Committee on Economic Security (CES)
Volume II. Old Age Security
Final Staff Report
OLD AGE SECURITY STAFF REPORT
OLD AGE SECURITY STAFF REPORT
To Mr. Witte
At the time of the last Census (1930) there were six and a half million people 65 years of age and over in the United States. They constituted 5.4% of the population. As a result of a declining birth rate in this country, which manifested itself about 1820 and persisted from that time, the ratio of aged persons has shown a continuous growth from the date. The increase was very slow for 40 years, more rapid from 1860 on, and noticeably accelerated between 1920 and 1930. The latter was due to a rather sharp decline in birth rate which set in about 1920. This decline is expected to persist, moreover, and will of course produce a correspondingly sharp increase in the ratio of the aged to the population as a whole. The recent improvement in mortality rate makes its contribution to this situation.
As the following table shows, while the ration of the aged to the total population increased 74% in the 60 year period prior to 1920, it is expected to increase over 140% in the 60 year period following 1920.
|Ratio of Aged General Population: 1860 - 1980 (By Decades)|
|1890||3.9 (74%)||1950*||7.7 (140% increase)|
*This forecast includes survivors of assumed net immigration of 100,000 annually in years 1935-1939 inclusive, and 200,000 annually in 1940 and thereafter. There will be more than twice as many aged in 1960 as there were in 1930.
The mechanization of industry, which has become an increasingly important factor in our present day economy, has a significant bearing upon the chances which this growing number of aged persons now have, or in the future will have of preserving their economic independence. This mechanization has placed an increasing emphasis upon youth, physical strength and ability to stand nervous strain. This has resulted in increasing employment difficulties for middle aged and older workers. The popular impression that the older worker finds difficulty in either obtaining or keeping employment, and that his problem is a growing one, is supported by findings of official investigation, such as that made in New York, California, and Maryland. Although such graphic phrases as "old at forty" and the "Scrap heap at forty-five" suggest an exaggeration of the actual facts, there is undeniably evidence of the progressive use of maximum hiring age limits.* These limits automatically cut off employment opportunities of men who find themselves in the labor market in middle life. There seems to be no proof of a general policy of dismissal of older workers. It is likely that the statement made in the New York report on the older worker in industry is a fair statement of the general dismissal and employment system, to-wit: If the worker has reached middle age with a long service record, he is likely to be dismissed than the younger worker. This is because he possesses positive value for his firm. If, however, the older employee has served only short periods in the employ of any one firm in his years under forty, he is just as likely to be dismissed as any younger worker.* In all cases the older man is far less apt than the younger worker to secure new employment.
*See Maryland, Commissioner of Labor Statistics, "The Older Worker in Maryland," 1931, pp. 9 and 10; also California Dept. Of Industrial Relations, Special Bul. 1 and 2, "The Middle Aged and Older Workers," 1930, pp. 7-14; also, New York, "The Older Worker in Industry," a report to the Joint Legislative Committee on Unemployment prepared under the auspices of the Continuation Committee of the N.Y. State Commission on Economic Security, 1933, Chapters 10 and 11.
Briefly, the above statements mean that in times of normal business activity, the older worker with a long service record has a fair degree of security while the man who reaches middle age without a long service record has no security at all.
Both the Maryland and California surveys of age distribution in their local industries indicated that beginning with the age groups 40-44 years, there is a tendency toward lessened employment for wage earners in mechanical and manufacturing industries, and in retail trade. With each five year age group after 40 years is passed, the ratio in each employment group is less than that in the corresponding population age group.** Analysis of a sampling study of persons working or seeking work who were in receipt of federal emergency relief in May 1934, reflects this employment difficulty of the middle-aged and older worker.*** The percentage of persons that had been unemployed for long periods of time was progressively larger with each age group beyond the age of 44, as is indicated in the table below.
*See "The Older Worker in Industry", a study of New York State Manufacturing Industries, by Solomon Barkin, a report prepared under the auspices of the Continuation Committee by the N.Y. State Commission on Old Age Security.
**See "The Older Worker in Maryland", - Commissioner of Labor and Statistics, 1931, pp. 12 and 13, and pp. 30 and 31. Also "Middle Aged and Older Workers in California", California Dept. Of Industrial Relations, Special Bul. 1 and 2, 1930, p. 53; and of, U.S. Census, Vols. I and IV..
***Tables prepared through the courtesy of the statistical dept. of FERA.
|Persons with Previous work experience at Non-Relief Employment Seeking Work. Classified by Length of Time since last Non-Relief Employment of Four Weeks or More and by Age|
Time Since Last Non-Relief Employment
65 and over
|Under 6 months||1,609||16.1||467||25.4||788||16.0||230||12.0||98||10.1||26||7.7|
|6 to 11 months||1,611||16.1||414||22.5||803||16.2||252||13.1||105||10.8||37||10.9|
|12 to 23 months||1,873||18.7||378||20.6||943||19.1||333||17.3||172||17.8||47||13.9|
|24 to 35 months||1,809||18.1||269||14.6||906||18.3||385||20.0||182||18.8||67||19.8|
|36 to 47 months||1,364||13.6||165||9.0||654||13.2||320||16.6||168||17.3||57||16.9|
Unknowns distributed in computation of percentages.
That this situation is general is indicated by an analysis of census data which shows that the ratio of the five year groups beginning with age 40 to 45 to the estimated total number of the wage earners and salaried employees other than principal officers is progressively smaller than the corresponding general population ratio.
With the enormous shrinkage in employment brought by the recent severe depression, large groups of these normally secure, competent older workers have been discharged. There is, as a result, an aggravated problem of "the older worker in industry" at the present time.
The small shop and business, moreover, which formerly absorbed a considerable percentage of older workers who dropped out of more strenuous industrial pursuits, is becoming less and less the typical establishment. This trend is cutting off economic opportunities previously open to men and women who had passed their peak of physical activity and had reached their slowing down period.
As a result of these industrial trends what may be described as "economic old age", i.e., permanent inactivity and consequent cessation of earnings, begins in many cases well down in middle life, often antedating by a considerable number of years the period of physiological old age.
Obviously, if a lengthened permanent period of non-earning is to be weathered without economic dependency in old age, there must be increased earnings during working years. Analysis of wage trends, however, such as that made by Professor Paul Douglas in his "Real Wages in the United States", offer little hope of such increase on the basis of our American experience between 1890 and 1928*. Popular impression of great increased earnings in this country during the last four decades prove on analysis of real rather than nominal earnings to be based more upon fiction than upon fact. The savings account situation also has been popularly misrepresented. Even were the gain in the size of the average savings deposit attributable to wage earners' savings account, (which of course is not so) there would be no basis for a claim that the reserves of workers had increased in the fifteen years prior to the depression. The average savings account increased 29% between 1925 and 1928 but the value of the dollar decreased almost 40% during this same interval.**
The study made by the New York Commission on Old Age Security of deposits in Mutual Savings banks, (considered the chief depository of the wage earners) presents a similar picture. Gain made in the size of deposits in the decades before the 1929 crash was more than counterbalanced by the drop in the value of money. In result, the average real deposit decreased rather than increased during this period.***
Accumulations of many working families were lost in the business and bank failures of 1929. These losses have been added to by the inroads made upon savings caused by the widespread unemployment since that time. This situation will be reflected in the figures not only of contemporary old age dependency, but also in the old age problem for at least the next thirty or thirty-five years. Those workers who have lost their life savings at forty will have small prospect of recouping them before their earning period is over.
*See Paul Howard Douglas, "Real Wages in the United States," 1890-1926, and Postlude, Pollak Foundation Publications No. 9.
**See Savings Deposits and Depositors in Banks and Trust Companies of the United States, compiled and published by the Savings Bank Division, Amer. Bankers Assn., N.Y. 1930, p. 7; and see M.L.R., Feb. 1930, p. 241, or cost of living index number, 1913 - 100, 1928 - 170.
***See N.Y. Com. on Old Age Security Report, 1930, p. 177.
How many of the aged persons at present in this country are without sufficient means of self-support is a question which can be answered only in estimated figures. Like all other statistics of major social problems, those bearing on old age dependence must be built up for the country as a whole from merge samplings. The only reliable data on the whole old age dependency situation are to be found in the surveys conducted in individual states, most of them made in the pre-depression period. In their investigation, these states have accepted as "insufficient subsistence income," for self-support, less than $25 a month. Connecticut (1932), New York (1929) and Wisconsin (1925) found that nearly 50% of their aged population (65 years of age and over) had less than subsistence income. Moreover, nearly 34% of the population in Connecticut had no income whatsoever. Over 1/5 of the Wisconsin aged had less than $8 a month.
Considering both property and income as a test of dependency (on a basis of less than $5000 property and less than $300 a year income), well over 30% of the aged were dependent in all three of the above mentioned states as well as in Massachusetts (1925 survey). In the latter survey, and in the study made by the National Civic Federation, both property and income owner jointly by old couples were counted at full value for each member of the couple, thus understating dependency estimates. Two of the studies made refined analysis of data that show that the ration of dependency (judges by the combined property and income test) is markedly heavier for single individuals living alone than for married couples (see Appendix A to this report, page 4). In several of the states from 30 to nearly 50% of the aged were found to be dependent upon relatives or friends. As a corollary, a heavy proportion of those receiving public aid were single or "childless" individuals.
Beyond the fact that about 700,000 old people are members of families that receive federal emergency relief and 180,000 are in receipt of old age assistance grants, it is not known how many old people are being supported from public funds. As no almshouse survey has been made for more than ten years, the public poorhouse population is not recorded. Records of the almshouse population in 121 urban areas kept by the U.S. Children's Bureau, however, indicate a sharp increase in this institutional group amounting to nearly a 75% gain between 1929 and the end of 1933. Of the aged in private institutions, endowed and semi-endowed, there is no count. No clearing house exists to furnish statistics of either private or public local charitable assistance to old people not in institutions.
Despite lack of complete statistics, however, it can be said with conviction that there has been for some years a very substantial economic problem of old age in the United States, which has been directing public interest toward old age security legislation as it has developed in other countries.
OLD AGE SECURITY BOARD
Twenty countries abroad, including all large continental nations and many small ones, have enacted legislation for the protection of workers through contributory insurance. In addition to these twenty countries which have legislated old age insurance for their industrial population, there are general old age insurance schemes operative in several Swiss cantons as well as limited systems in five nations in Central and South America. The latter give protection to selected groups of workers, chiefly railroad workers, seamen, and employees of public utilities and banks. Most of these laws, including both those of general and those of restricted coverage, insure against invalidity as well as old age, and two-thirds of them also include survivor's insurance, i.e., pensions for the surviving widow and children in the event of the insured worker's death. In the British Dominions and a half dozen other countries, by a non-contributory plan, the state provides a gratuitous pension on proof that the aged person has insufficient income for self-support and has been guilty of no serious misconduct.
Both France and Great Britain, in setting up their contributory old age insurance schemes, recognized that there would always be a small residual group of needy aged from higher income and other uninsured economic groups who would not be eligible to insurance benefits. They have therefore retained their non-contributory plans to provide pensions for these men and women.
The table below lists these countries and indicates coverage and dates of old age insurance and pension legislation through 1933.
|OLD AGE INSURANCE AND PENSION LEGISLATION IN FOREIGN COUNTRIES THROUGH 1933 (1)|
A. Compulsory Contributory Old Age Insurance Laws of General Coverage
Year when Passed
|Austria (I, S)||1927||Workers in industry and commerce,
inc. domestic workers, except casual domestics.
Special schemes for agricultural workers, salaried employees, and miners.
|Belgium (S)||1924||All wages earners, inc. agricultural
workers and domestics (except casual domestics); and independent workers
with incomes below 18,000 fr. a year.
Special schemes for salaried employees and miners.
|Bulgaria (I, S)||1924||Employed persons, inc. agricultural
workers and domestics.
Special schemes for public officials
|Chile (I)||1924||Wage earners under 65 earning less than 8000 pesos a year; independent workers with annual incomes below 8000 pesos a year.|
|Czechoslovakia (I, S)||1924||Employed workers over school age
and under 60, inc. agricultural, domestic, and home workers.
Special schemes for salaried employees, miners, state employees, employees of statutory corporation, such as railways.
Special act for independent workers, passed in 1925, not yet enforced.
|France (I, S)
See also Section C.
|1910||All employed persons under 60 whose
earnings do not exceed 18,000 fr, a year in cities with over 200,000
inhabitants or industrial areas, 15,000 fr. elsewhere. (Income limit
raised by 2,000 fr. in respect of each child.)
Persons employed in agriculture subject to insurance against old age and death only.
Special scheme for miners.
|Germany (I, S)||1889||All workers, inc. agricultural, domestic,
and home workers.
Special scheme for salaried employees with annual earnings below 8,400 RM.
Special schemes for miners.
|Great Britain (I, S)
See also Section C.
|1925||All workers, inc. agricultural workers and domestics; salaried employees with incomes below 1250 a year.|
|Greece (I, S)||1932||All persons employed in industry and commerce.|
|Hungary (I, S)||1928||All persons employed in specified
employments. Employments may be added by Minister's order. Salaried
employees with incomes below 6000 pengo a year.
Special scheme for miners.
|Italy (I)||1919||All employed persons, inc. agricultural and domestic workers. Salaried employees with incomes below 800 lire a month.|
|Luxemburg (I, S)||1911||Workers in industry and commerce.
Special scheme for salaried employees in industry and commerce.
|Netherlands (I,S)||1913||All employed persons, inc. agricultural
and domestic workers, whose annual remuneration does not exceed 2000
florins. Insured persons whose remuneration rises above 2000 florins
remain liable to insurance. If their remuneration has been above 3000
florins for some time, they are exempted at their request.
Special schemes for railway workers and miners.
|Poland (I, S)||1933||All workers in commerce and industry. Insurable wage limit.|
|Portugal (I)||1919||All employed persons over 15 years earning less than 900 escudos annually.|
|Rumania (I)||1912||All persons employed in industry
and commerce, and craftsmen.
Special scheme for miners in Ardeal, which includes survivors' insurance.
|Spain||1919||All employed persons whose annual earnings do not exceed 4000 pesetas. Domestic servants excluded.|
|Sweden (I)||1913||All citizens between 16 and 66 years unless already guaranteed pension under army, navy, etc.|
|U.S.S.R (I, S)||1922||All manual workers; engineers and skilled technical workers; navigating staff in civil aviation; various categories of salaried employees.|
|All wage earners except household
casuals, farm labor, and sea fishermen (Not yet enforced)
All workers and other persons employed under Mining Act.
Salaried employees in Slovenia and Dalmatia who have reached age 18 and whose annual earnings are not less than 150 dinars.
(1) Compiled from Compulsory Pension Insurance, International Labour Office, Studies and Reports, Series M, No. 10, Geneva, 1933; Non-Contributory Pensions, International Labour Office, Studies and Reports, Series M, No. 9, Geneva, 1933; Insuring the Essentials, Barbara Nachtrieb Armstrong, 1932.
I - Old Age insurance combined with invalidity insurance.
S - Old Age insurance combined with survivors' insurance.
B. Compulsory Contributory Old Age Insurance Laws of Limited Coverage
Year when Passed
|Argentina (I, S)||1921
|Public utility employees
|Brazil (I, S)||1923
Staffs of public utility undertakings.
|Cuba (I, S)||1927||Seamen and harbour workers.|
|Ecuador (I)||1928||Staffs of banks.|
Canton Glarus (I)
Basle Town (S)
Legal residents between ages 17 and 50.
All legal residents between ages 18 and 64.
All persons between ages 20 and 65 who have been resident in the canton for two years.
|Uruguay (I, S)
See also Section C.
|Staffs of public utility undertakings.
Staffs of banks and stock exchange.
C. Non-Contributory Old Age Pension Laws
|Australia (I)||1908||All citizens with insufficient income, resident 20 years.|
|Canada||1927||All citizens with insufficient income; resident in Canada 20 years, in province 5 years.|
|Denmark||1891||Citizens with insufficient means, resident 5 years.|
See also Section A.
|1905||All citizens with insufficient means.|
See also Section A.
|1908||Citizens with insufficient means; 12 years' residence since age 50 for natural-born citizens; 20 years' residence in all for naturalized subjects.|
|Greenland||1926||All Greenlanders without subsistence income.|
|Iceland||1909||Citizens with insufficient means.|
|Irish Free State||1908||Citizens with insufficient means, resident 30 years.|
|Newfoundland||1911||All citizens with insufficient means.|
|New Zealand||1898||Citizens with insufficient means and 25 years' continuous residence.|
|Norway (will not go into effect until announced by Royal Decree)||1923||All citizens with insufficient income.|
|South Africa||1928||All citizens (of 5 years standing) with 15 years' residence out of preceding 20 years; other persons with 25 years residence out of preceding 30 years; insufficient income.|
See also Section B
|1919||All persons with insufficient means. (For naturalized subjects or aliens 15 years' residence is required).|
I - Old Age insurance combined with invalidity
S - Old Age insurance combined with survivors' insurance.
General interest in old age security manifested itself in Europe about the middle of the 19th century. The earliest legislative efforts were made in Belgium, France and Italy. Purely voluntary old age and invalidity funds were set up and offered to the working population for the purchase of small old age annuities. Very little, however, was accomplished for the wage earners by this voluntary insurance. Even the addition of substantial governmental subsidies did not include many workers to make provision for themselves.
Subsequent legislation toward old age security followed two patterns. One was that of non-contributory pensions "for the aged and deserving poor" on a plan similar to that adopted in 1891 by the pioneering pension country, Denmark. The other was that of compulsory contributory old age insurance adopted by Germany in 1889 and patterned after that of the customary miner's funds that had existed in European mining communities since the Middle Ages.
By the outbreak of the World War, gratuitous pensions had been established in Denmark, Great Britain, New Zealand, Australia, Newfoundland, and Iceland and nominally in France, while contributory insurance had been instituted in Luxemburg, Roumania, and Sweden, and legislated for later operation in the Netherlands.
Since the war, two British dominions, Canada and the Union of South Africa, one South American state - Uruguay and the island of Greenland have established gratuitous pensions, while Norway had enacted a pension law but deferred its operation. In this same period, fifteen countries, including France, Great Britain, and Italy, have legislated and organized general contributory old age insurance measures. A half dozen other nations have established insurance schemes for selected industrial groups.
The shift of interest abroad from gratuitous pensions to contributory insurance has been prompted mainly by two considerations: (1) the wide-spread objections to the "means test" basis of the non-contributory pensions and the desire to make pensions available as of right on arrival at old age; (2) objection to the financial strain upon the public exchequer occasioned by the increasing percentage of aged persons who qualified as in need of help and therefore entitled to pensions.
A tabular summary of the principal provisions of the foreign non-contributory old age pension laws will be found in Appendix B of this report.
The most significant post-war incident in old age security legislation abroad was Great Britain's insurance act of 1925. England's pervious choice of the gratuitous pension approach to the old age security goal had strongly influenced American thinking. Her acceptance of the contributory insurance principle after nearly a generation's experience with gratuitous pensions is of special importance to the United States. It is of major interest, moreover, that pensions were made payable to the insured workers as of right, shortly after the institution of the contributory plan. This was made possible by the government providing the necessary funds for the older workers. The scheme will ultimately be self-sustaining.
The French old age insurance scheme, which was included in her general social insurance bill of 1928, also merits special mention on the score of transitional arrangements, i.e., the provisions made for older workers. Casual reading of the measure might suggest that little security was afforded this class of insured persons, as only a benefit proportioned to their years of insurance is guaranteed them. The clause of minimum pensions, however, modifies this situation radically and ensures all pensioners who have been insured at least five years (no pension being due for a shorter insurable period) annuities which amount to 5/6 of the normal full pension of the lowest paid workers and nearly ½ of the normal full pension of the nest stratum of the insured. Thus, at least a subsistence pensions is guaranteed all annuitants from the year of initial payments.
All of the insurance systems except those of Sweden and the three Swiss Cantons which cover the entire population, restrict their coverage almost exclusively to employed workers. From the standpoint of needed protection an old age insurance scheme of course should include all persons of low earnings whether self-employed persons or wage earners. The practical difficulty of collecting from the independent workers, however, has stood in the way of their inclusion on a compulsory basis. All of the administrative problems of a poll tax are involved. It is on practical and not theoretical grounds that the usual coverage of old age insurance laws is confined to persons who can be reached through their employers.
It is worth noting that a Czechoslovakia measure enacted in 1925 calling for a separately organized insurance scheme for independent workers has not yet been put in operation. It should also be mentioned that Sweden's experience has resulted in contribution delinquencies in industrial centers running well over 40%, which suggests that her broader coverage is more nominal that factual. Chile's system includes independent artisans and several of the European laws cover certain selected classes of self-employment.
Contribution from both employers and the insured workers are required in all these systems except that of Soviet Russia, Spain, and the Netherlands. In all of the countries except Russia, the government contributes either by paying part of the premium or, more commonly, by adding to the annuities which contributions will yield.
In Russia the entire cost of the insurance is assessed to the employer which is in most cases the state itself. In Spain and in the Netherlands the insurance cost of small basic pensions is shared by employers and the Public Exchequer. Employees contribute if they desire ti do so in order to secure annuities more adequate than the basic pensions. The British old age insurance scheme, like the other parts of her social insurance program, is based upon uniform contributions and uniform pensions, while the continental systems relate both their contributions and their pensions to the wages of the insured person. The British scheme has the great advantage of simplicity. It could be effective, however, only in a country without substantial variations in the cost of living.
The pension amounts, stated in terms of foreign currency, mean little if anything to most Americans. For purposes of illustration a comparative table which states the old age pension amounts as a percentage of the engineering laborers wage in each of the countries is included in the Appendix C to this report.
To turn from the imposing picture of old age security provision in the rest of the western world to the situation in the United States, is to turn to a picture dominantly characterized, by utter neglect. This is true despite the fact that a series of state commissions began almost 30 years ago to investigate the plight of the aged, and that shortly thereafter the American Association for Labor Legislation and the fraternal Orders led by the Eagles, began to push for legislation in aid of the needy aged. Until ten years ago the only permanent provision made by almost all of the states for the needy aged was through the medium of the so-called "almshouse" or "poor farm". The indecent conditions existing in the majority of these institutions were made known in a book by Harry Carroll Evans published in 1926 by a group of fraternal organizations. This book summarized the findings of the surveys of American Almshouses conducted by these organizations, with the aid of special examiners from the United States Bureau of Labor. Insufficient and unfit food, filth, and unhealthful discomfort characterized most of them. Even in the sanitary and physically suitable buildings, feebleminded, diseased, and defective inmates were customarily thrown in with the dependent aged.
The cost of maintaining old people in these institutions, as was revealed by a financial survey of almshouses made by the Federal Bureau of Labor in 1925, was high and most of it went for inefficient "overhead".
Stimulated by the facts disclosed in these two reports, the drive for regular non-institutional aid for needy old people made more progress. A series of measures variously described as "old age pension," old age assistance", "old age relief", and "old age security" acts were enacted by state after state, totaling 18 by the middle of 1931 and 8 with two additional territorial laws by the middle of 1934. They offered to citizens of long residence who had small assets and no financially competent relatives, monthly grants to enable them to maintain themselves outside of institutions. The maximum monthly sums available ranged from $10 to $30, (the latter being the commonest figure). New York and Massachusetts put no maximum on their possible grants.
The early measures made the county the fiscal unit. More than a third now call for state aid to the counties and seven make the state the responsible unit.
The most important legislative achievement for old age security in the United States is the Railroad Retirement Act passed by the last Congress. This established contributory old age annuities for employees of steam railroads, sleeping car companies, and express companies. Credit toward annuities is guaranteed the older workers so that the system may function for them as well as for the young men just commencing their services. The scheme is fully contractual in that the worker who leaves railway employment before reaching the age of sixty-five is entitled to the annuity due him on the basis of the number of his years of railway service.
Annuities vary with the wage and the number of years of service. A higher percentage of the first $50 of wages is used in computations so that the annuity drawn by the lower paid worker constitutes a higher percentage of his average wage than the annuity of the better-paid man. This is not only sound public policy, as the low-paid worker needs a higher ratio of his wage for subsistence, but it is also based on insurance principles. The low-paid worker receives the highest wages of his life during the years prior to fifty or fifty-five, after which his wages rapidly diminish. He has, therefore, paid contributions on the higher wage during the earlier years of his life and these contributions have been long at interest. The reverse situation is typical of the worker in the higher wage groups.
The "old age pension" statutes previously discussed mark the first step away from complete and shameful neglect of the old age problem in the United States. Even with their limited functioning they have enabled 180,000 destitute old people who have no family able to support them, to escape the miserable almshouse existence to which all needy aged persons previously were doomed. One of the serious limitations of these measures is the long residence qualifications, 15 years or more, which most of them provide. In this regard a sampling survey made by the F.E.R.A. in six cities is pertinent. A table presenting the results of this survey is shown in Appendix D to this report. While a very great variation in the influence of the residence requirement exists in the various states, it seems, from this sampling investigation, that a reduction of the residence requirement to five years in the last ten before applying for assistance, would include most of the old people and yet not fasten upon the states the burden of providing special assistance for mere transients.
It must be conceded, however, that the maximum possible grants in some of the acts are inadequate for comfortable existence, and that actual grants, as information recently gathered indicates, have fallen in some states even below general relief standards.
In only sixteen of the states were the measures functioning at all by the end of 1933, and only six more have commenced activity since that time. Moreover, the grants were given throughout the whole state in only eleven states and one territory. Even in the "functioning" states, the grants have not provided what the law required. To quote from the recent report made by the U. S. Bureau of Labor Statistics, "sharply curtailed benefits and refusal to take on new pensioners, even the discontinuance of the system altogether until times improve, are some of the measures to which the pension officials have been forced. In certain other jurisdictions, the result has been to crystallize the plan and to build up a waiting list as large or larger than the number of actual beneficiaries."
Recent data obtained by the Committee from the various states are shown in Appendix E of this report.
PROPOSED OLD AGE SECURITY PROGRAM FOR THE UNITED STATES
In entering upon an exposition of practical proposals for old age security, it should be repeated that the "poorhouse" and "almshouse" method of providing for all aged dependents has been rejected by thinking opinion as both wasteful and inhumane. Non-institutional assistance for those who are not in need of institutional care has become an accepted standard of decent provision for the dependent aged.
In popular debating of proper plans for the aged in an economic security program, there has been much discussion of choosing between non-contributory old age pensions and contributory old age insurance. It seems apparent, however, that an old age security program involves not a choice between gratuitous pensions and contributory insurance, but a combination of the two. It seems equally apparent that only gratuitous pensions can serve to meet the problem of the millions of persons who are already superannuated or shortly will be so and are without sufficient income for a decent subsistence. Contributory insurance financed exclusively by workers and their employers obviously offers no solution of the problems of the near future. It can, on the other hand, enable younger workers with the aid of their employer gradually to build up their right to annuities in their old age. Insurance annuities are unquestionably to be preferred to non-contributory pensions. They come to the workers as a right, whereas the gratuitous pension must be conditioned upon a "means" test. The gratuitous pension, moreover, in fairness to the legitimate demands of other needy groups, must hold all grantee down to a minimum standard. Insurance annuities, on the other hand can be ample for a comfortable existence, bearing some relation to customary wage standards.
Contributory insurance could be expected in time to carry the major, but never the entire load. Administrative problems stand in the way of insuring all workers who need old age protection. Moreover, it may always be expected that some persons from higher income groups will come to financial grief and dependence in old age. Non-contributory pensions, even in the long--time old age security planning, have a definite place.
The old age security program here proposed comprises three separate schemes:
(1) A federal system of grants-in-aid to the state old age assistance laws.
(2) A national, compulsory, old age insurance system covering such employed persons of small earning capacity as can be reached practically by such an insurance scheme (supplemented by certain voluntary provisions).
(3) A system of individual old age annuities for persons of low and moderate incomes not covered by the social insurance scheme.
No provision for any type of institutional maintenance is proposed. Yet there are, of course, aged persons who, while not needing hospitalization, do require constant custodial care. The almshouse or poorhouse of most of the states is, of course, a most unsuitable answer to their needs. The staff is aware of this situation, but feels that lack of factual data bearing on these county institutions and their inmates prevents intelligent planning for this problem now. It therefore recommends that the United States Department of Labor undertake at once a special survey of such institutions with a view to working out a constructive program for the improvement of institutional maintenance of the aged.
Non-Contributory Old Age Pensions.
As has been stated previously in this report, there are now twenty-eight states and two territories with old age assistance laws, which professedly offer varying standards of aid to aged persons, granted upon differing conditions. Six of these laws are practically non-functioning. Four are just getting under way. Many of the others, through financial pressure, have cut benefits below a proper minimum, and have long waiting lists of needy persons. It would seem quite clear that due to the financial limitations of many of the states and the indifference of others, state action alone cannot be relied upon to provide either adequate or universal old age assistance.
It is recommended
(1) That the federal government enter this situation by offering grants-in-aid the states and territories which provide old age assistance for their needy aged under plans that are approved by the federal authority, such plans to include proposed administrative arrangements, estimated administrative costs, and the method of selecting personnel;
(2) That the grants-in-aid constitute one-half of the expenditures, including administrative expenses, for non-institutional old age assistance made by any state or territory under a plan approved by this federal authority, provided that in computing the amount of said grants-in-aid, not more than $15.00 per month shall be paid in federal subsidy on account of assistance Provided for any aged persons in such state or territory, nor more than 5% of the total expenditures for assistance on account of administration;
(3) A state or territory, on account of administration, shall be permitted to impose qualifications upon the granting of assistance to needy aged persons, but it should be stipulated in the Congressional statute providing for the grants-in-aid that no plan shall be approved by the federal administrative agency unless it
(a) is State-wide or territory--wide, and if administered by subdivisions of the State or territory, is mandatory upon such subdivisions; and
(b) establishes or designates a state welfare authority which shall be responsible to the federal government for the administration of the plan in the State; and which shall administer the plan locally through local welfare authorities; and
(c) grants to any claimant the right of appeal to such State authority; and
(d) provides that such State authority shall make full and complete reports to the Federal administrative agency in accordance with rules and regulations to be prescribed by the Federal Administrative agency; and
(e) provides a minimum assistance grant which will provide a reasonable subsistence compatible with decency and, health, provided that in the event that the claimant possesses income, this minimum grant may be reduced by the amount of such income, and
(f) provides that whether or not assistance shall be denied to certain needy aged persons, it shall be granted at least to any person who
(1) is a United States citizen; and
(2) has resided in the State or territory for five years or more, within the ten years immediate preceding application for assistance; and
(3) is not an inmate of an institution; and
(4) has an income inadequate to provide a reasonable subsistence compatible with decency and health; and
(5) possesses no real or personal property, or possesses real or personal property of a market value of not more than $5,000; and
(6) is 70 years of age or older; provided that after January 1, 1940, assistance shall not be denied to an otherwise qualified person after he is 65 years of age or older; and
(g) provides that at least so much of the sum paid as assistance to any aged recipient as represents the share of the United States government in such assistance, shall be a lien on the estate of the aged recipient which, upon his death, shall, be enforced by the State or territory, and the amount collected reported to the Federal administrative agency.
Estimates of future subsidy costs like all forecasts must of course be offered as probabilities rather than certainties. The staff has predicated the estimate which they present on an assumption which they feel is liable to error on the side of understatement of the problem. The data that were studied as a basis for the estimate include material collected and analyzed by the several state commissions on old age dependency, statistics of the functioning of state old age assistance laws, and. the history of the functioning of gratuitous pension laws elsewhere in operation, particularly those of Denmark, Australia, and Canada. The average pension amount used, $20, is undoubtedly too low for the period covered. This is felt to be counter-balanced by the fact that the increase in the ratio of dependency may well be less rapid than that which is counted upon in this estimate.
The staff is convinced that, however the actual figures may vary from those presented, i.e., whether they will, be more or less in any one year projected, the trend indicated in the following table will be inescapable. There are several reasons for this conviction. The assurance of the old age pension in case of need, a pension which is sponsored by the federal government, tends to produce in the minds of the population a feeling that the pension is available in old age as of right. This reflects itself in the attitude of children toward supporting their parents and puts pressure upon the administrators of the pension laws, which sends the pension ratio up. Moreover, the very principle of the gratuitous pension, that is, that the less income the applicant has, the more pension he receives, and vice versa, has an effect which is the inverse of inducement to thrift. The number of aged persons who arrive at old age without any income is actually increased.
The following estimates of the cost of the federal subsidies under the proposed plan on the assumptions suggested by the staff and indicated in the heading, has been prepared by the staff actuary. These estimates were not concurred to by the staff actuaries nor by the actuarial advisory board. These actuaries present estimates showing substantially larger projected costs, which are found in Appendix G of this report.
I. AMOUNT OF FEDERAL SUBSIDY (OLD AGE ASSISTANCE)
Assuming: (1) dependency ratio of 15% in 1936, increasing thereafter
to maximum of 40% in 1961 and subsequent years; (2) average grant
of $20 per month; (3) federal subsidy of one-half payments, and
one-half administrative costs.
* Full year cost reduced for administration lag.
Note: This table is based on the assumption that there will be no contributory system in effect. Estimates of the amount of federal subsidy assuming the existence of a contributory system are found in Appendix F.
The estimate offered by the Actuarial staff assume considerably large costs. They are found in Appendix G.
It has been suggested that the federal government might as a matter of fiscal policy desire to finance the old age assistance grants for a temporary period by borrowing. Should such a temporary expedient be deemed necessary, it may be pointed out that for a number of years the income paid in to the old age insurance fund by employees and their employers will exceed the benefits payable from the fund; and that such excess would presumably in any event be invested in government securities. Under normal circumstances the fund would purchase these government obligations in the open market, thus reducing the outstanding indebtedness to the general public. For periods when the government debt is increasing, the Treasury might borrow directly from the insurance fund. It would seem unwise ordinarily to create a special class of indebtedness for the insurance fund, even to the extent of the subsidy for the old age assistance laws, unless no other government securities are appropriate, particularly as regards yield.
In supplement to the foregoing old age assistance program, it is recommended. That a contributory old age insurance system be legislated at once to go into operation in 1936. A straight national old age insurance system is proposed. In fact, there could be no sound actuarial basis for a scheme based upon the state as an insurance unit. It must be borne in mind that old age insurance is based upon a long contributory period running up to a maximum of 45 or 50 years. The ratio of the insured who will reach 65 years of age and over each year to the general insured population can be projected for the United States as a whole, and it is thus possible to compute the rates of contribution necessary to produce certain stipulated pensions. This forecast cannot be made for individual states, as there is no way of estimating the above ratio on a state basis. This is due to the fact that the migration of workers from one state to another, following the unpredictable shift in the areas of economic activity, causes a movement of population of working ages that is not accompanied by a proportionate movement of superannuated groups. Because of industrial development, younger workers may be drained out of certain states into others, leaving the population of the former heavily weighted with older age groups.
The plan proposed involves in the early years the use of funds contributed by younger and middle-aged workers to pay a part of the pensions to superannuated workers. This requires that the proportions of persons of various age groups be determined in advance for the proper computation of contributions and benefits. Rapidly changing proportions, such as might occur in a single state, would involve serious financial risks were the insurance unit the state rather than the federal government.
Even were this not the case, there would be major difficulties in the way of old age insurance on a state basis due to the shift in population from state to state, since continuous insurance is essential to a proper functioning of the scheme. Gaps in contribution years caused by the states not adopting insurance and by states deferring the adoption of insurance would make impossible the assurance of any definite pension. Only a straight, national, old age insurance scheme could rest upon a sound actuarial basis, and only a scheme resting upon such a basis could perform the function which insurance is expected to perform.
Old age insurance is not complicated with the necessity of reports on cause of terminating employment, merit rating, contracting out, etc., which are involved in projected unemployment insurance plans, and it is therefore less difficult to adjust to the constitutional requirements of federal legislation. The old age security staff is convinced that the proposed national scheme is entirely feasible from a constitutional stand-point. They have reached this conclusion in reliance upon the argument of Mr. Holtzoff of the Technical Board and upon the opinions of Professor Thomas Reed Powell, Professor of Constitutional Law in the Harvard Law School; Professor Dudley O. McGovney, Professor of Constitutional Law in the University of California Law School (author of a leading case book on Constitutional Law); Professor Corwin, Professor of Politics at Princeton University; and Professor Douglas Maggs, Professor of Constitutional Law at Duke University. These academic men are well known nationally through many published articles in the field of constitutional law.
The plan projected in this report evolved from the schemes included in the preliminary report presented in September. The latter included Scheme A, which provided full pensions for older workers as though the insurance system had been functioning all their working lives; Scheme B, which provided pensions for older workers that made no special provision whatsoever for workers who were middle aged and over at the time that the insurance system went into effect.
Both these schemes were academically possible old age insurance programs. The evolution of the plan now proposed has taken place through the following process:
The plans have been subjected to critical detailed analysis by the staff -
They have been subjected to criticism by the Sub-committee on Old Age Security of the Technical Board -
They have been subjected to criticism by the Executive Committee of the Technical Board-
They have been subjected to criticism by the Executive Director appointed by the Committee on Economic Security itself -
These criticisms produced the following main objections:
(1) That Scheme A, proposed in the preliminary report, (involving full accrued liability) (a) put a too heavy, sudden tax burden on industry, (b) called for indefensibly large annual contributions from the government - far in excess of practical possibilities and unjustifiably large from any point of view, (c) that funding of the ultimate necessary federal subsidy and even distribution of it over the years, would build up reserves ultimately totaling 90 to 100 billion dollars, which would involve the government in investment problems considered impossible by financial advisers of the Committee, (Treasury Department representatives), (d) that the projected pensions themselves were unnecessarily large from the standpoint of a reasonable security program.
Scheme A was abandoned altogether.
The chief objections to Scheme B (no accrued liability) were that it was, from a practical point of view, out of the question for two reasons; (a) that it would produce for many years such small pensions as to subject it to general disapproval, (4 per cent contributions would pay $2.58 per month after five years, $5.95 after ten years, and $10.19 after 15 years).
The great majority of people do not realize how slowly annuities grow, and it was deemed that the pensioners would believe that they were not receiving a fair return for their contributions. From the point of view of social results, moreover, the scheme would be condemned as not providing a substantial reduction of old age dependency for more than a generation. Such a delay in effectiveness was deemed highly undesirable in view of what a reasonably planned old age insurance scheme could achieve.
(b) It would, as in the case of Scheme A above, pile up such large reserves (in this case 50 to 60 billion dollars) that the fiscal authorities would be unable to find suitable investment outlet for them. It was suggested that the investment market of both the government and private business would be undermined by an attempt to place such reserves at interest.
Scheme B was abandoned altogether.
After the abandoning of the two extremes involved in A and B, a series of compromise plans were projected in the attempt to meet objections registered, to the extent that they could be met without departing altogether from the social insurance pattern.
In the course of discussion on this series of projected compromise plans, a maximum reserve of ten billion dollars was suggested by advisers from the Treasury Department, with the injunction that it be kept within five billion if possible.
One other point was quite generally emphasized: that any special provision for the worker who was middle-aged, or over at the time of the launching of the scheme, should commence at a relatively low amount and increase with each succeeding year of his contribution to the insurance system. The plan ultimately adopted and, here presented predominantly but not entirely a pay-as-you-go scheme, which builds up and maintains a contingency reserve equivalent to about one-fifth of the full reserve.
The proposed contributory insurance plan follows.
The old age insurance scheme should cover (a) all manual wage earners, and (b) non-manual wage earners employed at a rate of not more than $50 a week, with the exception of those workers who are in the employ of the federal, state, or municipal or of municipal or quasi-municipal corporations or who are subject to the U.S. Railroad Retirement Act, and with the further exception, for practical administrative reasons, of domestic and, agricultural employees during the initial period of the operation of the scheme. Legislation should include two separate measures, one a taxing measure, and the other a permanent appropriation measure. Congress should levy: (1) a payroll tax upon eligible payroll, defined payroll of all manual wage earners and eligible non-manual wage earners payroll to be assumed for taxation purposes not to exceed $50 for any employed person; (2) a tax upon wages of all persons involved in the payroll taxes in (1) -- the wage of each taxable employee for taxation purposes to be deemed not to exceed $50 per week -- such wage tax to be collected for the government through the agency of the employer who will be authorized and directed to withhold the wage tax due from each employee from the wages payable to each employee; the taxes levied on the employee shall be represented by coupon stamps, provided, however, that under regulations to be proregulated by the Internal Revenue Division, employers may, on filing proper bonds, be authorized to substitute a mechanical stamping device for imprinting coupon stamps in the passbooks of taxable employees; the provisions of laws governing the engraving, issue, sale, accountability, effacement, and destruction of stamps relating to tobacco, snuff, and oleomargarine, as far as applicable shall apply to the stamps provided, for the payment of the taxes.
It is proposed: that there be a qualifying contributory period of five years before payments of any pensions; that an insurance book shall be provided for each worker, in which stamps recorded will evidence tax payments on his account; that the insured worker shall, on becoming subject to the insurance tax, file this insurance book with his employer, and on changing employment, shall file this insurance book with each successive employer; that the employer shall be responsible to the government for collecting the tax due from his employee by placing the proper stamps in the insurance book; that these books shall be periodically (every six months) checked by the administrative authorities and pension credit permanently recorded; that used books shall be mailed to the proper office through franking arrangements or personally delivered at local administrative offices for checking; that new books shall be franked to the employers or made available for collection by employers at local administrative offices; that arrangements shall be made for permitting employers with stable payrolls who desire to do so, to pay their payroll tax quarterly in advance, with adjustments at the end of each annual period.
The tax recommended is in the following amounts: 1% in the first five years the system is in effect; 2% in the second five years; 3% in the third five years; 4% in the fourth five years; and 5% thereafter. It is recommended that employers and employees each pay one-half of the above percentages, with the employer responsible for the payment of the employee's tax but entitled to deduct the same amount from the wages due the employee.
Federal Contributions. Federal subsidy shall become payable when the reserves have reached $12 billion and shall be an amount sufficient to prevent reserve from falling below this total. (This figure represents a substantial contingency reserve, constituting approximately one-fifth of the full reserve needed to support the pension scheme.)
Benefits. It is proposed to provide a larger relative annuity for lower paid workers by weighting more heavily the first $15 of weekly wage. In the following description of benefits, however, the average percentage paid to all wage groups is used in indicating the annuities payable in each year. The following plan of benefits applies only to persons entering the insurance system during the first five years of its operation, and is organized to cover the situation of workers who are middle-aged and over at the time that the system goes into operation.
No annuities are to be paid until five years after the system has been in operation nor to any worker who has not been insured for five years and made at least 200 weekly tax payments before reaching the age of 65 years. Thereafter the following benefits are to be paid on retirement at age 65 or over to a worker who has been insured five years and has made at least 200 weekly tax payments:
(1) An annuity equal to 15% of the average weekly contributions wage (not counting that portion of average weekly contribution wage in excess of $35 weekly.)
(2) This annuity is to be increased as follows: In the next five years, l% of the average weekly wage (such average not to be in excess of $35 weekly) in which tax payments are made shall be added for each 40 weekly tax payments, provided that the increase shall be not more than 1% per year of insurance; thereafter 2% shall be added for each 40 weekly tax payments, not to exceed 2% per year of insurance, until a maximum pension of 40% of the average weekly wage upon which tax payments have been made has been reached, provided, however, that the maximum pension payment shall never be less than the actuarial equivalent of the workers own contributions made before reaching the age of 65 years.
(3) A death benefit to legal or actual dependents of insured workers who die, in the amount of the worker's own contributions, less the aggregate amount paid to the worker as an annuity.
Any worker who, while having made tax payments, is not entitled to a pension on reaching age 65, shall be entitled to the amount of his own tax payments with 3% compound interest.
As has been stated, the foregoing plan of benefits applies to persons entering the insurance during the first five years after the system goes into operation, and takes care of the workers who are middle-aged or over when the insurance goes into operation. The permanent plan of benefits which follows does not need to plan for such workers. The full pension is therefore adjusted to the contributory period of a "normal" working life.
Permanent Plan of Benefits.
In the permanent plan of benefits a person (1) who has been insured 5 years and has made at least 200 weekly tax payments shall be entitled to a pension of 10% of the average weekly wage, such average not to be in excess of $55 weekly upon which weekly tax payments have been made. Thereafter there shall be added to his pension 1% for each 40 weekly tax payments, this added amount not to exceed 1% for each year of insurance after the qualifying period, except that the annuity shall never be less than the actuarial equivalent of the worker's own contributions made before reaching the age of 65 years; (2) a death benefit to legal or actual dependents of insured workers who die, in the amount of the worker's own contributions, less the aggregate amount paid to the worker as an annuity.
Any insured worker who, on reaching age 65 is not entitled to a pension will be entitled to the amount of his own tax payments with 3% compound interest.
Under both the transitional and the permanent plans of benefit, the annuitant with a dependent spouse will have the privilege of choosing a joint survivorship annuity with the proviso that the reduced amount payable during their joint lives shall be not less than 60 per cent of the individual annuity to which the worker would have been entitled. Under both the transitional and the permanent plans of benefit, the worker who leaves insurable employment after having been insured five years and paid not less than 200 weekly tax payments, shall be entitled to continue his insurance voluntarily.
The following table shows the progress of the contributions, annuity payments and reserves projected for the first 45 years of the operation of the insurance plan proposed.
*Joint contributions less administration expenses as follows:
Special attention should be called, to the proviso that there be payment of the worker's "contributions" to his dependents when he dies either before arriving at pensionable age or before receiving in pension payments the amount of his own contributions. This is, of course, a beginning of protection for survivors. Survivors' insurance, i.e., provision through insurance for the dependent wife and children of the worker in the event of his death, is in the opinion both of the staff and of the Technical Board's sub-committee on old age security an inevitable future development of social insurance in this country. Seventeen of the twenty-six old age insurance schemes abroad are combination old age, invalidity, and survivors' insurance. These types of insurance have one feature in common that makes them akin from an actuarial standpoint, i.e., they call for continuing payments or pensions rather than for temporary benefits. The combination of old age insurance and survivors insurance, moreover, is a happy one from the psychological standpoint, as the young worker who makes his social insurance contributions knows that he is purchasing protection that will materialize whether or not he lives to old age.
The return of the tax payments made by the worker to his dependents in the event of his death, while not of course, real survivors' insurance, at least assures the worker that he is not purchasing his own old age security at the expense of protection to his family.
It is fully recognized in recommending full coverage there will be a real likelihood of many small employers evading their obligations, especially at the outset. It is believed, however, that the extent of non-compliance will, with proper educational effort on the part of the government end with a policy of severe penalties for deliberate non-compliance on tho part of the employer, steadily diminish. Since there is a constant flow of workers from large to small establishments it is believed by both actuarial staff and the advisory actuarial board that limited coverage would eat at the actuarial foundation of the scheme. Moreover, administrative difficulties of ascertaining coverage under a scheme limited to establishments with a certain number of employees which would necessitate constant repeated check of all small establishments to determine whether the limit set was reached, at any time, might well be quite as formidable as those which must be faced in straight universal coverage.
Compared with the administrative problems involved in unemployment insurance with its necessity of determining the cause of severing employment, the existence of re-employment, the suitability of available work and similar allied questions, the administrative requirements of old age insurance are not complicated. The very number of individual tax records that must be kept, however, makes the question of administration a new one in point of magnitude for this country.
The staff recommends that a staff of specialists in administrative detail be called together at once for the working out of suitable enforcement machinery for the projected insurance program. It is their belief that the collection of the insurance tax necessitates some sort of stamp system such as is operative in several of the old age insurance schemes abroad, and that experienced administrators from both Great Britain and Germany should be included in any group of experts who may be assembled.
The staff further recommends that there be undertaken at once a special industrial census designed to furnish data relating occupied person and their ages, wages, income, etc., to their specific employment. This census should furnish important information needed for both unemployment and old age insurance programs which at present is lacking, including: (1) the number of employees in the various occupations, as distinguished from self-employed persons; (2) wage rates and earnings of such employees; (3) the relating of such employees and. their ages, their wage rates, earnings, etc. to the size of establishment, and similar allied data. It is suggested that the actuarial staff and advisory board of this committee participate in the planning of this census.
It is believed that effective administration of the old age insurance system demands that an independent board be established which would be directly responsible for its administration. Such a board should be set apart from any executive department of government in the same manner as the Federal Reserve Board, The Railroad Retirement Board, The Interstate Commerce Commission, and The Reconstruction Finance Corporation. However, such a board would necessarily have close contacts with both the Department of Labor and the Treasury. It would cooperate with the former in all relations with wage earners and employers, with particular reference to the employment agencies, and with the latter in the collection, investment, and disbursement of funds. Moreover, it will of course be desirable to utilize local agencies of the states which are handling state unemployment insurance schemes by deputizing whenever possible in the operation of the old age insurance scheme.
The advantages of an independent board are numerous and important. The membership of the board should include outstanding persons in the field of social insurance administration who could be secured with difficulty if offered positions as lesser officials in any department. The safeguarding of the interests of the insured population, both in the formulation of regulations, and in the development cf new policies and practices, demands that the Board be a non-political organization and that it be protected as far as possible from political influences even such as may arise from an executive department under a politically minded administration. While the actual handling and investment of funds would be carried on by the Treasury Department, accounting responsibility, and the control of disbursements should be centered in the Board, which might also have a voice in the formulation of investment policy. The smooth functioning of a program of this magnitude will necessitate a highly competent technical staff; it is probably easier to secure good and proper classifications for such employees under the Classification Act under the set-up of a new independent Board, than in a new bureau in an established department. This is both because of crystallized practice which, even though departmental, would be influential with the Civil Service Commission and because, under departmental organizations, bureau chiefs are themselves several grades from the top. In inaugurating an insurance system, the government is assuming a new type of financial responsibility to its citizens which should be focused in a body whose full time and interest is directed toward meeting that responsibility.
Voluntary Old Age Insurance
In addition to the compulsory old age insurance plan, it is proposed that there be established, as a related but separate undertaking, voluntary system of government old age annuities. Under such a plan, the government would sell to individuals, on a cost basis, deferred life annuities similar to those issued by commercial insurance companies; that is, in consideration of premiums paid at specified ages, the government would guarantee the individual concerned a definite amount of income starting at, say, sixty-five and continuing throughout the lifetime of annuitant.
The primary purpose of a plan of this character would be to offer persons not included within the compulsory insurance arrangement a systematic and safe method of providing for their old age. The plan could also be used, however, by insured persons as a means of supplementing the limited old age income provided under the compulsory plan.
Without attempting to outline in detail the terms under which government annuities should be sold, it is believed that a satisfactory and workable plan, based on the following principles, could be developed without great difficulty:
1. The plan should be self-supporting, and premiums and benefits should be kept in actuarial balance by any necessary revision of the rates indicated by periodical examinations of the experience.
2. The terms of the plan should be kept as simple as practicable in interest of the economic administration and to minimize misunderstanding on the part of individuals utilizing these arrangements. This could be accomplished by limiting the types of annuity offered to two or three of the most important standard forms.
3. In recognition of the fact that the plan would be intended primarily for the lower and middle wage classes, provision should be made for the acceptance of relatively small premiums, such as one dollar per month, and for the limiting of the maximum pension payable to any individual under these arrangements to, some such sum as one hundred dollars per month.
4. The plan should be aimed primarily at the provision of old age income, and this objective should be recognized by eliminating from the annuity contract, cash (surrender value) and loan values and, possibly, also, return of premiums in the event of death prior to retirement.
5. The plan should be managed by the insurance authority along with the compulsory old age insurance system.
No estimates have been made as to the amount of annuity reserves that would be accumulated under a plan such as that proposed above. It is believed, however, that the fiscal problems presented by such reserves would not be serious.
In conclusion, the staff wish to state that they feel it to be a serious error to assume that government contribution to a social insurance scheme is a "gratuity". They believe that analysis shows it to be an investment of major importance.
Social insurance is an institution designed to prevent destitution and dependency. Destitution and dependency are enormously expensive, not only in the initial cost of necessary assistance, but in the disastrous psychological effect of relief upon the recipients, which in turn breeds more dependency.
The quality of self-respect which perhaps more than any other helps to build and maintain a sturdy community has an important dollar and cent value to society. Government contribution to social insurance is based upon a recognition of this situation. It amounts to a dedication to the policy of putting public funds into keeping people out of a state of destitution in substitution for the policy of charitable assistance for them after dependency has become a fact.
Experience abroad has demonstrated that the health, morale and standard of living of the worker have definitely improved under social insurance. This points to the fact that from the standpoint of sound economic policy, social insurance would be justified even were the net cost of government participation in excess of the primary cost of the relief it replaces. In view of the fact that the reverse is actually the case, and that even a generous governmental share in social insurance costs brings a direct as well as indirect economic saving in the long run, the great development of social insurance institutions in the civilized world today is readily understood.
More than a score of countries have adopted old age insurance plans for their working population. In most of these plans the government shares in the cost--either by paying a part of the premium, or more commonly, by adding to the pension when it falls due.
The compulsory insurance plan proposed in this report asks that the government share in the cost of pensions only for middle aged and older workers, leaving the pensions for younger insured persons to be financed exclusively by contributions of workers and their employers. It should be emphasized, however, as the fact is one that might well be overlooked, that pensions through the insurance scheme for these older workers mean not only an improvement in the lot of the aged who receive the pensions, but also a lift in the standard of living of the millions of wage earning families represented by their children, who would otherwise be burdened with their support.
The staff have realized that it is dubious policy to plan an old age insurance scheme which does not include a permanent government contribution to all pensions paid. It is debatable whether industry and workers in the present economic organization of society (from which of us, whether immediately concerned in industry or not, profit) should be asked to furnish, even through insurance, sufficient contributions to provide ample retirement annuities for superannuated workers.
It is with the hope that both wage standards and business profits will over the course of years be able to so do, and the realization that the government can and will step in if this hope is unfounded, that the payment plan of compulsory old age insurance is put forward--as furnishing at least a suitable foundation on which to build.
EXTENT OF OLD AGE DEPENDENCY IN THE UNITED STATES
It must be pointed out from the very beginning that there are no figures available indicating the extent of old age dependency for the United States as a whole. A number of surveys of the number of old people have been made in individual states. Very often these state commissions making the surveys limited themselves to estimating the number of people that would become eligible under a state law, which, in addition to requiring a means test to be passed by the old person, made children and relatives responsible for the support. These estimates give no true picture of the economic status of the old people. There are some surveys, however, which classify old people according to property and income, without taking into account the economic status of children and relatives. These surveys give a more accurate picture of the extent of old age dependency than do the reports which estimate the number of old people who will be eligible to old age assistance under state laws.
The simplest method of measuring the economic status of the aged is to ascertain their income. It has been customary to place a person with an annual income below $300 in the dependent class. In comparing the estimates of old people who have an income of less than $300 a year (without taking into account any property they might possess), there is a surprising amount of agreement among the various surveys. As will be seen by the following table, they all place this number at below 50% of the aged.
The Connecticut survey of 1932 brought out the fact that 33.5% of the people over 65 in that state had no income whatsoever. The Wisconsin report of 1915 has stated that 21% of the old people over 60 had incomes below $100. Only 29% of these old people in Wisconsin had incomes above $500.(5)
A less satisfactory classification is one made according to the property which the old person possesses. It is obvious that it is difficult to estimate the true value of a home, and even if this could be done without difficulty, the ownership of a home does not keep an old person from becoming dependent. This is undoubtedly the reason why only the Connecticut and Wisconsin commissions classified old people according to the amount of property.
As in the income classification, the Connecticut survey indicates that old people living in cities are considerably worse off than those in rural areas. The percent-age of old. people owning less than $3000 worth of property is 61.1% for urban areas, while it is 54.1% for rural areas.
More important for the purposes of this report than the above classifications by income or property separately are the attempts on the port of a number of commissions to combine income and property of the old people, and then place persons with property and income below a specified amount in the dependent group. It is quite arbitrary where this "danger line" is drawn, and different commissions have drawn it at different points. The New York Commission of 1930 was anxious to make a comparison of its findings with those of the Massachusetts survey 1925 and the National Civic Federation Study of 1926-27, and so it put the danger line at property below $5000 and income below $300 a year. In order to furnish a comparison, the Connecticut figures were placed on the same basis. It will be seen that the figures of the Massachusetts Commission and of the National Civic Federation study are much lower than they are for the other two surveys. This is, at least in part, due to the fact that the Massachusetts and National Civic Federation surveys counted the amount of property and income, owned jointly by an old couple, at the full value for each member of the couple. It is felt that because of this procedure, they do not give a true picture. The Connecticut Commission tried to solve this difficulty by separating altogether the old persons living by themselves from those living with others. Their samples were large enough to enable the Commission to make generalizations for the entire state. The New York samples, on the other hand, were extremely limited, and for this reason no generalization was attempted.
These dependency figures show a very great divergency. They range from 10% for old couples in Canton Village, New York, to 74.5% for single individuals in New York City. The Connecticut report would indicate that rural Communities are better off than urban communities. The New York survey does not bear out this conclusion, though it must be remembered that its sample was extremely limited. Otsego County, a strictly rural county, has a very high percentage of poor old people.
It becomes clear from the above figures that old married couples or people living together with other families are in a better economic situation than single individuals. In some localities the percentages for single individuals are two to three times as high as for households with old people.
It might be interesting to investigate what percentage of old people own absolutely nothing and have not a cent of income. The National Civic Foundation study had estimated that 17% of the old people were without income or property, while the Connecticut Commission puts this figure at 25% for single individuals and at 7% for households with persons over 65.
A somewhat different classification of old age dependency was made
in New York. An estimate was made by the commission of the number
of old people who are self-supporting and those that are dependent
on relatives, friends, and charity. The following table gives these
The outstanding fact disclosed in this table is the very high percentage of old people who are dependent upon relatives and friends. This figure increases considerably between ages 65 and 70. There is a proportionate decline in the number of people who earn their own living. It must be borne in mind that these are pre-depression figure, and that at the present time the situation is probably less favorable.
(1) New York Report, 1930, p. 39.
A similar study has recently been made in the District of Columbia. The following table is interesting because it breaks down the old people into white and colored. The dependency of old Negroes at age 65 runs as high as 67.5%, while that for the white people is only 33%, which is considerably lower, it will be noticed, than the pre-depression figures of the State of New York. The District of Columbia, however, is not a typical example.
The chief support of old people is furnished by their children or by relatives. The Massachusetts investigation of 1925 had estimated that of the dependent aged, 74% were supported by their children, while another 14% as supported by relatives or friends. (2).
(1) Study of Aged in the D. C.,
Monthly Labor Review, August 1934.
(1) New Jersey Survey, Feb. 1931
(FOLD-OUT CHART OMITTED)
OLD AGE PENSIONS FOR VARIOUS COUNTRIES IN RELATIONS TO WEEKLY WAGES
IN THOSE COUNTRIES (a)
(From Barbara Nachtrieb Armstrong's "Insuring the Essentials, " 1932, p. 417
Wages Unskilled Labor
in Engineering Trades
|Old Age Pension as a Per Cent of wages|
|Great Britain||shillings & pence||20/0||44/2||45.3|
The pensions have been calculated for a worker whose average wage during the whole period involved is equal to or falls within the same wage class as the average weekly wage paid to unskilled laborers in the engineering trades.
Calculated for a worker and his wife at the age at which benefits begin.
|YEARS OF RESIDENCE IN STATE OF PERSONS 65 YEARS AND OVER ON RELIEF*|
Years of Residence
|Salt Lake City, Utah||
|Los Angeles, California|
From a sample study made through courtesy of the F.E.R.A.
HISTORY OF THE OLD AGE PENSION MOVEMENT IN THE UNITED STATES
The American states have been very reluctant in enacting legislation giving assistance to the destitute aged. Long before they took action, European countries, industrial as well as non-industrial, had recognized the problem of old age dependency by making provisions for old people. In Australia state old age relief systems had become well established before the World War. In the United States, on the other hand, movement for old age relief did not get under way until after the depression of 1920-21.
This indifference to the problem of the aged can be explained only in part by the lack of confidence in state action on the part of the American public. The fact is that a large part of the American people were convinced that people who had been hard working and thrifty all of their lives would not become destitute in their old age; only shiftless lazy people were faced with dependency in their later years. This meant that to give state old age relief was tantamount to rewarding the one who had not done his duty toward society.
In addition to this philosophy of thrift and self-reliance, there was - and there still is - extant in the United States a conviction that it is the duty of the children, and not that of the state, to take care of the old. It is assumed that if the state relieves the children of the responsibility, family ties are loosened, and since the family is one of our most highly valued institutions, this danger is to be avoided at all costs.
(1) Base on Ch. III of Report
on Old Age Relief, by Connecticut Commission
to Investigate the Subject of Old Age Pensions, 1932.
Investigations on the extent of old age dependency made by a number of state commissions in the 20's and early 30's disrupted once and for all the comfortable belief that "deserving" citizens do not become dependent in their old age. But the laws which were passed following the recommendations of the commissions made it clear that even though the states instituted a system of old age relief, children and relatives were not to be relieved of the responsibility to provide for their aged parents. All laws, with the exception of those of Arizona and Hawaii, exclude from State assistance all those who have financially competent children or relatives.
The movement for state old age relief began in Massachusetts, where in 1903 the Bureau of Statistics of Labor made an investigation in which it attempted to calculate the cost of a system of old age pensions. The next step in the history of the movement was again taken by Massachusetts. In 1907 the legislature there appointed a commission, which was instructed to investigate old age dependency. The report of this commission did not come out until 1910. From that time on, a number of old age survey commissions investigated the problem. (1)
There are to be distinguished in these investigations two periods, one period before the depression of 1920-21 and the other since then. In the first period the commissions held very divergent views on the reasons for old age dependency. A number of them recommended health insurance as a solution to the problem of old age; others were opposed to state action in the field, while only two were sympathetic toward old age assistance grants. The "New Era" begins with the Pennsylvania report of 1919-21. In it the attitude that poverty and pauperism were the direct consequences of laziness and deliberate transgressions was abandoned for the first time, and the state was urged to enter the field. From that time on the many commissions which were appointed to study the question all reached the conclusion that it is the responsibility of the state to provide for its dependent aged if they have no children or relatives who were able to do so.
(1) The following is a list of these commissions
1910 Massachusetts 1919--21 Pennsylvania 1929 Maine
1914 Massachusetts 1922 Montana 1930 New York
1915 Wisconsin 1925 Massachusetts 1932 Connecticut
1917 New Jersey 1925 Nevada
1917 New Jersey 1925 Indiana
1917 California 1926 Virginia
1917 Massachusetts 1928 California
1919 Ohio 1929 New Jersey
1919 Connecticut 1929 Minnesota
History of Legislation (1)
The first state law was passed in Arizona in 1915 by an initiative act, which abolished almshouses and established old age and mothers' pensions in their stead. However, it was worded so loosely that it was declared unconstitutional on account of its vagueness. In the same year Alaska passes a law, providing assistance to its aged pioneers. This law, though it has been amended on different occasions, is still in effect at the present time.
No action was taken by any state until 8 years later, in 1923. In that year three states, Montana, Pennsylvania, and Nevada, passed old age assistance laws, but only one of them, that of Montana, has remained in the statute books. In 1925 the Nevada state legislature passed a bill repealing the 1923 law, and putting another one in its place. The Pennsylvania law was declared unconstitutional in 1924 on the basis of the state constitution, which prohibited the legislature from making appropriations for charitable, benevolent and educational purposes. Pennsylvania proceeded immediately to take steps to amend its constitution, but it was not until 1931 that the amendment passed the legislature. Since this amendment had to be repassed in 1933 and then submitted to a referendum vote for approval, it was not until 1934 that Pennsylvania secured action. Thus the decision of the court deferred legislation for ten years in Pennsylvania.
(1) Based on Bulletin
No. 561 of the Bureau of Labor Statistics, "Public Old-Age Pensions
and Insurance in the United States and in Foreign Countries."
Ohio, too, took some first steps in the year 1923. The question of old age pensions was submitted to a referendum vote, but it was decided adversely by a vote of almost 2 to 1.
By 1925 the movement had gained considerable impetus. Although only Wisconsin passed a law which has remained effective since that time; there was much activity in a number of the states. California passed a law, which, however, was vetoed by the Governor. Bills were introduced in the legislative sessions of Illinois, Indiana, Kansas, Maine, Michigan, Minnesota, New Jersey, Ohio, and Texas. In Indiana and Illinois the bills passed the lower house, but were not acted upon by the upper chamber. In four states, Colorado, Minnesota, Pennsylvania, and Utah, commissions were appointed.
In 1926 one law was added, that of Kentucky. In the same year, the Washington Legislature approved a bill, which was vetoed by the Governor.
In 1927 Maryland and Colorado passed bills.
At the end of 1928, after six years of agitation, there were only six states and one territory which had made provision for their aged. They were Colorado, Kentucky, Maryland, Montana, Nevada, Wisconsin and Alaska. All the state laws were of the optional type, i.e., they left the adoption or rejection of an old age assistance system to the discretion of the counties. For this reason these laws had very limited effect only. In these six states, there were slightly above 1000 pensioners, and these were found almost exclusively in Montana and Wisconsin, the former having 884, the latter 295 old people on their pension rolls. The total amount spent by the six states in 1928 was, in round numbers, $200,000.(1)
From 1929 on, the trend in the pension legislation has been toward making the adoption of the old age assistance systems mandatory upon the counties. This type of legislation proved much more effective, especially when it was accompanied by a provision by which the state shared in the expense of the county. Of this latter type was the California law which was passed in 1929. In the same year, Minnesota, Utah and Wyoming passed laws, which did not provide such state assistance, although those of Utah and Wyoming made the adoption of the system mandatory upon the counties.
In 1930 the Massachusetts and New York laws were passed, which not only were of the mandatory type but also provided for the state sharing in the expense of the locality.
In 1931 and 1933 the state legislatures were very active in the field of old age pensions. It is estimated that 100 bills were introduced in the legislatures of 38 states in 1931. In that year five new laws were enacted in Delaware, Idaho, New Hampshire, New Jersey, and West Virginia. Of these all except the West Virginia law were of the mandatory type, but only Delaware and New Jersey provided for state funds. Colorado and Wisconsin amended their laws making them mandatory upon the counties as well as making state funds available for the purpose of old age assistance.
Ten more laws were added in 1933, in Arizona, Indiana, Maine, Michigan, Nebraska, North Dakota, Ohio, Oregon,
(1) Monthly Labor Review, June, 1932, "Operation of Old Age Pension Systems in the United States in 1931."
Washington, and Hawaii. With the exception of Hawaii, they were all mandatory upon the counties, and in Oregon and Washington the state does not share in the expenses of the locality. Arkansas passed a law in 1933, but it was declared unconstitutional by the state supreme court.
Iowa and Pennsylvania passed mandatory laws in 1934, the state sharing the entire cost.
By the end of 1934, twenty-eight states and two territories had passes old age assistance laws.
Comparison of Laws
Exhibit A summarizes in table form the provisions of the various laws of the United States. As incidental in the discussion above, the effectiveness of these laws depend to a large extent on the degree to which the state shares in the responsibilities of administration and cost. The state has entire supervision only in those states where it bears the whole cost. This is the case in Alaska, Delaware, Iowa, Michigan, North Dakota, Ohio, and Pennsylvania. In other states, where the state bears part of the cost of old age assistance, there is a considerable amount of state supervision. This is true in Arizona, California, Indiana, Maine, Massachusetts, New Jersey, and New York. Colorado and Wisconsin are the only states which give money to the counties and leave them the administration of the funds, requiring only an annual report to the state office. Such an annual report is required in a number other states from the counties administering the laws. This provides a certain amount of guarantee that the laws are actually enforced. A number of states leave the entire responsibility to the counties, requiring not even an annual report. They are Kentucky, Minnesota, New Hampshire, Utah, and Washington.
It is safe to make the general statement that the purpose of these old age pension laws has been carried out more effectively in the states which leave little discretion to the localities than in those which make the counties entirely responsible. The percentage of pensioners to the number of people of eligible age is highest in the states where there is complete state supervision.
In other respects the various laws are quite similar. With the exception of Arizona and Hawaii, they all specify that pensions must not be paid to old people who have children or relatives able to support them. New York and Massachusetts are the only laws which do not set a maximum amount of the pensions; this maximum is as low as $15 in some states, but most of the laws set it at $30 a month. The age limit is 65 years of age in a majority of the states; but in quite a few of them it is 70. One of the most serious restrictions to receiving assistance from the states are the citizenship and very long residence requirements. Under most of the laws, in order to receive an old age pension, a person must have been a citizen and a resident in the state for 15 years; in few states the residence requirement is even higher. The great majority of the states have income and property qualifications. The property limit is $3000 in most of the laws, while the income limit is $300 to $365 a year. A few of the newer laws omit altogether these property and income qualifications and leave the decision of whether or not a person is in need to the administrator. A good many of the laws include the provision that the transfer to the pension authority of any property the applicant may possess, may be demanded before a pension is paid. In most laws there is a provision that a pension must be denied to persons who have deprived themselves of property in order to qualify for assistance. Almost all of the laws provide that the amount of pensions paid shall be a lien on the estate of the pensioner and shall be collected upon his death or the death of the last survivor of a married couple. The majority of the laws provide for a small funeral allowance.
In addition to these qualifications, the old age assistance laws make sure that the recipients of relief are "deserving" citizens. People who have deserted their husbands or wives, who have failed to support their families, who have been convicted of a crime, who have been tramps or beggars, who have failed to work according to their ability, are ineligible to assistance in most of the states. Inmates of jails, prisons, infirmaries, and insane asylums are also barred from receiving pensions. A few states permit the payment of the assistance grant to a benevolent fraternal institution after a pensioner becomes an inmate, but they make such payment subject to the proviso that the institution may be inspected by the pension authority.
Operation of the Laws
After this survey of the many restrictions in the old age pension laws, it is not surprising to find that their operation has been much more limited than in other countries which have adopted old age pension legislation. The percentage of old people on pension rolls is far below that of European countries, Canada, and Australia. Exhibit B gives a summary of the number of pensioners in the individual states, the number of eligible age, the percentage of pensioners to the number of eligible age, the average pensions paid, and the yearly cost. In five of the states
which have laws no pensions are being paid because of the unfavorable financial condition of the state. They are Kentucky, Maine, Nebraska, North Dakota, and West Virginia. In other states lack of funds has made it necessary to reduce the grants to a very low figure. Thus it will be seen that in one state the average monthly pension is as low as $6.13, and in no state is it above $30. The number of pensioners is very low in states which have financial difficulties. That many more people are in need of assistance becomes clear from a survey of Exhibit C, which shows the number of applications received in some of the states since the passage of the law. In all the states for which this information is available, the applications far exceed the number of pensions actually granted.
The last column of the table in Exhibit B gives the yearly cost pension systems at the present time. For some of the states that have recently begun paying pensions these figures are only estimated from the account of monthly expenditures at this time. It may well be that these estimates are below what will actually be spent for the entire year.
To one familiar with the results of the various surveys of old age dependency in the United States, it appears that the number of people who are new in receipt of old age assistance grants is very small indeed. As a matter of fact, because of lack of funds in the states and counties, many of the aged who are eligible to old age assistance grants, do not receive them. It is safe to assume, therefore, that the old age security movement in the United States is merely in its initial stage and that, as the demand for more adequate provisions grows, it will expand considerably.
(FOLD-OUT CHART OMITTED)
OPERATION OF OLD AGE ASSISTANCE LAWS OF THE UNITED STATES 1934
|Hawaii||O||No information available|
|Indiana||M||23,418 (b)||138,426||16.9||6.13(b)||1,254,169 h|
|Kentucky||O||No pensions being paid|
|Maine||M||Not yet in effect|
|Michigan||M||2,660 (e)||148,853||1.8||9.59(e)||306,096 f|
|Nebraska||M||Not much being done due to lack of funds|
|New Hampshire||M||1,423 (c)||25,714||5.5||19.06(g)||298,722(f|
|New Jersey||M||10,560 (g)||112,594||9.4||12.72||1,375,693|
|North Dakota||M||No pensions being paid|
|Oregon||M||Administered by counties; no info available for state|
|Pennsylvania||M||Law just being put into effect|
|Washington||M||2,239 (b)||101,503||2.2||No information available|
|West Virginia||O||No pensions being paid|
|M - Mandatory
1 - Where no special reference is given, the figures are as of December 31, 1933
2 - 1930 Census figures
3 - Where no special reference is given, the figures represent actual cost for the year 1933
|(a) As of October 1,
(b) As of August 1934
(c) As of December 1934
(d) Estimated from expenditures of April through November 1934 - $317,000
(e) As of November 1934
(f) Estimated from monthly figures
(g) As of September 1934
(h) Appropriation for 1934
NUMBER OF APPLICATIONS RECEIVED BY PENSION AUTHORITIES (1)
|Number of Persons Receiving Grants||Number of Applications Received||Number of People on Waiting List|
|Arizona||1974||2,098 from 7/1/33 to 6/30/34||10|
|Delaware||1,610||5,685 since 1931||1,700 applications not yet investigated; of these about 1,200 will qualify|
|Idaho||1275||3,525 since 1931||200 at close of 1933|
|Indiana||23,418||39,304 from Jan.-Aug. 1934||3,059 applications not investigated August, 1934|
|Iowa||3,000||60,000 since April||Estimated that 28,000 will qualify|
|141||2,168 since 1931||Applications are investigated only when there is a vacancy|
|Michigan||2,660||42,358 since Oct., 1933||6,575 applications approved; 27,032 applications not yet investigated|
|Louisiana||1,781||4,444 since 1926|
|New Jersey||10,560||26,269 since July, 1932||3,080 pending applications not yet investigated|
|New York||51,228||136,482 since Sept., 1930||5,123 pending applications not yet investigated|
|Maine||24,000||105,000 since May, 1934|
|Wisconsin||1,969||4,912 since 1930||234|
|(1) The information presented in this table was secured through correspondence with state officials.|
I. AMOUNT OF FEDERAL SUBSIDY (OLD AGE ASSISTANCE)
Assuming: (1) contributory plan in effect; (2) dependency ration of 15% in 1936, increasing thereafter to maximum of 40% in 1961 and subsequent years; (3) average yearly grant of $20 per month; (4) federal subsidy of one-half total payments, and one-half of administrative costs.
old age grants
|Amount of federal
|* Full year cost reduced for administration lag.|
|Note: The estimates offered by the Actuarial staff assumes considerably larger costs. It is found in Appendix G, page 2.|
AMOUNT OF FEDERAL SUBSIDY TO STATE OLD AGE PENSION PLANS
Assuming: (1) Dependency ratio of 15% in 1936, increasing to 20% in 1937, 25% in 1938, 30% in 1939, 33% in 1940, and thereafter, by 1% increments, to maximum of 50% in 1957 and subsequent years; (2) average total grant of $25 per month from state and federal governments combined; (3) federal subsidy of one-half of total costs, excluding that portion of individual grants in excess of $30 per month and that portion of administration expenses in excess of 10% of total payments.
|Note: This table is based on the assumption that there will be no contributory system in effect. Estimate of the amount of federal subsidy assuming the existence of a contributory system are found on page 3 of this Appendix.|
AMOUNT OF FEDERAL SUBSIDY TO STATE OLD AGE PENSION PLANS
Assuming: (1) contributory old age insurance plan in effect; (2) dependency ratio of 15% in 1936, increasing to 20% in 1937, 25% in 1938, 30% in 1939, 33% in 1940, and thereafter, by 1% increments, to maximum of 50% in 1957 and subsequent years; (3) average total grant of $25 per month from state and federal governments combined; (4) federal subsidy of one-half of total costs, excluding that portion of individual grants in excess of $30 per month and that portion of administration expenses in excess of 10% of total pension payments.
receiving Old Age Grants
|Amount of Federal