| The Administration's
Proposals-
When President Roosevelt submitted his
legislative package to Congress on
January 17, 1935, the Administration's proposals contained three
provisions designed to provide retirement security for older Americans:
1. A System of Old Age Pensions-
These were state-run welfare programs for the elderly. The Administration's
proposal was for block grants to the states to help them fund
their existing or any new old-age pension programs. Many states
already had such programs in existence and there was considerable
interest in securing federal assistance with these programs. In
the terminology of the period, old-age "pensions" meant
welfare benefits.
2. A System of Mandatory Old Age Annuities-
This was the old-age insurance system that we now call Social
Security (the term "Social Security" was not applied
to the Administration's program until mid-way through the Congressional
hearings). In the terminology of the time, this was referred to
as "mandatory old-age annuities."
3. A System of Voluntary Old Age Annuities-
The Administration also proposed a program of voluntary old-age
annuities. These were to be insurance-type annuities, issued by
the government, to supplement the benefits contemplated under
the mandatory part of the program, or to provide a basic annuity
to workers not covered under the mandatory program.
The proposal called for the government to sell annuity certificates
to workers. These certificates could then be cashed-in when a
worker retired and used to purchase an increased annuity amount
as a supplement to their mandatory annuity, or to purchase a basic
annuity if the worker was not eligible under the mandatory system.
Income from the sale of these certificates would go into the trust
fund along with the payroll taxes collected under the mandatory
program.
The Administration's bill, introduced as
H.R. 4120, contained only the sketchiest outline of the voluntary
annuity provision as Title V of its bill. It provided:
- The Social Insurance Board was authorized
to borrow such sums as were necessary to pay the annuity certificates;
- The annuities could not exceed $100
per month;
- The funds involved in this program would
be deposited in the old-age trust fund and the payments would
be made from this fund;
- The Social Insurance Board could set
virtually all other rules and conditions involving the certificates.
The voluntary old-age annuities was a proposal
developed by the Committee on Economic Security (CES) and supported
by President Roosevelt. During the Congressional
hearings on the Administration's proposals, Edwin Witte, Executive
Director of the CES, explained in more detail how the voluntary
annuities would work and why the CES thought them necessary:
"The voluntary system of old-age annuities we suggest
as a supplement to the compulsory plan contemplates that the Government
shall 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 purchasers a definite amount of income, starting
at 65, for example, and continuing throughout the lifetime of
the annuitant. The primary purpose of the plan is to offer persons
not included within the compulsory system a systematic and safe
method of providing for their old age. It could also be used by
insured persons as a means of supplementing the 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 which periodic examinations of the experience would
indicate.
2. The terms of the plan should be kept as simple as practicable
in the interest of economical 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. The plan should be designed primarily for the same economic
groups as those covered by the compulsory system; hence, provision
should be made for the acceptance of relatively small premiums
(as little as $1 per month) and the maximum annuity payable to
any individual should be limited to the actuarial equivalent of
$50 per month.
4. The plan should be administered by the social insurance board
along with the compulsory old-age-insurance system, but as a separate
undertaking.
5. The social insurance board should study the feasibility of
Government contribution toward the annuities of people now middle
aged or older with income of $2,500 per year or less who come
under this voluntary plan . . ."
Congressional Consideration-
It was the President's view, and that of
the experts on his Committee on Economic Security (CES), that
ultimately the welfare pensions funded by the states with federal
contributions would become unnecessary as the two programs of
annuities would gradually come to obviate any need for such welfare
type programs.
In his January 17th message to Congress, President Roosevelt summarized
his view of these three proposals this way:
"In the important field of security for our old people,
it seems necessary to adopt three principles: First, non-contributory
old-age pensions for those who are now too old to build up their
own insurance. It is, of course, clear that for perhaps thirty
years to come funds will have to be provided by the States and
the Federal Government to meet these pensions. Second, compulsory
contributory annuities which in time will establish a self-supporting
system for those now young and for future generations. Third,
voluntary contributory annuities by which individual initiative
can increase the annual amounts received in old age. It is proposed
that the Federal Government assume one-half of the cost of the
old-age pension plan, which ought ultimately to be supplanted
by self-supporting annuity plans."
The proposal for voluntary annuities did not receive much attention
during the hearings process. There were some objections raised
on the grounds that this proposal would put the government in
competition with the private insurance industry in the sale of
annuities.
The proposal did not survive the Committee process in the House,
and was not included in the Ways & Means Committee Report
on the bill. The Ways & Means Committee had 25 members: 18
Democrats and seven Republicans. All seven Republicans members
opposed both annuity titles in the Administration's bill, supporting
only the provision for old-age pensions, as they indicated in
a minority statement to the Committee Report. At least six Democrat
members expressed their intention to vote against the two annuity
provisions, according to a contemporaneous account by Edwin Witte,
who attended the executive sessions of the Committee. According
to Witte, Congressman Vinson (D-KY) proposed dropping the voluntary
annuity provision and this compromise persuaded wavering Democrat
members to support the mandatory annuity provision in the bill.
Witte reports the subsequent vote to drop the voluntary provision
as passing unanimously, and the second vote on the mandatory annuity
program as passing by "three or four votes," with one
member (Lamneck, D-OH) absent. (Lamneck was opposed to the Administration's
bill and would have been expected to vote against both provisions
as well as final passage.)
The bill as received from the House thus
contained no provision for voluntary annuities. During the executive
sessions on the bill in the Finance Committee, Representative
David J. Lewis (D-MD) appeared as a witness in support of the
voluntary annuity plan, trying to persuade the Finance Committee
to restore the provision deleted by his own Committee in the House.
He told the Finance Committee that 22,000,000 workers would not
be covered under the mandatory annuity plan and he urged adoption
of the Administration's proposal for voluntary annuities to help
these uncovered workers. Senator Lonergan (D-CT) spoke in opposition
to the voluntary annuity provision. Senator Edward Costigan (D-CO)
moved to include the provision and it passed in Committee on a
vote of 7-5 (9 members being absent). Witte reports that the Committee
Chairman, Pat Harrison (D-MS), gave Senator Lonergan assurances
that he could move to delete the provision on the floor and that
the Chairman would not oppose such a motion.
Consequently, a more-detailed version of
the voluntary provision was included as Title XI of the Finance
Committee Report. The provision as proposed by the Finance Committee
was:
- The Secretary of the Treasury was authorized
to issue United States Annuity Bonds;
- The bonds could be purchased by the
public in cash, in exchange for Savings Bonds, or by installment
payments;
- The bonds were to be redeemable for
an annuity in installments, under varying terms;
- The bonds were to return no more than
a 3% investment yield;
- The bonds were to be tax-exempt, but
the annuity payments were not;
- The bonds were not transferable or assignable
"in law or in equity;"
- The income from the sale of the annuities
were public-debt receipts, and the payments were to come from
the Treasury as public-debt redemptions, using any money "not
otherwise appropriated;"
- The sale of the annuities was to be
through the Post Office Department.
During the final
day of Senate floor debate on the bill, Senator Augustine
Lonergan (D-CT) introduced an amendment to delete Title XI from
the bill. Following a brief debate, the Senate voted by voice
vote to delete the provision from its bill.
Thus, the provision was not in either version
of the legislation as finally passed, and was not an issue in
the Conference Committee.
There is little indication that the Administration
considered this provision a priority and no record of any extensive
efforts on the part of the Administration to save it. |