Cost of removing age reduction 80-year retirement between ages 55 and 59 Item 2: You suggested it would be helpful if the Commission supplied for the record its views on why the considerations deemed to warrant 20-year voluntary retirement for military personnel are not equally applicable to the civilian service. To our knowledge, one of the most recent official assessments of the retirement provisions for military personnel was made by a study committee of eight faculty members of the University of Michigan under an August 22, 1960, authorization of the Senate Committee on Armed Services. I quote below from the report of this study committee, dated July 6, 1961, to the congressional committee, which succinctly states the concepts underlying the military retired pay system: "The military retirement system is designed to assist the Armed Forces in the recruitment and retention of effective personnel. The study committee recognized that the military profession has many special and unique characteristics which affect its personnel policies and procedures. The military retirement system, therefore, cannot be evaluated simply in terms of comparisons with other systems of retirement benefits. * * * The military retirement system, as a part of the personnel procedures of the Armed Forces, must take into account two basic factors: First, the military profession is a hazardous profession, although short of war, the hazards fall hardest on a small minority. The U.S. Government recognizes hazard as a basis for differential rates of pay for selected military occupations, in the form of hazardous or combat pay. Hazardous duty is used as a basis for retirement benefits by means of disability benefits for those who are physically and emotionally incapacitated while on active duty. Second, and more relevant for the problems of recruitment and retention, is the fact that the military profession does not offer a lifetime career. In a political democracy, no individual is guaranteed such employment opportunity but at least in civilian society, he has the potentialities for such employment and is not confronted by the fact that after 20 or 30 years he is certain to be eliminated from his basic occupation. "Defense needs since 1947 have required * * * a much larger Defense Department than was anticipated in the immediate postwar period. The active duty force has fluctuated from a low of 1,398,726 in 1948 to a high of 3,685,054 in 1952. Since 1958, the active duty force has stabilized at approximately 21⁄2 million people. To provide officers for the services, especially in the ranks corresponding to the ranks of Army captains and majors (officers who should serve from 5 to 20 years), it has been necessary to encourage many Reserve officers to remain on active duty. One method of encouraging continued service is the provisions for voluntary retirement at 50 percent of base pay (21⁄2 times years of service) after 20 years of service, with permission of the Secretary of the service. The 20-year concept, or early retirement, as it affects officers, exists for two reasons: To encourage continued service of Reserve officers and to provide another means of maintaining the vigor of the services." The concept underlying the civil service retirement system differs. Its basic purpose is to promote full or lifetime careers in the civilian Federal service aggregating from 30 to 35 years of service. The system includes liberal provisions for disability retirement and immediate discontinued-service annuity to cover those situations where disability or involuntary separation prevents the individual from serving out a full career, but these are additions to the basic age-and-service retirement provisions which are and should be designed to encourage the completion of a full career. Enclosed is a copy of an article from the Washington Post of May 21 which appears pertinent to this issue. From the import of this article, it would seem highly 99-880-63 Mr. MACY. That is correct. Senator JOHNSTON. So that would run probably into millions of dollars, isn't that true? Mr. MACY. Well, this would be an increase that would occur if the position was filled by somebody else, too. In other words, it is not a completely offsetting increase. Senator JOHNSTON. But I am dealing with this one man and with his retiremnt only-what he would receive as annunity from retirement now. I am dealing with retirement and nothing more. Mr. MACY. Correct. Senator JOHNSTON. He would get the 10 percent more on whatever volume has increased as a worker. Mr. MACY. He would draw more from the fund in terms of the amount of annuity but he would be in the system 5 years less drawing annuities. Senator JOHNSTON. That is true, he would be in 5 years less, but when he did start to draw he would draw more. Mr. MACY. That is correct. Senator FONG. Maybe he would stay in 5 years more. Actually, Mr. Macy, from the civil service the number of people that really take advantage of the retirement bill is about 10 percent? Mr. MACY. The number that take advantage of the option? Senator FONG. Yes, of the option. Mr. MACY. Yes, between 8 and 10 percent. Senator MCGEE. Are there further questions? I think for the record just one, Mr. Macy. How many years must a person work to earn to obtain the maximum here? Mr. MACY. I believe it comes out to between 41 and 42 years. Senator McGEE. That would be the most. Mr. MACY. In order to get 80 percent of the high 5 which is the maximum. Mr. RUDDOCK. Forty-one years and eleven months. Senator MCGEE. Thank you. Mr. MACY. Andy is extremely exact. Senator MCGEE. On some things. That is why we need to get equal exactness in some other categories on this if we can in order to have a fair picture of this. That is all the questions I think we have. Thank you. Mr. MACY. Thank you, Mr. Chairman. We appreciate the opportunity to testify. (Subsequently, Mr. Macy supplied the following letter in response to various requests for information :) Hon. GALE W. MCGEE, U.S. CIVIL SERVICE COMMISSION, Chairman, Retirement Subcommittee, Committee on Post Office and Civil Service, U.S. Senate. DEAR SENATOR MCGEE: In the course of the May 14, 1963, hearings on S. 176 and S. 620, before your subcommittee, the Commission was asked to provide or develop several items of information for the record. Our report in this connection follows: Item 1: As requested by Chairman Johnston, a table has been prepared showing the respective estimated costs of a 30-year optional retirement provision with full annuity at ages 59, 58, 57, 56, or 55. Cost of removing age reduction 30-year retirement between ages 55 and 59 Item 2: You suggested it would be helpful if the Commission supplied for the record its views on why the considerations deemed to warrant 20-year voluntary retirement for military personnel are not equally applicable to the civilian service. To our knowledge, one of the most recent official assessments of the retirement provisions for military personnel was made by a study committee of eight faculty members of the University of Michigan under an August 22, 1960, authorization of the Senate Committee on Armed Services. I quote below from the report of this study committee, dated July 6, 1961, to the congressional committee, which succinctly states the concepts underlying the military retired pay system: "The military retirement system is designed to assist the Armed Forces in the recruitment and retention of effective personnel. The study committee recognized that the military profession has many special and unique characteristics which affect its personnel policies and procedures. The military retirement system, therefore, cannot be evaluated simply in terms of comparisons with other systems of retirement benefits. * * * The military retirement system, as a part of the personnel procedures of the Armed Forces, must take into account two basic factors: First, the military profession is a hazardous profession, although short of war, the hazards fall hardest on a small minority. The U.S. Government recognizes hazard as a basis for differential rates of pay for selected military occupations, in the form of hazardous or combat pay. Hazardous duty is used as a basis for retirement benefits by means of disability benefits for those who are physically and emotionally incapacitated while on active duty. Second, and more relevant for the problems of recruitment and retention, is the fact that the military profession does not offer a lifetime career. In a political democracy, no individual is guaranteed such employment opportunity but at least in civilian society, he has the potentialities for such employment and is not confronted by the fact that after 20 or 30 years he is certain to be eliminated from his basic occupation. "Defense needs since 1947 have required * * * a much larger Defense Department than was anticipated in the immediate postwar period. The active duty force has fluctuated from a low of 1,398,726 in 1948 to a high of 3,685,054 in 1952. Since 1958, the active duty force has stabilized at approximately 21⁄2 million people. To provide officers for the services, especially in the ranks corresponding to the ranks of Army captains and majors (officers who should serve from 5 to 20 years), it has been necessary to encourage many Reserve officers to remain on active duty. One method of encouraging continued service is the provisions for voluntary retirement at 50 percent of base pay (21⁄2 times years of service) after 20 years of service, with permission of the Secretary of the service. The 20-year concept, or early retirement, as it affects officers, exists for two reasons: To encourage continued service of Reserve officers and to provide another means of maintaining the vigor of the services." The concept underlying the civil service retirement system differs. Its basic purpose is to promote full or lifetime careers in the civilian Federal service aggregating from 30 to 35 years of service. The system includes liberal provisions for disability retirement and immediate discontinued-service annuity to cover those situations where disability or involuntary separation prevents the individual from serving out a full career, but these are additions to the basic age-and-service retirement provisions which are and should be designed to encourage the completion of a full career. Enclosed is a copy of an article from the Washington Post of May 21 which appears pertinent to this issue. From the import of this article, it would seem highly 99-880-63 questionable to use the 20-year voluntary retirement provision for the military as a precedent for legislating a more liberal early retirement option for civilian employees. Item 3: Senator Fong inquired whether the Commission had statistics on the salary characteristics of 30-year employees retiring between the ages of 55 and 60. At the time, I indicated that our available information in this area was not recent enough to be useful and that the desired statistics would be submitted after our next valuation of the retirement sysem as of June 30, 1963. On returning to my office, I found that we do have data on this point which is quite recent (fiscal year 1961) and that we can comply with the request at Awards in fiscal year 1961 once. Item 4: You suggested it would be useful to conduct a survey of the optionally retired group to ascertain (a) their stated reasons for choosing to retire, and (b) the extent to which they engage in gainful employment after retirement. The Commission agrees that a survey of this nature would provide useful and needed information and we plan to conduct such a survey on a sample basis as soon as practicable. As was brought out at the hearings, however, the Commission did not budget for a project of this sort and it will have to be done when possible within existing limits of funds and manpower. The Commission's retirement and insurance work force is now fully committed to regular day-to-day operations plus having absorbed two added major tasks: (1) Placing into effect the retirement liberalizations and annuity increases enacted last October (payment of which was not authorized until May 17) and (2) adjusting the monthly rates of the thousands of annuitants covered under the retired Federal employees health benefits program to reflect the higher Government contribution authorized effective July 1, 1963. It is expected that these retirement and health benefits changes involving the entire annuity roll will result in a backwash of sharply increased correspondence lasting well into fall. Under these circumstances, it is not possible to predict definitely when the workload will permit diversion of the resources necessary to accomplish the proposed survey of the optionally retired group. Sincerely yours, JOHN W. MACY, Jr., Chairman. [From the Washington Post, May 21, 1963] RISING EXPENSE OF RETIREMENTS MAY LENGTHEN MILITARY TERMS (By John G. Norris, Staff Reporter) Sharply rising outlays for retirement pay may force military men to serve longer in uniform to earn retirement, Pentagon officials indicated yesterday. At the urging of the House Armed Services Committee, the Defense Department has started an exhaustive review of the future impact of present laws permitting voluntary retirement after 20 years of service. The study is directed as possible changes to reduce costs. Current estimates are that annual appropriations for retired pay will mount from $1,017 million this year to $2 billion in 1970 and more than $4 billion in 1980, as hundreds of officers and career enlisted men who entered service in World War II and in the expanded peacetime forces since then earn their pensions. Officials emphasized that the study is just getting underway and there will be no decision for months. But they said there seemed no way of holding down costs other than by lengthening the minimum service for retirement to perhaps 25 years. One alternative being considered is stepped-up pay for persons with unusual skills who would stay on for 30 years and reduced pay for those who retire after 20 years. Another is the possible withholding of retired pay after leaving the service until a fixed age, plus Government help in establishing a second career. A major obstacle to such moves is that they would discourage capable men from making the service a career by slowing promotions and cutting retirement benefits. The services want young and highly able men to man modern weapons. The problem is most acute in the enlisted ranks. A majority of men elect to take their lifetime pensions after 20 years of service, while still in their early forties or younger. Most officers started older, and want to stay in longer unless forced to retire after failing to get promotions. Pentagon chiefs reject suggestions that a contributory system-such as is in effect in the civil service and industry-be adopted. They say it would cost more as the Government would have to refund the contributions of those who serve less than the required number of years. Senator MCGEE. Mr. Macy has referred to S. 620. I know that other witnesses will be referring to Senator Fong's bill. I shall order that it be placed in the record at this point so that it will be a part of the official record. (S. 620 is as follows:) [S. 620, 88th Cong., 1st sess.] A BILL To amend the Civil Service Retirement Act so as to permit retirement of employees with thirty years of service on full annuities without regard to age Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That (a) section 6(a) of the Civil Service Retirement Act is amended to read as follows: "(a) Any employee who completes thirty years of service shall, upon separation from the service, be paid an annuity computed as provided in section 9." (b) Section 6(b) of such Act is repealed. (c) Section 9(d) of such Act is amended by striking out “6(b) or”. SEC. 2. The amendments made by the first section of this Act shall be effective only with respect to persons separated from the service on or after the date of enactment of this Act. SEC. 3. Notwithstanding any other provision of law, benefits under the Civil Service Retirement Act resulting from the enactment of this Act shall be paid from the civil service retirement and disability fund. Senator MCGEE. The next witness is Phillip S. Hughes, Assistant Director for Legislative Reference, Bureau of the Budget. STATEMENT OF HON. PHILLIP S. HUGHES, ASSISTANT DIRECTOR FOR LEGISLATIVE REFERENCE, BUREAU OF THE BUDGET, ACCOMPANIED BY DAVID MCAFEE, PERSONNEL MANAGEMENT BRANCH Mr. HUGHES. Thank you, Mr. Chairman. With me is Mr. Dave McAfee, Personnel Management Branch. Mr. Chairman, I would first ask that our report on S. 176 and S. 620 be placed in the record. Senator MCGEE. Your report will appear at this point in the record. |