SECTION V

THE PROVISIONS OF H. R. 6000 WHICH WE FAVOR, TOGETHER WITH ADDITIONAL SUGGESTIONS

Based upon the fundamental guiding principles which we have offered for your consideration, the National Association of Life Underwriters favors the following amendments to the Social Security Act:

(1) A change in the title of H. R. 6000 as follows: "The Federal Retirement and Dependents Benefit Act of 1950."

This suggestion is consistent with our first fundamental guiding principle. The Congress acted very wisely when the Pure Food and Drugs Act was enacted. Among other things, that act provided that all articles of food and drugs should be clearly and correctly labeled in order that the public will in no wise be deceived. We hold that it is equally important that the public should in no wise be deceived in the matter of social security. We suggest that the. word "retirement" is more significant than the words "old age" due to the fact that the act, in reality, contemplates that workers will retire before benefits are paid and the mere attainment of so-called old age in no wise assures a worker of benefits. We also believe that the words "dependents' benefits" more accurately describes the class of beneficiaries who will actually receive benefits than does the rather all-inclusive word "survivors," as the term is generally understood.

The general characteristics of the social-security system are not such as to indicate that the word "insurance" should be included in the title. The benefits provided are not insurance in the true concept of the word, nor as the term "insurance" has come to be understood by the American public. We offer the following arguments in favor of this statement:

(1) There is no contractual agreement under social security which guarantees that benefits in a stipulated amount will be paid in consideration of specific premiums. Quite the contrary is true. Congress will doubtless change the schedule of benefits from time to time. During the past 10 years Congress has acted to change the schedule of pay-roll taxes which was provided in the original act. In view of the fact that the person who is covered does not have a guaranteed benefit, nor is he protected by a contractual arrangement whereby his taxes are fixed beyond the power of Congress to change the rate, it is unreasonable to attach the term "insurance" to such a system. It is well agreed that there cannot be and will not be a fixed relationship between the taxes paid by each worker and his benefits at retirement or for his dependent beneficiaries.

In its true sense, insurance contemplates a correct relationship between premiums paid, the age of the insured, and the maturity of the value of the contract at death or some predetermined age. This is not true in H. R. 6000 and should not be true in any scheme of Federal benefits.

In a great majority of life-insurance contracts the policyholder builds certain equities in the contract which are available to him to do with as he pleases. Such is not the case in the Federal system of benefits, the taxpayer being limited to the strict provisions of the law.

It is our contention that a system of benefits which will most adequately serve the needs of the greatest number of workers and their dependent beneficiaries will eliminate entirely the theory of "equities" and will forthrightly recognize and state to the public that each year's benefits represent a charge upon the general economy of the same period in which the benefits are paid, with a nominal accumulation of reserves for contingency purposes only.

It will, of course, be contended by the strong proponents of H. R. 6000 that it is appropriate to label the social-security system as "insurance" due to the fact that it "distributes the risk among surviving workers in the system for losses which fall on dependents of deceased workers by reason of the loss of the income of the deceased worker." We readily grant that this is one characteristic which is somewhat similar to insurance, but we in no wise agree that it is correct to label the whole system "insurance" when all of the other characteristics common to the system are in no wise the same nor even similar to the characteristics of the American life-insurance system.

(2) An extension of benefits under H. R. 6000 to include all who are gainfully employed, wherever such coverage is administratively feasible.

This recommendation is consistent with our general definition and is designed to implement fundamental guiding principle II.

Our association wishes to endorse and respectfully ask favorable consideration from this committee in retaining unaltered section 210 (k) (3) (B), H. R. 6000, pages 48-49.

The subsection provides as follows: "(3) Any individual (other than an individual who is an employee under paragraph (1) or (2) of this subsection) who performs service for remuneration for any person

"(b) As a full-time life-insurance salesman

*

May we remind the committee that Mr. M. Albert Linton, testifying on behalf of the Life Insurance Association of America and the American Life Convention before this committee on February 10, 1950, offered a similar endorsement of this subsection.

Enactment of this subsection will benefits with proper payment of taxes. years.

enable our members to be included for Such inclusion we have sought for many

It has been argued that it is unwise to impose a social-security system involving pay-roll taxes on groups of persons a majority of whom do not wish to be included. It is contended that they receive benefits they do not seek and have imposed upon them taxes which they do not wish to pay. We believe this reasoning is not valid, due to the fact that the same group of citizens will ultimately contribute a certain percentage of their number to the relief rolls for some form of public assistance. Funds to meet their assistance requirements must be raised by general taxation and, therefore, the worker who is included in a system of Federal benefits must contribute through a general tax levy to provide the funds for public assistance and, at the same time, assume a pay-roll tax which is designed to be adequate to provide the benefits for those who are in his benefit group. This, we believe, is the strongest argument for extended coverage.

There seems to be general agreement among actuaries that the ratio of workers age 20 to 64, inclusive, to persons past age 65 is constantly diminishing. This indicates the probability of a heavier tax burden on workers in the future to provide benefits for persons in retirement. As the system of Federal benefits matures, with a higher percentage of retired persons receiving benefits, we believe that the demands "to be included" from groups who are not included presently will increase very sharply. Should a future Congress conclude to provide such benefits, many citizens would receive substantial benefits, without having paid an appropriate pay-roll tax to assume their share of the burden în caring for retired workers during the time they were earning wages.

Some have suggested that there is a top limit beyond which pay-roll taxes should not go; and, after that limit is reached, additional funds to provide benefits will have to be contributed by an appropriation from general revenues. At that point it will be extremely difficult to deny benefits to any group whether they have paid taxes or not.

To summarize, if social security is good, then each citizen should benefit from it; and, if it is bad, we feel that each citizen should be in on the big mistake.

(3) Any benefit formula which will provide a primary benefit equal to 60 percent of the first $50 of average monthly wages, and 15 percent of the next $200 of average monthly wages: This suggestion implements guiding principles II, III, IV, and V.

It will be noted that this formula provides benefits which are somewhat less but similar to those recommended in H. R. 6000. It has the advantage, however, of providing larger minimum benefits for workers in the very low-income groups, and we believe it is important to establish a formula which favors this group.

A formula which provides benefits equal to 15 percent of average wages above the first bracket as opposed to 10 percent of such wages will create a system of benefits which is much more realistic for better-paid workers and will tend to relieve future Congresses from coping with the problem created by the complaints of better-paid workers who will insist that there is a very poor relation ship and one adversed to them when the 10-percent factor is used in calculating benefits. This problem will be greatly accentuated as the pay-roll taxes increase, and this would be a good way and a good time to avoid that difficulty. (4) We favor liberal conditions of eligibility for benefits.

We recommend that conditions of eligibility for retirement and dependents' benefits must be sufficiently liberal to include as beneficiaries as large a percentage of workers who pay taxes and their dependent beneficiaries as is possible. (5) We recommend a work clause which will enable a worker qualified for benefits at age 65 to earn an amount equal to $50 per month without any reduc tion in his social-security retirement benefits, as is currently provided in H, R.

6000. We also favor removal of the work clause at age 70 rather than age 75. These suggestions are made to implement our fundamental guiding principles II, III, IV, VI, and VIII.

We believe that no particular good is to be accomplished by insisting upon a work clause continuing to age 75. Whatever merit there may be in the act being designed to eliminate "marginal workers" from the labor market would be nullified unless the work clause is entirely removed at age 70.

Our association would also like to suggest that a work clause be included which would enable a widow, who is othewise eligible for dependents' benefits, to earn $50 per month without impairing her widow's benefits. Whatever amounts she might earn above $50 per month in average wages should act as a reduction against her social-security benefits in the same amount by which such wages exceed $50 per month.

(6) NOTE. As this statement is being prepared, the Board of Trustees of the National Association of Life Underwriters has under consideration the following recommendation. If included in the statement, it will carry our endorsement. We favor a revision in the benefit formula which will provide an improvement in benefits for workers who defer benefits past age 65, equal to 3 to 5 percent of the primary benefit at age 65 for each year of deferment; the deferment not to extend past age 70. (Wife's benefit not to be improved.)

While the benefit formula in the present Social Security Act has been inadequate to allow workers to retire, even on a basic minimum level of benefits, it is extremely doubtful whether more than 50 percent of our workers desire to retire at age 65, particularly if they are in good health. The present system has the general effect of "enforced retirement" if a worker is to receive benefits. While we appreciate the fact that it is difficult to devise an entirely satisfactory plan which will allow workers to "ease up" rather than retire, we suggest that the act should encourage workers to continue past age 65. Hence, our suggestion of the change in the formula.

The actuaries of the Social Security Department are the only ones who have the basic data upon which to determine the cost of such a change in the formula. We presume, however, that it would not impose as great a cost as the 1 percent increment factor which has been proposed by the Social Security Board and would serve a much better and more practical purpose for workers who are covered.

If all workers were to retire at age 65 there would be, hypothetically, little extra charge on the trust fund if all workers deferred retirement to age 70 and by so doing, improved their benefits by 20 percent (4 percent improvement per year). The question to be determined is the average age at which workers will retire with the improved benefit formula, and the number who would probably defer retirement if their benefits were substantially improved. It is our opinion that a 3 percent annual improvement in the benefits would not place an undue burden on the trust fund and that 5 percent is probably too great an improvement. Actuarial study should determine the answer to the problem-we suggest the fundamental principle.

In this same connection, the position of the worker past 65 would be substantially improved if all pay-roll taxes for him and his employer could be eliminated. It would add to his incentive to continue working and to the incentive of his employer to keep him on the job. This poses another actuarial question, the answer to which might prove interesting to the committee.

SECTION VI

PUBLIC ASSISTANCE

Our committee on social security has not undertaken to make an exhaustive study of the very involved public-assistance question. The committee has, however, considered the statements which were presented to the Committee on Ways and Means in 1949, the statements which have been presented to this committee, and the comments of well-informed persons who have studied the question at length.

As a result of this admittedly limited investigation we are led to make the following observations pertaining to the so-called public-assistance sections of H. R. 6000.

I. Whereas improvements in the Federal system for providing benefits at retirement and benefits for dependents of deceased workers are presumed to progressively eliminate the necessity for the Federal Government to participate in

public-assistance programs, we are at a complete loss to understand where the suggested amendments move in any direction other than directly opposite from this principle. There certainly is no merit whatever in improving the retirement and dependents' benefits under the Federal system and, at the same time, imposing a greater load on the Federal Government for public assistance, which should fall within the province of the State and local governments.

II. As the public-assistance section of the act is designed, it represents an open invitation, in fact an urge, for the welfare departments of the various States to use all their ingenuity to get the greatest number of people on their relief rolls as quickly as possible. As a matter of fact, it would appear to be a law which would almost impose upon the wealthier States the obligation to violate the true concepts of public assistance in order to protect the financial position of their own State against the tremendous demands for public assistance by States whose economic situation is not so fortunate. There surely can be no merit in a law which encourages this type of procedure.

III. The features of the public-assistance sections which are most dangerous and violate forthrightly our concept of "States' rights" are those which provide very substantial Federal funds for assistance in the various States but only provided the State welfare agencies comply with rules and regulations which are set down by some administrative head at the Federal level. This at once puts every State government on their knees before a Federal Bureau because any failure to comply with the wishes of the Federal Administrator would bring down on the head of the State welfare director the wrath of all groups who were clamoring for public assistance and wanting to get their hands on "the Federal funds."

Business interests of States which are less fortunate, economically, would also be insisting that the State welfare director comply immediately because Federal funds flowing into the State for public assistance will substantially improve the general purchasing power and thus the business conditions in States which are heavy benefactors under the Federal assistance program. The committee surely has ample evidence before it, which is indicative of the vast difference in techniques which prevails in determining those persons who may be "needy" in one State as opposed to another, and thus eligible for public assistance.

IV. We are going to be so bold as to suggest that unless a public-assistance section of the act can be drafted which will correct the obvious objections to H. R. 6000, the Congress would do much better to omit that section of the act entirely until a better approach to the problem can be devised. This is based upon the fundamental theory that no improvements in the law will be much better than adding objectionable features and magnify the existing ones.

SECTION VII

CONCLUSION

In conclusion, we would like to reiterate three suggestions which are embodied in this statement.

1. Congress should adhere to the original concept of the Social Securtiy Act and devote its attention primarily to improving the scope and benefits of the act so that the original objectives can be attained.

2. Some set of guiding principles should be agreed upon which will act as guideposts for lawmakers, administrators, as well as workers and their dependent beneficiaries.

3. In view of the fact that no man or group of men are able to predict, with any degree of certainty, the full implications of a greatly expanded system of Federal benefits, we again suggest that any percentage of error should be on the conservative rather than the liberal side. We repeat, future Congresses will have little difficulty in correcting errors of conservatism and will find it almost impos sible to correct errors which promise benefits beyond the willingness or ability of our children to pay them.

It is always better to promise little and perform more than it is to promise much and fail to meet the promise.

The CHAIRMAN. Mr. Guernsey? The next witness is Mr. S. Kendrick Guernsey, executive vice president of the Gulf Life Insurance Co.

Mr. Guernsey, you have with you Mr. Turpin. Mr. Turpin is from Macon, Ga., and he is here in connection with your statement on this matter?

STATEMENTS OF S. KENDRICK GUERNSEY, EXECUTIVE VICE PRESIDENT, GULF LIFE INSURANCE CO., JACKSONVILLE, FLA., SPEAKING ON BEHALF OF LIFE INSURERS CONFERENCE, AND WILLIAM TURPIN, GENERAL COUNSEL, BANKERS LIFE AND HEALTH, MACON, GA.

Mr. GUERNSEY. That is correct.

The CHAIRMAN. I am sorry that due to a serious accident to his mother, Senator Byrd is not able to be present this morning.

Mr. Guernsey, will you identify yourself for the record?

Mr. GUERNSEY. My name, gentlemen, is S. Kendrick Guernsey. I am vice president of the Gulf Life Insurance Co., Jacksonville, Fla., and I very deeply appreciate this opportunity to appear before you this morning.

Realizing that you are quite far behind in your schedule, I shall try to be brief, and perhaps will speak a little more rapidly than I should like.

The CHAIRMAN. You may take your time, Mr. Guernsey. Try, if you will, to finish your testimony before lunch time, however.

Mr. GUERNSEY. Thank you.

This statement is respectfully submitted on behalf of the Life Insurers Conference, an organization of which my company is a member, together with 80 other companies. These companies, principally located in the south and southeast portion of the United States, are generally referred to as the weekly premium life insurance companies. Including companies outside of this area, our total membership is domiciled in 22 States, providing employment to over 55,000 home office and field personnel. As you no doubt know, companies of this type write life insurance in small amounts, averaging about $250 per policy—although many of these policies are in even smaller amounts. The premiums are paid usually on a weekly basis and are collected by agents who call at the home of the policyowner. Most of these companies had their beginning during the first half of this century and are the small and medium-sized companies in the life-insurance industry. For convenience, they might be called the small businessmen in the life-insurance field. The policies which these companies write are attractive to the large masses of our lower-income employees and workers who by nature or habit do not set aside sufficient moneys to pay their life-insurance premiums on a semiannual or annual basis. This means of distribution has rendered a great service to that segment of the American people who otherwise would not have found such protection available.

We feel it essential that you consider this background in conjunction with the way in which H. R. 6000 would deal with these companies and their policyowners, for it is not exaggeration to say that the continuance the very life of many of these smaller companies may be dependent upon your complete understanding of all effects of this proposed legislation.

We find it much more desirable to appear before you favoring and endorsing a program rather than opposing one. Therefore, let me say at the outset that since social security as we know it today has been accepted in principle by the people of the United States it seems reasonable to endorse a moderate increase in benefits to make the sys