chase of additional audio-visual equipment and pay the Service's share of the insurance premiums for the Government insurance covering its employees.

The House has approved an appropriation for fiscal year 1956 equal to that provided for the current year. This is $86,000 less than the amount requested. I believe the total amount will be needed.

Senator POTTER. Will that mean that should the House figure stay in the bill, that you would have to lay off some employees?

REPLACEMENT OF PERSONNEL NEARING RETIREMENT

Mr. FINNEGAN. No; it would not mean I would have to lay off employees, Senator Potter, but we have coming up shortly upwards of 30 people who are approaching retirement. Many of these people are in their seventies and we just don't go out and hire labor mediators. You have to train him and give him experience on the job and have him develop in acceptability of the older men.

We anticipate adding to the staff for replacement purposes. I think we probably will need between, say, 220 and 230 mediators. That will be the area in which we will probably be staffed.

I have described the situation with which we are now confronted and which we believe will be present in the year ahead. If we are to do the job properly, I believe the restoration is necessary. The $86,000 amount involved is small in relation to the improved service which this agency can render to both labor and management in working out peaceful solutions to their problems. I will appreciate your consideration of the total request. I have promised the President to maintain a staff of mediators of the highest caliber and to that end I have underway plans for training and improvement programs to be conducted on a regional basis.

I hope that it will be necessary to make few changes in the organization or policies of the Service. If some changes appear desirable, they will be made only after careful study and analysis of the problems that arise, and then only in the best interests of the Service.

RESTORATION OF HOUSE REDUCTION

Senator HILL. What you are asking, then, Mr. Finnegan, is that we restore the $80,000 which the House did not allow you; is that right?

Mr. FINNEGAN. That is correct, sir.

Senator HILL. To the budget estimate of $3 million plus?

Mr. FINNEGAN. That is right.

Senator HILL. Are there any questions?

Senator POTTER. I would just like to comment that my experience. with the Mediation and Conciliation Service has been that they have very able men in the field doing the job.

Mr. FINNEGAN. It is nice to hear those things, Senator Potter. I must say that although maybe I am a neophyte in the job, I have been impressed with the caliber of the people we have. It is going to be a tough job to maintain the quality of the personnel that has characterized the service in the past.

Senator HILL. We have no further questions, Mr. Finnegan. We certainly want to thank you and your staff very, very much. Mr. FINNEGAN. Thank you, Senator.

Senator HILL. Thank you, Mr. Finnegan.

RAILROAD RETIREMENT BOARD

STATEMENT OF RAYMOND J. KELLY,

KELLY, CHAIRMAN, RAILROAD

RETIREMENT BOARD

APPROPRIATION ESTIMATE

Salaries and expenses, Railroad Retirement Board (trust fund): For expenses necessary for the Railroad Retirement Board, including not to exceed $1,000 for expenses of attendance at meetings concerned with the work of the Board, when specifically authorized by the Board; [and] stenographic reporting services as authorized by section 15 of the Act of August 2, 1946 (5. U. S. C. 55a); [$6,364,000] and uniforms or allowances therefor, as authorized by the Act of September 1, 1954 (68 Stat. 1114): $6,100,000 to be derived from the railroad retirement account.. Amounts available for obligation

JUSTIFICATION OF ESTIMATES FOR FISCAL YEAR 1956

AUTHORITY AND PURPOSE

The Railroad Retirement Board is charged with the sole responsibility for administering the Railroad Retirement Act of 1935, approved August 29, 1935, the Railroad Retirement Act of 1937, approved June 24, 1937; and the Railroad Unemployment Insurance Act approved June 25, 1938, as severally amended. Under the provisions of the Railroad Retirement Act, the Board administers a railroad retirement system which provides annuities for railroad employees retiring on age and disability, for their wives and dependent husbands, and for their survivors, and also lump-sum death benefits. Under the provisions of the Railroad Unemployment Insurance Act, the Board administers and unemployment and sickness insurance system, paying unemployment, sickness, and maternity benefits to qualified railroad workers, and operates an employment service program principally for the purpose of finding jobs for unemployment benefit claimants.

ORGANIZATIONAL STRUCTURE OF THE RAILROAD RETIREMENT BOARD

The Board is composed of 3 members appointed by the President by and with the advice and consent of the Senate-1 upon the recommendation of representatives of employees, 1 upon recommendation of representatives of carriers, and 1, the Chairman, as public member, without designated recommendation. For carrying out its administrative responsibilities, the Board has established the administrative organization shown by the organization charts contained in another section of this document. The organization of the Board is designed to integrate the administration of the programs conducted under the provisions of the railroad retirement acts with programs conducted under the Railroad Unemployment Insurance Act without duplication of facilities or operations. activities concerned only with either the retirement or the unemployment program are supported solely by funds of the benefiting program. The cost of other activities servicing both programs are apportioned between appropriations on a measured basis.

MEANS OF FINANCING

Basic

The self-supporting unemployment and sickness insurance system is financed by contributions, paid wholly by employers, based at present on one-half percent of taxable payrolls. Of the total contributions paid for this purpose, the portion represented by 0.2 percent of the taxable payroll is permanently appropriated to the Board to cover the administrative costs of the system, with the remainder being credited to the railroad unemployment insurance account in the unemployment trust fund to cover the payment of benefits.

The railroad retirement system, which also is essentially self-supporting, is financed by payroll taxes paid equally by employers and employees. Under the permanent legislation included in the Railroad Retirement Board Appropriation Act, 1953, the railroad retirement account (trust fund) is credited monthly with amounts equal to railroad retirement tax collections covered in the Treasury (minus refunds), such amounts to be available for benefit payments provided by the railroad retirement acts and for expenses necessary in the administration of said acts. The amounts required for necessary administrative expenses, as specifically authorized by Congress in annual appropriation acts, are derived from the railroad retirement account (trust fund) and are established in the appropriation account "Salaries and expenses, Railroad Retirement Board (trust funds). These justifications cover the amount required for this purpose in fiscal year 1956.

APPROPRIATION FOR SALARIES AND EXPENSES

The appropriation request of $6,100,000 for "Salaries and expenses, Railroad Retirement Board (trust fund)," for fiscal year 1956 actually represents a request for authority to expend $6,100,000 from the railroad retirement tax collections, credited to the railroad retirement trust fund, which incidentally are estimated to total $625 million in 1956. It is not an appropriation of general funds of the Treasury. The actual method of making retirement administrative funds available calls for the transfer of the administrative expense amount authorized by Congress from the railroad retirement account (trust fund) to the account "Salaries and expenses, Railroad Retirement Board (trust fund)," as needed. railroad retirement tax collections are credited initially to the railroad retirement

All

account and benefits are paid therefrom. Since the net effect of this appropriation procedure is simply to transfer funds from one trust account to another, amounts authorized for salaries and expenses, Railroad Retirement Board (trust fund), have no effect on the total amounts appropriated as reflected in the Federal budget.

INCENTIVE FOR ECONOMY

The Board has every incentive for administering its programs in the most economical manner, since 1 of the 3 Board members represents railroad management, whose tax payments account for 50 percent of the funds for the maintenance of the retirement system, another member represents railroad labor, whose tax payments account for the remaining 50 percent of the costs, while the Chairman represents the general public.

The appropriation request of $6,100,000 for fiscal year 1956 contributes further to the Board's record of achievement in increasing the efficiency and economy of operations year by year. For an overall measurement of the efficiency and economy of Board operations, the following table shows the relationship between the amounts expended for benefit payments and the administrative costs of the railroad retirement system. Notwithstanding the complexities introduced into the claims adjudication processes by recent amendments to the Railroad Retirement Act, administrative costs will represent only 1.04 cents out of each dollar spent under the railroad retirement system in 1956.

EFFECT OF LEGISLATIVE CHANGES ON WORKLOADS

Legislation recently enacted by Congress has had a pronounced effect on the workloads and budgetary requirements of the Board.

Public Law 398, approved June 16, 1954, amended the Railroad Retirement Act by repealing the dual-benefit provision. Under the dual-benefit provision, railroad retirement annuities based on some service before 1937 had been subject to reduction since November 1951 if the employee qualified for an old-age benefit under the Social Security Act. The amendment which repealed this provision was made retroactive to November 1951, thus resulting in the restoration of the reductions to the employees or to their eligible survivors in approximately 36,000

cases.

Public Law 761, approved September 1, 1954, which increased social security benefits, required the adjustment of approximately 115,000 cases under the minimum benefit provisions of the Railroad Retirement Act.

Public Law 746, approved August 31, 1954, among other changes, lowered eligibility requirements for widows' benefits by providing for entitlement to benefits at age 60 rather than age 65, and provided that service after age 65 may now be disregarded if this will result in a higher annuity. Approximately 25,000 widows aged 60 to 64 became immediately eligible for benefits. With respect to service after age 65, it is estimated that approximately 10,000 annuitants will apply for a recomputation of benefits.

In addition to the nonrecurring work of adjusting 36,000 dual-benefit cases, adjusting 115,000 social-security-minimum cases, and processing 25,000 widows applications and 10,000 service-after-65 cases, the Board is confronted also with increased recurring workloads as a result of the amendments. Widows aged 60 through 64 formerly receiving lump-sum payments now will file claims for monthly benefits. This will increase costs for the reason that claims for monthly benefits are more complex to adjudicate initially and, of course, must be certified monthly. thereafter. Allowances also now must be made for the new treatment of service after 65, the exclusion of low years of earnings in the certification of survivor benefit computations, changes in the disability work clauses, provision for waiver of annuities, and other changes.

Public Law 746 also made changes in the Railroad Unemployment Insurance Act by establishing a higher benefit-rate schedule, and by providing that the benefit rate for any employee will not be less than half of his regular daily rate of pay for his last railroad job in the base year up to a maximum rate of $8.50. A detailed outline of the provisions of the amendments to the Railroad Retirement and Railroad Unemployment Insurance Acts is contained in another section of this document.

SUMMARY OF REQUIREMENTS

The $6,100,000 requested by the Board to cover the retirement administrative expenses for fiscal year 1956 compares as follows with requirements for prior years.

The Board's performance in 1954 of absorbing penalty mail costs of approximately $227,000, and in addition, realizing a savings of $344,000 maintains its record of achievement in increasing the efficiency and economy of operations year by year.

In fiscal year 1955 the Board is scheduled to absorb all of the recurring increases in administrative costs resulting from the amendments amounting to approximately $215,000, $23,000 of the noncurring costs, and employer life insurance contributions of $13,000. However, the nonrecurring workloads resulting from the amendments are of such proportions, that a supplemental appropriation of $419,000 will be required in fiscal year 1955.

In fiscal year 1956, the Board has based its appropriation estimate of $6,100,000 on the anticipation that the cost per recurring unit of work will be lower than in 1955. Notwithstanding the additional complexities introduced into the claims adjudication process by the recent amendments, and the normal increase in claims loads which can be expected until the retirement system reaches maturity some years hence, the 1956 appropriation request is lower than the amounts appropriated for any fiscal year since 1951.

INTEGRATION OF ACCOUNTING AND DISBURSING FUNCTIONS

The transfer of disbursing functions from the Treasury Department to the Board for integration with the accounting and certification work merits special attention because of the widespread interest in this development.

Pursuant to the request of the staff of the House Appropriations Committee, a joint study was made of the accounting and disbursing procedures of the Railroad Retirement Board by representaties of the House Appropriations Committee staff, the Treasury Department, and the General Accounting Office. The purpose of the study was to determine whether economies would result through a consolidation and integration of the disbursing operations related to railroad retirement benefit payments performed by the Treasury's Division of Disbursement with the accounting and related administrative procedures of the Railroad Retirement Board. The survey group concluded that there were sufficient potentialities for economy through integration to indicate the desirability for testing the proposal in actual operations. On the basis of these findings the Treasury Department delerated authority for the check preparation and related operations to the Railroad Retirement Board on a test basis. Arrangements were made to have the operations under the integration evaluated after a transitional period of 90 days. Under these arrangements the Board began writing checks on a limited scale in December 1953 when it wrote all lump-sum benefit checks for that month. With the completion of the transfer of necessary records from the Disbursing Office of the Treasury Department to the Board, the program was extended to include recurring monthly benefits. The first monthly checks written under the integrated system were those covering January 1954 payments covered by checks dated February 1. After the transitional period, detailed time and cost records were maintained for the 3-month test period beginning April 1, 1954. The cost records