2 1 SEC. 2. This Act shall take effect with respect to annuities 2 accruing in months after the month in which this Act was 3 enacted. Passed the House of Representatives September 3, 1964. Attest: EXECUTIVE OFFICE OF THE PRESIDENT, Clerk. Hon. LISTER HILL, BUREAU OF THE BUDGET. Washington, D.C., September 9, 1964. Chairman, Committee on Labor and Public Welfare, DEAR MR. CHAIRMAN: Your committee has under consideration H.R. 12362, a bill to amend the Railroad Retirement Act of 1937 to eliminate the provisions which reduce the annuities of the spouses of retired employees by the amount of certain monthly benefits payable under title II of the Social Security Act. The purpose of this letter is to provide you with the views of the Bureau of the Budget regarding this proposed legislation. Essentially this bill would remove the restriction against payment of full railroad annuities to spouses receiving benefits from earnings under the social security system. The added financial cost of this bill ($13 million annually) is not accompanied by any increase in receipts and would thus deepen the actuarial deficit of the system. We recognize that there are instances under existing law which permit the payment of full railroad benefits to an individual receiving benefits from the social security system. However, we believe that broadening this approach tends to lessen rather than to increase coordination of these two Federal retirement systems and thus highlights the general problem involved in providing duplicate retirement benefits to the same individual. For these reasons we would oppose enactment of this bill. However, in view of the existing differences in the treatment of beneficiaries under Federal retirement programs, the desirability of a broader study of this problem as the basis for future action is indicated. Sincerely yours, PHILLIP S. HUGHES, Assistant Director for Legislative Reference. RAILROAD RETIREMENT BOARD, Hon. LISTER HILL, Chairman, Committee on Labor and Public Welfare, DEAR SENATOR HILL: This is the report of the Railroad Retirement Board on the bill H.R. 12362 which was passed by the House of Representative on August 3, 1964, and is now under consideration by the Senate Committee on Labor and Public Welfare. The bill would amend the Railroad Retirement Act of 1937 by repealing the present provision in section 2(e) of the act which requires the reduction of a spouse's annuity by the amount of the spouse's own insurance benefit under the Social Security Act, effective with respect to spouses' annuities accruing in months after the month of enactment of the bill. It is estimated that the additional cost of the amendment proposed by the bill would come to approximately 0.30 percent of taxable payroll, or $13 million a year, on a level basis. The railroad retirement system cannot absorb the added cost of this bill because there is now an actuarial deficit in the financing of the railroad retirement system of approximately 0.41 percent of taxable payroll, or $20 million a year, on a level basis. Enactment of the bill would increase this actuarial deficiency to approximately 0.71 percent of taxable payroll, or $33 million a year. The Board is opposed to the bill for the following reasons: (1) The bill makes no provision for the additional revenue to meet the increase in the costs of benefits which the bill would provide. (2) The present provision in section 2(e) of the Railroad Retirement Act for reducing a spouse's annuity by the amount of the spouse's own insurance benefit under the Social Security Act is the same, in principle, as the provision in the Social Security Act for reducing a wife's benefit under that act by the amount of such wife's insurance benefit under that act. (3) The Social Security Act does not require a reduction in a wife's benefit by the amount of her retirement annuity under the Railroad Retirement Act: however, there are very few (about 1,000) women entitled to a wife's benefit under the Social Security Act and an annuity under the Railroad Retirement Act, and by reason of the financial interchange between the two systems, the loss to the social security system for this nonreduction is zero. On the other hand, there are about 40,000 women entitled to spouse's benefits under the Railroad Retirement Act and to old-age benefits under the Social Security Act. and the loss to the railroad retirement system for the nonreduction proposed by the bill would be about $13 million a year. To illustrate, assume an annuity of $100 a month under the Railroad Retirement Act to a woman who is also receiving a full wife's benefit of $50 under the Social Security Act. Assume further that in the financial interchange between the two systems, it is determined that such woman's old-age benefits under the Social Security Act would be $75. In such case, the social security system is charged (under the financial interchange) with only $25 ($75 old-age benefit minus $50 wife's benent). The railroad retirement account thus absorbs the cost of the failure to reduce the wife's benefit under the Social Security Act by the amount of her railroad retirement annuity. The estimated cost to the railroad retirement account from this absorption is 0.1 percent of taxable payroll, or $500,000 a year. (4) If the loss to the social security system from the failure to reduce the wife's benefit by the amount of her railroad retirement annuity were not zero, but an amount comparable, proportionately, to the $13 million loss which the railroad retirement system would incur from the proposal in the bill, the Social Security Act would most likely be amended to provide for a reduction in the wife's benefit by the amount of such wife's annuity under the Railroad Retirement Act. (5) Before the 1951 amendments to the Railroad Retirement Act, there was no provision, in that act, for a spouse's annuity. The reason for providing a spouse's annuity by such amendments is stated in the Senate committee report (S. Rept. 890, 82d Cong., 1st sess., p. 17) as follows: "If the finances were adequate to permit doing all the other things that need to be done and also to increase all retirement annuities by, say, 65 percent, one might well consider that as an alternative to providing a spouse's annuity. But since such a course is obviously out of the question, the spouse's annuity affords a means of doing substantially that in the cases of greatest need, i.e., where two adult and aged people rather than just one must live on the annuity." The provision for a spouse's annuity was, therefore, in substitution for an increase in employee annuities in cases where two persons had to live largely on the income from the one annuity under the Railroad Retirement Act. For this very reason, the 1951 amendments provided that where a spouse has an income from a railroad retirement annuity or a social security benefit, the spouse's annuity would not be paid except to the extent by which it exceeds such annuity or benefit. (6) There is a general misunderstanding about the "purchase" of a spouse's annuity through railroad retirement taxes. A railroad employee with a wife entitled to a spouse's annuity pays no more in taxes than he would if he had no such wife. (7) With few exceptions, the Railroad Retirement Board has always objected to any proposal for liberalization of benefits of the railroad retirement system which did not provide for adequate financing of such liberalization. The excep tions relate to liberalizations which are absolutely necessary. It is certainly not absolutely necessary that a spouse of a railroad employee be paid in full the spouse's annuity and the insurance benefit under the Social Security Act. This is particularly true since no such dual benefits would be payable under the Social Security Act if such spouse were entitled to a wife's benefit under that act. The reduction of the spouse's annuity by the amount of the spouse's insurance benefit under the Social Security Act is not, in principle, different from the reduction of a wife's benefit under the Social Security Act by the amount of such wife's insurance benefit under that act. In view of the foregoing, the Board urges that the bill H.R. 12362 should not be adopted. The Bureau of the Budget has no objection to the presentation of this report from the standpoint of the administration's program. Sincerely yours, HOWARD W. HABERMEYER, Chairman. Senator PELL. Under the law, as it now stands, the annuity of the wife of a retired railroad employee must be reduced by the amount of any insurance benefit which she may have earned under the Social Security Act. The bill would eliminate this restriction and would authorize the wife of the retired railroad employee to receive the full amount of the spouse's benefit without reduction on account of any social security benefits which she may have earned as an employee in a nonrailroading industry. The bill proposes to conform the spouse's benefit provision of the Railroad Retirement Act with other comparable provisions of the law authorizing the payment of dual benefits without reduction. There appears to be strong sentiment in favor of the bill. I think that it is fair to say that the larger part of the criticism and complaints directed against the railroad retirement provisions over the past half-dozen years have focused on this matter of the spouse's annuity. This has been the subject of numerous efforts in the Congress to correct this disparate treatment of the spouse of the retired railroad employee. The strength of this position perhaps explains, at least in part, the dispatch with which the other body acted favorably upon this bill earlier this month. There have been a number of colleagues in the Senate who have spoken to me about the bill. Of these Senators Wayne Morse, of Oregon, Vance Hartke, of Indiana, Senator Quentin Burdick, of North Dakota, and Senator Frank Moss, of Utah, have expressed special interest in the matter and have asked to present statements to the subcommittee. All of these Senators are out of the city at this time and accordingly have requested that their statements be read into the record. At this point, I will insert in the record a statement submitted by Senator Morse, the ranking majority member on this subcommittee. STATEMENT OF HON. WAYNE MORSE, A U.S. SENATOR FROM THE STATE OF OREGON The bill before us provides us with the opportunity to correct one of the anomalies in the Railroad Retirement Act which has plagued us for a long period of time. For years efforts have been made to rationalize the discriminatory treatment given to the annuity which the act provides for the wife of the pensioned railroad employee. Unlike any of the other annuitants and beneficiaries under the act, the wife alone is subject to restrictions which, in affect, deprive her of benefits which she may have earned in her own right as an employee under the Social Security Act. Only in her case does the law direct a reduction in bene38-330-64- -2 fit on account of any sums which may be due to her as an earned social security pension. If, during her earlier years, she worked in order to contribute to the family breadwinning, the social security pension paid to her in her senior years, small as it may be, is deducted from her spouse's annuity under the Railroad Retirement Act. Her sister who may have refused to work receives the full spouse's anuity without deduction of any kind. Of what use, then, is an earned social security pension to the wife of a retired railroad employee? Attempts to explain to her why she may not receive both her social security check and her spouse's anuity; why one must be ab sorbed by the other have never been successful. She simply canont understand why she should be denied in her 65th year, her full share of the retirement benefits which she herself had earned. Most of us have had experience with this problem. These women, their hus bands and their families write to us constantly in an effort to find out why they are exposed to this treatment and why nothing has ever been done to correct it. As the former chairman of this subcommittee, I can speak with first. hand knowledge of this continuing complaint since a large part of these unend ing inquiries inevitably are called to the attention of this subcommittee. Frankly, I have never been satisfied with the statutory provisions in this respect, and my judgment, the committee has a real opportunity to provide long overdue relief for these people since the bill before it has already cleared one of the Houses of the Congress. The problem which we face in our approach to the bill is one which has always presented itself as the real obstacle to this or to any proposal to im prove or adjust the railroad retirement system. I refer, of course, to the everpresent actuarial deficit. To my knowledge, the railroad retirement system has always had an actuarial deficit of one kind or another, at least during the period of my service on this subcommittee. The valuation of the system is, of course, based upon actuarial assumptions, long-range in point of view. Since they are long-range, only the passage of time can tell us to what extent these assumptions may be in error. The crucial element in developing the actuarial basis for the valuation i the future level of railroad employment. Thus, we are told in the current actuarial valuation that reasonable variations in these payroll assumptions would reduce the actuarial deficiency to a 0.19 percent of the taxable payroll on the long side or to 0.78 percent on the short side. The actuarial deficit of 0.41 percent of taxable payroll which they adopted is based on a payroll assumption of $4.3 billion per year, representing a 10-percent drop from the payroll assump tion in the eighth valuation. We are also advised that an actuarial deficit of 0.5 percent of taxable payroll or less is well within the limits of actuarial tolerance. Thus, the fact that the actuaries have agreed upon a set of assumptions, particularly payroll assump tions, which would result in a deficit of 0.41 percent is no cause for alaru According to the ninth actuarial valuation, the system is eminently sound as of this time. I do not quarrel with any of the actuarial procedures employed in this valua tion. Far from it, I think that the system is well administered and well run and that its actuaries are among the most eminent in the profession. I cite the above only to pinpoint the kind of problem with which we are dealing with in attempting to weigh the equities inherent in this bill against the cost of the reform which the bill seeks to make. This cost, we are told, will be $13 million on a level basis or, in other words, will amount to 0.30 percent of the taxable payroll. Since the bill does not provide for its own funding, this cost must necessarily be added to the existing actuarial deficit and will increase it from its existing level of 0.41 percent of taxable payroll to 0.71 percent. This is enough to cause any of us to hesitate. I think it is fair to say that this is the reason why the inequity of the restriction in the spouse's annuity has been permitted to continue. However, we should point up the fact that the situation with which we are confronted is due primarily to the structural changes in railroad employmen caused by the technological advances of the past decade. The impact of these changes upon the level of employment has been felt even more keenly in this industry than in most. This is what the work rules dispute of the first half of this decade is all about. Indeed, this is what most of the disputes in railroading are all about. We have before us another aspect of this problem, no matter how small it may appear to be in the light of these other great employment issues which the industry knows only too well. It has been said time and again that the impact of technological advance should not fall on the employee alone. The costs of automation and technological advance cannot be imposed upon those who are dislocated by the changes. It is in the light of factors such as these that I must agree with the judgment of the House of Representatives that, on balance, the equities of the bill must overweigh the small added cost to the system. I think we have reached that point and that we should no longer defer taking the necessary action to remove these discriminatory restrictions upon the wives of retired railroad employees. We must remember that, by and large, the railroad system comprises the entire pension system for the railroad employees and that the pensions are small enough. I should like to go on record urging passage of this bill. Senator PELL. I understand that Dr. Clair Cook, assistant to Senator Hartke, is here at this time and is prepared to read the Senator's statement. Dr. Cook, I am happy to have you with us this morning on behalf of Senator Hartke and if you would now come forward, you may proceed in your own way. STATEMENT OF HON. VANCE HARTKE, A U.S. SENATOR FROM THE STATE OF INDIANA, PRESENTED BY DR. CLAIR COOK, ADMINISTRATIVE ASSISTANT Dr. Cook. On behalf of Senator Hartke who is absent from the city at the moment I would like to read the following statement. Mr. Chairman and members of the committee, the bill before you is one which will correct an obvious inequity in the present law. I am in support of its passage and urge upon this committee the desirability of recommending H.R. 12362 to the Senate for its favorable action. Only last week I received a letter from a woman who is a victim of the inequities of the present law, a law under which it is not only possible for an individual to pay into the social security old age and survivors insurance system for years only to be denied its benefits, but which even makes such an injustice mandatory. You are of course familiar with the situation. Under present law, the wife of a worker under the Railroad Retirement Act of 1937 upon attaining age 65 is entitled to a spouse's benefit equal to one-half of the retired husband's benefit. But the law also forbids her to receive whatever portion of that spouse's benefit equals benefits she may receive under social securitybenefits to which she is entitled otherwise by virtue of her own payments during her own working life in any employment subject to social security. In other words, if her own social security credits have entitled her to old-age benefits of $40 per month and if her spouse's benefits under railroad retirement entitle her to $60 per month, the latter is reduced to $20 so that she in effect receives no benefit whatsoever from her social security premiums over the years. Yet her husband's entitlement to her spouse's benefits has also been earned without regard to her additional sources of retirement income. This, I am convinced, is injustice. It is payment to the retirement fund of money for which there is no retirement benefit allowed. The bill for correction of this unjust state of affairs, which in effect deprives a woman of the retirement payments she has personally earned and paid for, deserves passage, and I urge your recommendation to that effect in the Senate. |