If the 20 percent proposed in S. 3852 were made permanent, and the 15- and 10-percent increases were permitted to expire on June 30, 1973, the deficit would be $129 million per year on a level basis, or 2.18 percent of future taxable payroll. I might add that these calculations were based on a static and not a dynamic assumption. It did not take into consideration any annual increase in wages or any increase caused by inflation. The Railroad Retirement Board chief actuary advises if all such increases become permanent, his latest projection is that the fund would be bankrupt by approximately 1986. I might add that to offset the increases of the 15, 10, and 20 percent, if they were made permanent, would require an increase in tax contribution of 3.35 percent from the employees and the employers alike for an increase contribution totaling 6.7 percent if this 50-50 ratio is maintained. The new tax would be 13.30 percent on each side, for a total of 26.6 percent of taxable earnings. Despite the fact that any additional increases would clearly jeopardize the actuarial soundness of the railroad retirement system, it is stated that the railroad beneficiaries should receive a 20-percent increase because social security beneficiaries have received a 20-percent benefit increase. In support of this position, it is further stated that the retirement beneficiaries are in the same position with respect to increases in cost of living as are social security beneficiaries. It should be noted that the existing benefits to the retired railroad workers are well above those of social security beneficiaries, even after the 20-percent increase recently enacted in social security benefits. Railroad retirement beneficiaries now average $220 per month compared to social security beneficiaries who now average $133 per month. The social security figure mentioned above was the average before the recent 20-percent increase. Railroad retirement averages do not include supplemental annuities which average $65 per month. Thus retired railroad workers generally receive higher monthly benefits under the present Railroad Retirement Act with which to meet increases in cost of living than other retired individuals receive under the Social Security Act as amended by Public Law 92-336. This fact, I submit, dispells the claim that there is an urgent need to increase railroad retirement benefits which cannot await congressional evaluation of the report of the Commission on Railroad Retirement. This concludes my statement, Mr. Chairman, and I hope any consideration for the increase in benefits under the Railroad Retirement Act will be deferred until Congress has had an opportunity to study the Commission's report, and to take whatever action may be necessary to provide benefits on an actuarially sound basis. Senator CRANSTON. Thank you very much, Mr. Quarles. (The prepared statement of Mr. Quarles follows:) STATEMENT OF WYTHE D. QUARLES, JR., MANAGEMENT MEMBER August 9, 1972 Mr. Chairman and Members of the Committee. My name is Wythe D. Quarles, Jr. I am the Management Member of the Railroad Retirement Board. I appear here to offer the following comments on the bill, S. 3852. S. 3852 would increase benefits under the Railroad Retirement Act on a temporary basis by 20 per cent. The purpose of the bill is to give railroad retirement beneficiaries the same percentage increase in benefits as was provided for social security beneficiaries in 1972 by Public Law 92-336. While I understand and sympathize with the fact that inflationary increases in the cost of living impose severe burdens on retired persons living on fixed incomes, I believe that a 20 per cent increase in benefits, even on a temporary basis, would be irresponsible at this time. Therefore, I do not favor enactment of this bill. The overriding consideration in evaluating any specific proposal for an increase in railroad retirement benefits is the effect which the enactment of such a proposal would have upon the actuarial balance of the railroad retirement fund. All benefits payable to retired railroad employees and their dependents are paid out of this fund, which is maintained solely by tax contributions, in equal shares, from railroad employers and employees. Any proposed benefit increase which would create or add to an actuarial deficiency threatening the solvency of the railroad retirement system should be delayed until an adequate and acceptable method is developed for financing the cost of the increase. -2 In 1970, benefits under the Railroad Retirement Act were increased by 15 per cent; however, the law enacting this increase, Public Law 91-377, contained no provision for its financing. Because questions were raised at that time as to the actuarial soundness of the railroad retirement system, the 15 per cent increase was made temporary, and a Commission on Railroad Retirement was established to study the system and its financing for the purpose of recommending changes in the law to provide adequate levels of benefits on an actuarially sound basis. The Commission was to submit its report by July 1, 1971, and the 15 per cent benefit increase was to terminate one year later, as of June 30, 1972. In 1971, the due date of the Commission's report and the expiration date of the 15 per cent increase were both extended one year by Public Law 92-46, to June 30, 1972, and June 30, 1973, respectively. That same public law provided an additional 10 per cent increase in railroad retirement benefits, which was also to terminate as of June 30, 1973, but, like the law providing the previous 15 per cent increase, contained no provision for financing the increase. Now the Commission on Railroad Retirement is in the process of submitting its report, which I understand, will question the actuarial soundness of the system. Another benefit increase, especially an increase as substantial as that proposed by S. 3852, would, of course, compound the actuarial deficiency already existing, particularly since once again no provision has been included for financing the cost of the increase. To enact this bill before Congress has had an opportunity to evaluate thoroughly the Commission's report would only make more difficult the still to be faced task of restoring the system's actuarial soundness, and the -3 entire effort of the Commission might be prejudiced if the retirement fund is thrown further out of balance. Although the 20 per cent increase proposed by S. 3852, like the previously enacted 15 per cent and 10 per cent increases, is provided on a temporary basis, and it is said that if these increases are allowed to expire on June 30, 1973, the system would be operating with an actuarial surplus, it must be recognized that "temporary" benefits of all kinds have a tendency to become permanent and are not often cancelled or rescinded. In fact, as I have previously pointed out, the original expiration date of the "temporary" 15 per cent increase has already been extended, and it is difficult to believe that "temporary" benefit increases which, when compounded, total over 50 per cent would be allowed to completely terminate as of June 30, 1973. This would mean that individuals receiving benefits for the month of June 1973 would have their benefits reduced by one-third if the increases were allowed to expire. Accordingly, in weighing the prudence of the increase now proposed, it is necessary to consider that at least some, if not all, of the "temporary" increases may become permanent without any provision for their financing. According to the Board's report on S. 3852 the actuarial deficit to the fund if the 15 per cent increase, the 10 per cent increase, and the proposed 20 per cent increase all become permanent would be $397.5 million per year on a level basis, or 6.70 per cent of taxable payroll. Furthermore, the Board's Chief Actuary has recently estimated that if a permanent 20 per cent increase were enacted and the previous 15 per cent and 10 per cent increases were allowed to expire on June 30, 1973, the deficit would be $129 million per year on a level basis, or 2.18 per cent of future taxable payroll. Thus, under either circumstance, the retirement -4-5 system would have a serious actuarial deficiency and would exhaust its funds in a relatively short time. In fact, I have been advised by the Chief Chief Actuary that if all such increases become permanent, his latest "projections indicate that the fund would be bankrupt by approximately 1986. Despite the fact that enactment of the proposed increase would clearly jeopardize the actuarial soundness of the railroad retirement system, it is stated that railroad retirement beneficiaries should receive a 20 per cent benefit increase because social security beneficiaries have received a 20 per cent benefit increase. In support of this position it is stated that railroad retirement beneficiaries are in the same position with respect to increases in the cost of living as are social security beneficiaries. In this regard, however, it should be noted that existing benefits of retired career railroad workers are well above those of social security beneficiaries--even after the recent 20 per cent increase in social security benefits. Thus, retired railroad workers generally receive higher monthly benefits under the present Railroad Retirement Act with which to meet increases in the cost of living than other retired individuals receive under the Social Security Act as amended by Public Law 92-336. This fact, I submit, dispels the claim that there is an urgent need to increase railroad retirement benefits which cannot await congressional evaluation of the report of the Commission on Railroad Retirement. This concludes my statement, Mr. Chairman. I hope that any increase in benefits under the Railroad Retirement Act will be deferred until Congress has had an opportunity to study the Commission's report and to take whatever action may be necessary to provide benefits on an actuarially sound basis. |