to buy survivor annuity. RSFPP does not cost the Government money. Despite numerous modifications, RSFPP was never well received and attained a ridiculously low participation rate of a mere 15 percent after 19 years of operation. The plan's major fault was its high cost. The participating military retiree was paying 22 to five times as much as his civilian Federal contemporary for the same dollar value of

coverage.

The RSFPP premiums and resulting annuity were established and fixed as of the date the member retired and could not be changed thereafter. Thus, unlike the SBP annuities, the RSFPP annuities are not authorized cost-of-living increases.

H.R. 3702's provision to authorize cost-of-living increases pertains to only the RSFPP annuities received by the widows and dependent children of retirees participating in RSFPP who died on or before March 20, 1974. The annuities would be increased by the same total percentage that retired pay has been increased under the CPI adjustment since September 1972. These annuities would thereafter be increased on the same basis as SBP annuities. The cumulative increase from September 1972 through December 31, 1977, is 54.9 percent.

The rationale for this proposal is that the husbands of these widows did not have the opportunity to change from RSFPP to SBP under Public Law 92-425. All retired members participating in RSFPP when SBP was enacted were permitted to change the SBP if they desired. The last date this option was open to them was March 20, 1974. Thus, this provision of H.R. 3702 is limited to those whose husbands had died on or before the last day on which he could have switched to SBP.

RSFPP annuitants whose sponsor died on or before March 20, 1974, have no protection for their annuity against inflation. Yet, their husbands sacrificed a key portion of their retirement pay in an effort to establish an annuity for them.

These surviving dependents may have been able to have inflation protection under SBP but for the death of their military sponsor before that sponsor was able to elect into SBP. The RSFPP annuity is very meager as it is based on the lower rate of military retired pay of earlier years. It is the only Federal survivor benefit that is not linked to the cost-of-living increases under the Consumer Price Index.

As of August 1976, there were only 11,000 military widows receiving RSFPP annuities. Of this total, 9,000 were widows prior to March 20, 1974. Needless to say, the cost of providing equity to these less than 9,000 widows is clearly justifiable and not expensive.

Next, we would like to address the subject of the Reserve survivorship bill. The 19 organizations I represent wish to publicly state their total support for the passage of H.R. 11797, the measure to provide an equitable survivor benefit program for retired reservists who have not yet attained age 60, do not receive Reserve retired pay, and therefore are not eligible to participate in the current survivor benefit plan.

The lack of an equitable survivor benefit plan for these personnel creates a gross inequity. For although they have completed at least 20 years of exemplary military service, if they should die prior to age 60, the surviving spouse and children receive nothing.

Surely, no one can quarrel with the proposition that a person who devotes his time, talents, and interest, at the personal sacrifice of lei

sure time and being with his family, to be a career citizen-soldier, should not have the protection of a viable survivor benefit plan.

H.R. 11797 is such a plan. We leave the detailed testimony on the measure to the spokesman for the Guard and Reserve community. But we do strongly endorse the enactment of an equitable survivor benefit program for all retired Guard and reservists.

The next point we would like to address is that we support widow's benefits for the widows of military retirees who died before SBP. Another deserving segment of the military community are those widows whose husbands died before the enactment of Public Law 92-425 and do not now come under the provisions of that law.

This group of military widows are commonly known as the "pre1972" or "forgotten" widows. Although the U.S. Congress has not yet enacted legislation to correct this grave inequity, we are most hopeful that these hearings will prove to be the springboard for positive action to recognize the valiant service of their husbands and the sacrifices they made as military wives and widows.

One such proposal, S. 724, could be the vehicle for such action. Our associations recognize the complexity of the issue, but surely an equitable resolution, granting these widows just compensation, can be achieved.

In conclusion, Mr. Chairman, as spokesman for the 19 national military associations, I am speaking for at least one-third of the military community. All of those I represent, active service and retired, fully support the equalization of survivor benefits among all Federal retirees.

We feel that the passage of H.R. 3702 will accomplish this goal. We believe the Senate should pass H.R. 3702 in the same positive manner that it was unanimously passed by the U.S. House of Representatives last year. Only in this manner can equity be maintained between the military and civilian Federal retiree survivor benefit plans. We appreciate the opportunity to present our views. This concludes our statement. We stand ready to answer any questions. Thank you. Senator NUNN. Thank you very much, Mr. Nolan. You make an excellent case and you portray this very well. The inequities that you point out were very realistic examples which I find very helpful.

I wish I had time for more questions because you propose such interesting testimony. I would like to express my appreciation and the appreciation of the subcommittee for your appearance here today and hope you will express our appreciation to all of the people you repre

sent.

Mr. NOLAN. Thank you very much.

STATEMENT OF CAPT. HENRY S. PALAU, JAGC, USN (RET.), REPRESENTING THE RETIRED OFFICERS ASSOCIATION

Captain PALAU. I have submitted a brief statement on behalf of the Retired Officers Association to your staff this morning, and I would like to request that you include it in the record.

Senator NUNN. We will make sure it is carefully scrutinized. [The prepared statement follows:]

35-281-786

PREPARED STATEMENT BY CAPT. HENRY S. PALAU, JAGC, USN (RET.)
REPRESENTING THE RETIRED OFFICERS ASSOCIATION

Good Morning, Mr. Chairman: I am Capt. Henry S. Palau, legislative counsel for the Retired Officers Association, also representing the Retired Enlisted Association. It is a pleasure to be here this morning, and I want to thank you for allowing me the opportunity to say a few words in support of what Mr. Nolan has already presented to you.

First, I want to make it unmistakably clear that TROA wholeheartedly endorses Mr. Nolan's statement-we have contributed several of his charts and a few ideas, but make no mistake, Bob Nolan was there in the beginning. He has been working with the Survivor Benefit Program personally longer than any other witness who will appear before you. That, without other qualification, should make his statement worth listening to.

Allow me to make a few other observations that necessarily require a brief review of history. Initially the military services had the Uniformed Services Contingency Option Act of 1953. It was costly, and a man had to make his election prior to completing his 18th year of service. Participation was low and, not really unexpectedly, the plan failed. It was improved upon and renamed The Retired Servicemans' Family Protection Plan (RSFPP) in 1961. Further improvements were added in 1968. Even so, while the burden on the serviceman was less it was still perceived by the serviceman as too expensive, too inflexible and it too failed for lack of participation.

The Congress in 1972 sought to design a program that would work and they turned to other successful models. The Civil Service Survivor Benefit Program was an eminently successful plan with nearly 90 percent participation and it was decided to emulate it.

What was one of the main philosophical differences between RSFPP and SBP? The nature of entry! RSFPP required a person to make a positive decision to participate. SBP on the other hand automatically covers the active duty serviceman as soon as he has completed 20 years of active duty and is eligible for retirement. If such person dies on active duty his survivor automatically receives 55 percent of his retired pay figured as of the date of his death. The Congress in its wisdom drafted this plan so that the military retiree will be covered at the maximum amount by operation of law unless he makes an affirmative decision to do otherwise. In doing this the Congress required the services to notify a spouse if the retiree elected to participate at any level short of the maximum. This was another wise decision that vastly increased participation.

Look at what has happened since then. Look at Chart I. In fiscal year 1974 61.5 percent of all personnel retiring elected to participate. In fiscal year 1976 the degree of participation was down to 53.8 percent. That in itself is dramatic but look at fiscal year 1977. Here I have to apologize because my data is incomplete. I wrote to all of the Finance Offices requesting information under the Freedom of Information Act. To date I have gotten a reply only from the Navy. Their figures show that 13,830 navy people retired in fiscal year 1977 and that only 4,908 are participating. Mr. Chairman, that is only 35.5 percent. Something is wrong! I think that it is the duty of all of us here to find out why SBP is going the way of its predecessors.

I suggest to you that H.R. 3702 has the answers. Let me direct your attention to Chart II depicting the difference in cost to the retiree between the military and civil service plans. In a 5-year period, the cost to the military retiree is already more than double that of his civilian counterpart. The cost to both was initially $7.50 per month. Today's cost to the civilian is $11.87. The military man is now paying $24.99 per month for identical coverage. That is $13.12 or 111 percent more.

CHART II. SURVIVOR BENEFIT PLAN-COST COMPARISON: MILITARY VERSUS CIVIL SERVICE

Note: Assumption-Both retirees left Federal service on June 1, 1973, and elected identical survivor annuity coverage.

Please look briefly at this illustration (Chart III). This shows you what a typical senior enlisted man, E-9, who elected the minimum coverage can expect to see happen to his SBP annuity as the law stands today. (The Navy Finance office advised that 4 of the participants are coming in at the minimum.) For the purpose of this example, he retired in 1973 at age 45 with a wife the same age. Assuming that he lives to age 65 he will have contributed $8,882.39 to a plan that will net his widow $6.00 per month for the rest of her life. If she lives another 150 years she will begin to cost the SBP money.

CHART III.-SURVIVOR BENEFIT PLAN-EFFECT OF SOCIAL SECURITY OFFSET

[Assume: Retiree and wife born 1928; retired June 1973 (age 45); elected $165 a month annuity]

573 became Public Law 95-149 by Presidential signature. military retirees are facing their wives and saying "Honey, it's not for us.” It is only fair that I address the cost of this legislation, Mr. Chairman. The Retired Officers Association provided a copy of the 1977 DoD study to a firm of actuaries and asked if they could cost out the SBP with and without improvements considering both 50 percent and 75 percent participation. They were unable to do it. They needed more information. I apologize but that projection can only be provided by the Department of Defense.

Mr. Chairman, I sat in the Senate Gallery on July 11, 1978, and listened to the debate on Senator Thurmond's amendment. I heard the statement made that the cost to the Treasury of the United States for that amendment, actually H.R. 3702, to the year 2000 would be $5 billion dollars. Mr. Chairman, I do not quarrel with that figure. It comes from the same DoD study that I have relied on in producing the charts that you are looking at today. If I had to fault that figure, I would only say that it is grossly conservative. The payout for SBP as it stands today by the Treasury of the United States through the year 2000, is 15 billion 855 million dollars. But offsetting income to the Treasury from retired military personnel is 18 billion 371 million dollars making a net profit to the Treasury of

2.5 billion dollars. Mr. Chairman, as I understand this program, it was designed to be 60 percent self supporting with 40 percent of the cost to be borne by theTreasury. Assuming that the cost of H.R. 3702 do cost the Treasury of the United States an additional 5 billion dollars, the cumulative net cost to be borne by the American taxpayer through the year 2000 is $2.5 billion or 13.6 percent of the total premium. Really not bad for something that the 92d Congress expected to pay 40 percent of the bill.

I now call your attention to Chart IV which portrays what the Department of Defense predicts will happen by the year 2035. It's difficult for me to see much beyond tomorrow, let alone 55 years from now, but DoD in the summer of 1977 predicted that this program as it exists today will generate a surplus of 47 billion dollars during that period. This is profit and profits don't burden the American taxpayer. Look at the burden that is being placed on American military personnel today. If a plan that was designed with the thought of the Government paying 40 percent of the cost ends up producing a 52 percent profit, I submit to you that something has gone amiss from the fine program initially designed by this Committee.

CHART IV.-SURVIVOR BENEFIT PLAN COST PROJECTIONS-CURRENT LAW

H.R. 3702 will accomplish two desirable objectives. First, it will go a long way toward correcting this gross imbalance between revenue and expenditures and second, perhaps more importantly, it will save an excellent program that is in the early stages of a terminal illness by reversing this downward trend in participation toward the 85 percent mark that the Congress and Department of Defense initially envisioned.

H.R. 3702 is not the alpha and omega. It is not perfect. We would have liked to have seen more. We like S. 623 better. We are, above all, realists and accept that compromise was necessary to get this far. We entreat this Committee to report H.R. 3702 as enacted by the House so that we will see some legislative relief from the 95th Congress. We are genuinely concerned that if this Committee and the Senate were to attempt to do more we would fail in the entirety as time simply does not exist before sine die adjournment. I join with Mr. Nolan and all the other members of the seventeen organizations joining in his statement.

Finally, Mr. Chairman, I have brought with me today Chief Warrant Officers Harry Hayman and Carl Franke, TROA's personal affairs specialists, who are probably more knowledgeable in the complete interface and practical relationship between SBP and Social Security than nearly anyone in Washington. I offer their services to you and your staff, and, of course, we stand ready to address any questions you may want to address to us. Thank you for your patience and courtesy in allowing me to make this statement on an issue of such vital importance to all of us.

Senator NUNN. We are pleased to have General Greenlief here. Several of these measures pending have an effect on reservists and Guard members and we are very anxious to have your views this morning,. General Greenlief.