GENERAL RETIREMENT WEDNESDAY, JUNE 11, 1941 HOUSE OF REPRESENTATIVES, Washington, D. C. The committee this day met at 10:30 a. m., Hon Robert Ramspeck (chairman) presiding, for consideration of the bills proposing amendments to the Civil Service Retirement Act. STATEMENT OF S. B. FRACKER, THE ORGANIZATION OF PROFESSIONAL EMPLOYEES OF THE DEPARTMENT OF AGRICULTURE The CHAIRMAN. Let us hear Mr. S. B. Fracker, representing the Organization of professional Employees of the Department of Agriculture, first this morning. Mr. FRACKER. Mr. Chairman and members of the committee, my organization is a group having a paid-up membership varying from 1,500 to 3,000 members and representing in general the point of view of some 13,000 professional employees of the Department. The organization wishes to appear in support of H. R. 3487 and to make one or two suggestions concerning modifications. The chairman, as I understand, himself has suggested the possibility of modifying section 7, which freezes the retirement deductions for employees having more than 5 years' service. Many of our members would support the chairman's suggestion that the retirement deductions heretofore made and deposited in the individual accounts of the employees be subject to withdrawal. However, I came here primarily to support another change, a recommendation that there be a provision for a minimum retirement at 50 percent of the average salary for 5 consecutive years of service; and we recommend that such a provision be inserted in the bill. Our proposed amendment reads as follows: Section 4 (b) of the Act of May 29, 1930, as amended by Act of August 4, 1939, is amended by striking out the period at the end of section 4 (b) and inserting in lieu thereof a semicolon, and by adding the following sentence after the semicolon: "nor shall such total annuity paid be less than an amount equal to the annual basic salary, pay, or compensation, received by the employee during any five consecutive years of allowable service at the option of the employee, multiplied by the number of years of service not exceeding thirty-five years, and divided by seventy." This general provision placing the minimum at 50 percent was supported by the President's Committee on Civil Service Retirement, with the recommendation that the members of the Committee felt that it would improve the Government service by making it more readily possible to establish a career service and avoid the economic shock 71 that now comes from the retirement of professional employees. It would also bring the civil-service retirement system into line and make it consistent with the retirement systems of the various States that have such systems, with those of foreign governments, and also make it possible to have the retirement basis for the professional employees of such Departments as those of Agriculture and Commerce somewhat comparable with the technical employees of the Public Health Service, the Coast and Geodetic Survey, and the Foreign Service of the Department of State, all of whom are permitted to retire with a maximum of 75 percent of their salaries. As is shown by a chart at page 6 of the last retirement report of the Civil Service Commission, the retirement basis at present provides. for 74 percent of the pay for employees receiving $1,620 a year, 50 percent of the pay of the employees receiving $2,600 a year, and only 32 percent of the pay of the employees receiving salaries of about $5,600 a year. It is believed by the professional employees that it would be more desirable to provide for retirement on a basis that would be more equitable with respect to the actual contributions to the retirement fund of the higher-salaried employees. We understand from the actuaries of the Civil Service Commission that the cost to the Government would be comparatively limited in comparison with the advantage to the employees and the career service in general. We understand that it has been estimated that the maximum cost in any one year of a provision of this kind would not exceed $700,000 and that the rate would decrease thereafter. We feel, therefore, that a provision of this kind would be advantageous to the Government service, that it would relieve the very serious economic shock that comes to employees now on reaching retirement, that it would benefit the service as a career service, and would not increase the cost to the Government to an extent that would make it difficult to handle. The CHAIRMAN. Do you believe that the Government ought to contribute more than 50 percent of the annuity received by an employee? Mr. FRACKER. I would have no objection to the present plan under which the Government does contribute more than 50 percent of the annuity in the case of low-salaried employees. The CHAIRMAN. I do not think that answer is exactly responsive. You would not have any objection to that because it would not affect your group. Do you think that, as a matter of policy, the Government should contribute more than one-half of the annuity an employee receives? Mr. FRACKER. In the case of the lower-salaried employees, if it is necessary for the Government to contribute more than one-half of the annuity in order to make it possible for an employee who reaches the age of 70 to exist and live respectably, then the Government would be justified in contributing more than one-half of the annuity of such employee. The CHAIRMAN. Do you realize that under the plan proposed in this bill, or let us take the case of an employee making $4,000 a year and serving 30 years, the contribution being at the rate of 5 percent, that employee will receive an annuity of $1,838.30, and if he remains in the service till he is 70 years of age he will receive an annuity of $2,096.90? Mr. FRACKER. I appreciate the fact that in a number of levels contribution by the Government is greater than contribution of the employees. In the Civil Service Commission report to which I have referred, at page 6, it shows that the Government's contribution at the salary level of $5,600 a year is almost identical with that of the employee. The employee contributes $899.50 and the Government $900. The CHAIRMAN. That is based, of course, upon a contribution of 3.5 of the employee's salary. This bill proposes a deduction of 5 percent of the salary of an employee on account of the retirement fund, and that makes it possible for an employee to build up an annuity that is matched by the Government under the amendment of 2 years ago. So that in the case I have cited, of an employee receiving $4,000 a year, the employee would buy $919.15 at age 65 and the Government would match that with $919.15, making a total of $1,838.30; while in the 70-year group the employee would put up $1,048.45 and the Government a like amount, making an annuity of slightly more than 50 percent of the salary. What you are proposing and what the Commission proposes is another guaranteed annuity. Mr. FRACKER. Yes. The CHAIRMAN. That is what has caused the trouble with this system, a guaranty that has created a deficiency cost which has run the cost of this system up to almost 9 percent of the pay roll of the Government against a 3.5 percent contribution from the employees. That is what I am trying to get away from, this guaranty which creates a deficiency. Personally, I do not believe that the Government ought to pay more than 50 percent of the retirement pay of Federal employees, especially in the higher brackets. I am not proposing to take anything away from anybody, but I cannot see the justification for building up another guaranteed annuity in the higher brackets. We have that in the lower brackets and it is causing trouble. I appreciate that it is hard for one to adjust himself to a lower income. It is hard for anybody to do that, no matter what the salary bracket may be, but we have to think in terms of years and not of the present only. That is a mistake that was made in 1930. We set up a system that guaranteed an annuity to persons making $1,600 a year or more, provided it was not more than three-fourths of the salary, and that has imposed an enormous cost upon this retirement system I do not understand how anybody could justify it. I do not want the job of trying to defend it before the public in view of the very odious comparison between this system and the social-security system. If there are no further questions, let us excuse the gentleman with the thanks of the committee and hear the next witness. STATEMENT OF PAUL STONE, THE UNITED FEDERAL WORKERS OF AMERICA, CONGRESS OF INDUSTRIAL ORGANIZATIONS The CHAIRMAN. The next witness is Mr. Paul Stone, the United Federal Workers of America, the Congress of Industrial Organizations. Mr. STONE. Mr. Chairman and members of the committee, the United Federal Workers of America is a union of Government employees affiliated with the Congress of Industrial Organizations. We have a membership of 26,000 and have been organized since June 1937. We are a young organization, and very few of our members are on retirement rolls. Our membership extends throughout the Federal service, both in Washington and in the field, and includes a large proportion of lowpaid employees as well as those in the higher-paid and professional groups. Our constitution specifically excludes from membership administrative and supervisory officials with the right of hiring and firing. At our convention held here last September our organization expressed the considered views of our thousands of members in regard to retirement legislation. The number and variety of bills before this committee makes it necessary for us to give the basic views of our organization on retirement before going to a discussion of individual measures. In general, the United Federal Workers believes the present retirement law should be liberalized along the following lines: 1. Optional retirement for all Government employees after 30 years' service. 2. Extension of the provisions of the Federal retirement law to all Federal employees not now within its scope. 3. No increase in employee contributions without a substantial increase in benefits. 4. Investigation by the Congress of the actual cost of administering the so-called tontine or dollar-a-month charge made against contributions of all employees-with but few exceptions-who leave the Federal service. H. R. 3487 Of all bills before this committee the most comprehensive is H. R. 3487, introduced by Representative Robert Ramspeck, chairman of the committee. The bill would make a number of changes in the present retirement law. Many of the changes are in the general direction of the program adopted at our convention, but other provisions of the bill are not in accord with our program. In return for the changes proposed in H. R. 3487, Federal employees are asked to accept an increase in deductions for retirement purposes from 3.5 to 5 percent of their salary. We will now proceed to go over the various sections of the bill individually. COMPULSORY RETIREMENT AGE The first change proposed in H. R. 3487 is raising the compulsory retirement age of all employees to 70 with 15 years' service and doing away with the special retirement groups with compulsory retirement at 62 and 65 years of age. The United Federal Workers of America believes that workers in hazardous occupations, such as laborers, mechanics, and other workers in the navy yards, should retain the present compulsory retirement ages set under law. OPTIONAL RETIREMENT AGE The other provision of section 1 of H. R. 3487 is to set the optional retirement age at 60 with 30 years' service. Special provision is made for employees who have 30 years' service at the age of 55. This is one of the outstanding features of the bill that is in line with the program adopted at our convention. It is the feature of the bill in which our members have expressed real and great interest. We urge that any legislation that this committee sees fit to report contain provision for retirement after 30 years' service, at least at the age of 60. DOUBLE OPTION We do object specially to the double-option feature of the 60-year retirement provision. This is section 1 (c), page 2, providing that the head of a department or agency may request the retirement of an employee under the optional retirement provision. Retirement after 30 years' service should be optional with the worker. It should not be open for use as a method of crowding out workers with valuable experience, for reasons of personal prejudice or discrimination. We believe that retirement legislation should safeguard an employee's rights in this respect. If an employee is incapable of performing his duty, it is possible to have him retired under the disability provision of the retirement law. EFFECT OF TWO CHANGES The effect of these two changes, raising the compulsory age for all employees to 70 and lowering the optional age to 60 with 30 years' service, should in effect save the retirement-system money. It will eliminate the compulsory retirement age groups of 62 and 65, for whom the cost is greater than for the 70-year group. And although the optional age is lowered, the record indicates, as other witnesses before us have testified, that only a very small part of the employees will take advantage of the optional retirement feature at age 60. We do not believe that the estimated increase in cost because of the lower optional retirement age represents an actual increase. Raising the compulsory retirement age of all to 70 represents a saving. We do not understand why it should be necessary to add to the employee's contribution for this purpose. Even if the compulsory retirement ages are left at the present 62-, 65- and 70-year levels, and the optional age is reduced to 60 with 30 years' service, we do not believe that the number of optional retirements that would take place would warrant an increase in employee contributions to 5 percent. We propose that the present compulsory retirement ages be left as they are and that optional retirement be lowered to 60 for all with 30 years' service. FIVE-YEAR CLAUSE We endorse the idea behind section 4, page 5, of H. R. 3487. The section provides that an employee who has been in the service for 5 years or more will get some protection under the Federal retirement law. One of the defects of the present law is that no provision is made for employees who have less than 15 years' service with the Government, except that they may withdraw their money from the retirement fund when they leave the service. |