new subsection at the end thereof : “(b) Under regulations prescribed under section 1444 (a) of this title, the Secretary concerned may, whenever he considers it necessary because of the member's severe financial hardship, allow him to withdraw from participation in an annuity program under this chapter, when requiring the member to continue to participate in the program would violate equity and good conscience. The absence of an eligible beneficiary shall not of itself be a basis for such action. However, no deductions from his retired or retainer pay may be refunded to him under this subsection.”

SEC. 5. Section 1444 (b) of title 10, United States Code, is amended by adding the following new sentences at the end thereof: "In addition to a report on the administration of this chapter, the report shall also contain a detailed account, including an actuarial analysis of those cases in which relief is granted under sections 1436(b) and 1552 of this title, or any other statutory or administrative procedure. This subsection does not apply to actions taken under section 1445 of this title." Sec. 6. Chapter 73 of title 10, United States Code, is amended

(1) by adding the following new sections at the end thereof: *1445. Correction of administrative deficiencies

“Whenever he considers it necessary, the Secretary concerned may, under regulations prescribed under section 1444 (a) of this title, correct any election, or any change or revocation of an election, under this chapter when he considers it necessary to correct an administrative error. Except when procured by fraud, a correction under this section is final and conclusive on all officers of the United States. "g 1446. Restriction on participation “(a) Notwithstanding section 1441 of this title, if a person

"(1) has made an election under this chapter ;

“(2) is retired for physical disability before he completes 18 years of serv

ice for which he is entitled to credit in the computation of his basic pay ; and thereafter dies, his beneficiaries are not entitled to the annuities provided under this chapter until they give proof to the department concerned that they are not eligible for benefits under chapter 11 or 13 of title 38. If the beneficiaries are not eligible for benefits under chapter 11 or 13 of title 38, the annuity shall begin on the first day of the month in which the death occurs.

“(b) Whenever the beneficiaries on whose behalf the election was made are restricted, under subsection (a), from participating in the annuities provided under this chapter, the amount withheld from the elector's retired or retainer pay as a result of an election under this chapter shall be refunded to the bene

ficiaries, less the value of any annuities to be paid under this chapter, and in either case without interest."; and

(2) by striking out the following item in the analysis : "1436. Computation of reduction in retired pay." and inserting the following item in place thereof: “1436. Computation of reduction in retired pay; withdrawal for severe financial hard

hip.”; and

(3) by adding the following new items at the end of the analysis : "1445. Correction of administrative deficiencies. “1446. Restriction on participation.”

SEC. 7. Any person who, before the date of enactment of this Act, has filed a change or revocation, subject to section 1431 (c) of title 10, United States Code, of an election made under section 1431 (b) of that title, which change or revocation would be ineffective if he were to retire upon the date of enactment of this Act, shall have that change or revocation become effective on that date, or three years after the date upon which it was filed, whichever is later. SEC. 8. Any person who

(1) made an election before the date of this Act which would be effective if he retired on the day before such date; and

(2) hereafter retires for physical disability before completing 18 years of service for which he is entitled to credit in the computation of his basic

раун shall be considered as having applicable to him all of the provisions of chapter 73 of title 10, United States Code, existing on the date preceding the date of enactment of this Act, except that any revocation or change of an election is not effective until three years after the date of filing such revocation or change, or the date of enactment of this Act, whichever is later.

Passed by the House of Representatives May 15, 1961.




Admiral CLAREY. Mr. Chairman and members of this committee, I am Rear Adm. Bernard A. Clarey, USN, Director for Military Personnel in the Office of the Assistant Secretary of Defense (Manpower). I welcome the opportunity to present the views of the Department of Defense on H.R. 6668, a bill to modify certain provisions of the Contingency Option Act of 1953.

As you know, the Contingency Option Act allows a member of the uniformed services to elect to have his retired pay reduced during his lifetime so that his widow and children might continue to receive a portion of that pay after his death. The program is designed to be paid for by the participating member with no direct contribution by the Government.

H.R. 6668, the bill for your consideration this morning, is based on 7 years of experience with the operation of the Contingency Option Act. During this period it has become apparent that the act requires certain modifications in order to increase participation through more flexible elections, improve financial stability by eliminating those groups which have proved to be an excessively bad financial risk, and to simplify administration.

Considering first the question of participation—we have never been satisfied with the number of eligible members electing to come into the program. This particularly is true in the case of enlisted men, since participation is largely among officers. For example, during 1959 only 19 percent of those eligible, 45 percent of the officers and only 5 percent of the enlisted men, elected coverage. This is a substantial increase over previous years but is far short of what we consider to be desirable.

Among the major provisions of the bill designed to increase flexibility, and thereby, we believe, to increase participation, are the following:

1. Members with 18 or more years of service, who are now barred from making an election, would be permitted to make an election that will be effective providing retirement occurs at least 3 years after the date of the election.

2. The time for changes and revocations to become effective would be reduced to 3 years from the 5 years under present law. Revocation would not bar the member from subsequent participation in the program providing appropriate time requirements are met.

3. In cases where continued participation in the program would result in severe financial hardship which is against equity and good conscience, members would be permitted to withdraw from the program with permission of the Secretary concerned upon presentation of fully substantiated justification. A member withdrawing under these circumstances would not be refunded any moneys already paid into the fund since he would have been protected up to the date of withdrawal.

Turning now to improvement of the financial stability-experience has demonstrated that the mortality rate of those members who were retired for physical disability with less than 18 years service was considerably higher than anticipated, with the result that this part of the program was not self-supporting. To relieve this financial drain on the fund and at the same time to provide coverage for the group retired for disability with less than 18 years service, an additional option was developed. This option would permit a member with less than 18 years of service to elect up until the last day of active duty to enter the Contingency Option Act program but should he die a service-connected death and his survivors be awarded Veterans' Administration benefits, no annuity would be paid. In such a case an appropriate refund would be made to the member's beneficiaries.

Chairman RUSSELL. What do you regard as an appropriate refund? Would that be the amount equivalent to that paid in?

Admiral CLAREY. Well, sir I am not an expert, Mr. Chairman, on that.

Chairman RUSSELL. How about that, Mr. Myers? Are you the actuary down there?

Mr. MYERS. Yes, Mr. Chairman, I am one of the members of the Board of Actuaries. In this particular case, Mr. Chairman, it would be a full refund without any interest.

Chairman RUSSELL. It would be limited to the amount that had been contributed in his behalf?

Mr. MYERS. That is correct, the amount that is taken from his re

tired pay.

Chairman RUSSELL. And less any amount that you had paid him, I assume, if he received any annuities, or can he make the change after he becomes a recipient?

Mr. MYERS. Mr. Chairman, this is in the case of a retired member who later dies, and he has had certain amounts withdrawn from his retired pay so that he would not have received any benefits under the Uniformed Services Contingency Option Act himself.

Chairman RUSSELL. He would not have received any benefits?

Mr. MYERS. Yes, sir. They would not have received any benefits under the act.

Chairman RUSSELL. So the refund would be the equivalent of all that had been contributed toward his annuity?

Mr. MYERS. That is correct.

All that would have been contributed by him through reductions in his retired pay.

Chairman RUSSELL. That is what I understood.
Mr. MYERS. Yes, Mr. Chairman.
Chairman RUSSELL. All right, Admiral, go ahead.

Admiral CLAREY. Other provisions of the bill are designed to facilitate the operation and administration of the program and include transition from the present law and revision in the method of computing multiple options and deductions. These modifications are generally technical in nature but are important to the improvement of the program.

We have been working closely with your staff on this bill and have agreed on certain technical changes which are indicated in the latest committee print. These technical changes will further improve the bill and the Department of Defense has no objection to them.

This highlights briefly the main provisions of this bill which modify the present law. The Department of Defense, on behalf of all uniformed services, wholeheartedly supports these changes which experience has shown necessary for the improvement of this important program. The endorsement of this committee is respectfully requested.

I have a couple of technical experts here with me, sir, who will be prepared to answer any technical questions you have on the operations of this program from the Department of Defense point of view.

This concludes my statement, Mr. Chairman.

Chairman RUSSELL. As I understand it, the basic principle of the contingency option program is that it is self-supporting. Admiral CLAREY. Yes, sir.

Chairman RUSSELL. Pays its own way except for the administrative costs?

Admiral CLAREY. Yes, sir.

Chairman RUSSELL. Can both of you gentlemen representing the Department of Defense and Actuaries Committee and Social Security Administration give this committee assurances here that the liberalizing features of this bill with regard to entering and leaving this system will not affect the actuarial soundness of the program or require appropriations from the General Treasury to supplement the benefits that will accrue?

Admiral CLAREY. We feel that it will, sir, from our operational standpoint.

Mr. MYERS. Yes, Mr. Chairman.

The Board of Actuaries believes that the conditions providing for more liberal entrance into the system are such that the actuarial soundness of the system will be safeguarded and, in fact, will be improved in certain respects.

Senator SALTONSTALL. Would the Senator yield?
Chairman RUSSELL. Yes.

Senator SALTONSTALL. Mr. Meyers, you have written a letter to Mr. Russell in which you criticize several of these provisions. Has that been cured in these amendments?

Mr. MYERS. No, Senator, not completely.

We do have criticisms of certain minor provisions, but the general principles of the bill we endorse.

Senator SALTONSTALL. You say here you have apparently two objections. You believe that there is no necessity for even limited participation by members with less than 18 years of service.

Do you still oppose that section or believe it is wrong as it is now written?

Mr. MYERS. Our preference would be that that section were not in the bill, but we do not think that it would destroy or affect the financial soundness of the program or create any significant obligation on the General Treasury.

Senator SALTONSTALL. You also state in the next paragraph that you are not in favor of the provision added by section 5 permitting withdrawal of retired persons from the system for severe financial hardship.

Are you still opposed to that? ?
Mr. MYERS. Yes.

We would still be opposed to that, but, in balance, we endorse the provisions of the bill.

Senator SALTONSTALL. Mr. Chairman, may I ask one more question ?

Chairman RUSSELL. Certainly. I am always frightened by this type of bill. My technical knowledge is a little skimpy but my experience over nearly 30 years has shown that despite all the protests to the contrary, when they are submitted, they wind up costing a great deal of money before they are through with them.

Senator SĂLTONSTALL. What disturbs me, Mr. Myers, you come before us now and say you are agreeable to this bill going forward and yet you stand by two of these objections that might involve, as the chairman has said, a cost to the Government and also provisions that you do not think are necessary.

Do I understand you to mean in this letter that you wrote on May 29, that you think the bill as it has been changed and these provisions which are still in it are sufficiently inoucuous so that you would stand behind this bill?

Mr. MYERS. Yes, Senator Saltonstall.

We think that there are certain reporting provisions that have been put in the bill so that careful attention can be paid to the operations of the program to see that it is operating soundly and to see that there is no financial loss to the Government.

We do suggest in my prepared testimony here that there be at least one other change made in the bill to tighten it up in this respect; namely, we suggest that the last sentence of section 5 should be de

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