It would be appreciated if you would lay the proposed bill before the House of Representatives. A similar bill has been transmitted to the President of the Senate.

The Department has been advised by the Bureau of the Budget that there is no objection from the standpoint of the administration's program to the submission of this proposed legislation to the Congress.

DEAR MR. CHAIRMAN: Your letter of April 22, 1963, acknowledged April 23, requests our comments on H.R. 5540 to remove the percentage limitations on retirement of enlisted men of the Coast Guard, and for other purposes.

Under existing law, section 357 (c) of title 14, United States Code (codification of sec. 5 of the act of May 24, 1939, 53 Stat. 756), enlisted men of the Coast Guard retiring upon completion of 20 years of service are eligible to receive an increase in retired pay amounting to 10 percent of the active duty pay of the grade at which retired if they have maintained a specified standard of good conduct during their service in the Coast Guard. H.R. 5540 would repeal this additional benefit which is not now generally enjoyed by enlisted members of the other uniformed services. The bill (sec. 2) would, however, save to those enlisted men who have completed 4 or more years of active service on the effective date of the act, the above benefits now provided by law. The bill would also repeal section 358 of title 14, United States Code (codification of sec. 3 of the act of May 24, 1929, 53 Stat. 755) which limits the number of enlisted men who may retire upon completion of 20 years of service in any one calendar year not to exceed 1 percent of the total active enlisted force of the Coast Guard. A companion bill, S. 1194 was introduced in the Senate on March 28, 1963, and referred to the Committee on Commerce.

H.R. 5540 is the result of the recommendations we made in our report to the Congress, January 30, 1963, on the "Review of Certain Unusual Aspects of Retirement Provisions for Enlisted Personnel, U.S. Coast Guard, Treasury Department." A copy of that report was sent to your committee on January 30, 1963, B-114851. There is enclosed another copy of that report for your ready reference. In that report we pointed out, among other things, that the Coast Guard is incurring substantial retirement pay costs by virtue of a law enacted in 1939 (14 U.S.C. 357 (c)) authorizing the granting of a reward to eligible enlisted retirees for having maintained a specified standard of good conduct during their active service. The reward gives an eligible Coast Guard retiree a monetary advantage averaging about $12,600 during the span of his retirement over a retiree of any other military service. The reward is being granted to about 92 percent of Coast Guard enlisted men retiring by reason of years of service. We recommended that the Congress consider repealing the provisions authorizing the reward for good conduct.

With respect to the 1-percent limitation on the number of enlisted men of the Coast Guard that can retire annually by reason of 20 years' service (14 U.S.C. 358), our report pointed out that many enlisted men, who will otherwise become eligible for retirement in the next few years, will not be able to retire because of the 1-percent limitation. The limitation is inconsistent with the retirement provisions for the other military services, which have no limitatons. We recommended that the Commandant of the Coast Guard give consideration to a proposal that section 358 of title 14, United States Code, be repealed or revised and to making appropriate recommendations to the Congress.

Since H.R. 5540 is in conformity with our recommendations in the matter, we urge that the bill receive favorable consideration.

Sincerely yours,

JOSEPH CAMPBELL,

Comptroller General of the United States.

DEPARTMENT OF THE NAVY,

OFFICE OF THE SECRETARY, Washington, D.C., May 1, 1963.

Hon. HERBERT C. BONNER,

Chairman, Committee on Merchant Marine and Fisheries,
House of Representatives, Washington, D.C.

MY DEAR MR. CHAIRMAN: Your request for comment on H.R. 5540, a bill to remove the percentage limitations on retirement of enlisted men of the Coast Guard, and for other purposes, has been assigned to this Department by the Secretary of Defense for the preparation of a report thereon expressing the views of the Department of Defense.

H.R. 5540 would repeal section 358 of title 14, United States Code, which limits the number of enlisted men of the Coast Guard who may retire in any one calendar year upon completion of 20 years of service to not more than 1 percent of the total enlisted force of the Coast Guard. This would permit retirements of enlisted men to be scheduled subject to the needs of the service and availability of appropriations, as in the other Armed Forces.

H.R. 5540 would also remove the present authority in section 357 (c) of title 14, United States Code, for increased retired pay in the amount of 10 percent of active duty pay to enlisted men retiring with 20 years of service who have maintained high conduct marks during their service. Men who have already completed 4 years of service on the effective date of the act would retain their eligibility for the increased retired pay.

H.R. 5540 would make the retirement laws of the Coast Guard more nearly uniform with those of the other Armed Forces. The Department of the Navy, on behalf of the Department of Defense, favors enactment of the bill.

This report has been coordinated within the Department of Defense in accordance with procedures prescribed by the Secretary of Defense.

The Bureau of the Budget advises that, from the standpoint of the administration's program, there is no objection to the presentation of this report for the consideration of the committee.

Sincerely yours,

C. R. KEAR, Jr., Captain, U.S. Navy, Deputy Chief (For the Secretary of the Navy).

Mr. CLARK. We will have Rear Adm. George Knudsen as our first witness.

STATEMENT OF REAR ADM. GEORGE A. KNUDSEN, CHIEF, OFFICE OF PERSONNEL, U.S. COAST GUARD; ACCOMPANIED BY CAPT. BENJAMIN P. CLARK, CHIEF, ENLISTED PERSONNEL DIVISION, OFFICE OF PERSONNEL; AND CAPT. ORVAN R. SMEDER, ASSISTANT TO CHIEF OF THE OFFICE OF PERSONNEL, U.S. COAST GUARD Admiral KNUDSEN. Mr. Chairman and members of the committee, I am Rear Adm. George A. Knudsen, Chief of the Office of Personnel. Before I commence my testimony, I would like to introduce, on my left, Capt. Benjamin P. Clark, who is Chief of the Enlisted Personnel Division, Office of Personnel, U.S. Coast Guard, and on my right, Capt. Orvan R. Smeder, who is a staff assistant to the Chief of the Office of Personnel.

Mr. Chairman and members of the committee, I appreciate having this opportunity to appear before you today in support of H.R. 5540 since I believe that this bill is of importance to the continuing strength and well-being of our enlisted force. I know that you realize that the service cannot perform its many duties without a trained and effective corps of enlisted personnel. We have such a force now. The main purpose of this bill is to aid us in keeping it.

It may seem paradoxical for me to say that the chief purpose of H.R. 5540 is to enable the Coast Guard to retain a strong and capable enlisted force when the main provision of the bill will allow us to retire more enlisted men each year than at present. Yet that is the case. I would like to explain briefly why this is so.

Under present law the number of Coast Guard enlisted men who may retire in any one year upon completion of 20 years of service is limited to not more than 1 percent of the total enlisted force of the Coast Guard. This limitation was enacted in 1939 along with the 20-year voluntary retirement authority. No similar limitation is in effect in the other armed services.

At the present time we have large numbers of men who entered the Coast Guard during World War II and are completing 20 years of service. Due to the 1-percent limitation we are unable to retire all those who wish to leave at the completion of their 20 years. Currently there are about 100 enlisted men who have requested retirement but who cannot be granted it. This number will continue to increase. We estimate that by 1968 only enlisted men having at least 26 years of service will be able to retire under the 20-year law.

This delay in retirement will be bad for morale since it acts as a brake on promotions for enlisted men throughout the service. The delayed retirement of our leading petty officers has an adverse effect on reenlistments of their subordinates. If nothing is done to correct this situation, we can expect that men, finishing their first and second enlistments, will leave the service. We could thus expect to lose many good men and deplete our ranks in the 8 to 16 years of service group. Most enlisted men with over 16 years of service would probably stay in the Coast Guard, but the loss that could be expected in the 8- to 16-year service group would reduce this part of our enlisted population to a dangerously low level.

Another problem is the uncertainty which faces the career enlisted man because the present retirement limitations increase the difficulty of planning his postservice life. He does not have assurance of release from active duty at any definite time. Arrangements for postservice employment are very difficult to make when the man concerned cannot advise his prospective employer with any exactitude as to when he will be released from active duty.

The proposed bill would repeal the statutory limitations on retirements of enlisted men who have completed 20 years of service. Such retirements would then be subject to the needs of the service and availability of appropriated funds. The Coast Guard laws for enlisted retirements at 20 years of service would then parallel the laws for the other armed forces.

The proposed bill would also equalize the Coast Guard enlisted personnel retirement laws with those of the other services in another respect. Coast Guard enlisted men retiring with over 20 years of service are now eligible to receive an increase in retired pay amounting to 10 percent of their basic pay if they have maintained high marks in conduct during their service. The Comptroller General, in a recent report to Congress, has pointed out that enlisted men of the other named services do not receive this benefit. The Coast Guard agrees that the retirement benefits of personnel of the Armed Forces should be equalized. The bill therefore would repeal the provision of law authorizing this additional good conduct pay.

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While we are proposing repeal of this provision I do not feel that this repeal should be applicable to career enlisted men who are now in the service. These men have taken this retirement factor into account when they decided to reenlist and make a career in the Coast Guard. The bill therefore proposes that the authority for this good conduct pay be repealed except for personnel now on board with more than 4 years of service. In other words, there would be a savings clause continuing the 10 percent good conduct credit for those who now have over 4 years of service.

The two provisions of this bill would have opposite effects on costs. The repeal of the limitation on retirements would increase costs for retired pay and costs of separation such as terminal leave. There would be a small reduction in costs due to lowering the average age of our enlisted force. The net annual increased cost of removing the enlisted retirement limitations will average $1.3 million for the next 6 years.

As to the repeal of the authority for good conduct pay, it is estimated this benefit amounts to approximately $12,600 for each Coast Guard enlisted retiree who qualifies for it. We estimate that Coast Guard enlisted retirements in the future will be in the order of 500 to 600 men per year. Therefore the eventual annual savings to the Government would be between $6 and $8 million.

Mr. Chairman and members of the committee, the above remarks conclude my statement on this proposed legislation, and I am ready to answer any questions that you may have.

Thank you.

Mr. CLARK. Thank you very much, Admiral.

Mr. Lennon, do you have any questions?

Mr. LENNON. Not at this time.

Mr. CLARK. Mr. Goodling?

Mr. GOODLING. Why do you want to retire them after 20 years? Do the enlisted people want to retire?

Admiral KNUDSEN. Why do we want to retire them? Is that your question?

Mr. GOODLING. Yes.

Admiral KNUDSEN. In order to efficiently carry out our duties, we are going to have to have well-qualified and dedicated men. Now, obviously, the other armed services also need this type of man but, unless we can offer our men the same advantages and privileges that the other armed services offer, we are going to have difficulty in filling our ranks, in recruitment.

Mr. GOODLING. The thought I had in mind, Is a man not better qualified to serve after 20 years of service?

Admiral KNUDSEN. He may be, sir, or he may not, depending on the various types of duty. Primarily, though, we are in competition, really, with the other armed services and in order to attract men to our service we are just going to have to offer them the same privileges and advantages that all the other services offer them.

You perhaps could argue: retire a man after 20 years, why not keep him on? but I would say this is a much broader question, sir.

Mr. GOODLING. What happens if they do quit after 20 years of service? Are they allowed to do this?

Admiral KNUDSEN. Yes; he can quit, but he will not get any retired

Mr. MORTON. Admiral, in your statement on page 4, the second from the last paragraph:

As to repeal of the authority for good conduct pay, it is estimated this benefit amounts to approximately $12,600 for each Coast Guard enlisted retiree *

How is that computed? I do not understand that.

Admiral KNUDSEN. They get 50 percent of their basic pay when they retire at 20 years, 212 percent for each year. In addition to that, provided they have an average mark of 9712 percent for good conduct throughout their career, they are given an additional 10 percent on top of that.

Now, this figure was computed by our Budget Division, and I think it was also GAO who computed this figure, and I think it was based on an average span of life of about 30 years for a man after he gets cut of service.

Mr. MORTON. Admiral, how many out of 100 retirees would qualify for this good conduct pay?

Admiral KNUDSEN. About 91 percent probably.

Mr. MORTON. Even though this is not going to affect the people with over 4 years of service, is this going to deny you a leverage in recruiting the type of people that you like? Is this an incentive for you to get the kind of people that you would like to have in the Coast Guard that you are eliminating?

Admiral KNUDSEN. I don't think it will, sir. As I asy, we are in a competitive position with the other services and since the other services are not getting it, I don't think it will have any adverse effect. Mr. MORTON. Thank you, Mr. Chairman.

Thank you, Admiral.

Mr. CLARK. Thank you very much, Admiral.

Are there any other witnesses on H.R. 5540?

Does the General Accounting Office want to testify at this time?

STATEMENTS OF 0. D. MCDOWELL, CIVIL ACCOUNTING AND AUDITING DIVISION; AND THOMAS J. GALLAGHER, OFFICE OF GENERAL COUNSEL, GENERAL ACCOUNTING OFFICE

Mr. McDOWELL. Mr. Chairman, I am Mr. Otis D. McDowell of the Civil Accounting and Auditing Division of the General Accounting Office, and this is Mr. Thomas J. Gallagher, attorney, General Accounting Office.

At counsel's suggestion, we did not prepare a statement.

H.R. 5540 grew out of recommendations in the report of the General Accounting Office, submitted to the Congress on January 30, 1963, entitled "Review of Certain Unusual Aspects of Retirement Provisions for Enlisted Personnel, U.S. Coast Guard, Treasury Department."