stayed at one college throughout his career, as so many do, or transferred among several colleges while developing his special knowledge and experience, or, for example, transferred from a college into governmental service and then back into the academic world. In no event would be forfeit his TIAA-CREF pension benefits accumulated while at the colleges. This transferability has meant true security for a profession in which most of the practitioners still are not too well paid. The college's and the individual's contributions were to be fully funded and vested through TIAA so that the pension expectations would always be realized.

This portable private pension system has worked well for half a century and it now covers more than 2,000 colleges, universities, scientific and other educational institutions and their more than 250.000 staff members. Assured and immediately vested pensions are not only a possibility in the private sector, they are an actuality, and have been for the last fifty years. Right now, bills are pending in Congress, S. 1290 and H.R. 9010, to protect against certain dangers at the state level to the continuance of this system of fully uniform and portable annuities.

INFLATION AND ANNUITIES

There was a continuing, challenging problem, one to which we are all addressing our attention today, the problem of inflation and of sharing equitably with our older people some part of the enormous increases in the productivity of this economy. Here again, let me draw on actual experience.

Post-World War II inflation took an awful toll from the income of people living on fixed dollar annuities, professors along with everyone else. Faced with this situation, we instituted in 1950 at TIAA a series of studies to see what could be done. We early came to the conclusion that "there was at least one major inflation during every period in American History equal in length to the working and retired lifetime of a single worker." As an example, people retiring in 1950 had started work two major and one minor inflations ago and one horrendous and several much smaller depressions ago. Our economic study, "A New Approach to Retirement Income," also concluded that "security in retirement poses a difficult problem when it means not only providing a sufficient annuity income in dollars but also a reasonable income in current purchasing power.”

As a result of these studies, TIAA in 1952 established the College Retirement Equities Fund, the world's first variable annuity. These annuities are based on common stock investments, with the full performance of the investments flowing through to the participant during his retirement. Although far ahead of its time, CREF was quickly adopted by our contributing colleges and universities and by most of the members in their retirement systems. At present 97% of the members have elected to participate in CREF concurrently with their TIAA fixed dollar annuity.

Does this kind of a fund have some promise of providing a retirement income that does adjust better to cost of living and productivity increases? Here again, the longest and best experience is with CREF. If an individual had retired in 1952 on a TIAA and CREF annuity, his variable CREF annuity would now be paying him three and a quarter times as many dollars as originally. That is, an original CREF annuity of $100 a month in 1952 would, starting May 1st, now be paying $325 a month. I hasten to point out that this hasn't been a straight line up. Falling stock prices, as in 1957 and 1962, are reflected in reductions in CREF annuities those years. But the overall trend has been upward. If a participant in a college retirement plan had, along with his college, commenced participation in TIAA-CREF in 1952, contributions of $50 a month to CREF to the end of 1968 would have equalled $9,600, and his credit in the CREF retirement fund would have been over $24,000—a compound investment rate averaging nearly 11% a year.

I give this experience to date in order to comment, Senator Williams, directly on your question to me. It shows how some of the enormous productivity of our economy can be made to flow through to retired people without transferring, or taking it away, from those in the work force. This flow-through in the case of CREF has helped make the academic profession more attractive, has helped bring able people into the profession in spite of strong competition and has helped keep them interested even though colleges cannot compete with governmental employments in terms of the power and scope of decision-making, or with

private enterprise in terms of salaries and deferred compensation, profit-sharing, bonuses and other such arrangements.

OTHER ADJUSTABLE PENSION ARRANGEMENTS

Following the innovation of CREF, a number of contra-inflationary devices have developed. Variable annuities are now taking hold, and are to be found in many industrial and business firms and in the state retirement systems of Wisconsin, New York and New Jersey. Cost of living escalators are in the U.S. Civil Service retirement program, in the pension plans of several state retirement systems and in a number of private plans. Plans incorporating differing formula escalators on the retirement benefits during old age are also being used. Separate accounts of life insurance companies have entered the picture and where the benefits are allowed to flow to the participant instead of reducing the employer's pension costs, are helping to provide added retirement security. Interest in equity and escalator arrangements has also been high in other countries, especially Sweden, Holland, England and Japan.

PRIVATE PENSIONS AND PRODUCTIVITY

Private sector pensions now have assets of over $145 billion. This includes state and local retirement systems, trusteed, negotiated and insured plans. These represent actual savings for retirement, available for investment in productive enterprise thereby enriching the lives of the workers as well as retired people. These pension savings finance plants, equip them with modern machinery, build houses, shopping centers, roads, office buildings, airplanes, ships-products used by both retired and active people. These direct investments in productive enterprises have a number of desirable consequences.

The active workers in our labor force benefit through higher wages reflecting their increased productivity from modern, up-to-date plants and equipment and the power to run them. Pension plan savings provide a large and increasing part of the many thousands of dollars of plant and equipment available to each worker to increase his production, and to finance the house he lives in. Thus the total product is increased instead of merely being shared or transferred differently, since savings help provide the capital investments that render the young participant in a pension plan more productive, while his greater productivity means increased corporate earnings returned, in part, to him through his participation in his pension plan.

The retired worker benefits directly from his share in the increased productivity made possible by his own savings. This is especially true if invested in equities under a pension plan permitting flow-through to the retired person. And he and the worker both benefit without detracting from the relative economic position of the other, that is, without transfer payments or other drains on either side.

It is estimated that a trillion dollar economy, which we may reach in terms of constant dollars by 1975, will require an additional 500 billion dollars of invested capital in the six years between now and that time. In all probability a major portion of that great wave of capital development in this country will come from private pension savings. We must make sure that we don't kill it, that we do encourage it.

A full realization of the potentials of old-age income probably now requires that we give careful attention to the needs and desires of both our active and our retired people. In private pensions, I believe we need to reorient our thinking toward a "Pensions Are For People" system (as I have proposed elsewhere in the ERITD approach-Earned Retirement Income Tax Deferral). The basic idea would be to provide, as an alternative to present tax treatment, tax deferral on pension contributions only when those contributions become irrevocably vested in the participant, without any holdback either of his vested rights or investment performance. This approach would, I think, help encourage a great development in pension savings, productive investment of those savings, and flexible, innovative approaches to pensions to make all people covered by them more secure in their old age.

Thank you for the opportunity to appear before you.

The CHAIRMAN. Mr. Burk, you are anchor man on this morning's witness list.

STATEMENT OF MR. BURK

Mr. BURK. Mr. Chairman, I have filed a statement with you that I would like to have in the record.*

I could cover it within the five minutes allotted but I would like to comment on only a couple of points in it, since you have it available to you.

The task force is much to be commended for their study. The only difficulty that I find in most of these studies is that they completely forget about the people who have worked for their lifetime for their Government and have retired from civil service.

These studies all seem to be much confined to social security. The fact of the matter is that among some 2 million that are not under the social security program the civil service retirees constitute about 1 million, they and their survivors. Of this some 60 percent receive less than the so-called poverty level of $3,000 a year.

More than 80 percent of the widows receive less than $3,000 per year and more than 70 percent receives less than $1,800 per year.

The second point that I mentioned was the small number of civil service retirees who have other income so far as we have been able to determine. The civil service commission has published a booklet on their retirement planning program in which they say that only 37 percent of the civil service retirees have reported having been employed for pay at any time since retiring.

At the time of the study only 25 percent were employed, 16 percent part time and 9 percent full time. We get the same information from letters that we have received in our office. A number of questions have come in, hundreds of them, in fact, regarding taxes, retirement income credit as has been mentioned a few minutes ago, is a real problem and we can furnish hundreds of copies of letters from retirees and survivors who receive very low annuities.

I received one yesterday; he had worked 17 years and 8 months and he says he has $163 a month at age 63, disabled physically. So he has a real problem. It will barely make his house payments.

INCOME TAX INEQUITIES

The third point that I mentioned in my paper to your committee, Mr. Chairman and I mentioned also that I possibly should present it to the Senate Finance Committee but it is bound very closely to this question, the question of the income tax treatment of your civil service annuities. Now we know the retirement income credit was designed to give us equal treatment with social security. Having worked as a tax consultant for a couple of years and having made hundreds of income tax reports for people, I know that it does not do what it is supposed to have accomplished.

Besides that, it is so complex that many, many people cannot work it out and even some Internal Revenue employees cannot work the retirement income credit. I would like to mention, I did in my letter, only two of many letters about taxes this past season. Quotation from one,

*See statement, p. 64.

"The if's and but's, minuses and additions for a retiree to file an income tax report is only worthy of an expert or a Philadelphia lawyer to figure out."

From another gentleman, "Going on 75 years, I cannot work any more. I have to live, eat, and pay rent. What are we going to do? Something must be done and now, after all, we have to live. Is this the thanks they give the people who have served the Government the best part of their lives?"

I have probably 25 or 30 similar statements from people who are having problems with income taxes, claiming to have to pay for having it made in order to get their retirement income credit figured, some of them claiming as much as $50 a year expense and the fact that civil service annuities are taxable income, they are not exempt as social security and railroad retirement are.

Our people have to file an income tax report whether or not they have to pay a tax. In addition to that we have to file an estimated tax because we have more than $200 that is not subject to withholding.

We file an estimated tax for every quarter of the year. This is a real problem, Mr. Chairman, and if this committee could do anything to set up or to help establish a system where there would be more of a flat deduction from this rather than a complicated system of trying to give us credit, I think it would be much preferred by our people who have worked so many years under civil service.

Thank you, Mr. Chairman, for giving me this opportunity to appear before your committee.

The CHAIRMAN. Thank you very much, Mr. Burk. I will say in reference to your last observation about this committee and how we might be helpful, we are a special committee, we are under a granted jurisdiction to study and study in depth as we are doing here with the economics of aging, and relate our activity to the substantive legislative committees.

We saw an example of that this morning with two distinguished members of the Finance Committee who sit on the Aging Committee. You could see the linkage right there. We didn't have any converts but we had certainly strong evidence that what was before us here this morning will be carried to the Finance Committee where the legislation is handled.

We can do that along the lines you are suggesting. I would say that the civil service employees retirement, not the tax aspects, the other aspects, are handled by the Post Office and Civil Service Committee, is that right?

Mr. BURK. That is right.

The CHAIRMAN. And your whole pension program was developed before social security?

Mr. BURK. That is correct.

The CHAIRMAN. In that program I believe I am correct when I state that you do have an escalation provision for retirement income that reflects an increase in cost of living, is that right?

Mr. BURK. We do have that and we have had it, I believe, since 1962. We have had three increases under that cost of living which have been most helpful and, in fact, it is the only thing that has enabled some of our people to exist at all.

The CHAIRMAN. When is that computed for an increase? What period of time must pass before it is recomputed to see whether an increase in benefits will follow?

Mr. BURK. Mr. Chairman, it works this way, the Bureau of Labor Statistics, consumer index comes out, of course, on a point basis. Whenever the point basis increases by 3 percent and remains there for a period of 3 months, then at the beginning of the third month following that 3 months period, we will receive the highest benefit that the percentage point has reached during that 3 months period. It so happens the increases have been 3.9 in each instance. (The statement referred to follows:)

PREPARED STATEMENT OF OTHIE G. BURK

Mr. Chairman and Members of the Committee: I am Othie G. Burk, Vice President of the National Association of Retired Civil Employees, generally called NARCE. This organization was formed in February 1921 and has been in continuous operation since that time. We now have over 133,000 members with more than 1,100 chapters having been chartered, some in every State of the Union, Puerto Rico, Canal Zone, and the Philippines.

I want to thank you, Mr. Chairman, for giving me this opportunity to speak in behalf not only of our members, but of the other thousands of retired Federal Workers who depend upon this Association to plead their cause and defend their rights. I would like to present three points for your particular consideration at this time:

1. The latest established statistics available, as of June 30, 1967 show that more than 367,000 out of a total of nearly 581,000 employee annuitants received less than $3,000 per year. Almost 242,000 out of slightly more than 250,000 survivor annuitants receive less than $3,000 per year. Nearly 210,000 of the latter receive less than $1,800 per year. There are many among the 367,000 employee annuitants who chose annuities reduced by from 10 to 25 percent to provide for a surviving spouse. In many cases the spouse has been dead for as long as 17 years. The deduction is still held out and if he should remarry, the new spouse cannot receive it.

2. A very small percentage of Civil Service retirees have other income, so far as we can determine. From page 74 of the Civil Service booklet on Retirement Planning Programs I quote "Only 37 percent of the respondents reported having been employed for pay at any time since retiring". "At the time of the questionnaire only 25 percent were employed, 16 percent part time, and 9 percent full time." (This was in 1968). On page 85 under item 8, is another statement pertinent to this discussion, I quote, "For both retired and eligible employees who attended such programs the program content most needed involved-in descending order-Finances, Use of Time, Social and Personal Matters, Health, and Housing. Specific topics most needed were Retirement Benefits, What to Expect, and Part-Time Employment."

We have this same general information from two sources in our office. My file on tax questions this year indicates that few have other income or have qualified for Social Security. We can furnish copies of hundreds of letters from retirees and survivors who receive very low annuities.

3. The third point I want to mention probably should go before the Senate Finance Committee, but is bound very closely to the question we are considering today. That is the question of Income Tax treatment of Civil Service annuities. I will not go into details at this time but since Civil Service Annuities are subject to Income Taxes, not exempt as are Social Security and Railroad retirement pay, our people have to file reports whether they pay tax or not. The Retirement Income Credit does not serve the purpose to equalize the tax treatment with Social Security, and the Tax forms are so complex many Internal Revenue employees cannot work it out.

I would like to mention only two of many letters about taxes this past season. I quote, "The if and buts, minuses and additions for a retiree to file an Income Tax Report is only worthy of an expert or 'A Philadelphia Lawyer' to figure out". And again, "Going on 75 years I cannot work anymore. I have to live, eat, and pay rent. What are we going to do? Something must be done and NOW. After