It should be pointed out that RSFPP does not have and will not have any mechanism for future adjustment of annuities. While the annuity of the new program will receive CPI adjustment, the RSFPP annuity is up to 50 percent of the member's retired pay, and the amount remains unchanged during the life of the survivor.

The subcommittee believes that in most cases it would be quite clearly to the advantage of the retiree to join the new program, which is less expensive, which does not have the various restrictions of RSFPP, and in which the annuities will be periodically adjusted in line with the cost of living.

Supplement for survivors of active duty personnel eligible for retirement

The subcommittee's bill provides for enhancing the survivor annuity of an active duty person with more than 20 years of service, that is, a person who continues on active duty though eligible for retirement.

The bill provides that for those on active duty with more than 20 years service, where their potential retired survivor annuity would be more than the dependency and indemnity compensation paid to survivors of active duty personnel, a supplemental annuity payment sufficient to make up the difference would be made by the Department of Defense.

As indicated earlier, the level of annuity provided under the subcommittee's program provides for income replacement related to a percentage of the retirement income of the career man. Dependency and indemnity compensation, which is paid to the widows of active duty personnel, is weighted in favor of lower ranked personnel and is sometimes considerably less than 55 percent of the retired pay of senior personnel with long years of service (see part V of this report). The subcommittee is aware, of course, that in the case of the retired man a portion of the annuity is paid for by the man himself through reductions in his retired pay. Nevertheless, the subcommittee believes that in no case should the annuities for survivors of active duty personnel eligible for retirement based on length of service be below those of retirees of equal grade. Therefore, the subcommittee has provided for the supplemental payments.

Payment of the supplement would in no way interfere with the DIC program, which is administered by the Veterans' Administration. The supplement would be paid by the Department of Defense and would only involve those who died on active duty with more than 20 years of active service.

The subcommittee would emphasize again that the program presented here is primarily for career personnel and designed to provide an adequate level of income replacement. A program which equates with the provisions of a career program cannot also equate in all instances with the active duty DIC program, which is weighted in terms of short-term service and lower ranked personnel.

Automatic coverage and personnel awareness

The program is what might be called an "elect out" system. That is, all future retirees would be automatically covered under the program for the maximum 55 percent unless they elect not to participate or elect a reduced base on which to provide an annuity. It might be noted that this is the same approach used by the civil service program. where there is about 90 percent participation.

The recommended legislation provides that an election not to participate in the plan by a person who is married requires that his wife be made aware of his decision as provided in regulations prescribed by the President.

The subcommittee is satisfied that the plan will have an overwhelming response on the order of the civil service program. The subcommittee is concerned, however, that survivors may be unknowingly facing undue hardships in those relatively few instances where men for one reason or another are not prepared to join the program or otherwise provide an adequate annuity for their dependents.

It is the intention of the subcommittee, therefore, that the regulations designed to carry out this provision of the bill shall provide for counseling by competent officers for those about to retire who elect not to participate with the spouse of the member present at the counseling session and made fully aware of both the options available and i the election made by her husband. It is the intention of the subeommittee that in satisfaction of this requirement the counseling officer shall certify, in the event the husband elects not to participate, that such counseling has been provided and shall present the spouse in question with a statement that specifies she has been counseled and indicates the counseling officer's satisfaction that she fully understands the implications of her husband's election. It is believed the spouse should be invited to sign the statement indicating that she has been counseled and understands the decision or, conversely, invited to ask for any further information on the implications of the decision that she may require. The subcommittee would stress that it would not want a benefit of this magnitude lost through lack of awareness, and it wishes responsibility clearly placed on administrative officers to see that full counseling has been provided as to the effect on survivors.

The subcommittee understands that rights in the retirement pay accrue to the retiree. The decision is his as to whether or not to leave part of that right as an annuity to survivors. But the subcommittee wants a special effort made to be sure that the right is not lost through neglect or lack of understanding and to assure that the spouse has had the opportunity to be aware of and to understand the election which may so profoundly affect her future welfare.

Some significant provisions of the legislation recommended by the subcommittee

Following is a brief discussion of some of the more significant provisions in the legislation recommended by the subcommittee:

Widow eligibility

The survivor annuity accrues to the widow of the retiree. It would not be necessary for the widow to have been married to the retiree at the time of retirement, as is the present case in civil service. Appli

cation of such restriction would be undesirable in the case of military personnel who retire at a relatively early age.

A person who was not married at the time of retirement and elected not to participate in the plan but subsequently married in retirement could join the program by paying the total amount by which his retired or retainer pay would have been reduced if covered continuously from the day of retirement, plus interest thereon at the rate of 3 percent a year compounded annually.

The survivor annuity is to be paid to the widow while she is living or until she remarries, if she remarries before reaching age 60. The annuity would not cease in the case of a widow who remarried after age 60.

If a spouse remarries before age 60 and the marriage is later terminated by death, annulment, or divorce, payment of the annuity would be resumed as of the first day when the marriage is so terminated. However, if the spouse is entitled to an annuity under this program based on the second marriage, she may not receive both annuities but may elect which to receive.

If a retiree is married at the time of retirement and the marriage is terminated for any reason and the retiree subsequently remarries, the retiree will have the option of designating a beneficiary from among his former wife or children or his present wife or children.

Eligibility for orphaned and dependent children

The surviving orphaned children would share equally in the annuity, and the annuity would be paid as long as there are dependent children. When one child is no longer eligible, the full annuity, of up to 55 percent of retired pay, would be divided among the remaining children without reduction in total amount.

Children eligible for coverage under the bill include an adopted child and a stepchild or recognized natural child who lived with the Sponsor in a regular parent-child relationship and who, on the date of the death of the sponsor, if not living with the sponsor, is living in the United States, Puerto Rico, or a possession of the United States.

Children would be covered until age 18, or until age 22 if pursuing a full-time course of study or training in a high school, trade school, technical or vocational institute, or college or comparable educational institution. Also included would be a dependent child incapable of supporting himself because of physical or mental incapacity existing before his 18th birthday or incurred before his 22d birthday while pursuing a full-time course of study or training.

Unmarried retirees

A person who was single at the time of retirement could leave an annuity to a person who had an insurable interest in him. The retired pay deductions in such cases would be in accordance with regulations prescribed by the President. It is the intention that the provision here would work parallel to those of the civil service system, which provides deductions based on the relative age of the retiree and of the designated beneficiary.

If the said single retiree subsequently married in retirement, he may change the election and provide an annuity to his spouse or de

pendent children and the retired pay deduction would become the same as for other married personnel.

Widower eligibility

A widower would be eligible for a survivor annuity under the program if dependent on the retiree for more than one-half of his support at the time of the retiree's death.

Changes and revocations

Except as provided by a change in family situation as described above, an election under the program is irrevocable. That is, once covered under the program at the time of retirement, the retiree cannot later withdraw or reduce or increase the base on which his annuity is determined.

Waiver of retired pay

Military retirees who waive a portion of their retired pay and receive VA compensation in lieu thereof to the extent of a serviceconnected disability-would be eligible for the annuity program on the same basis as all other retirees, provided the same reductions were made from the retired pay. In other words, a retiree who wanted to leave up to 55 percent of his total retired pay as an annuity could do so by having the reductions for such annuity based upon his total retired pay rather than just on the portion received from the Department of Defense.

Military personnel who later qualify for civil service retirement may waive their military retired pay and receive civil service retirement in lieu thereof, using their military time as a multiplier for their civil service retired pay. Such a retiree would have the right to participate in the military survivor annuity plan provided he made contributions equivalent to the retirement deduction that would normally be made in his retired pay if he were, in fact, receiving it. However, he would not be eligible for both civil service and military annuity programs. He would have to choose one or the other.

Service-connected retiree deaths

In the case of those retirees who die of a service-connected cause. their dependents at present are eligible for DIC payments. The subcommittee's bill provides that if they were participating in the new survivor annuity program, the survivors would have the option of taking either the DIC payments or the annuity under the new plan.

but not both.

If the survivors elect to take the DIC payments, the retired pay deductions under the new program would be refunded to the survivors.

Reservists

Nonactive duty Reservists would be eligible for participation in the program to the same extent that they are now eligible for retirement. That is, nonactive duty Reservists who complete 20 years of satisfac

tory Federal service and are, therefore, eligible to draw a retirement at age 60 would be eligible at the time they commence drawing retired pay to designate a portion of that retired pay as an annuity for their

survivors.

While the subcommittee recognizes that the provision of an annuity for his survivors by a Reservist is normally a function of his regular full-time career rather than being related to his part-time Reserve service, the subcommittee does feel he should have a right to an annuity designation to the extent that he is now eligible for this retired pay.

Cost

There will be no increase in budgetary obligation in the initial fiscal year in which the program goes into effect or, under best present estimates, in the first 20 years of the program.

The following table provides an estimate of the cost of the program through the year 2000, assuming an 85 percent participation rate. This is similar to the participation in the civil service program, and the committee believes in view of the outstanding features of the program that the expectation of 85 percent is entirely reasonable. The table shows the annual retired pay deductions, the benefits paid to survivors, and the annual net disbursements.

ANNUAL COSTS ASSOCIATED WITH PROVIDING SURVIVOR BENEFITS ASSUMING THE IMPLEMENTATION OF THE PLAN PROPOSED BY THE SUBCOMMITTEE-PARTICIPATION RATES 85 PERCENT