VII

Fortunately the cost of old-age pensions can be substantially reduced by encouraging employers not to retire workers who are physically fit to perform their work. It is a cruel fiction that men on attaining the age of 65 suddenly become unfit to continue in their jobs. Let me conclude these remarks by calling to your attention an aspect of the problem of old-age security that has received all too little attention-namely, the problem of premature retirements.

Many people conceive the problem of old-age security as mainly a result of the aging of the population-that is, the increase in the proportion of the population of 65 years of age or more. As a matter of fact, the problem of old-age security is as much a problem of earlier retirement as a problem of the aging of the population. Back in 1890, 68.2 percent of all white males aged 65 and over were members of the labor force. By 1930, this percentage had fallen to 54. By 1940, only 42.2 percent of all white males of that age group were in the labor force.

The drop in the proportion of the population of 65 years of age or more in the labor force is not the result of voluntary retirements. It is the result of lay-offs by employers. For example, among rural farm population, 69.3 percent of males 65 to 74 years of age were in the labor force in 1940, and even 31.5 percent of males over 75 were in the labor force. Among urban groups, on the other hand, only 46.9 percent of white males between 65 and 74 years of age were in the labor force, and only 15 percent of those 75 years of age or more. Many large companies have adopted the rule that everyone must retire at the age of 65.

The practice of earlier and earlier retirements is bad for the individual worker in most cases, it is bad for the country, and it greatly increases the problem of an old-age insurance plan. Retirement is bad for the worker partly because it reduces his income, but even more because it cuts him off from the contact of his fellows that his job gives him, and makes him feel that he is a "has been" and is now on the shelf. He is unhappy and maladjusted. Often his health suffers. Earlier retirements are bad for the country because they deprive the community of the output that the retired workers might produce. At the present time, for example, there are about 2,800,000 workers of 65 years of age or more at work. They produce about $10,000,000,000 of goods. If the practice of universal retirement at 65 were made general, the country would be deprived of the output of these 2,800,000 men. In other words, general retirement at the age of 65 would cost the country about $10,000,000,000 a year. Finally, earlier retirements greatly increase the cost of pensions. Life expectancy at age 70 is about 3 years less than at age 65. If most men retired at 70, therefore, the number of years pensions would be paid in the average case would be about three less than if most men retired at 65. Furthermore, contributions would be paid for more years. Consequently, the contribution rate that will buy a given pension beginning at age 65 will purchase much larger pensions beginning at age 70.

The time has come to halt the tendency for employers to retire men at an earlier and earlier age. This tendency is quite out of place in a community where health is improving, longevity is increasing, and the remaining years of usefulness of workers at the age of 65 are growing. The advisory council on social security pointed out that the great majority of retirements are involuntary, and it recommended that the Federal Government establish a commission to study the broad problem of the aged in the community and the adjustment of aged to retirement. I believe that immediate steps should be taken, however, to help workers between the ages of 65 and 70 continue in employment instead of being forced to retire. The best way to do this is to give employers an incentive not to retire physically fit workers before the age of 70.

What form might this incentive take? It might be either a penalty or a reward. I believe that a reward is preferable than a penalty. If the employer were penalized for retiring men below the age of 70, he would be discouraged from hiring older workers-men of 60 or near 60, whom the employer might be willing to hire under ordinary circumstances. If the employer had doubts these men would be physically fit to work until they were 70 years of age, he would refuse to hire them.

The method of rewards, however, has great possibility. In order that I may be definite and concrete, let me venture a tentative suggestion. Let us assume for sake of illustration that the average pension were $75 a month, or $900 a year. An employer who kept a man until the man was 70 years of age instead of

retiring him at the age of 65 would be saving the pension system $4,500 in pensions. The employer might be rewarded for keeping men above 65 by being given a rebate of one-third of the resulting saving to the pension fund. In the example I have given, one-third of the saving would be $1,500. If the employer had kept the man until only age 68, the pension fund would have been saved $2,700, and the rebate of one-third would have given the employer $900.

This rebate would give managements an incentive to find ways of keeping men beyond the age of 65. Furthermore, instead of being a deterrent to managements' hiring older workers, the rebate would be an incentive. If an employer hired a man at age 62 and kept him until the age of 70, the employer would be given a rebate for the saving made possible in pension payments to the man. Naturally employers would be interested in hiring older workers who showed promise of being efficient after the age 65. The older workers who are now thrown on the market by firms going out of business and by lay-offs would find their employment opportunities greatly improved.

I do not assert that this arrangement would completely solve the employment problem of the older worker. Nevertheless, it would greatly reduce the seriousness of this particular problem. Thus, we would be killing two birds with one stone. We would be halting the dangerous tendency for earlier and earlier retirements. In addition, we would be improving the employment opportunities of older workers. An incorporation into the Old Age and Survivors Insurance Act of an incentive for employers to keep workers beyond the age of 65 would be a major improvement in the country's arrangements for old-age security. If would open new hope and opportunity for millions of older workers. It would greatly reduce the cost of pensions and it would make it possible to give much more liberal pensions than are now available with only a moderate increase in the cost of pensions. It would increase the productivity of the economy. This increase in productivity would alone go far to pay the total cost of old-age security.

Senator BYRD. Before we leave, Mr. Chairman, I would like to ask the Treasury Department to furnish a list of the bonds under the trust fund and the rate of interest paid on each.

The CHAIRMAN. Is there a representative of the Treasury Department here?

If not, Mr. Cohen, will you make a memorandum to ask the Treas ury to supply that?

That possibly is in the report of the trustees of these several funds. (When supplied, this information will be placed in the files for the information of the committee.)

The CHAIRMAN. Dr. Brown, it is now past 1 o'clock, and I suppose the committee would like to recess, if it is convenient for you to come back after a reasonable period of recess.

Dr. BROWN. Yes, sir.

The CHAIRMAN. I hand to the reporter for insertion in the record at this point a letter dated March 15, 1950, from the Honorable Morris F. de Castro, Acting Governor of the Virgin Islands, with respect to the proposals to include the islands in the Federal social-security program and particularly the amendments to H. R. 6000 in that regard recommended in the report to the Committee on Ways and Means from its Subcommittee on Extension of Social Security to Puerto Rico and the Virgin Islands, dated February 6, 1950. (The letter referred to follows:)

Hon. WALTER F. GEORGE,

GOVERNMENT OF THE VIRGIN ISLANDS

OF THE UNITED STATES, Charlotte Amalie, St. Thomas, March 15, 1950

Chairman, Senate Committee on Finance,

Senate Office Building, Washington, D. C.

MY DEAR SENATOR GEORGE: In behalf of the people of the Virgin Islands, I write to ask for your earnest and active support for the proposals now before your committee to include our islands in the Federal social-security program,

as provided in H. R. 6000, and particularly for the amendments to H. R. 6000 recommended in the report to the Committee on Ways and Means from its Subcommittee on Extension of Social Security to Puerto Rico and the Virgin Islands, dated February 6, 1950.

Extension of the social-security program to the Virgin Islands is long overdue. Fifteen years have passed since the act first went into effect in continental United States. Unfortunately, the islands were omitted from the act then, and for 15 long years, partly, I believe, because of preoccupation with the prosecution of the great war, the omission has not been corrected. Except for childwelfare services, our people are still without Federal help under this great program.

Virgin Islanders are citizens of the United States, and they are as loyal as those to be found anywhere under the American flag. We share proudly with all other United States citizens the responsibilities that such citizenship imposes. Virgin Islanders volunteered and were drafted into the United States armed forces for the great war. Virgin Islanders fought and died for our country to preserve the human rights and liberties so dear to every American. In the paths of peace also, Virgin Islanders have earnestly espoused the American way of life, and, after 33 years under the American flag, have developed our social and governmental institutions in the full democratic American pattern.

We must wrestle in the islands with the same ills that face our brothers on the mainland. We must deal with the familiar but distressing problems of old age and dependency, of people handicapped by blindness and other crippling afilictions, of widows and orphaned children. Alone and unaided, we are battling these problems with finances totally inadequate for the task. We are putting 56.4 percent of our entire budget into health, education, and welfare services. But, with the poor economy of our islands and their poor per capita income, even that high percentage of our budget produces pitiful results. Assistance grants average only $5.90 per person per month, or 191⁄2 cents a day, to provide food, clothing, and shelter-all the necessities of life.

To change this picture of want and privation, we are asking Congress to treat us as it treats other American citizens. We are asking no special privileges under this program, no special benefits, no special exemptions-just to be placed in the same status thereunder as other Americans. We should be and we want to be included in the social insurances, the public assistance, child-welfare and medical programs, and we should be and we want to be included thereunder on the same general basis as other Americans living under the American flag. H. R. 6000 does include our islands in all phases of the program, both the contributory retirement system and the public-assistance titles, for which we are happy. But in the public-assistance titles, H. R. 6000 provides for the islands only straight dollar-for-dollar matching of Federal and local funds instead of the much more favorable matching formula provided for the States. Actually, with our poor economy, we are in greater need of this favorable matching formula than almost any other part of the Nation.

The Report of the Subcommittee of Ways and Means, issued February 6, 1950, recommends very strongly that H. R. 6000 be amended to remove this unfavorable treatment of the islands in regard to the public-assistance program. It recommends (as originally provided in H. R. 6000) that the maximum monthly grants in the islands for adults be $30 per person instead of the $50 per person provided in the United States, and to this we do not object. Particularly, it urges that the matching ratios and ranges within this $30 maximum be placed, proportionately, on the same basis as in the United States. Similar amendments are provided in the programs for aid to children. For our Government, I vigorously and heartily endorse these recommendations. Sound programs could be organized in our islands thereunder. The total cost to the United States would be insignificant, less than a quarter of a million dollars a year. To our people, it would mean security-that security which is the prized heritage of Americans throughout the rest of the Nation.

In testimony before your committee on February '13, our director of social welfare, Mr. Roy W. Bornn, gave a full picture of our situation. We should be happy to supply any additional information you need. Senator George, we are counting upon your effective support of our cause in this matter. We urge that your committee make earnest recommendations to the Senate for speedy and favorable action.

With thanks in advance and with best wishes from the people of our islands and from me personally,

Sincerely,

MORRIS F. DE CASTRO,
Acting Governor.

The CHAIRMAN. There will also be placed in the record a statement submitted by the National Association of Insurance Agents expressing the desire that property insurance agents definitely not be included under any construction that may be placed on the definition of "employee" in any legislation growing out of the proposed bill. (The statement referred to follows:)

STATEMENT BY THE NATIONAL ASSOCIATION OF INSURANCE AGENTS

With reference to developments before the Finance Committee of the United States Senate looking toward the revision of the Federal social-security laws; and particularly with reference to that section in a proposed bill, H. R. 6000, covering the definition of an "employee," the following statement is submitted in the hope that it may be of some benefit to a better understanding of the status of a large segment of the insurance business constituting the local property-insurance agents of the United States. These men, who are local agents of fire, casualty, surety, and bonding-insurance companies, have long claimed to and in fact do occupy the status of independent businessmen.

In dealing with the definition of "employee" in the proposed bill, it is the desire of the proponents of this statement that property-insurance agents be defi nitely understood to be not employees under any construction that may be placed on the definition of "employee" contained in the new law.

The business of property insurance in the United States is very largely pro duced through what is known as the American Agency System. That is a system by which insurance companies secure business through the medium of local insurance men, called agents. Because of the universal practice which prevails in this country, a property-insurance agent is vested with certain property rights, which include the ownership of the expirations of the business which he has pro duced and placed upon the company's books, together with other assets. This is all the agent's property. It is his plant. He is by virtue thereof established in the business. He is engaged in a distinct occupation. He is not under the direction of any insurance company. He has his own office, for which he pays the rent. He owns all his office equipment, hires and pays all his employees, and operates entirely as an independent contractor, without any supervision from any insurance company. His compensation is a given percentage of the insurance business written by him. Before he can operate as an insurance agent he must be licensed by the State so to act. He goes forth to the public seeking to secure and care for certain insurable interests. He proposes to give a certain, definite and distinct service in exchange for this trust. To be sure the service he is able to give is nearly always measured by his skill and knowledge.

While developing this business he is not acting as the agent of any particular insurance company because he represents many. He is acting for himself a an independent contractor. He is about to assume a distinct obligation to 13 clients to provide adequate indemnity for them in reliable companies at proper rates and in accordance with certain laws, established rules and customs All of this has nothing to do with any relations between himself and any given inserance company. He is under no obligation to give the business to any certain company because the disposition of it belongs to him. After securing the basness from the client he then determines in what company or companies to place the risk. He could if he so desired place the business in companies which be did not represent as agent, under a brokerage arrangement with some other agent. It cannot be said that in the soliciting and securing of insurance the agent is either a common-law agent of any particular insurance company or the employee of any company.

Upon the determination of an agent to place a line in a given company, he thereupon begins to exercise the agency power vested in him by the company to create extensive company liabilities. He then becomes charged with the dory of protecting the interest of both the company and the assured. This dual p resentation is a service that is highly beneficial and is in proportion to the knowledge, skill, ability, and industry of the agent himself. The development of this service to the highest point of efficiency is one of the things that staps his business with a vested interest. The agent instinctively sees that in rende ing a highly acceptable service to both the companies and the assureds he is building up for himself a stable and permanent business which has a recognised salable value.

Among the many court decisions supporting the foregoing statement are the following:

National Fire Insurance Co. v. Sullard (89 N. Y. S. 934; 97 App. Div. 233).
F. B. Miller Agency v. Home Insurance Co. (1934) (276 Ill. App. 418).
Rippberger, Bankrupt (No. 35559, January 2, 1926, opinion by Federal Judge
Cliffe (N. D. Illinois).

Chapman Insurance Agency (50 F. (2d) 252).

Alliance Insurance Co. v. City Realty (52 (2d) 371).

Kelly v. American Mine Owners Casualty Co. (170 S. E. 580; 161 Va. 206). Kerr & Elliott v. Green Mountain Mutual Fire Insurance Co. (111 Vt. 502).

The House Ways and Means Committee fully understood the legal relationship between property insurance agents and their companies as shown in the Congressional Record of Tuesday, October 4, 1949, page 14041, to which this committee is respectfully referred.

Reference is also made to the published hearings before the Committee on Finance, United States Senate, Eightieth Congress, second session, on House Joint Resolution 296, April 1 and 2, 1948, pages 61, 62, testimony of witness John F. Neville, associate counsel, National Association of Insurance Agents. To summarize, it is hoped that this committee will consider the local propertyinsurance agent as an independent contractor, which is his true legal relationship with his companies. This would allow the property-insurance agent to enter the social-security system, if such be necessary under the law, not as an employee but as a self-employed businessman. All of which is respectfully submitted.

NATIONAL ASSOCIATION OF INSURANCE AGENTS, By JOHN F. NEVILLE, Associate Counsel.

SUPPLEMENTARY STATEMENT

Because of certain developments before the Senate Finance Committee, which is presently conducting hearings on the definition of "employee" in H. R. 6000, it is thought necessary and proper to repeat again and summarize the legal position occupied by the local property-insurance agent in relation to the companies he represents.

These insurance agents, representing fire, casualty, fidelity, and surety insurance companies, own their own business, which they may sell at will and are under no degree of control by the companies which they represent.

The independent contractor status of the local property-insurance agent has been and is now recognized by their companies, the courts, and by the agents themselves. Their independent status was understood and confirmed by the Ways and Means Committee of the House of Representatives in its deliveration of H. R. 6000, as shown by the Congressional Record of Tuesday, October 4, 1949, on page 14041.

It is hoped that the Senate Finance Committee presently considering the definition of "employee" in H. R. 6000 will recognize the local property agent's relationship with his companies and thereby allow these agents, if such a course of action is made necessary by law, to enter the social-security system not as employees but as independent, self-employed businessmen.

This short statement is amplified by a memorandum which is being submitted to the committee by the National Association of Insurance Agents, an unincorporated association of approximately 27,000 property-insurance agencies located in every State in the Union.

Respectfully submitted,

NATIONAL ASSOCIATION OF INSURANCE AGENTS,
By MAURICE G. HERNDON,
Washington Representative.

The CHAIRMAN. Then, if it is agreeable to the Senators, we will recess until 3 o'clock.

(Whereupon, at 1: 20 p. m., a recess was taken until 3 p. m. this same

day.)

AFTERNOON SESSION

(The committee reconvened at 3 p. m. pursuant to the noon recess.) The CHAIRMAN. The committee will come to order.