TABLE X-1.-Legal provisions for computing invalidity, old-age, and survivors' pensions-Continued

SURVIVORS' PENSIONS, 1912 TO 1934

January 1924 to July 1924.

August 1924 to March 1925...
April 1925 to June 1926...
July 1926 to June 1932..
July 1932 to December 1933..
January 1934 to.

TABLE X-2.-Total benefit payments and distribution of cost

1891.

1892

1894.

The experience of the first 10 years showed that certain regional offices, especially those in the agricultural sections of the country, had great difficulty in making the required remittances to the reserve fund. The finances of these regional offices were in a very poor condition compared with the highly industrialized sections of the country. The explanation for this difference was found in the fact that the cities attracted young and healthy people from the country and therefore had a much lower incidence of the risks of invalidity and old age. It became apparent that it would be desirable to pool some of the expendi tures and a greater portion of the reserve in order to equalize the conditions between various sections of the country. For this reason the provision under which the regional offices had to transmit a certain amount to the reserve fund was abandoned in 1900. In its place a certain proportion of the contributions received was to be set aside by each regional office, and out of this common fund there was to be paid that part of the pensions which was independent of the length of the contributory period; i. e., three-fourths of the old-age pensions and the fixed basic amount of the invalidity pensions. In the beginning the regional offices had to set aside for the purposes of this common fund 40 percent of the contributions they received.

This transfer was a book transaction only, since the funds themselves remained the property of the regional offices, and were invested by them as they saw fit.

By a very intricate method of computation, it was determined at the end of each year what portions of the total pension payments had to be borne by the common fund, the individual funds, and the government. From 1900 to 1912 the distribution of the cost was as shown in table X-3. This redistribution of the cost of benefits had the desired effect of relieving the agricultural sections of the country at the expense of the industrialized regions.

TABLE X-3.-Percentage distribution of cost of pensions between the individual funds, the common fund, and the Federal Government

Gradually the charges to be borne by the common reserve fund were increased, and the fund received a larger and larger proportion of the contributions collected. In 1926 the distinction between individual funds and common fund was given up altogether, and all pension payments were charged to the regional offices in proportion to their collections during the preceding year.

RESERVE SYSTEM VERSUS PAY-AS-YOU-GO SYSTEM

When the invalidity and old-age insurance law was first discussed, the question of whether to have a system of accumulation and to build up reserves or to adopt a pay-as-you-go system and to make the assessments only large enough to meet current expenditures was one of the most difficult to decide. The advocates of the accumulated reserve system pointed to the stability which it would give and the fact that each generation would pay for its own pensions, while the payas-you-go plan would put an unjust burden on future generations. The advocates