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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