Committee on Economic Security (CES)

Volume II. Old Age Security
Papers in Support of Old-Age Provisions of Bill

Summary of the Principal Arguments Against Permitting Industrial Retirement Systems to Contract Out of the System of State Old Age Benefits


By Joseph P. Harris



This is a very brief summary. An extended brief has been prepared by Mr. Latimer.


1. Number of employees covered by industrial pension plans- it is estimated that the number in 1930 was approximately 3,500,000. Due to reduced employment, the number today is probably substantially less. Forty percent of these employees were in railroads.

2. Purpose of industrial retirement systems-the central purpose of industrial retirement systems is to increase efficiency, to reward employees, and to improve the morale. These systems are not to provide old-age security except incidentally. They are ordinarily limited to persons who remain in the employment of a single firm throughout substantially their life time and until they reach of retirement. It has been estimated that less than 5 percent of the employees of companies having retirement systems are ever able to satisfy these requirements and actually draw pensions.

3. Extent of old-age security afforded by industrial retirement systems -- Since only about one tenth of the workers who would be covered by Title II of the Social Security Bill are employed industrial pension systems and since only a very small percentage of these employees can ever hope to annually draw pensions the protection afforded by the existing industrial retirement systems is almost negligible.

4. Why do some private companies wish to "contract out"? Companies which would wish to "contract out" are those which would make gain thereby. The gain which they would make would be at the expense of other companies and their employees who remained in the general fund. The companies which have a low average age of employees, maintained by early discharges and refusal to employ persons of middle age or older, would profit by "contracting out," because the cost of providing the specified scale of benefits is much smaller for younger employees then for older ones. These employers would largely escape from their part of the financial liabilities assumed in paying a partially unearned benefit to persons who are already middle age or older.

5. To permit "contracting out" would thus place a premium upon the antisocial practice of discharging middle-age employees and maintaining a low age limit hiring provision.

6. There is not a single industrial retirement system in this country which would satisfy the requirements of a scale of benefits as liberal as that provided in the Social Security Bill. In few cases, the benefits payable to a few employees may be higher, but these are exceptional. Pensions are generally conditioned upon long and continuous employment for a single employer, and therefore, are actually paid to only a small number of people.

7. The administrative difficulties in connection with employees being first under a private retirement system and later under a general retirement system, back and forth, would be very great.

8. Any attempt to exempt employees covered by existing retirement systems would inevitably break down the separation between Titles II and VIII, and give rise to serious constitutional questions.

9. Industrial retirement systems will not need to be liquidated, but can be carried on as supplemental to the Federal old-age benefits. This can be readily accomplished, regardless of whether employees and employer contributions are continued after the Federal old-age benefit system becomes effective.

10. If the individual employers are permitted to "contract out," thus removing the best risk from the Federal system, the cost to those employers remaining in the Federal system cannot be predicted, and may be higher than the estimates which have been prepared so far.

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