Mr. MARCH. Yes; the entire philosophical underpinning for the approach is that what the Commission felt it important to do was to give railroad workers the protection of full social security coverage, but on terms that would prevent the railroad workers from being able to dip into the social security pool and get extraordinary, dual benefits. Then the second part of it would be to revise the system in order to provide a rational social security layer. As a matter of fact, when you provide complete social security coverage that automatically eliminates accrual of future excess dual benefits, and the only problem you have is what you do about past rights. We have some very specific suggestions on what to do about those. Senator CRANSTON. Mr. Yntema, do you have something to add to that? Mr. YNTEMA. No; I think that is a fair statement of the situation. Some of these matters are quite technical. You have to be very careful in dealing with them. The basic idea of the pass-through, if I can make that very clear, is that the railroad worker would get via his social security increase or railroad benefits an increase equal to the total increase he would have received if all his service had been under social security. You get it one way or the other, but neither account would be injured by that. Senator CRANSTON. Regarding those technical amendments to H.R. 15922, how important do you feel it is for the Congress to act on those amendments now rather than waiting to consider them in the context of the overall review of the system as we fully consider and study the Commission's report? Mr. YNTEMA. I am not an expert on that. It is not a major matter as far as we are concerned. Senator CRANSTON. Is there anyone on the Commission who has any strong views on that? Mr. YNTEMA. No strong views on that. Senator CRANSTON. Counsel has a question on that, and then you will be excused. Mr. MITTELMAN. Just for the record, we talked about a 12- to 13-percent increase if you used the pass-through. In terms of actual dollars, what does that mean to the average railroad beneficiary as opposed to the average social security beneficiary? Mr. CowEN. The pass-through will give an average increase of about $27 per month; for a new retiree it will be about $31 a month. Mr. MITTELMAN. What would the average benefit be? Mr. COWEN. The average benefit is now $223; 20 percent of that would be about $44. Mr. MITTELMAN. I have no further questions. (The prepared statement of Mr. Yntema follows:) FOR RELEASE ON DELIVERY Thursday, August 10, 1972 STATEMENT OF THEODORE 0. YNTEMA CHAIRMAN, COMMISSION ON RAILROAD RETIREMENT (S. 3852) Mr. Chairman and Members of the Committee: I am pleased to present to you the findings of the Commission on Railroad Retirement that have a bearing on S.3852. This bill, as you know, would provide a 20 percent increase in benefits under the Railroad Retirement Act. My statement is divided into two parts: First, a summary of the Commission's findings as they relate to the present bill. Second, an analysis of S. 3852 in the light of the Commission's findings and recommendations. The Commission's Findings: The Coming Crisis of the Railroad Retirement System The 5-member Commission on Railroad Retirement was created by Congress by P.L. 91-377, which your Committee helped draft. The Commission was ordered to make a study of the railroad retirement system and report to the President and the Congress on how to provide adequate benefits on an actuarially sound basis. Page 2 The Commission first met on January 20, 1971, and it held its 19th and last meeting on June 28, 1972. During this period of about 17 months we investigated the topics stipulated in P.L. 91-377 and developed our recommendations. Our report is now at the printers. We have, however, forwarded to your Committee advance copies of Part I, which is now mostly set in type. For this study we developed a computerized actuarial model of the railroad retirement system, which for the first time gives capability to project the cash flows for the system year-by-year for many years ahead. We also made an economic study of the future of the railroad industry and Then we ran more than 20 tests with our model on of railroad employment. alternate sets of assumptions. The Commission's findings that are directly relevant to S. 3852, which you now have under consideration, are the following: 1. The Railroad Retirement Account will be bankrupt in 16 or 17 years if it continues on its present course. This assumes (a) that the temporary 1970 and 1971 increases of 26.5 percent will be continued, (b) that no further liberalizations except cost-of-living increases will be made, (c) that present tax rates for funds retained by the Railroad Retirement Account will be continued, and (d) it takes into account the higher wage base enacted by P.L. 92-336 as it became law July 1, 1972. Our projections show that, unless remedial measures are taken, the present reserve of about $5 billion in the Railroad Retirement Account Page 3 - will be gone by 1989. The total projected deficits from 1973 to the year 2000 add up to $16 billion. The Railroad Retirement Account would thus have a debt of at least $11 billion in the year 2000 if the program is still in existence. This projection, it should be noted, d.es not allow for the 20 percent increase in benefits provided in S. 3852. 2. The 15 percent benefit increase in 1970 and the 10 percent increase in 1971, which multiply out to an increase of 26.5 percent, have not been covered by tax increases. They cause the bulk of the deficiency in the system as it now is. Our Commission has recommended that any extension of these temporary increases be accompanied by a tax increase sufficient to finance them. 3. Dual OASDI benefits are a major and needless cost to the railroad retirement system. Because railroad workers are excluded from full social security coverage, they are able to qualify for disproportionate OASDI benefits by contributing for a relatively short time to social security. The vast majority of workers in the United States who are under OASDI cannot qualify for dual benefits in this manner. The projected gross cost of all dual OASDI benefit payments to railroad beneficiaries is about 10 percent of covered payroll for the next 30 years. About two-thirds of these costs are excess or windfall benefits. They would not have to be paid if railroad retirement and social security were fully coordinated, as staff pensions and social security are for most other workers in the country. Page 4 1 The Railroad Retirement Account has to bear the full cost of these excess benefits. The dual benefits are received largely by shorterservice railroad workers. To finance them, all railroad workers must pay higher taxes, including the full career workers who are much less likely to qualify for dual benefits. The excess cost of dual benefits in 1971 was $265 million and this amount will increase sharply to about $900 million by the year 2000. The 4. The railroad retirement system is probably the most complicated pension system in the United States. It is two systems within one. initial staff benefit provisions have been retained, but the entire structure of social security benefits was also incorporated by cross reference in 1951. Our Commission has recommended that the railroad retirement system be restructured into two tiers: (1) a basic tier consisting of OASDI and (2) a separate, second tier of staff benefits, related primarily to service and financed by the RR community. This second tier would be completely separate from OASDI and would float on top of it. Such restructuring, in our opinion, is absolutely essential to eliminate the existing confusion and to preserve the financial integrity of the railroad retirement system. Because confusion now prevails in regard to the objectives of the railroad retirement system, confusion also prevails in regard to benefits, costs, and the financing of the system. The bill presently before your Committee reflects this confusion: it fails to distinguish between the |