WEDNESDAY, APRIL 19, 1972. COMMISSION ON RAILROAD RETIREMENT WITNESSES DR. THEODORE O. YNTEMA, CHAIRMAN DR. MICHAEL S. MARCH, EXECUTIVE DIRECTOR Mr. FLOOD. The committee will be in order. Now we have the Commission on Railroad Retirement. The presentation will be made by Dr. Theodore O. Yntema, Chairman. BIOGRAPHICAL SKETCHES OF WITNESSES We will place your biographical sketch in the record at this point. (The biographical sketches follow :) BIOGRAPHICAL SKETCH OF THEODORE O. YNTEMA-CHAIRMAN Dr. Yntema is currently a visiting professor of economics at Oakland University, Rochester, Mich., and a business and financial consultant. He has a Ph. D. from the University of Chicago in business economics and is also a certified public accountant. Previously, from 1949 to 1965, he was vice president of finance, Ford Motor Co., when he retired from the company; professor at the University of Chicago; director of research of the Cowles Commission; director of research and chairman of the Research and Policy Committee of the Committee for Economic Development; founding chairman of the Ford Motor Credit Co., and of the American Road Insurance Co.; and former chairman of the National Bureau of Economic Research. BIOGRAPHICAL SKETCH OF MICHAEL S. MARCH-EXECUTIVE DIRECTOR Dr. March is a native of Colorado. He holds a B.A. degree in economics from the University of Colorado and a Ph. D. in political economy and government from Harvard University. He has also studied at the University of Illinois and at the American University in Washington, D.C. During nearly 28 years as a staff member of the Bureau of the Budget and the Office of Management and Budget, he has served in legislative and program analysis in a wide range of fields, including labor and welfare, education, manpower, income maintenance, and science programs. In 1967 to 1969, he was the Assistant Director of the Resources Planning Staff in the Office of the Director. In May 1967, Dr. March received the Bureau of the Budget Award for Exceptional Service. He is the author of numerous articles in professional journals on subjects such as poverty, human resources development, and service delivery systems. From 1969 to 1970, he was a Federal executive fellow at the Brookings Institution doing research on national priorities and the Federal budget. Dr. March has worked with many special study groups relating to income maintenance and retirement programs, including the Committee on Retirement Policy for Federal Personnel in 1954-55; studies of veterans life insurance and military survivorship benefit programs from 1949 to 1956; as the technical adviser to the President's Commission on Veterans Pensions, headed by General Omar N. Bradley, from 1955-56; as the Bureau of the Budget's representative on the Executive Committee of the President's Council on Aging during 1962-65; as the executive secretary of the 1964 Task Force on Income Maintenance for the White House; and on the Staff Task Force of the President's Committee on Corporate Pension Funds and other Private Retirement and Welfare Programs which reported in January 1965. Mr. FLOOD. I see you have a statement. How do you wish to proceed? GENERAL STATEMENT Mr. YNTEMA. I am Theodore O. Yntema, Chairman of the Commission on Railroad Retirement. At my side is Michael S. March, the Executive Director of the Commission. We appreciate greatly the opportunity to appear before you in support of the Commission's budget request of $101,000 for the fiscal year 1973, the amount recommended in the President's budget as amended. The Commission on Railroad Retirement is a temporary commission, which was created by the Congress by Public Law 91-377, approved on August 12, 1970, and which began work on January 20, 1971. The assignment of this five-man Commission is to study the Railroad Retirement System and to recommend measures to provide the necessary benefits on an actuarially sound basis. The Congress laid down a series of specific questions for us to study. These are covered in the budget justification which we supplied to your committee a number of weeks ago. The three other active Commissioners are Vice Chairman Kenneth Black, Jr., the dean of the school of Business Administration at Georgia's State University in Atlanta; Mr. Charles L. Dennis, the president of the Brotherhood of Railway & Airline Clerks; and Mr. George Earl Leighty, former chairman of the Railway Labor Executives' Association. Mr. John Philip Hiltz, the chairman of the National Railway Labor Conference was an active member until he retired and resigned from the Commission effective February 7, 1972, and we hope to have a replacement for him soon. As extended by Public Law 92-46, which was approved July 2, 1971, the Commission must report by July 1, 1972. Our budget request for fiscal year 1973 thus covers only the short windup period of 60 days allowed by law, during which the backup staff reports will be put into final shape and the results of our findings will be set forth in detail. The Commission's work program, which was presented to the various committees of the Congress last year, provides for an in-depth analysis of the status of the railroad retirement system. A major feature of our effort has been the development of a computerized dynamic model of the railroad retirement system. We have successfully programed the model and we are now making various projections and actuarial calculations to analyze the major factors which affect the future status of the system. The trend of railroad employment is one very important factor. We have, accordingly, made an economic analysis of the railroad industry and projected possible alternative employment trends to the year 2000. Other important factors are the extent of possible future wage increases and price inflation, changes in productivity, and possible trends in social security benefits. I am pleased to state that we are reasonably on schedule with our work program. Even under the best of conditions the schedule was a very tight one. We are currently in the midst of making our various projections and analyzing them and reviewing initial draft papers. We expect to submit the Commission's report by the deadline date of July 1, 1972. We have supplied your committee with a justification of our 1973 request of $98,000, as included in the 1973 budget-page 956. The President's budget includes language to enable the Commission to carry over any unused 1972 resources, although it now appears that these will be small. Subsequently, the President recommended an additional $3,000 to cover the increased Pay Act costs for 1973, thus bringing the Commission's amended 1973 budget to $101,000—House Document 92-267, March 20, 1972, page 57. These funds will be used to finish, edit, and see our staff reports through to duplication or publication. They will also permit us to assemble the records and work papers of the Commission in a proper and orderly condition so that the results of our research will be available to the agencies concerned and to any future researchers. In particular, we plan to document our computerized model so that the Railroad Retirement Board and other agencies may continue to use it after our Commission goes out of existence. I thank you for the opportunity to appear before you. We hope your committee will give favorable consideration to our modest request. COMPUTERIZED MODEL OF RAILROAD RETIREMENT SYSTEM Mr. FLOOD. Suppose you give us a little clearer picture of what we are talking about by "computerized dynamic model of the railroad retirement system." Tell us what you are developing. Dr. YNTEMA. What it is is this: We have tried to define the various factors that will affect the intake of dollars and the outgo of dollars from this system under various assumed conditions of employment and other key variables. For example, the employment in the railroad industry is about 600,000 now. Projections indicate it will decline to something over 300,000 over the next 30 years. We have a declining base you see. A great deal of actuarial work has been done upon the assumption that things will continue as they are now. Mr. FLOOD. And that is not true. Dr. YNTEMA. Our studies show that it is not true. What we are trying to do is put into this model what are reasonable expectations with respect to the future concerning cost increases, wage increases, benefit increases, and employment trends. Mr. FLOOD. Are you considering at the same time the quality of any existing pension plans or are you considering any legislation that may now be before the proper committees of Congress having to do with pension plans? Dr. YNTEMA. We are considering the effects, of course, of the 15- and 10-percent increases which are temporary. Mr. FLOOD. Increases in what? Dr. YNTEMA. In rairoad retirement benefits which are temporary for the railroad retirement system. We are instructed to look into those. Mr. FLOOD. Would you tell us more about these temporary benefits? Dr. YNTEMA. These were two acts of Congress that made them temporary. Mr. FLOOD. When was that? Dr. YNTEMA. At the time of enactment of the law which created the Commission. Dr. MARCH. In August of 1970 there was a 15-percent and in July there was a further 10-percent increase enacted by Congress in railroad benefits, and they now are temporary until June 30, 1973. Mr. FLOOD. What relationship does that have with social security? Dr. MARCH. The percentages match, but the amounts are larger. CENTRAL RAILROAD OF NEW JERSEY Mr. FLOOD. In the Central Railroad of New Jersey problem there was a court order by the district court in Newark, N.J. We went into this in some length with the Department of Labor people. The order directed the Jersey Central Railroad to cease operations in the entire State of Pennsylvania. Certain people are afraid this may be extended perhaps to the State of New Jersey, and there are competing roads who want to make use of those facilities. 77-539 - 72 pt. 654 For instance, there are petitions to the ICC for the Lehigh Valley Railroad, from the Reading Railroad, and from a subsidiary of the Central Railroad. The ICC handed down a temporary 60-day order which expires June 1 to permit the Lehigh Valley Railroad to continue operations over the lines of the Jersey Central in the affected areas. As a result of that, some 176 Central Railroad employees lose their jobs and are without work now. The Lehigh Valley is taking on some and not taking on others, and it is a very confused situation. One of the things that has come to the attention of the Congress is the question of the relationship of the retirement plans and the pension plans, any plans of the Central Railroad of New Jersey employees who are now out of work as a result of the Federal court order. Nobody knows, I suppose, including the ICC, what they are going to do on June 1 at the expiration of the temporary order. Are they going to continue the Lehigh Valley or are they going to go back and grant the petition of the Reading or what are they going to do on June 1? In the meantime, 176 of the Central New Jersey Railroad employees are at this minute-and have been for some weeks-out of work. They are concerned, of course, about their jobs and their future. The Central Railroad of New Jersey employees take the position they would prefer to have the Reading take over the operations instead of the Lehigh Valley. The Lehigh Valley people, of course, the unions and their spokesmen, say, "We can do it better." So there is a great controversy between the unions of the Lehigh Valley and the Central Railroad of New Jersey as to who is going to run this property after June 1. And among the Jersey Central employees is the question I thought you should be concerned with before you file a report on July 1. No matter what you have done now, you should get in touch with the trustees of the Jersey Central and the proper union officials. The unions will be exactly the same, I take for granted, on the one railroad as on the other. I don't know what their position will be. This Commission of yours has just had the very bad luck of having this blow up in your face. But there it is and you can't possibly pretend you don't know this situation exists in the great middle eastern transport area. It is a desperate situation and nobody knows where it is going to end. Dr. YNTEMA. Could I read one paragraph which I am sure will help. The financial difficulties of the railroad retirement system arise primarily from the very high ratio of present and prospective retirees to employed workers. In other words, the benefits to be paid are abnormally large in relation to the wage base and corporate income base available to support them. At present, the numbers of retirees and widows of retirees are substantially greater than the number of currently employed workers. Mr. FLOOD. You don't have jurisdiction over this situation, but one thing you do have jurisdiction over is your report. You could develop an awareness of this problem and how in your analysis and studies the retirement emolument to the now out-of-work Jersey Central workers is affected. And how does this affect the existing fund, and what is the relationship of emoluments on the railroad retirement |