Mr. LIVINGSTON. What period of time transpired between the time people were eligible for the windfall and the time the Congress actually acted to eliminate it?

Mr. ADAMS. I believe the problem first began to surface in the 1950s. I referred earlier to the financial interchange arrangement that occurred in 1951. Under this financial interchange arrangement, we received money from Social Security.

Social Security said we will give you this money minus any benefits we pay directly to Social Security beneficiaries who are also railroad retirees. Since that was mostly supplementary to railroad employment the social security benefits were much higher than if the same service had been added to railroad service and then computed. That loss amounted to about $450 million a year. The conclusion was if it was not terminated as it was in the 1974 legislation, there would not be any money in the fund by 1981 to pay the beneficiaries.

Mr. LIVINGSTON. So since 1974 the practice has been terminated. How many beneficiaries did you have then, how many do you have now, and how many do you project by 1990?

Mr. ADAMS. I do not know. I will have to furnish for the record how many we had in 1974. Currently, approximately 40 percent of our 1 million beneficiaries receive windfall benefits.

[The information follows:]

WINDFALL BENEFICIARIES

The number of beneficiaries on the rolls for 1974, 1980, and 1990 are 391,800, 395,190 and 289,000, respectively.

Mr. LIVINGSTON. 400,000?

Mr. ADAMS. 400,000 people receive them.

Mr. LIVINGSTON. If Congress were to impose the cap of $350 million such as you have requested at this point, and I understand that is not the universal attitude of the Board, where will the difference be made up? Who will pay that? Will it come out of the fund?

Mr. ADAMS. If you consider the sources of income that we have, it would have to come from the fund, yes; the sources of income for that fund, the only remaining source that can be adjusted on the basis of need is the payroll tax. So it would be the employees and the employers in the railroad industry.

Mr. OLIVER. It would be the employers in the railroad industry because the employees pay the basic Social Security benefit and, the employers pay everything above that. So the employers are very concerned about windfall, about shifting this burden from the general fund to the employers.

Now there is the possibility of changing the law to phase out the windfall benefits or to get rid of some of the windfall benefits being phased out.

Mr. LIVINGSTON. That would reduce the benefits to which each employee is entitled?

Mr. OLIVER. That is correct.

That is something the Congress almost universally rejected in 1974, preferring this other approach. But if the Congress is not going to follow the approach it adopted in 1974, then there must be

Mr. LIVINGSTON. What did you say OMB's position is today? Mr. ADAMS. OMB's position today is to impose the $350 million cap on that, and I believe, they have requested and encouraged labor and management to negotiate and recommend changes to solve the financial problems of the system. Implied in that would be a suggestion: Is there any way you can restructure windfall benefits to live within the $350 million?

Mr. LIVINGSTON. Which means reductions in benefits?
Mr. ADAMS. That is correct.

COSTS OF HEADQUARTERS RELOCATION

Mr. LIVINGSTON. Can you tell me why it is going to take so much money to move?

Mr. ADAMS. I have already alluded to the increased rental cost between the cost in our government-owned building and commercial space in downtown Chicago. The physical move itself involves moving 1,200 individuals in our headquarters building to the new location, also our computer facilities, telephone equipment, our own printing shop, and those costs are substantial, more than just moving personnel and furniture.,

Mr. LIVINGSTON. You say GSA did not recommend that your present quarters be rehabilitated?

Mr. ADAMS. That is correct.

Mr. LIVINGSTON. Thank you very much.

Thank you, Mr. Chairman. I yield back the balance of my time.

BENEFICIARY STATISTICS

Mr. NATCHER. Mr. Porter.

Mr. PORTER. Mr. Chairman, I am delighted to be a member of this subcommittee, even delighted to be the junior member of the subcommittee, under your leadership. By reputation you are known to be the best committee chairman in the Congress. And I am pleased to be here, and under the leadership also of Mr. Conte, who has a similar reputation as the ranking minority member. Before I begin, maybe we ought to go back and ask when your term is up and what was that salary again.

Mr. ADAMS. 1982, $55,300.

Mr. PORTER. Going back to the beneficiaries covered, tracing that from 1968, what sort of growth has there been in the number of personnel, beneficiaries?

Mr. ADAMS. Beneficiaries. Actually, we have been declining. I was checking the date on which the decline began. Apparently since at least 1974 our employee beneficiaries have been declining slightly. Up to that point apparently we were still getting applicants for retirement who had served in prior years when we had much higher employment in the railroad industry.

Mr. PORTER. What is the prognosis for the future? Will that continue to decline?

Mr. ADAMS. Yes; our total beneficiary rolls will decline.

Mr. PORTER. Is it expected to go down in the future?

Mr. ADAMS. It is expected to go down.

The question is, where do you project the employment figure in the industry to level off, in view of energy conservation, fuel effi

ciency, rehabilitation of the railroad industry? The railroad industry has been deregulated. Will it have a revival and have more people or where will it level off?

INCREASE IN ADMINISTRATIVE BUDGET

Mr. PORTER. If you look at your administrative budget during the last 12 years since 1968, that has gone up about three times, or will have gone up about three times from about $14 million to your request of $54 million during that same period. So even in the period since 1974, the administrative budget has increased approximately 40 percent.

I wonder if you could explain why that should be occurring when your client population is declining, and why the increases are so substantial over that period of time for administrative expenses.

Mr. ADAMS. Our primary costs are in personnel. Of course our primary purpose is to pay benefits, hopefully timely and accurately, but to pay them. The increase that you mentioned from $14 million to $54 million, last year it was between $36 or $38 million, so over that period of time, the 14 to 38, it was not as great an increase as jumping from 14 to 54.

We are increasing the use of our contracting out services in this budget. We have had reductions in our personnel ceiling, but personnel costs, on an annual basis-mostly the result of annual government salary increases have automatically increased that cost. It is something over which we had no control. But we have not added staff. We continue to seek ways to automate the process to do more with fewer people. We do have a lot more claims than we had ten years ago.

Mr. PORTER. In fact, Mr. Adams, isn't it true that the number of personnel has declined-

Mr. ADAMS. That is right.

Mr. PORTER. And you are projecting declining over the next fiscal year?

Mr. ADAMS. That is right. We are paying more money for fewer staff.

Mr. PORTER. During the time there has been a decline in beneficiaries your budget almost doubled, 1974 to 1980, 21 to 39?

Mr. ADAMS. Yes. I have mentioned the necessity for automating some of our post-adjudication actions. We do most of these postadjudication actions manually. This is why I believe-one reason why OMB has agreed with us, we need to use these contractual services to design software programs that we can use to automate the system.

The complexities introduced, tier 1, tier 2, by the 1974 legislation, have, in a word I guess, swamped us in trying to keep up with the initial applications, manually going through these cases for post-adjudication adjustments.

Mr. PORTER. If I read the figures correctly, most of the increase in administrative expenses comes from the move to the new office. I think that is somewhere around $7 million. Then your contractual services are another $7 million, mostly for automated equipment. Why can't these expenditures, given the fact we need to cut this budget, we need to at least control the rate of increase, why can't this new move and these expenditures for automated equip

ment be put over for a year or two until we can get the Federal budget under control? Why can't you contribute that as your part? Mr. ADAMS. The initiation for the move to get our facilities renovated started approximately six or seven years ago. It has taken this long to get as far as we have. It has not been an easy road. We have tried to determine what was the cheapest thing to do. Apparently it will not be cheaper to remain in this building because to remain there will require that GSA renovate it to government standards, which would cost more than our move. Mr. OLIVER. Mr. Porter, may I add to that?

Mr. PORTER. Yes.

Mr. OLIVER. I think it is not generally known or recognized by many of the Congress and many others that any increase in administrative costs does not come out of general funds. It comes out of the employer taxes.

The employers, Mr. Dempsey of the AAR, Mr. Hopkins of NRLC, have testified before this committee I believe previously that they favor an increase in administrative funds in order to safeguard the vast majority of the funds. After all, our administrative costs for the Railroad Retirement System are less than one percent of payout. We feel, at least the industry feels, that there could be a greater return than one percent if we have more administrative money and talent to properly administer the funds and avoid waste, error, and so on.

Mr. ADAMS. Mr. Porter, your question is well-taken in this respect, in the sense that unless and until something is done to take the Railroad Retirement Board off budget that our expenditures do appear as part of the President's budget and it is a budget matter.

DISABILITY BENEFITS

Mr. PORTER. Let me ask one further question for my own information.

The disability provisions, how are those different from Social Security disability? Is it administered by your own regulations, separately? Is there any relationship between the two?

Mr. ADAMS. One is substantially the same as Social Security. That is what we call a total and permanent disability. If an individual has coverage under the Act, under the Railroad Retirement Act, and becomes totally and permanently disabled for “any gainful occupation," not just in the railroad industry but in the economy, then he is entitled to disability.

We have an additional type of disability benefit, referred to as an occupational disability. For that type, an employee must have been in the railroad service for 20 years or be 60 years old and have a current connection with the railroad industry. If he has the required period of service and he is a brakeman, for example, and he becomes disabled for his occupation as a brakeman, getting on and off cars, we pay an occupational disability and Social Security does not pay the same type of benefit.

Mr. PORTER. What has been the increase in payout in that area over the last ten years? Do you have any idea? Has that been an astronomical increase compared to the other benefits?

Mr. ADAMS. I believe, because of an addition in 1974, we added an early retirement provision to our Railroad Retirement Act

where you no longer have to wait until you are 65 to retire. Rather, if you have 30 years of service and are 60 years of age, you can retire with a full age annuity. I believe our disability has not increased significantly. I have the figures, I can't put my fingers on them.

Let me see if I can quickly find them. Our disability payouts in 1979, we paid out $265 million; in 1980, $294 million; in 1981, and this is an estimated figure, $328 million. We estimate in 1982 $363 million. It is a substantial increase.

Mr. PORTER. Thank you, Mr. Adams.
Thank you, Mr. Chairman.

ACTUAL COST OF WINDFALL BENEFITS

Mr. NATCHER. How much was actually paid out in fiscal year 1980 for windfall benefits? Do you have that figure?

Mr. ADAMS. About $450 million.

Mr. NATCHER. What are your estimates for 1981 and 1982?

Mr. ADAMS. The distribution of windfall payments was as follows: In 1979, $395.996 million; for 1980, $395.190 million. The estimated amounts for the windfall benefits, by fiscal year are: fiscal year 1980, $442 million; 1981, $445 million, and 1982, $453 million.

Mr. NATCHER. Are windfall benefits automatically adjusted for inflation the same as other benefits?

Mr. ADAMS. No, sir. They do receive what you might call a preretirement cost-of-living increase. By that I mean if soemone applies today for a windfall benefit, he would receive in the computation of that benefit all Social Security cost-of-living increases that have occurred between 1974 and today. Once he retires and that benefit is computed and he receives it, never thereafter does he receive a cost-of-living increase; it is frozen.

FINANCIAL INTERCHANGE

Mr. NATCHER. Mr. Adams, if you will, briefly describe to the committee the purpose of the financial interchanage that occurs between the Railroad Retirement System and the Social Security System and tell us how it works. Just briefly, tell us that.

Mr. ADAMS. As briefly as possible, the financial interchange is a program under which the Railroad Retirement Fund is reinsured with the Social Security Fund. By that I mean we pay into the Social Security Trust Fund the amount of Social Security taxes that would have been paid on covered railroad employment. In return, under this reinsurance program, Social Security pays back to the Railroad Retirement Fund Social Security benefits that railroad retirees would have earned had their employment been covered under the Social Security System. This is in effect purchasing the Social Security program for railroad employees through the Social Security Trust Fund.

Mr. NATCHER. How much do you receive each year from the Social Security System?

Mr. ADAMS. Approximately $1.8 billion currently.