5

guarantee, which assures them a minimum benefit of 110 per cent of the benefit they would get if their railroad employment had been subject to social security. All these beneficiaries will get, by reason of legislation now on the books, a 20 per cent increase in their benefits, effective September 1, 1972.

In addition, the Social Security Act amendments will have the effect of raising the maximum spouse's benefit under the Railroad Retirement Act from $151.70 to $182.10, effective with September 1972. The reason for this is that, although the Railroad Retirement Act provides for a spouse's annuity equal to one half of the employee annuity, there is a ceiling which artificially limits the spouse's annuity to 110 per cent of what could be paid in such month to a wife under the Social Security Act. Thus, when the amendments to the Social Security Act liberalized the payments available to wives, they automatically brought about an increase in benefits to all spouses now being paid the maximum spouse's benefit under

the Railroad

these.

Retirement Act. There are nearly 30,000 of

-6

It thus appears that approximately 285,000

of our beneficiaries, numbering less than a million,

already have the increase that this bill would provide.

for our other beneficiaries.

We do not seek now to provide for future

cost-of-living increases in benefitis under the Railroad Retirement Act, even though such increases are provided under the Social Security Act. Nor do we seek now to make the 20 per cent increase permanent any more than we are now trying to make permanent the previous 15 per cent increase and 10 per cent increase.

As the Subcommittee is well aware, the Commission

on Railroad Retirement has completed its study and its report, together with qualifying statements and a dissent, is now in the course of being printed. There is no doubt that in the course of the next session of Congress the Congress will have to give careful consideration to the future of the Railroad Retirement system, both as to benefits and as to financing. However, the inequities created by the Social Security legislation, under which almost a third of present beneficiaries get an immediate 20 per cent increase, must be corrected promptly. This requires the immediate enactment of S. 3852.

Senator CRANSTON. Our final witness will be Mr. Burton N. Behling, transportation consultant, Association of American Railroads.

STATEMENT OF BURTON N. BEHLING, TRANSPORTATION CONSULTANT, ON BEHALF OF THE ASSOCIATION OF AMERICAN RAILROADS

Mr. BEHLING. Mr. Chairman, I too intend to be brief in view of the lateness of the hour.

Senator CRANSTON. Thank you.

Mr. BEHLING. My name is Burton N. Behling. I am a transportation consultant and a former vice president of the Association of American Railroads.

I am appearing here on behalf of the railroads in regard to the bills presently before you-H.R. 15922 and S. 3852-which I understand is identical to H.R. 15927.

Only a brief comment is required in regard to the technical bill, H.R. 15922. We support it. It provides for certain technical amendments developed by the Railroad Retirement Board to simplify its administration of the Railroad Retirement Act, with attendant economies and efficiencies in the prompt handling of applications for annuities to certain classes of beneficiaries.

From our examination of these technical amendments we believe that they are necessary steps to reduce complexities and avoid delays in the award of annuities, and we are assured that they will not result in significant increases or decreases in the amounts of benefits.

If I may comment on the question that you asked of other witnesses earlier, we would not counsel that you hold up on the action on these technical amendments. We think that the administrative simplicity, the administrative economies, the avoidance of delays in the prompt handling of the annuity applications argues for prompt action on this bill.

Turning now to S. 3852 (H.R. 15927), we strongly object to its enactment. That bill would, on a temporary basis extending to June 30, 1973, increase benefits under the Railroad Retirement Act by 20 percent, the same percentage by which social security benefits were increased by Public Law 92-336 (H.R. 15390), signed July 1, 1972.

Superficially, it might appear that, as a matter of course, all railroad retirement benefits should now be increased the same percentage by which social security benefits were recently increased to become effective September 1, 1972. There are compelling reasons, however, why such a conclusion should be rejected, for the circumstances are vastly different.

The Congress in 1970, Public Law 91-377, responding to warnings that the railroad retirement system was heading toward serious financial difficulties, established a special Commission on Railroad Retirement to conduct a study of that system and its financing. You have heard from the Chairman of that Commission today. The Commission is about to report its findings and recommendations for the consideration of the parties directly involved-and I stress that--and of the Congress. Those findings and recommendations will confirm and, indeed, intensify the earlier concerns regarding the financial condition and outlook of the railroad retirement system.

82-813 O 72-8

In short, the Commission's report will show that the railroad retirement system is heading rapidly toward a financial crisis and, even without further increases in benefits, will probably be bankrupt in about 16 years unless necessary corrective steps are taken.

When allowance is made for more recent developments, that conclusion is consistent with the testimony in 1970 of then Chairman Howard Habermeyer of the Railroad Retirement Board that the railroad retirement account would be exhausted in 20 to 25 years if the 15percent benefit increase enacted in 1970 were to become permanent. Pending the study and report of its special Commission, the Congress made temporary that increase and also the further 10-percent increase of 1971.

Now it is proposed in S. 3852 (H.R. 15927) to provide still another large percentage increase in railroad retirement benefits. A 20-percent increase at this time would mean that the level of railroad retirement benefits would have been increased by more than 50 percent compounded since 1969 (15 percent on January 1, 1970, 10 percent on January 1, 1971, and 20 percent on September 1, 1972).

These are very large increases when applied percentage wise to railroad retirement benefit levels, which are much higher than social security benefit levels. S. 3852 (H.R. 15927) proposes to make the further 20-percent increase temporary, with an expiration date of June 30, 1973.

However, I would like to stress as to this temporary feature, it must be observed that increases once provided are, to say the least, difficult to withdraw or modify later on. In these circumstances, we believe it would be most important to enact the bill at this time, before there has been opportunity to consider deliberately the soon-to-be released report and findings of the commission which Congress saw the need to establish.

There is no urgency or crisis that would justify hasty action at this time to further increase railroad retirement benefits by 20 percent. Existing railroad retirement levels already compare favorably with those received by most other groups under social security and other pension programs. As the forthcoming report of the Commission on Railroad Retirement points out:

Only about half of the workers in private employment in the United States are covered by private pension plans, and in the retirement area railroad workers do better than most of them. Analysis of pension plans indicate that in 1969 a 30-year career railroader whose monthly earnings would correspond to typical wages in blue collar industries covered by private pension plans already had considerably better retirement benefits than those in other private pension plans. Moreover, since 1969 railroad benefits have been raised (temporarily) 26.5 per cent. Also, a study of income data shows that in 1970 the benefits of an unmarried retired railroad worker were higher than the benefits received by 8 out of every 10 single retirees from any type or combination of public and/or private plan benefits in the country, including social security. The benefits of a married retired railroader and his wife were higher than benefits received by 9 out of any 10 retired couples from any combination of similar benefits.

Some private pension plans in heavy industries, notably the recently negotiated auto and steel industry agreements, provide higher formula benefits (counting social security) than railroad retirement. However, comparisons with such plans are difficult because railroad retirement has other attractive features-10-year vesting, full portability within the industry, no requirement regarding continuous service, spouse benefits, occupational disability benefits, a liberal work rule, and a 110 per cent OASDI minimum guaranty to survivors and to the worker.

Moreover, increases in benefits should not be made without adequate provisions for their financing. This has not been done with respect to either the current proposal in S. 3852 or the temporary increases in railroad retirement benefits provided in 1970 and 1971. If all of these increases were to become permanent, the resulting actuarial deficit without any further changes in the future would be nearly $400 million a year.

Those increases, especially if they were to become permanent in whole or in part, will require substantial increases in taxes on employers and employees to support them, for otherwise the financial solvency of the railroad retirement system would be further impaired. Taxes for support of the railroad retirement program already impose very heavy burdens on both the industry and its employees. Further substantial increases in taxes necessary to support ever-rising levels of benefits could take them beyond endurance by both sidesemployers and employees. It is axiomatic that a financially sound railroad retirement system requires benefit levels and tax support to be considered side by side and with due regard for long-term rather than merely short-term consequences.

We urge you to take into account the very limited ability of the railroad industry to assume added cost burdens in support of the railroad retirement system, which already is in serious financial trouble. This committee and the Congress are well aware, I am sure, of the deep-seated financial problems of the railroad industry, and there is no need for me to recite them at length here.

But let me point out by way of summary that, whereas in 1955 net income from operations of all class 1 line-haul railroads amounted to $1.1 billion and in 1966 to $1.0 billion, last year (1971) operating earnings were only $0.7 billion.

Furthermore, this net operating income is before interest charges which in 1971 amounted to over $0.5 billion. At this time, six major railroad companies-almost one-fifth of the industry in terms of revenues are in reorganization proceedings under the Bankruptcy Act, and another dozen which failed to earn their fixed charges in 1971 are in perilous financial condition.

For all of these reasons, the railroad industry strongly recommends against enactment of the 20-percent increase in railroad retirement benefits as provided in S. 3852 (H.R. 15927). In taking this position we are not unmindful that railroad people along with others are feeling the effects of inflationary increases in their cost of living. But such considerations do not warrant a general 20-percent increase in railroad retirement benefit levels at this time.

If any general increase is to be provided now, prior to deliberate and balanced consideration of the forthcoming report of the Commission on Railroad Retirement, such increase should be no more than a pass-through of the dollar amounts by which social security benefit levels were increased by the recent enactment of Public Law 92-336.

In dollar terms, this would treat railroad retirement beneficiaries the same as Congress recently provided for social security beneficiaries, averaging $27 per month for employee annuitants now on the benefit rolls and $31 per month for an employee retiring in September 1972.