Senator CRANSTON. The Commission also believes in view of its conclusion regarding the bankruptcy of the railroad retirement system, and the mounting deficit thereafter, that it is inappropriate for the committee to consider the question of the 20 percent increase apart from the report and recommendations of the Commission. Can you comment on that point? Mr. SPEIRS. Would you say that again? Senator CRANSTON. The Commission thinks in view of the conclusions regarding bankruptcy of the railroad retirement system and the mounting deficit thereafter that it is inappropriate for the committee to consider the question of the 20 percent increase. Mrs. SPEIRS. I do not agree with that position at all. One of the reasons why there was no adjustment in the financing of the railroad retirement system as a result of the increase in 1970, 1971, was to permit the Commission to make its report. Under ordinary circumstances certainly the parties would have done as they have done in the past. They have made financial adjustments to keep this system on an actuarially sound basis. Our actuary, prior to the 20-percent or 15-percent increases in 1970, assumed that we on a static basis were in perpetuity operating on a $58 million a year deficit, which was tolerable according to their estimates. Now, certainly there has not been any additional financing brought into the system as a result of the increases in 1970 and 1971 for the very reason that they were waiting for the Commission to make a study of the system, and to determine in their own opinion what was necessary to keep it on an actuarially sound basis. My opinion is that this industry can afford to maintain an adequate retirement system for its employees. I further contend that the employees in the railroad industry are entitled to the same treatment as the employees in any other industry under social security, and for that reason it is appropriate for the committee here to handle this question immediately and promptly. Senator CRANSTON. I would like to note at this time that the committee has received an August 9, 1972, letter from the Director of the Office of Management and Budget in which the administration recommends a 5-percent cost-of-living increase, presumably on a temporary basis until June 30, 1973, although the report is unclear on that question. The letter notes: Any increase in excess of the cost-of-living adjustment preempts the options for recommendations by the Railroad Retirement Commission. The letter strongly opposes the 20-percent increase. That letter will appear in the record at this point so that all will be able to review it. (The information referred to follows:) We understand that the Subcommittee on Railroad Retirement intends to hold hearings on Wednesday, August 9, on S. 3852, a bill "To amend the Railroad Retirement Act of 1937 to provide a temporary 20 per centum increase in annuities, and for other purposes. This bill is identical to H.R. 15927, which has been reported to the House of Representatives by the Committee on Interstate and Foreign Commerce. We would appreciate it if the Committee would give consideration to our views on this legislation, which would provide a 20% increase in railroad retirement benefit through June 30, 1973. General Observations For several years, the Railroad Retirement system has been in serious financial difficulties. Even before the currently proposed increase, the ratio of receipts to expenditures was so poor that the fund was expected to exhaust its resources--including a $4.5 billion reserve--by 1987. The President responded to this critical situation by making recommendations for a comprehensive study of the system with the objective of revising the benefit and the tax structure as needed to place the system on a sound financial basis. The Commission established by the Congress in response to the President's proposal is about to issue its report and recommendations for corrective action. The actuarial deficiency before the Social Security benefit increase affected the Railroad Retirement system was $230 million a year. A 20% benefit increase--even after taking into 2 account the higher tax receipts--would make the deficiency even worse making it more difficult to restore the fund to financial soundness. Although S. 3852 and H.R. 15927 provide the 20% benefit increase on a temporary basis, there would be enormous pressure to make it permanent after June 30, 1973, either through extension or by being built into any new pattern of benefits that may replace the present benefit system. Comparison with the Social Security System There is a great difference between the circumstances addressed by the 20% increase in Social Security benefits and the circumstances in the Railroad Retirement system because the level of the average Social Security benefit was below the poverty line. This is not the case in the Railroad Retirement system. The average paid to retired railroad workers at the present time is about $286 a month (including supplemental pension) --compared with $133 a month for workers under Social Security before the 20% increase. Beneficiaries at the lower benefit levels will receive increased payments under the 20% Social Security increase because they are guaranteed that their benefits will be at least 10% higher than they would have received under the Social Security formula. Many others claim benefits from both the Railroad Retirement system and the Social Security system under provisions for dual entitlement. In addition to the advantage of a dual benefit, their Social Security benefit will be increased 20%. In any case, except for cost-of-living increases, there is no reason for comparability between the two systems. The two systems are conceptually different. The Railroad Retirement benefit combines the factors of average lifetime earnings with length of service to derive a benefit. The Social Security system bases its benefits only on average lifetime earnings. There is no reason, therefore, why one should guarantee a differential rate between one system and the other throughout the entire benefit range. 3 Fiscal Considerations The increase is inflationary. S. 3852 and H.R. 15927 would add about $300 million on a full year basis to budget outlays, in addition to $101 million already generated by the overall minimum guaranty designed to insure that Railroad Retirement benefits would be higher than Social Security benefits. The automatic tax tie-in with Social Security would offset some of the outlays, but would still add $240 million to the budget deficit in 1973, and $78 million to the budget deficit for 1974. As noted above, the 20% benefit hike would increase the Conclusions Accordingly, we would recommend that: the Congress provide a 5% cost-of-living increase and defer other liberalizations until after the report of the Railroad Retirement Commission has been examined. The Administration has always supported increases in Railroad Retirement benefits to compensate for rises in the cost-of-living. Any increase in excess of the cost-of-living adjustment preempts the options for recommendations by the Railroad Retirement Commission. The demand on additional financial resources in order to fund the higher benefits would create problems and may void some of the recommendations of the Commission even before the Congress and the President have an opportunity to review them. With parts of the Commission report already at the printer, it would be more prudent to wait for the report before taking action on new legislative proposals that are not absolutely essential. 82-813 O 72-4 Sincerely, (signed) Casper W. Weinberger This is the report of the Railroad Retirement Board on S. 3852, which you introduced on July 27, 1972. The bill would provide a temporary 20 percent increase in annuities and pensions payable under the Railroad Retirement Act. The increase would be effective with respect to annuities accruing for months after August 1972 and with respect to pensions due in calendar months after September 1972, and would terminate as of June 30, 1973 the same termination date provided for the temporary 15 percent benefit increase enacted in 1970 and the temporary 10 percent increase enacted in 1971. Annuities payable under the special social security guaranty or under the spouse maximum provisions of the Act would not be increased by the bill, but these annuities have already been raised by the increases in social security benefits provided by Public Law 92-336. The table below indicates the numbers of individuals currently on the Board's beneficiary roles who would be affected by Public Law 92-336 and the numbers who would be affected by this bill. Number of cases affected by P.L. 92-336 (1972 Social 2/ Includes duplication of 26,000 spouses affected by both laws. |