Senator PELL. Thank you very much, Mr. Habermeyer. What is the rate of deficit that you have had in the past?

Mr. HABERMEYER. It has varied considerably. We have had deficits as high as $169 million a year.

Senator PELL. What is that in percentage figures?

Mr. HABERMEYER. That would be pretty close to 4 percent. But that was on a lower payroll and that is when taxes were a much lower rate. The thing that bothers the Board and bothers me particularly at this time is that we have over the years raised the tax rates from very modest amounts they started off in 1936 at 234 percent-until a point now where the tax rate, itself, is scheduled to go in January 1 of next year to 81% percent on each side and in January 1968 it will go to 9% percent on each side.

That will be on a payroll of $450 a month whereas the original 234 percent on each side was on $300 a month. Our assumptions, too, are I think, as far as the actuary is concerned, as good as we possibly can expect them to be in the future. Looking at the railroad industry with respect to some of the things being talked about, some of the activities just completed such as the elimination of operating jobs under the arbitration award, such as proposed mergers of facilities and roads, those would all work against the financial welfare of this retirement system. How we can assume additional burdens with respect to liberalization of benefits and expect to pay for them is just a problem that I don't know how we are going to handle.

Senator PELL. It is a problem, yet it would seem to me that equity would justify the passage of this bill.

Mr. HABERMEYER. Well, we speak of equity. We have a situation here where the wife's husband happened to work in the railroad industry. Had he performed all his service with an employer covered by social security and she had had those wage credits in her own right under social security she would be treated just the same as she is being treated now by us.

Senator PELL. Isn't this just as if you and I had our own special retirement plan and we had social security and we get both?

Mr. HABERMEYER. I don't think at the present time it can be regarded as a separate social system. We are so coordinated with the social security system the two work hand in hand.

Some of the provisions of our law are brought about by the Social Security Act. We guarantee no beneficiary under our system will get less than 110 percent of the benefits he would get were he covered. under the social security system.

The amendment now being debated by the Congress will have a drastic effect on the railroad retirement system. Any increase in the benefits of the social security system will have an effect on our system such as medicare, new provisions such as payment to families for children between age 18 and 22 who are attending school.

They all flow into our system and most of them will cause, by themselves, additional deficits.

Senator PELL. What would be the payroll percentage cost of the railroad retirement provisions of the social security legislation now pending in conference?

Mr. HABERMEYER. I am not entirely sure just how much the medicare would cost at the present time. But just take the 5-percent increase in benefits under the payment to families with children, they would cost $6 million.

Senator PELL. There is a $7 million benefit.

Mr. HABERMEYER. It would be around $6 or $7 million.

Senator PELL. How would that work out in percentage cost?

Mr. HABERMEYER. That would be about 0.15 percent, 0.12 to 0.15 percent. It would be half as much as this bill.

Senator PELL. Senator Jordan.

Senator JORDAN. You are already running a deficit of $20 million a year?

Mr. HABERMEYER. We just reduced that by legislation the Congress enacted last year by increasing the tax base from $300 to $450 and providing a more equitable return on Government securities. We had à deficit of around $77 million before that legislation was passed last year.

Senator JORDAN. You have reduced it from $77 to $20 million now. Mr. HABERMEYER. Yes, sir.

Senator JORDAN. Are you going to recommend further increases be made to reduce the $20 million deficit so that these systems are actu. arily sound?

Mr. HABERMEYER. Our actuary, and we have just been reviewed by the Actuarial Advisory Committee as provided by the law, has said as long as we can keep the deficity below half a percent of payroll, it is nothing to really get concerned about.

As soon as it gets above that-and this is one thing the Actuarial Advisory Committee pointed out to us, that the recent history of the industry would indicate that our assumptions are slightly on the opti mistic side and we can't hope that the future is going to produce any better results than we are predicting now.

Senator JORDAN. You are at the point now where the $20 million actuarial deficit is approximately 0.41 percent of the payroll. Mr. HABERMEYER. Yes, sir.

Senator JORDAN. You regard anything under one-half of 1 percent as being tolerable?

Mr. HABERMEYER. Tolerable, that is right.

Senator JORDAN. Did you hear the letter read by Senator Hartke's assistant?

Mr. HABERMEYER. Yes, sir.

Senator JORDAN. How would you answer that letter?

Mr. HABERMEYER. I would only try to point out-of course I get a lot of those letters, myself-would try to point out that in this instance the family group is fortunate in having that income from social security.

There are many many cases of railroad workers where the wife was unable to get coverage under social security. We figure that if there is a benefit coming to the woman on her own right, that she is more able to take the reduction of the benefit than one who wouldn't have much rights under social security.

Senator JORDAN. Even though she paid for that social security benefit by her own work?

Mr. HABERMEYER. Yes. By the same token we have railroad men without wives who pay the same taxes as men with wives and of course they don't have spouses to recieve benefits either.

Senator JORDAN. In this instance you have two independent workers, the railroad man himself and his wife, who each paid into their retirement.

Mr. HABERMEYER. I noticed one thing in that letter the Senator received. It said he had been drawing that benefit for 9 years. So I would imagine it has been a good investment as far as that family is concerned, drawing many more times the benefits than what they have paid in.

We have in active railroad employment some 770,000 people, covered by our system. But we are approaching 900,000 beneficiaries. Senator JORDAN. Thank you.

Senator PELL. I have one further question. Since the point is such an important one, I should like the record to show clearly what is meant by the term "actuarial valuation." I understand that it refers to the capacity of the system to meet all of its obligations with respect to all possible beneficiaries during their expected lifetimes.

Mr. HABERMEYER. That is the actuaries best estimate as to what this system needs over a long period of time. That takes into account the average life of the beneficiaries that we have, the average age the people now working will retire at.

In many of these fields of course we are finding by experience, recent experience, that we have to change. It is also to the detriment of the system. Men are living longer, women are living longer. Men are retiring younger. Our payrolls that we are assuming for the future revenues are getting smaller because of fewer employees.

If I could see any bright spots, increased employment, something that would result in maybe the actuary being too conservative, this would not concern me much.

Senator PELL. Has there ever been an actuarial surplus?

Mr. HABERMEYER. Not as far as I know.

Senator PELL. Thank you very much. The next witness is Mr. Finnigan.

STATEMENT OF GEORGE FINNIGAN, PRESIDENT, NATIONAL

RAILROAD PENSION FORUM, INC.

Mr. FINNIGAN. Mr. Chairman and members of the committee, my name is George W. Finnigan. I reside at 2832 East 78th Street, Chicargo, Ill. I am president of the National Pension Forum, Inc., the national headquarters of which are located at 2403 East 75th Street, Chicago, Ill.

I submit these words in behalf of some 800,000 workers covered by railroad retirement and a greater number of annuitants and survivors of deceased covered workers. A goodly portion of both groups are members of the forum, about equally divided between union covered and noncovered positions.

While all of the employees and forum members are not personally deprived of benefits by the offending provision in the Railroad Retirement Act, the repeal of which is contemplated under bill H.R. 12362, they are an enlightened group who have a strong conviction that justice. will be served if repeal is accomplished.

Nothing within reason can justify the nullification of a social security old-age benefit, paid for by a female worker and her employer. However, that is the net result, when eligibility for old-age benefits serve to disenfranchise the wife of a retired railroadman from being paid spouse benefits for which she is otherwise qualified.

Often the work credits and the dual payment of social security taxes took place before the female worker became the wife of a man covered by railroad retirement. The tax was paid on the premise that it would establish security in old age.

Spouse benefits under railroad retirement are based wholly upon the work record of the railroad employee; upon his average earnings and years of service. Therefore, the payment of spouse benefits to the wife of one retired rail worker and the withholding of benefits from another is pure and simple discrimination.

The rail worker's wife, qualified for social security old-age benefits, is declared ineligible for railroad retirement spouse benefits, while in reverse, a wife certified for railroad annuity will be paid the social security wife's benefit, based on her husband's work record under that system.

Further, if a husband becomes eligible for social security old-age benefits, in addition to railroad retirement annuity, then his wife becomes eligible and is paid a wife's benefit under each program.

The continuation of the wife's benefit is guaranteed to the extent, that should the wife also become eligible for social security old-age benefits, then only that part of the old-age benefits that exceeds the social security wife's benefit is deductible from the railroad retirement spouse benefit.

Payments of any other types of pension or annuity to the wife of a railroad annuitant has no effect on the eligibility for railroad retirerent spouse benefits. The Federal civil service as well as the various State, county, municipal, and industry retirement rolls contain the names of many who also receive railroad retirement spouse benefits in

full.

The above examples illustrate the inconsistency that exists, so long as the offending provision remains in the Railroad Retirement Act. Several Members of both bodies of the Congress have for several years, recognized the inequity of the provision. Increasing dissatisfaction has brought the subject to light where it is broadly recognized as an unholy feature in need of prompt corrective action.

The relatively small cost to the railroad retirement account is overshadowed by the moral responsibility to right a recognized wrong. The actuarial status of the railroad retirement system is in the best long-range balance it has enjoyed since the program was founded.

I ask the committee to give approval to bill H.R. 12362, in its present form and furnish their unanimous recommendation for adoption by the full Senate body.

I would like to further state that I cannot subscribe to the line of reasoning that a man has not paid for a wife's benefit simply because she happened to have worked under social security. He has paid for it the same as any other railroad employee whose wife did not work and therefore I think to be deprived of that is absolutely discrimination.

There is hardly a parallel between comparing a railroad worker's wife or his situation with a single man because the single man is single

perhaps by choice and there is no distinction allowed between one type of married and another when it comes to application of the income tax features and I don't think it should extend to railroad retirement.

I appreciate the opportunity to appear before you gentlemen and hope you will see fit to approve this bill.

Senator PELL. Thank you very much, Mr. Finnigan. Senator Jordan, do you have any questions?

Senator JORDAN. The House report on this bill, Mr. Finnigan, said

that

We estimate that the additional cost of the amendment proposed would come to approximately 0.33 percent of payroll or $14 million a year on a level basis. In view of the fact that the law provides no additional revenues to meet the substantial increase in the cost of the benefits, the Board feels compelled for that reason alone to recommend that no favorable consideration be given to these bills.

Do you agree that this will likely add a third of 1 percent amounting to about $14 million a year to the deficit which already exists in the railroad retirement fund?

Mr. FINNIGAN. Do I agree

Senator JORDAN. Do you agree that this is a fair estimate of what this additional burden will be?

Mr. FINNIGAN. I have no reason to doubt it since it was undoubtedly provided by trained members of the railroad retirement staff. I suppose it is correct.

Senator JORDAN. Do you regard that as a dangerous addition inasmuch is it would put the deficit in the rail retirement pension fund well over the one-half of 1 percent which has been suggested here as being the tolerable limit?

Mr. FINNIGAN. I believe it is not very much over the one-half of 1 percent. Further, over the years I think that the deficit in the longrange financing has probably been greater than that more often than it has been less and the opportunity to right something which is definitely in error and has remained in error through all the years, whether it be with cash financing or deficit financing, I believe it should be done, sir.

Senator JORDAN. Thank you, Mr. Finnigan.

Senator PELL. Thank you very much, Mr. Finnigan.

Mr. FINNIGAN. Thank you.

Senator PELL. Our next witness is Gerald D. Finney.

STATEMENT OF GERALD D. FINNEY, GENERAL ATTORNEY, ASSOCIATION OF AMERICAN RAILROADS

Mr. FINNEY. Mr. Chairman, I am a lawyer. My name is Gerald Finney. I am, as the chairman said, general attorney for the Association of American Railroads. Mr. Loomis is president of our association and was invited to testify today. By reason of a board of directors meeting of our association, he asked me to come down and make a statement in his behalf.

The statement is on file with your committee. It is virtually identical with the letter which Mr. Loomis addressed to the members of the committee on the 15th of September.

Senator PELL. Would you like this statement inserted in the record as presented?