PROJECTED ANNUAL CASH-FLOW DEFICITS OF RAILROAD RETIREMENT SYSTEM, 1970-2000
Re-estimated Central Case, Pass-Through of 20% Increase on Basic Tier Only,
and 20% Increase on Both Tiers
(At Annual Rates)

Millions $300

Re-estimated Centrai Case
Pass Through of 20% Increase
20% Increase on Both Tiers...

Million $300

Source:

Notes:

Commission on Railroad Retirement..

Deficits include interest costs when Account falls below zero.

(Recess.)

Senator CRANSTON. The committee will please return to order. We will now hear from Mr. C. L. Dennis, Commission on Railroad Retirement, presenting a minority report.

I understand your minority report is with reference to the 20-percent increase, and you concur in the other recommendations generally; is that correct?

STATEMENT OF C. L. DENNIS, LABOR MEMBER, COMMISSION ON RAILROAD RETIREMENT, ACCOMPANIED BY JAMES KENNEDY, LEGISLATIVE CHAIRMAN; ED UNGER, ECONOMIST; NED DAVIS, COUNSEL

Mr. DENNIS. That is substantially correct.

So there will be no misunderstanding, Mr. Chairman, I will ask that these qualifying comments by C. L. Dennis, member of the Commission, be included in the record.

Senator CRANSTON. Thank you. It will go in the record along with excerpts from the Commission report and other individual statements, to be set forth at the end of the hearing record.

Would you please introduce the people with you?

Mr. DENNIS. I am accompanied by James Kennedy, legislative chairman; Ed Unger, economist; and Ned Davis, counsel.

I just want to comment that your statement is correct, that mainly I did agree with the Commission's report with respect to the basic matters, with the exception of the 20 percent not being granted and a pass-through arrangement being provided for.

I have been in the railroad industry since 1928, and I have quite an equity with the railroad retirement fund, in that $5.5 billion that is in that fund.

I went through the depression. I remember when the Railroad Retirement Act was negotiated, and it was commenced through collective bargaining. It was made official by an act of Congress, but all Congress did was put into law what the parties had substantially agreed to.

Of course, we felt that it was best to have it covered in that manner, so that nobody could back away from its provisions, and it has worked out very well.

The main reason that the act will be in trouble 15, 17 years down the road-it has $5.5 billion now-it keeps going up every year. This year may be the first year in which a slight deficit might be shown.

But the main reason is all of the changes that have occurred in the industry: dieselization, automation, electronic computers in every general office, consolidation of railroads, intracarrier consolidations and reorganizations.

All of these factors have had a drastic effect on the number of people working in the railroad industry.

I think that this is the responsibility for the industry to shoulder. I think that they have to take this into consideration, that when they make a merger of two or more railroads and eliminate a lot of jobs, or when they propose to cut the size of traincrews, they have to recognize that they are going to throw a lot of people out on the streets, and require people to take pensions.

More people will take pensions, fewer people will be coming in at the base, and whose responsibility is this? This is why I have argued for negotiations.

Now, at every one of these 17 meetings of the retirement commission that was held, management representatives sat right across the table from me, and I repeated at every session:

When are we going to get into collective bargaining negotiations? We have a big job of work to do here. I have agreed to correct part of your problem by agreeing to go under and take the equivalent of social security benefits for the first-tier level, but now this Commission is saying that the second-tier level has to be negotiated by management and labor. I want to sit down with you, Mr. Management, and start negotiating for the entire industry.

Well, until about 2 months ago I just got a stony expression and no response. They were not ready. Now Mr. Menk advised me about 2 months ago that Mr. Dempsey is ready to sit down and meet with us, and conferences have been arranged for September 11, 12, and 13, to start negotiating on this very, very complex matter of the second-tier level of benefits, to cover the benefits that we now have over and above the level of social security benefits.

Who is going to pay for these benefits? Who pays for them in the steel industry? Who pays for them in the rubber industry? Who pays for them in the automobile industry?

This is covered by their supplemental pension plans which are paid for completely by those industries.

So we have a real job of negotiating to do commencing September 11, 12, and 13. It is certainly not for us now to deviate from the 20 percent, the same percent that social security received, when you realize that social security people, the steel workers, autoworkers, paid $33.80 during the year 1971 and the railroad workers paid $64.67.

During the year 1972 the railroad went up $10 to $74.62. Social security went up $5 to $39.80.

During the year 1973, under the present law, railroad workers will go up to $92.25-that is based on the $10,800 base-and these are maximum amounts of course-and social security will go up to $49.

In 1974, January 1, the railroad worker will go up to paying $102.50, and of course management pays the same figure, and the social security worker and social security management pay $55.

Prior to the year 1971, and in the early beginning, we paid much more than twice as much in taxes as people under social security. The history of the Retirement Act is a long one, and I do not question the ability or the knowledge of these famous actuaries that Mr. March spoke of, but I certainly know that they have not had the experience with this fund and with the Retirement Act as those of us who have been in the industry since 1928 have had, and those of us who went through the depression.

An actuary looks at a thing and he wants to know where the money is going to come from, but the Commission agreed that we should negotiate. Well then, if you are going to say, "But you cannot get that 20 percent that the social security people are getting," that pulls the rug out from under us before we even start negotiating.

That is why I differ very strenuously from their recommendation when they recommended that the 20 percent be a pass-through, and we get the same dollar amount of increase as social security, even though we have to pay almost twice as much in the way of taxes. Senator CRANSTON. What does the Commission agree should be negotiated?

Mr. DENNIS. They agreed that the second-tier level of benefits which has to be negotiated, the difference in the level of social security benefits and what the benefits are today, and the amounts and everything. This is all subject to negotiation.

You see, right now we have a supplemental pension plan which pays $70, but there is a complication in it. If you get that, you do not get a 7-percent increase in the basic railroad retirement.

The Commission agreed-the majority of the Commission-that the railroad supplemental $70 should be wrapped in with the second-tier level benefits, and that tier would float on top of social security benefits. I agreed with this, with the understanding that we would have an opportunity to negotiate with the carriers national committee before the thing went into effect, and this would have to be completed before July 1, 1973.

In fact, these negotiations will probably have to be completed by January 1 or February 1 of 1973 at the latest, so that if we do not reach an agreement we can come back independently. If we do reach an agreement, we will come to Congress jointly, as we have on the last three or four occasions, on changes to the Railroad Retirement Act where we usually have been able to reach a joint agreement.

I am firmly of the opinion that we will reach a joint agreement in this situation, but this 20-percent issue and I acquainted the management man with the fact there was going to be a 20-percent increase in the social security law-I thought that I knew that much about the temperament of the Nation, that there would have to be a substantial increase.

After Congressman Mills made his recommendation, I acquainted the Commission with every move. So it certainly is not the fault of railway labor that we are behind the social security increase. They knew it was coming. I advised them it was coming.

I wanted to sit down with management during the last 17 months and start negotiating for the second-tier level benefits, because the twotier system was initially suggested by the management man on the Commission.

I agreed with him and, much to the consternation of the other members of the railway labor group who felt we should not have any part of social security, more so than we already had. I explained to them that we were tied in with social security now. I felt that we had to get covered for say the first half of our pension benefits by social security, and then it was up to us to negotiate with the carriers for a proper supplemental pension plan over and above social security.

So it amazed me tremendously, and I disagreed with the Commission when they said that they were going to recommend this, and the majority of them of course opposed everything. I did not, but I did oppose this question here, this specific issue.

I said, "There is no way I can convince the 225,000 railroad workers that I represent that they have to pay twice as much, and then only get the same dollar amount of increase as people under social security who are paying half as much."

So I think anyone who has anything to do with labor organizations knows that railroad workers cannot stand still on pension issues.

If we were simply to reconstitute the present plan under a new structure, it would not be enough. We must improve while we reform.

We must increase benefits. We must reform present features of the law which discriminate on the basis of sex.

A woman can retire at 60 with 30 years of service, and get a full pension. A male has to work until 65 and have 30 years of service to get a full pension. That is discriminatory, and we are seeking to eliminate that phase.

We must bring about changes to make our plan comparable to other pension systems by instituting early retirement with full annuities for career service employees. We need a plan which provides for retirement on a full annuity at age 55 after 30 years of service.

The Congress is aware of this, and I believe it is the subject that will have to be acted on as part and parcel of the entire effort to reform the railroad retirement program.

I think these are subjects for collective bargaining, and that we should exhaust every effort possible to reach an agreement. I think if both sides do that, an agreement will be reached, and we can come back to this Congress and get a proper law passed.

But in the meantime, as Hon. Harley Staggers said yesterday in his arguments before Congress, in the meantime these people cannot wait. They need an increase now. Their costs have risen like everybody else's that people who are on pensions, the people who have paid for this, and the people who are paying.

My comments are along this line. I only quoted about half of the reasons why our plan is in difficulty: the loss of mail; Amtrak coming in; technological changes various in nature; reduction in size of train crews; increase in size of weight limitations on parcel post.

All of these things have already been put into effect. There are some 14, 15 major matters that the industry has caused. I do not blame the industry for doing this. I know they have to get on their toes, but the above factors have been responsible for the great reduction in a number of positions in the railroad industry.

Why were they brought into being? By the constant desire on the part of the industry to make a larger profit for the stockholders. While I am not against profit for the stockholders, I do believe that all proper obligations to the employees must be met in the way of pensions, guaranteed rates of pay, moving expenses, sales of funds when employees are required to move, unemployment compensation and sick benefits.

We have not had a change in our unemployment or sick benefit rules which are separate and apart, but we have not been seeking a change in this. Instead we have elected to bring bout changes in the pension plan.

Of course commencing July 1 of 1973 our wage agreements expire, and we come up for renegotiation commencing January 1 of 1973. We have that problem, and that will be a collective-bargaining matter. I say that the Commission which has recommended that this be done by collective bargaining is violating its belief when they endeavor to say, "But the 20 percent should not be put into effect; it should be a passthrough, the same dollar amount"; even though these hundreds of thousands of people are having to pay twice as much into the railroad retirement fund.

Now, the fund is not broke, and it may not go broke. I do not believe it will. I look upon that as a responsibility. As chairman of the Railroad Retirement Committee on CRU, I have been vitally concerned