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

STATEMENT OF BURTON N. BEHLING, TRANSPORTATION CON

SULTANT, 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.

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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 percentagewise 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 sides employers 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.

Such dollar-equivalent increase would go to all railroad retirement beneficiaries other than those covered by the minimum guaranty provisions of the Railroad Retirement Act. This latter group-comprising about 30 percent of all beneficiaries and consisting mostly of widows, other survivors, and some relatively short-service employeeshave already been provided benefit increases by virtue of the recent 1972 amendment of the Social Security Act Public Law 92–336. Thus, the dollar amount pass-through we are suggesting would assure that all railroad beneficiaries will receive an increase on a fair basis.

This dollar pass-through, similar to the procedure followed in the 1968 amendment to the Railroad Retirement Act, would not substantially affect the financial condition of the railroad retirement account either for better or for worse as compared with the situation prior to the recent social security amendment. It would, therefore, serve to hold the line on an interim basis against further impairment of railroad retirement financing, pending careful consideration of the Commission's report on the condition and needed restructuring of the railroad retirement system.

Now, Mr. Chairman, if I may make two additional brief comments, in this hearing Mr. Dennis a few moments ago did accurately state that he has sought during the entire life of the Railroad Retirement Study Commission to urge the management side to engage in collective bargaining on the issues that he saw coming up, with considerable insight I may say.

We did maintain however that his urging for collective bargaining over the last 17 months was premature because we did not note with any specificity what it is that we should bargain about.

I think our posture in that regard—and I served as consultant to the railroad management member on that Commission—I do believe that our position

was a sound one in that regard. | As Mr. Dennis has said this afternoon, we will shortly, next month, from both sides—the management side and the union sidebe getting into negotiations on these very complex issues.

Senator CRANSTON. On that point, do you share his optimism that negotiation can lead to a solution of the problems confronting the parties?

Mr. BEHLING. Mr. Chairman, I can only say that I would hope so. I share his feeling that these are enormously complicated issues. The railroad retirement system, as Chairman Yntema has observed, is a very complex pension system. It is not going to be unraveled in a day.

It is not going to be simple for the two sides to get together, but I am sure that the Congress, as well as the directly involved parties - I am sure that the Congress wants us to make that kind of effort, and I would hope that the Congress agrees with us that we should have an opportunity, and not have some of the issues foreclosed by quick action by the Congress specifically in regard to this 20 percent increase.

Senator CRANSTON. Thank you very much.
(The prepared statement of Mr. Behling follows:)

a

Statement of Burton N. Behling
Transportation Consultant

appearing for the
Association of American Railroads

Hearings on H. R. 15922 and S. 3852 (H. R. 15927)

before the
Subcommittee on Railroad Retirement

of the Senate Committee on Labor and Public Welfare

* * *

August 9, 1972

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