1. Purchase of flowers.-Funds are deposited with the Commission by private citizens for the purchase of floral decorations for graves in the World War I and World War II military cemeteries. The donor is advised when the flowers have been placed.

2. Repair of non-Federal war memorials.-When requested to do so and upon receipt of the necessary funds, the Commission will arrange for and oversee the repair of war memorials erected in foreign countries by American citizens, States, municipalities, or associations. Such moneys are accounted for through this fund.

Object Classification (in thousands of dollars)

This fund is used to pay annuities to retired employees or their survivors, to make refunds to former employees who have left the service, and to pay claims for employees who have died before retirement, or before their annuities are paid in full (5 U.S.C. ch. 14). It is estimated that as of June 30, 1965, there will be 724,872 persons on the annuity roll, compared with 641,565 as of June 30, 1963, and 682,533 as of June 30, 1964.

The status of the fund is as follows (in thousands of dollars):

95,831

13,154,721 93,038

14,184,243 108,934

1,336,582 1,490,220 14,184,243 15,069,243 108,934 124,714 14,293,177 15,193,957

Trust expenditures..

1 Balances of selected resources are identified on the statement of financial condition.

This fund finances the payment of subscription charges to approved carriers of the costs of health benefits protection as provided by the Federal Employees Health Benefits Act of 1959 (Public Law 86-382, 5 U.S.C. 3006) together with expenses incurred by the Civil Service Commission in administration of the act.

Budget program. The act provides that the Employees health benefits fund will be available to pay for administrative expenses incurred by the Commission, within such limitation as may be specified by the Congress. More than 1.9 million employees and approximately 116,000 annuitants are participating in this program. By the end of 1965 it is estimated that an additional 85,000 eligible employee and survivor annuitants will participate in the program. For 1965 it is estimated that $292.3 million will be deposited into the fund from amounts withheld from employees and annuitants and $146.5 million will be contributed by the Government. On the basis of these forecasts, $422.1 million will be paid from the fund in 1965 to approved health benefit plans. An amount equal to 3% of the contribution toward each plan is set aside in the fund to provide a contingency reserve for that plan. The contingency reserve can only be used to defray future increased rates, or to reduce contributions, or to provide increased benefits. Effective with the contract period beginning November 1, 1963, an amendment to the regulations provides for additional payments to experience-rated carriers from the contingency reserve when the reserves held by the carrier are less than a stipulated amount and the plan's contingency reserve held by the fund exceeds 1 month's subscription charges. Community-rated carriers may also receive additional payments from their plan's contingency reserve held by the fund, when properly justified. For 1964 approximately $770 thousand will be paid from the contingency reserve to qualified carriers and an estimated $15.1 million will be paid in 1965. In addition, an amount equal to 1% of all contributions is set aside for adminis

Trust expenditures..

167,275 171.325 -32,239-50,265-52,088

1 Balances of selected resources are identified on the statement of financia!

condition.

This fund finances the payment of group life insurance premiums to private insurance companies under the Federal Employees' Group Life Insurance Act of 1954 (5 U.S.C. 2091-2103) and any expenses incurred by the Civil Service Commission in administration of this act

as annually authorized by Congress.

Budget program.-Through June 30, 1963, with respect to the basic insurance program, a total of $700.3 million was withheld from the salaries of covered employees and $350.2 million was contributed by the Government to the fund. It is estimated that in 1965, $102 million will be

paid into the fund by employees and $51 million by the Government. As of June 30, 1963, a total of $666 million had been paid by the insurer in benefits. It is estimated that over $135 million in benefits will be paid

in 1965.

Most of the difference between receipts and benefit payments under the policy is placed in reserves. June 30, 1963, the end of the last completed policy year, there were total reserves of $399.8 million of which $100 million was held as a special contingency reserve by the insurer at interest, and $299.8 million was held by the fund with the Treasury of the United States. The contingency reserve is limited to a level of $100 million, and all amounts above this figure periodically are returned and deposited in the Treasury of the United States to be invested.

A summary statement of the operations of the contingency reserve for the three most recent policy years, 1961 through 1963, and the total at the end of the ninth policy year follows:

STATEMENT OF ANNUAL ACCOUNTING AND CONTINGENCY

A contingency reserve has been established and held by the insurer at interest under the policy covering members of beneficial associations. This reserve, which was estimated to be $3.2 million on June 30, 1963, will accumulate interest consistent with that provided under the regular program. If the Commission determines that the contingency reserve under the beneficial association program has reached a level sufficient to meet adverse fluctuation in future charges, any amounts above this level will be returned to the fund.

Financing. Premium costs are met by withholding from the salaries of employees 25 cents biweekly for each $1 thousand life insurance, contributions by the Government, and direct premium payments from beneficial association members.

Operating results.-Earnings are retained to meet the cost of future benefits.

27, 1960June 30, 1961 1

8th year, July 1. 1961

June 30, 1962

80,464

138,439

9th year. July 1, 1962June 30, 1963 147,757

Totals, end of 9th

Revenue.. Expense..

policy

year

Net income for year.

1,036,461

Retained earnings, start of year..

2,580

4,436

4,410

48,101 50.264 52,085 269,521 317,622 367,886 367,886 419,971

Financial Condition (in thousands of dollars)

By amendment to group policy 17.000G, the 7th policy year ended June 30, 1961 Policy years thereafter will be from July 1 through the subsequent June 30. The refunds from the contingency reserve were made as follows: $19 million. Dec. 27, 1962; $14 million, July 1, 1963; $2,945 thousand. July 25, 1963.

Through June 30, 1963, individuals whose beneficial life insurance agreements have been assumed by the fund paid $20 million into the fund. It is estimated that in 1965 about $2.8 million will be paid into the fund by this group. Former members of beneficial associations con

tinue to pay premiums according to the rate schedules in effect at the time their life insurance agreements were assumed by the fund, but the Government makes no current contributions to the fund for these individuals as it does for employees covered under the regular program.