[Report of the United States Railroad Retirement Board for the Period Ended June 30, 1936]
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UNITED STATES RAILROAD RETIREMENT BOARD
UNITED STATES RAILROAD RETIREMENT BOARD
REPORT
OF THE
UNITED STATES RAILROAD RETIREMENT BOARD WASHINGTON, D. C.
FOR THE PERIOD ENDED JUNE 30, 1936
UNITED STATES
GOVERNMENT PRINTING OFFICE
WASHINGTON : 1937
For sale by the Superintendent of Documents, Washington, D. C.
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RAILROAD RETIREMENT BOARD
Murray W. Latimer, Chairman
James A. Dailey
Lee M. Eddy
R. B. Bronson, Secretary
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LETTER OF TRANSMITTAL
Railroad Retirement Board,
Office of the Chairman, Washington, D. C., December 15, 1936.
To the President of the United States of America:
Pursuant to the provisions of section 6 (a), Public, No. 399, approved August 29, 1935, I have the honor to submit the report of the Railroad Retirement Board for the period ended June 30, 1936 as required by the above quoted act.
Respectfully,
Murray W. Latimer, Chairman.
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123904—37----1
REPORT OF THE UNITED STATES RAILROAD RETIREMENT BOARD FOR THE PERIOD ENDED JUNE 30, 1936
Provisions of the Railroad Retirement Act.
The Railroad Retirement Act of 1935 was signed by the President on August 29, 1935. It provided for the establishment of the Railroad Retirement Board as an independent agency in the executive branch of the Government for the administration of the act. The Board was to be composed of three members to be appointed by the President by and with the advice and consent of the Senate, each member to hold office for a term of 5 years, except that for the members first taking office terms of 2, 3, and 4 years were provided. The act further provided that one member of the Board was to be appointed from recommendations made by representatives of carrier employees, another from recommendations made by representatives of the carriers, and the third, who was to be the chairman, to be appointed without recommendations from either the carriers or the employees for a 2-year term and was not to be in the employment of, or pecuniarily or otherwise interested in, any carrier or organization of carrier employees (sec. 6 (a)).
The Board was authorized and directed to administer the act and by section 7 thereof it was directed to make a special report to the President of the United States to be submitted to Congress. The special report was to be made not later than 4 years from the effective date of the act (Mar. 1, 1936) and was to contain specific recommendations for such changes in the retirement system created by the act “as shall assure the adequacy of said retirement system.” For the purposes of this report the Board was directed to make such investigations and actuarial studies as necessary to provide the fullest ■information practicable. The Board was further directed in a like special report to be made “at the earliest practicable time” to make “specific recommendations with regard to the desirability and practicability of substituting the provisions for annuities and other benefits to employees under this act for any obligation for prior service or for any existing provisions for the voluntary payment of pensions to employees subject to this act by a carrier or any employees subject to this act, so as to relieve such carrier from its obligations for age retirement benefits under its existing pension systems and transfer such obligations to the retirement system herein established.”
The act also provided for the appointment of a commission to be composed of three Members of the Senate designated by the President of the Senate, three Members of the House of Representatives designated by the Speaker of the House of Representatives and three members to be designated by the President. The Commission was authorized and directed to make “a thorough investigation of all pertinent facts relating to a retirement annuity system applicable by law to carriers by railroad engaged in interstate commerce and particularly any and all questions” upon which the Board was required to make the special reports mentioned in the preceding paragraph. The Commission was authorized to hold hearings and to consider the experience of other industries and of governments, as well as of the railroad industry. The Commission was required to report through
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2 REPORT OF THE UNITED STATES RAILROAD RETIREMENT BOARD the President to the Congress not later than January 1, 1936. The Commission was appointed and filed its report on December 31, 1935, stating that it had “not found it possible to make such an investigation of the subjects referred to it as would enable it by January 1,1936, to submit recommendations which would be of value to the Congress.”
The Railroad Retirement Act of 1935 provides for the payment of retirement annuities to carrier employees as defined therein and on conditions stated therein. It provides also for the payment of death benefits to the widow or widower, or if there be no widow or widower to the dependent next of kin, of any person who dies while receiving or entitled to receive an annuity under the act. A choice is given to employees, on making application for an annuity to have the present value of the annuity apply to the payment of a reduced annuity to the employee during his life and an annuity to his surviving spouse during her life after his death.
A carrier is defined in section 1 (a) of the act as “any express company, sleeping-car company, or carrier by railroad, subject to the Interstate Commerce Act, and any company which may be directly or indirectly owned or controlled thereby or under common control therewith, and which operates any equipment or facilities or performs any service (other than trucking service) in connection with the transportation of passengers or property by railroad”, or in connection with certain transportation activities specified in that section. It is provided, however, that the term “carrier” shall not include any street, interurban, or suburban electric railway, unless such railway is operating as a part of a general steam-railroad system of transportation, provided, that the definition of “carrier” shall not exclude, however, any part of the general steam-railroad system of transportation then or thereafter operated by any other motive power. The same section authorizes and directs the Interstate Commerce Commission, upon request of the Board or upon complaint of any party interested, to determine after hearing whether any line oper-’ ated by electric power falls within the above exemption.
Section 1 (b) of the act defines employees subject to the act as (1) any person who at or after the enactment of the act is in the service of a carrier or in the employment relation to a carrier, and (2) every officer or other official representative of an “employee organization” who before or after the enactment of the act has performed service for a carrier and who on or after the enactment of the act is duly designated and authorized to represent employees in accordance with the Railway Labor Act and is engaged in such representative service during or immediately following employment by a carrier.
Section 3 provides that annuities be paid to the following classes of employees, after retirement whether or not they are then in the service of a carrier:
(«) Employees who at or after the enactment of the act are 65 years of age or over;
(&) Employees who at or after the enactment of the act are 50 years of age or over and have completed a service period of 30 years—the annuity to such employees being reduced by one-fifteenth for each year that such employee is less than 65 years of age at the time of the first annuity payment;
(c) Employees who before or after enactment of the act completed a service period of 30 years and who are retired by the carrier after the enactment of the act on account of mental or physical disability.
REPORT OF TEIE UNITED STATES RAILROAD RETIREMENT BOARD 3
Section 3 also provides that the annuities of employees subject to the act shall be based upon their service periods and shall be computed by multiplying the total number of years of service not exceeding 30 years by the following percentages of their monthly compensation : 2 per centum of the first $50, iy2 Per centum of the next $100, and 1 per centum of the compensation in excess of $150 but no part of monthly compensation in excess of $300 shall be included in any of the computation. The annuities of employee representatives are required by section 4 of the act to be determined according to such rules and regulations as the Board shall deem just and reasonable and to be as near as may be the same annuities as if the representatives were still in the employ of their last former carriers.'
Section 2 of the act provides that upon the attainment of age 65 and continuance in service an employee’s annuity shall be reduced by one-fifteenth for every year of such continued service beyond age 65 except that the reduction is not to apply during any period beginning at age 65 and not extending beyond the age of 70, while the employee is continued in service under an agreement in writing filed with the Board. But this reduction is not to apply to employees occupying official positions in the service of a carrier or to employee representatives.
By section 6 of the act the Board is directed to take such steps as may be necessary to enforce the act and make and certify awards and payments under it. The Board is directed to certify to the Secretary of the Treasury the names and addresses of persons entitled to payments under the act, the amounts of such payments and the time at which payments should be made. The Secretary of the Treasury is directed to make payments in accordance with the certification by the Board, through the Division of Disbursement of the Treasury Department and prior to audit or settlement by the General Accounting Office.
Section 13 authorizes the appropriation from time to time of such money out of the Treasury of the United States as may be necessary to carry the act into effect.
Section 15 provides that the term “employment”, as defined in subsection (b) of section 210 of title II of the Social Security Act, shall not include service performed in the employ of a carrier as defined in the Retirement Act.
Appointment of members to Railroad Retirement Board.
Pursuant to the provision in section 6 (a), the President appointed Murray W. Latimer of New York, Chairman of the Board, and Messrs. Lee M. Eddy and James A. Dailey as members recommended by representatives of employees and carriers, respectively. Messrs. Latimer and Eddy took their oath of office on October 30, 1935, and Mr. Dailey on November 11, 1935. All three appointments were duly ratified by the Senate. Messrs. Latimer and Eddy were members of the Railroad Retirement Board created under the Railroad Retirement Act of 1934. Mr. Dailey was, at the time of his appointment to the present Board, secretary of the board of pensions of the New York Central System.
Differences between Railroad Retirement Acts of 1934 and 1935.
The Railroad Retirement Act of 1935 differs in significant particulars from the Retirement Act of 1934. The latter provided for
4 REPORT OF THE UNITED STATES RAILROAD RETIREMENT BOARD the creation of a railroad retirement fund to which the carriers and their employees were required to make contributions measured by the compensation paid to the employees. The act directed the Railroad Retirement Board to collect these contributions and to administer the fund. The act also made compulsory the retirement of carrier employees at age 70. It provided for the payment of annuities and death benefits but not for the election of the joint and survivorship annuity previously mentioned. The computation of the death benefit and the conditions under which it was to be paid differ considerably from the requirements of the present act.
The Retirement Act of 1935 does not create any retirement fund but provides for the payment of annuities out of appropriations to be made from time to time by the Congress. The Retirement Board is given no authority or functions with reference to the source from which the money for the payment of annuities is to be derived. And the Retirement Act of 1935 contains no provisions for the compulsory retirement of carrier employees at any age.
Nevertheless, the experience gained by the two members of the Railroad Retirement Board who were members of the Board under the act of 1934 has been of great value and the Board was able to proceed with the task of administration in the light of the experience previously acquired.
Organization of the Board.
The Board has not adopted a passive attitude and merely awaited applications for annuities; it has taken the position that the accomplishment of the purposes of Congress in the enactment of the legislation required it not only to make adequate preparations for the payment of the annuities which were to begin to accrue on June 1, 1936, but also adequately to inform carrier employees and others interested of their rights under the act and of the conditions under which their rights would be enforced. The Board was no sooner appointed than it was flooded with great numbers of requests for information from employees, employee representatives, government officers, and others.
The Board therefore immediately tackled the job of organization to take care of this flood of correspondence, to prepare requisite forms for application for benefits under the act, and to provide the administrative machinery for adjudication of applications. Many conferences were held with representatives of the Civil Service Commission for the purpose of devising ways and means whereby the Board could install an adequate staff without undue delay. With the consent of the Commission an Executive order was procured pursuant to paragraph eighth of subdivision second of section 2 of the Civil Service Act of January 16, 1883 (22 Stat. 403, 404), permitting the initial appointment to a number of executive positions in the Board without compliance with the competitive provisions of the Civil Service Act and rules, but subject to the satisfaction of the Civil Service Commission with the requisite qualifications of the appointees. Arrangements were also made for temporary appointment of subordinate personnel which could not be then taken from civil service lists and for special competitive examinations for positions on the staff not covered by existing civil service lists.
With a growing personnel, then, the Board proceeded with the task of administration, in offices in the Tower Building at Fourteenth and K Streets. Subsequently the Board moved to the building at
REPORT OF THE UNITED STATES RAILROAD RETIREMENT BOARD
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the corner of Tenth and U Streets NW., which was renovated for it and which it now occupies.
Determination of status of employers as carriers.
The Board’s chief purpose was, of course, to prepare for the certification of annuities and death benefits when they became payable. To accomplish this objective many difficult problems had to be solved. First wTas the necessity of determining who are employees eligible for benefits under the act. It is comparatively easy to recognize express companies, sleeping-car companies, or carriers by railroad subject to the Interstate Commerce Act, but two other classes of carriers are included in the definition of the term “carrier” in the act and with reference to them there are many difficulties in the way of determination. First, are the companies owned or controlled by or under common control with a sleeping-car company, express company, or carrier by railroad subject to the Interstate Commerce Act? Such companies are subject to the Retirement Act of 1935 if they perform the designated service in connection with the transportation of passengers or property by railroad. The intercorporate relationship or affiliation of such companies and the nature of their busi-
ness must therefore be investigated in each case before a determination can be made that employees of such companies are or are not entitled to annuities. No official or governmental agency has in the past made any such exhaustive investigation and the Board was therefore left to plow virgin territory. Secondly, electric railways may be subject to the Retirement Act of 1935 or they may be exempt. Whether they are one or the other depends upon the character of their operations which render them either commercial railroads or purely street, interurban, or suburban railways; and even if they are the latter they still come within the terms of the Retirement Act if they are operated as a part of a general steam-railroad system of transportation. A similar provision appears in the Railway Labor Act of 1934, and the Interstate Commerce Commission has made some determinations under the provisions of that act. But the Board was thus put under the necessity of making initial determinations in the cases of all the electric lines whose status had not previously been determined.
With reference to all the carriers under the act, whether railroads, companies, or electric lines, the Board’s task is made immeasurably more difficult because it must investigate not simply the present status but the status back to February 4, 1887, the enactment date of the original act to regulate commerce. This is so because the annuities of employees under the act are based upon their total periods of service with carriers; and therefore only service performed for a carrier while the carrier met the definition in the act may be included. Thus, a determination by the Interstate Commerce Commission that an electric line is now subject to the Railway Labor Act or even to the Railroad Retirement Act of 1935 is not sufficient for the Board’s purposes, since the Board must know also when the electric line first became a carrier as defined by the act and whether it continued to be a carrier as defined by the act during the entire period of the applicant’s service with the line. Thus, again, a logging company builds a railroad used solely in its business. Sometime later the railroad becomes a carrier. For a while it may carry solely intrastate traffic. Subsequently it begins to carry
6 REPORT OF THE UNITED STATES RAILROAD RETIREMENT BOARD interstate traffic. Some of its employees may have been in its service in all three periods. But the service to be used in computation of annuities cannot include that in the first two periods, since the road was not then a carrier by railroad subject to the Interstate Commerce Act. It is, therefore, necessary for the Board to investigate records over a long period in the past to ascertain, both with respect to past and present carriers, the beginning dates from which service may be counted.
Determination of employee status.
With reference to the term “employee” as used in the act, the Board was again put under the necessity of making considerable investigation. The term “employee” as defined includes persons who on or after the enactment date of the act are in the employment relation to a carrier and the term “employment relation” is defined in section 1 (d) as the situation existing when a person is “furloughed or on leave of absence and subject to call for service, and ready and willing to serve, all in accordance with the established rules and practices usually in effect on railroads.” The practices of the various railroads differ considerably and each must be investigated before determination can be made whether or not an applicant falls within the definition.
Wage and service records.
Again, the amounts of the annuities payable under the act are computed by multiplying an applicant’s total service period not exceeding 30 years by the stated graduated percentages of his monthly compensation which is defined as “the average of the monthly compensation paid to the employee by the carrier” excluding any compensation in excess of $300 per month. For service prior to March 1, 1936, however, monthly compensation is required to be “the average of the monthly compensation for all pay-roll periods for which the employee shall have received compensation from any carrier out of 8 consecutive calendar years of such service ended December 31, 1931.” This means that before an annuity may be computed the Board must verify, first, the service period of the employee and, secondly, his compensation during his service period. For both items the Board determined that the carrier’s pay-roll records constitute the primary source of information. In a number of cases, however, pay-roll records have been destroyed and other sources of information must be investigated.
The Board was early of the opinion that it would be inefficient for permanent administration of the retirement system to rely upon the carrier records for all purposes and that efficiency, economy, and propriety in administration would be served if the Board were able to establish a record system which would render it unnecessary to go back to the railroad records. At least for the future the Board believed that it should have current records of employees’ service and compensation.
Functional divisions of the Board.
In its plan of organization the Board provided for divisions to have charge of the various functions in administration, each division to be under the supervision of some one member of the Board. The following divisions were set up:
Office of the Secretary.
Bureau of Claims.
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Law Division.
Actuarial Bureau.
Bureau of Economics and Statistics.
Division of Review and Appeals.
The Secretary’s Office was to have charge of the following subdivisions :
Audits and Accounts.
Investigation.
Library.
Mails and Files.
Personnel.
Printing and Duplicating.
Purchases and Supplies.
Registration.
Stenographic Pool.
The Division of Audits and Accounts was to maintain the Board’s financial records and audit all vouchers.
The Division of Investigation was to conduct for the Board any special investigations that the Board might deem necessary in its administration or for the purposes of the special reports which the act directs it to make and the routine investigations necessary for the purpose of determining whether certain companies or employees are subject to the Retirement Act of 1935. It was contemplated also that this Division would make occasional checks upon the regularity of the payment of annuities.
The Registration Division was to conduct a registration with the Board of persons claiming to have an employment relationship to a carrier within the meaning of the act so that their status might be determined by the Board before the necessary evidence became unavailable and so that the Board might be apprised of the number of such persons and the funds that would be necessary to provide their annuities. By June 30, 1936, this Division had sent out 24,274 registration cards, of which number 14,623 had been returned. The Board had not then passed upon the eligibility of the registrants, though it was clear that a large proportion of them did not come within the definition of “employment relationship” either because they had returned to service, or were retired, or were physically unable to respond to a call for service.
The Bureau of Claims was to receive and pass on all claims for annuities or death benefits. This Bureau was to conduct all of the necessary investigation for the purpose of determining the employees’ periods of service and compensation records. This Bureau was to conduct all correspondence with applicants and procure proof of the necessary facts for the certification of annuities. This is, of course, the largest Bureau in the Board’s organization. The personnel of this Bureau is required to have some familiarity with railroad practice and particularly with railroad employment and compensation records. As proof of age of an annuity applicant is essential to the determination of his claim, the Bureau has enlisted the cooperation of the Bureau of Census and of various State agencies for the purpose. By June 30, 1936, the Bureau had on file 24,770 applications for benefits; and 17,600 of this number had received partial
g REPORT OF THE UNITED STATES RAILROAD RETIREMENT BOARD handling. The organization of the Bureau was similar to that under the 1934 act described in the Board’s reports, though some changes were made as a result of the experience there acquired.
The function of the Actuarial Bureau is to make the actuarial computations necessary for the payment of joint and survivorship annuities, to make general actuarial computations for the Board as a basis for determination of the funds necessary for the payment of annuities and to render the actuarial service necessary for the purposes of the special reports required of the Board. By June 30, 1936, this Bureau had made a large number of computations on a variety of matters relating to pension costs. It also prepared numerous exhibits for use in the litigation concerning the constitutionality of the act.
The Bureau of Economics and Statistics was set up to aid the Board in the special investigations referred to, conduct such investigations and render such aid as might be necessary in the defense of the constitutionality of the act, and analyze and interpret the statistical and other data that the Board is required to “gather, keep, compile, and publish.” By June 30, 1936, it had gathered considerable information for the latter purpose and had instituted and was prosecuting a series of studies with reference to both the special reports and the litigation.
The Law Division was to advise the Board on any legal problems involved in the administration of the act, represent the Board before the Interstate Commerce Commission in the electric line cases and before the courts in any matters not taken over by the Department of Justice.
Litigation on the constitutionality of the act.
On January 7, 1936, a bill in equity was filed in the United States District Court for the District of Columbia by practically all the class I railroads, the Pullman Co., the Railway Express Agency and the Southeastern Express Agency against the Railroad Retirement Board and the individual members thereof and against Guy T. Helvering, individually and as Commissioner of Internal Revenue. The bill alleged that the Railroad Retirement Act of 1935 and the act entitled “An act to levy an excise tax upon carriers and an income tax upon their employees, and for other purposes”, approved August 29, 1935, were integral parts of a single scheme to reestablish the compulsory retirement and annuity system enacted in the Railroad Retirement Act of 1934 and declared unconstitutional by the Supreme Court in Railroad Retirement Board, et al., against Alton Railroad Company, et al., 295 U. S. 330 (1935). The bill alleged that the two acts must be read together and that when so read, they were beyond the power of Congress either under the commerce clause or taxing clause of the Constitution of the United States, and further that the acts violated the due process clause of the fifth amendment and were in conflict with the tenth amendment.
The bill prayed for a permanent injunction enjoining the Commissioner of Internal Revenue from attempting to collect taxes imposed by the Tax Act and enjoining the Railroad Retirement Board from taking any step to enforce the Retirement Act, from making any order or instituting any action or taking any step toward the institution of an action designed to compel the plaintiffs or their officers to compile or furnish any of the information or records
REPORT OF TEIE UNITED STATES RAILROAD RETIREMENT BOARD 9 required to be furnished under the Retirement Act and from making or certifying to the Secretary of the Treasury any award designed to result in any disbursement by way of payment of an annuity or other benefit prescribed by the Retirement Act. The plaintiffs did not ask for any preliminary relief.
Sixteen employees of the Atlantic Coast Line claiming to represent some 2,000 employees of that railroad intervened in the suit as parties plaintiff and joined in the prayers for relief. Subsequently and before the decree was signed, some 300 short-line and terminal railroads, freight bureaus, and other associations were also permitted to intervene as parties plaintiff.
The Department of Justice undertook the defense of the suit and hearings were held before Judge Bailey from May 20, through June 18, 1936. Many witnesses on behalf of both the complainants and the respondents were heard.
The District Court opinion.
On June 26, 1936, Judge Bailey announced his opinion in the case. He stated that if the Tax Act were considered by itself it contained unusual provisions which “would seem” to make it so arbitrary and capricious as to fall before the due process clause of the fifth amendment. But, he continued, the Tax Act and Retirement Act taken together “so dovetail into one another as to create a complete system, substantially the same as that created by the Railroad Retirement Act of 1934, held unconstitutional by the Supreme Court in Railroad Retirement Board v. Alton Railroad, Co., 295 U. S. 330.” He stated that “the provisions of the two acts in question are so interrelated and interdependent that each is a necessary part of one entire scheme.” Considering the two acts as thus creating a single pension system, he concluded “that under the views of the Supreme Court in the Alton case the taxing act transcends the powers of Congress.” He disposed of the testimony offered in behalf of the Government with the statement “but whether the findings of the Supreme Court in the Alton case are findings of fact based upon the record in that case or upon facts of which that Court took judicial knowledge, it would require evidence, practically conclusive in its nature, to justify a trial court in making findings that were not in consonance with those of the Supreme Court. No such situation exists in the case at bar. The evidence is conflicting as to many questions of fact and whatever might be my individual views, I am bound by the decision in that case, which disposes of any question as to the validity of a compulsory pension system based in part upon enforced contributions from the carriers, and I feel that I am constrained, therefore, to hold that the Tax Act is unconstitutional as applied to the carriers.” He, therefore, decided to issue an injunction enjoining the Commissioner of Internal Revenue from attempting to collect taxes under the Tax Act and enjoining the Railroad Retirement Board from attempting to compel the plaintiffs to furnish the Board with the information required to be furnished under the Retirement Act.
Pursuant to this opinion Judge Bailey signed findings of fact and conclusions of law on June 30, 1936, and signed the decree on the same day. The decree declared that the Tax Act “and each and every provision thereof are void and of no effect insofar as the plaintiffs and interveners are concerned”, and enjoined the Commissioner of
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Internal Revenue and all those acting or claiming to act under his authority or by his direction from attempting to collect the taxes pursuant to that act, provided, however, that until final determination of all appeals in the case such sums as were or would be collected by the plaintiffs from their employees by deduction from the compensation paid to the employees, pursuant to section 3 (a) of the Tax Act, were to be held by the plaintiffs in special accounts subject to the order of the court, the plaintiffs reporting to the court on July 31, 1936, September 30, 1936, and quarterly thereafter, the amounts so held by each plaintiff as of May 31, 1936, and as of the last day of each respective quarter.
The decree also enjoined the Railroad Retirement Board and the individual members thereof from attempting to compel the plaintiffs to furnish the Board any information or records required to be furnished under the Retirement Act; with the proviso, however, “that nothing herein shall affect or qualify the right of said defendants to examine the records of the plaintiffs or any of them, at the expense of said defendants including all expenses that may be necessarily incurred by the plaintiffs in making said records available.”
In the conferences held with Judge Bailey concerning the exact terms of the decree, the judge expressly refused to render any decision on the constitutionality of the Railroad Retirement Act of 1935 as a whole on the ground that that was an abstract issue which the plaintiffs had no standing to raise before a court. He stated that he would confine himself solely to enjoining the Board from doing the one thing under the Retirement Act which would cost the plaintiffs financial loss, namely, requiring the plaintiffs to furnish information to the Board. For the same reason he refused to pass upon the power of the Board to certify annuities for payment. The decree accordingly left the Board free to administer the Railroad Retirement Act of 1935 subject only to its inability to require the railroads at their own expense to assemble and furnish information required for the administration.
An appeal was taken by the Government to the Court of Appeals in the District.
Relationships of the carriers and the Board after the litigation.
From the very outset, the Board, in its administration of the act, met with an obstacle in the refusal of the railroads to take any action which might be construed as a recognition of the possible validity of the Railroad Retirement Act of 1935. The railroads felt that such action might not only confuse their position in the litigation but that it might also confuse their attitude in the minds of their employees. The decision of the District Court served to confirm their conduct. Accordingly, the railroads refused to supply the Board with information as to service period or compensation of their employees and of applicants for annuities. They refused also to execute the written agreement required under section 2 of the Retirement Act in order to avoid reduction in annuity for persons who continued in carrier service after age 65 and before age 70, even though the carriers did in fact continue such employees in their service. The Board was therefore compelled to alter its plans of administration considerably. It had to prepare a field force which would cover the country at the various points where carrier records are kept and which would examine the records for the purpose of securing the
REPORT OF THE UNITED STATES RAILROAD RETIREMENT BOARD 11 information necessary for the certification of annuities. Such a field force was not contemplated for the present year when the Board’s budget was planned. The change in plan added a considerable financial burden.
Problems connected with administration of the act.
That the entrance of a governmental organization into a new field would be accompanied by unanticipated problems is to be expected. First, the experience, brief though it is, has revealed certain conflicts and ambiguities in the statute itself. First, the definition of the term “employment relation” specifies that a person, to be in such relation must, in addition to being on furlough or leave of absence from a carrier, and subject to call for service, also be “ready and willing to serve.” No test of readiness or willingness is prescribed. The employment relation provision was inserted obviously for the protection of persons who, for reasons beyond their control, are unable to reenter active carrier service; those who return to service upon call qualify as employees without reference to the employment relation. In the months since the date of enactment, employment by carriers has been expanding. Many railroads have recalled into their service all those on furlough who still possess rights to return. But there remain some persons of long service, holding rights to jobs, but unable to return to service because of sickness or disability, frequently of a permanent character. They are more than “willing to serve” but perhaps not “ready.” They regard themselves and are regarded by the railroads as employees, and they continue to receive many of the privileges of employees. It seems probable that, within a short time, the employment relation clause will prove to have been a nullity unless the language of the statute is clarified. The Board believes it to have been the intent of Congress to extend the protection of the act to all those who hold rights to work in the industry and are commonly regarded as employees except those who refuse to return upon call, although capable of service, and those who by other manifest action indicate unwillingness to serve; and clarification to accomplish this objective is accordingly recommended.
Again, the death benefit is payable to the spouse or certain other relatives of employees “receiving or entitled to receive an annuity.” Since an annuity is payable only during retirement, it has seemed to the Board that death benefits are payable only to the survivors of employees who have retired before death and are otherwise entitled to an annuity. The surviving spouse of an employee over 65 wno dies while still in service has been held not to be eligible for a death benefit. There are those who would place a different interpretation upon the language; and a clear phrasing would be desirable. It is clear that the survivors of employees who die before completing 30 years of service or attainment of age 65 are not eligible for death benefits. It is open to question whether this selection of, in any event, a small group to receive death benefits is calculated to promote best the objectives of the act. The Board is giving further study to this problem.
Second, there are certain omissions of a technical character which have nevertheless required administrative action. The act provides for certain reductions in annuities in event of retirement before 65, or continuance in service after that age without an agreement filed with the Board. The reductions are stated in terms of an
12 REPORT OF THE UNITED STATES RAILROAD RETIREMENT BOARD annual amount; the procedure when the period of time involved is not an exact year needs clarification. Again, the exact method of calculating the average monthly compensation is left to inference. To follow the exact language of the statute would require complete wage and service information on every individual, a frequent impossibility. Obviously there is no intention that employees suffer by reason of the nonexistence of pertinent data, and the Board has had perforce to prescribe by regulation the procedure in such cases. The Board proposes to recommend certain changes in the statute which will ratify its own necessary administrative actions and render such practice unnecessary for the future.
Third, the pendency of litigation has put an unanticipated strain on the statute. Reference has already been made to a reduction in annuity for continuance in service after 65 unless an agreement is filed with the Board. This agreement between the carrier and the individual employee may run for a period not to exceed 1 year and may be extended each year, but not beyond the age of 70. Persons holding official positions in the service of a carrier and employee representatives are not subject to the reduction and need not file agreements.
The carriers for the most part have refused to enter into these agreements. With the approval of the General Accounting Office, the Board has been able to work out a procedure to meet the requirements of the statute. But, while widespread publicity was given to the regulation embodying the procedure, not all those affected have learned about it.
Because of the litigation, many employees who would have otherwise retired have delayed. Several thousand employees past the age of 70 are among this group. The Board appreciates their apprehension. It is not believed that the aims of the legislation would be served by enforcing these penalties in respect of service rendered while uncertainties prevail, and the Board recommends that the reductions be applied for service after 70 beginning after the final disposition of the litigation. Experience indicates that no good purpose is served by the requirement that agreements to continue in service be filed between the ages of 65 and 70. The employee is always free to retire and the carrier is always free to enforce retirement whether or not the agreement is filed. The Board recommends, therefore, that this requirement be eliminated from the statute.
Fourth, experience with actual administration has shown that the need for examining records going back almost 50 years imposes a most burdensome task. Few railroad employees can give their employment history in the detail imposed by statutory necessities; and, even where this is done, verification of the detail is necessary. There are a variety of ways in which the laborious assembly of detailed data can be avoided. Each course, however, has a large number of ramifications and the Board does not feel it safe to make recommendations without further experience. That some simplification is necessary for satisfactory operation is clear and the Board’s staff will continue intensive studies looking to recommendations at the earliest practicable moment.
Because of the pendency of the litigation the Board has found it impracticable to conduct the study of the pension systems voluntarily maintained by the carriers.
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