LETTER TO MR. ALVIN M.DAVID FROM L.K. WHITE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP71B00364R000300200001-2
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 85
• Document Creation Date: December 15, 2016
• Document Release Date: November 13, 2003
• Sequence Number: 1
• Publication Date: January 29, 1969
• Content Type: LETTER

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ER 69-245/A
HSS Declassification & Release Instructions on File-No referral td-,HSS
Mr. Alvin M. David
Assistant Commissioner for Program
Evaluation and Planning
Social Security Administration
Baltimore, Maryland 21235
This is in response to your 10 January letter to Mr. Helms
requesting comments on a proposed report on social security and
Federal employment to be submitted by the Social Security Adminis-
tration to the House Committee on Ways and Moans and the Senate
Committee on Finance.
As stated in Mr. Maury's letter to you of 20 December 1968,
we endorse the report's general objectives of providing needed pro-
tection for Federal employees, and their dependents and survivors,
by transferring Federal employee credits to social security and
guaranteeing minimum staff retirement system benefits equal to
social security benefit levels.
As you know, most employees of this Agency are covered by
the Civil Service Retirement System, administered by the Civil
Service Commission, but others participate in the Central Intelligence
Agency Retirement and Disability System (P. L. 88-643), adminis-
d by the Director of Central Intelligence. We therefore are
especially pleased to note that in the "Conclusions and Recomsmeenda-
tions" section of the proposed report the Central Intelligence Agency
retirement system is included, along with the Civil Service and
Foreign Service retirement systems, in recommendation 3(a),
"Transfer of credits to social security, " and recommendation 3(b),
"Guaranteed minimum civil service benefits. "
We appreciate this opportunity to comment on the proposed report.
Sincerely.
L,. K. White
Prepared by OLC L. K. White
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DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE J
SOCIAL SECURITY ADMINISTRATION
BALTIMORE, MARYLAND 21235
JAN 1 o 1969
Honorable Richard Helms, Director
Central Intelligence Agency
Washington, D.C. 20505
Dear Mr. Helms:
Enclosed are copies of a draft of a proposed report on social. security
and Federal employment which the House Committee on Ways and M=ans and
the Senate Committee on Finance directed the Social Security
Administration to make. A complete text of the request appears at
the beginning of the report.
Since a report must be released before the end of next week, the
enclosed draft can be regarded as close to completed form. Revisions
to improve the presentation have been made in the draft previously
sent to the office of your legislative counsel, and a section has
been added which represents our views as to what conclusions are to
be drawn and what recommendations should be made to the Committees.
Copies are also being sent to Mr. John Maury.
I would appreciate having any comments you may wish to make on this
version of the report.
Sincerely yours,
Assistant 'Commissioner for
Program Evaluation and Planning
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Relating
SOCIAL
SECURITY
PROTECTION
to the
FEDERAL
CIVIL
SERVICE
A Report Requested By
The Committee On Ways And Means
U.S. House Of Representatives
And
The Committee On Finance
U.S. Senate
DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE
SOCIAL SECURITY ADMINISTRATION
January 1969
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DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE
SOCIAL SECURITY ADMINISTRATION
BALTIMORE, MARYLAND 21235
REFER TO: P:CD
January 17, 1969
Honorable Wilbur D. Mills
Chairman, Committee on
Ways and Means
House of Representatives
Washington, D. C. 20515
The enclosed report is submitted pursuant to the direction of your Committee
in its report on the Social Security Amendments of 1967 (House Report No. 544,
90th Congress) to the Social Security Administration "to make a thorough study
of all the various problems which up to now have precluded the coverage of
governmental employees under social security, 11 and to submit a "report of the
study, including positive recommendations for covering of Government employees
on a basis that is fair to both Government employees and all other workers."
Your Committee's request referred specifically to gaps in the cash benefit
protection, difficulties arising from the lack of a satisfactory relationship
between Medicare and the Federal employees health benefits program, and the
situation in which some Government retirees with annuities based on substantial
salary also qualify for minimum or close-to-minimum social security benefits
that are weighted to produce an advantage intended for low earners.
Possible approaches to dealing with the situations your Committee referred to
in its request were analyzed with respect to their effect on the over-all benefit
protection of workers who have Federal employr-.ant--those who make a career
in the Federal civil service and those whose w king lifetimes are divided
between the Federal civil service and other employment--and with due regard to
the equities of the workers who are covered under and contributing to the social
security program. Also a primary consideration was the importance of avoiding
any changes in the Federal staff-retirement systems that would be inconsistent
with their basic purposes or interfere with their continued independence. In
weighing these considerations, we were continually mindful of the desirability
of avoiding the incurrence of any additional costs that would not be essential to
a solution of those matters which clearly were within the scope of the requested
study.
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We gave first consideration to an approach involving extension of social security
coverage to Federal employment, with the Federal staff-retirement provisions
modified to take into account that employees would also be covered under social
security--the approach commonly used in private industry and in most other areas
of employment. This approach would be more likely than others to assure that the
combined benefits (and contributions) of people who move between Federal employ-
ment and other work would be at a planned and systematic level. We concluded
that the negative considerations, including the high costs involved in a workable
coordination of the present provisions of the civil service retirement and social
security systems, were of sufficient importance as to indicate that an alternative
approach would be preferable. It appears to us that a workable coverage-coordina-
tion plan would entail additional costs amounting to at least 6 percent of civil
service payroll, and perhaps substantially more. Much of the additional costs
would be attributable to increases in the retirement benefit amounts of long
service Federal employees, while the objective of our study was concerned with
ways of assuring a basic level of benefit protection to all workers who have
Federal employment.
Some of the organizations of Federal employees have supported proposals to
make social security coverage available to civil service employees on an
individual voluntary basis and with no reduction of benefits of the civil service
retirement system. We concluded that voluntary coverage would not remedy the
problems cited in your Committee's request. The increased costs to the
Government would go mainly toward substantially increasing the benefits of
those employees who are best able to afford the social security contributions and
expect that their social security benefits would represent a high return on the
contributions. Further, the adverse selection that would occur under individual
voluntary coverage would increase the cost of the social security program at the
expense of other workers, who are covered under social security on a compulsory
basis.
In considering measures which could provide a satisfactory alternative to social
security coverage of Federal employment, we reviewed previously advanced
proposals intended to remedy the difficulties cited in your Committee's request
and we also explored other possibilities. On the basis of our study we recommend
a three-fold approach.
Two of these proposed measures would be applicable to the Federal civil service
retirement system, the foreign service retirement system, and the Central
Intelligence Agency retirement system. For these staff-retirement systems we
propose that:
(1) Where there is no benefit eligibility under the retirement system when
a worker dies, becomes disabled, or retires, credits would be trans-
ferred from the staff-retirement system to social security; and
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(2) Where there is benefit eligibility under the retirement
system, the staff-retirement system benefits (or if social
security benefits based on other work are also payable, the
staff-retirement system and social security benefits
together) would be guaranteed to be at least as high as if
employment subject to the staff-retirement system had been
covered by social security.
Our third proposal is designed to establish an appropriate relationship
between the Federal employees health benefits program and the Medicare
program, and thus would affect practically all Federal civilian employees
without regard to their retirement-system coverage. Under this proposal,
Federal employees, like workers in private industry, would contribute
with their employing agency during their working years toward their health
insurance protection after age 65. The retired employee would then have
Medicare;, protection after age 65, paying only the relatively small premium
for participating in the voluntary supplemental medical insurance part of
Medicare. The Government would make available complementary
health insurance that would, together with Medicare protection, provide
health insurance protection at approximately the level now provided under
the Government-wide high-option plans of the Federal employees health
benefits program. To make the plan fully and quickly effective, we are
proposing that present Federal retirees be deemed insured for Part A of
Medicare, with the cost met by the Government, as employer.
While we do not at this time have definitive cost estimates on the additional
costs that would result from adoption of the above-described proposals, it
is clear that the combined costs would be very substantially below the cost
of a workable coverage-coordination plan.
Your Committee's request also referred to situations in which some individ-
uals qualify for Government retirement-system benefits based on substantial
salary and also qualify for minimum or near-minimum social security benefits
which, though small, provide a relatively high return on social security
contributions. In the discussion of such situations in the report, we have
indicated possible approaches that could be considered if some action were
to be taken. But our special study of this matter showed that the number of
such cases is quite small and will decline in the future. We concluded that
any legislative change designed to eliminate such cases would give rise to
serious inequities, and we recommend against any legislative action to
provide for reduction of social security benefits paid to Government employees.
In developing our report, we have consulted with the Civil Service Commission
and with the other Federal agencies primarily concerned. We have also
carefully considered the testimony of representatives of organizations
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of Federal employees on related proposals made in the past, as well as
relevant resolutions that have been adopted by Federal employee organ-
izations. We have discussed possible proposals with representatives of the
major organizations of Federal employees, and have tried to reflect in the
report points brought up in these discussions.
We believe that the measures we are proposing represent a fair and
reasonable reconciliation of the divergent views and interests of all who have
an important stake in the resolution of the problems cited by your Committee.
The proposals appear to be sound and practicable. They would largely solve
the major existing problems, at optimum cost, and in a way that seems to us
to be fair to employees of the Federal Government and to workers who are
covered under social security.
Robert M./Ball
Commissioner of Social Security
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DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE
SOCIAL SECURITY ADMINISTRATION
BALTIMORE. MARYLAND 21235
Honorable Russell B. Long
Chairman, Committee on Finance
United States Senate
Washington, D. C. 20510
REFER TO: P: CD
January 17, 1969
The enclosed report is submitted pursuant to the direction of your Committee
in its report on the Social Security Amendments of 1967 (Senate Report No. 744,
90th Congress) to the Social Security Administration "to make a thorough study
of all the various problems which up to now have precluded the coverage of
governmental employees under social security, " and to submit a "report of the
study, including positive recommendations for covering of Government employees
on a basis that is fair to both Government employees and all other workers. "
Your Committee's request referred specifically to gaps in the cash benefit
protection, difficulties arising from the lack of a satisfactory relationship
between Medicare and the Federal employees health benefits program, and
the situation in which some Government retirees with annuities based on sub-
stantial salary also qualify for minimum or close-to-minimum social security
benefits that are weighted to produce an advantage intended for low earners.
Possible approaches to dealing with the situations your Committee referred
to in its request were analyzed with respect to their effect on the over-all
benefit protection of workers who have Federal employment--those who make a
career in the Federal civil service and those whose working lifetimes are
divided between the Federal civil service and other employment--and with due
regard to the equities of the workers who are covered under and contributing
to the social security program. Also a primary consideration was the importance
of avoiding any changes in the Federal staff-retirement systems that would be
inconsistent with their basic purposes or interfere with their continued inde-
pendence. In weighing these considerations, we were continually mindful of the
desirability of avoiding the incurrence of any additional costs that would not be
essential to a solution of those matters which clearly were within the scope of
the requested study.
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We gave first consideration to an approach involving extension of social security
coverage to Federal employment, with the Federal staff-retirement provisions
modified to take into account that employees would also be covered under social
security--the approach commonly used in private industry and in most other areas
of employment. This approach would be more likely than others to assure that the
combined benefits (and contributions) of people who move between Federal employ-
ment and other work would be at a planned and systematic level. We concluded
that the negative considerations, including the high costs involved in a workable
coordination of the present provisions of the civil service retirement and social
security systems, were of sufficient importance as to indicate that an alternative
approach would be preferable. It appears to us that a workable coverage-coordina-
tion plan would entail additional costs amounting to at least 6 percent of civil
service payroll, and perhaps substantially more. Much of the additional costs
would be attributable to increases in the retirement benefit amounts of long
service Federal employees, while the objective of our study was concerned with
ways of assuring a basic level of benefit protection to all workers who have
Federal employment.
Some of the organizations of Federal employees have supported proposals to
make social security coverage available to civil service employees on an
individual voluntary basis and with no reduction of benefits of the civil service
retirement system. We concluded that voluntary coverage would not remedy the
problems cited in your Committee's request. The increased costs to the
Government would go mainly toward substantially increasing the benefits of
those employees who are best able to afford the social security contributions and
expect that their social security benefits would represent a high return on the
contributions. Further, the adverse selection that would occur under individual
voluntary coverage would increase the cost of the social security program at the
expense of other workers, who are covered under social security on a compulsory
basis.
In considering measures which could provide a satisfactory alternative to social
security coverage of Federal employment, we reviewed previously advanced
proposals intended to remedy the difficulties cited in your Committee's request
and we also explored other possibilities. On the basis of our study we recommend
a three-fold approach.
Two of these proposed measures would be applicable to the Federal civil service
retirement system, the foreign service retirement system, and the Central
Intelligence Agency retirement system. For these staff-retirement systems we
propose that:
(1) Where there is no benefit eligibility under the retirement system when
a worker dies, becomes disabled, or retires, credits would be trans-
ferred from the staff-retirement system to social security; and
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(2) Where there is benefit eligibility under the retirement
system, the staff-retirement system benefits (or if social
security benefits based on other work are also payable, the
staff-retirement system and social security benefits
together) would be guaranteed to be at least as high as if
employment subject to the staff-retirement system had been
covered by social security.
Our third proposal is designed to establish an appropriate relationship
between the Federal employees health benefits program and the Medicare
program, and thus would affect practically all Federal civilian employees
without regard to their retirement-system coverage. Under this proposal,
Federal employees, like workers in private industry, would contribute
with their employing agency during their working years toward their health
insurance protection after age 65. The retired employee would then have
Medicare protection after age 65, paying only the relatively small premium
for participating in the voluntary supplemental medical insurance part of
Medicare. The Government would make available complementary
health insurance that would, together with Medicare protection, provide
health insurance protection at approximately the level now provided under
the Government-wide high-option plans of the Federal employees health
benefits program. To make the plan fully and quickly effective, we are
proposing that present Federal retirees be deemed insured for Part A of
Medicare, with the cost met by the Government, as employer.
While we do not at this time have definitive cost estimates on the additional
costs that would result from adoption of the above-described proposals, it
is clear that the combined costs would be very substantially below the cost
of a workable coverage-coordination plan.
Your Committee's request also referred to situations in which some individ-
uals qualify for Government retirement-system benefits based on substantial
salary and also qualify for minimum or near-minimum social security benefits
which, though small, provide a relatively high return on social security
contributions. In the discussion of such situations in the report, we have
indicated possible approaches that could be considered if some action were
to be taken. But our special study of this matter showed that the number of
such cases is quite small and will decline in the future. We concluded that
any legislative change designed to eliminate such cases would give rise to
serious inequities, and we recommend against any legislative action to
provide for reduction of social security benefits paid to Government employees.
In developing our report, we have consulted with the Civil Service Commission
and with the other Federal agencies primarily concerned. We have also
carefully considered the testimony of representatives of organizations
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of Federal employees on related proposals made in the past, as well as
relevant resolutions that have been adopted by Federal employee organ-
izations. We have discussed possible proposals with representatives of the
major organizations of Federal employees, and have tried to reflect in the
report points brought up in these discussions.
We believe that the measures we are proposing represent a fair and
reasonable reconciliation of the divergent views and interests of all who have
an important stake in the resolution of the problems cited by your Committee.
The proposals appear to be sound and practicable. They would largely solve
the major existing problems, at optimum cost, and in a way that seems to us
to be fair to employees of the Federal Government and to workers who are
covered under social security.
Robert M./Ball
Commissioner of Social Security
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Relating
SOCIAL
SECURITY
PROTECTION
to the
FEDERAL
CIVIL
SERVICE
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RELATING SOCIAL SECURITY PROTECTION TO THE FEDERAL CIVIL SERVICE
REQUEST FOR REPORT . . . . . . . . . . . . . . . . . . . . . . . .
PROBLEM AREAS . . . . . . . . . . . . . . . . . . . . . . . . . . .
1. Gaps and deficiencies in the annuity protection of workers who have
Federal employment . . . . . . . . . . . . . . . . . . . . . . . . .
Page
1
2. Relationship of the Federal employees health benefits program to
the Medicare program . . . . . . . . . . . . . . . . . . . . . . . . 8
The Federal employees health benefits program . . . . . . . . . . 8
Medicare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Difficulties arising from employee mobility . . . . . . . . . . . . 10
3. Annuitants receiving substantial civil service retirement benefits
who also qualify for heavily-weighted social security benefits . . . . 12
Federal annuitants who receive minimum or near-minimum
social security benefits . . . . . . . . . . . . . . . . . . . . . . 13
Non-Federal annuitants who receive minimum or near-minimum
social security benefits . . . . . . . . . . . . . . . . . . . . . . 15
1. Extension of social security coverage to Federal employment
subject to the civil service retirement system . . . . . . . . . . . . . 17
Advantages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Proposals made in the past . . . . . . . . . . . . . . . . . . . . . 18
Present problems in developing an acceptable coverage plan . . . 19
2. Possible measures which could provide an alternative to coverage . . 23
a. Transfer of credits to social security . . . . . . . . . . . . . . . . 23
Application of the plan . . . . . . . . . . . . . . . . . . . . . . 24
Financing transfer of credits . . . . . . . . . . . . . . . . . . . . 25
Reverse transfer of credits not feasible . . . . . . . . . . . . . . 26
Providing new benefits under the civil service retirement
system to fill present gaps in protection . . . . . . . . . . . . . 27
b. Guaranteed minimum civil service benefits related to social
security benefit levels . . . . . . . . . . . . . . . . . . . . . . . . 28
Effect of guarantee on protection . . . . . . . . . . . . . . . . . . 28
Cost of providing the guarantee . . . . . . . . . . . . . . . . . . . 30
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Table of Contents (continued)
e Medicare for Federal employees ... . . . . . . . . . . . . . . . . 30
A plan for relating the FEHB program to Medicare . . . . . . . . 30
Advantages of the proposed plan . . . . . . . . . . . . . . . . . . 32
Cost implications . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3. The question of special limitations on social security benefits
payable to persons also receiving substantial civil service
re,Yirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
CONCLUSIONS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . 37
APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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RELATING SOCIAL SECURITY PROTECTION
TO THE FEDERAL CIVIL SERVICE
REQUEST FOR REPORT
The Committee on Ways and Means, in its report (House Report No. 544, 90th
Congress) on the Social Security Amendments of 1967, directed the Social
Security Administration, in consultation with appropriate Federal agencies and
employee groups, to study the problems which have precluded the coverage of
most Federal Government employees under social security, and to submit
recommendations to the Congress. The Senate Committee on Finance concurred
in this request in its report (Senate Report No. 744) on the 1967 amendments.
Following is the relevant part of the report of the Committee on Ways and Means:
"Your committee is aware of the gaps which exist in the protection of
the Federal workers who do not have survivorship, disability, or re-
tirement protection based on that employment.
"A particular hardship exists in many instances when an individual dies
during his first 5 years of Government service, when he is not yet en-
titled to survivorship protection under his Federal staff retirement
system but he has lost his coverage under OASDI. A similar situation
occurs when an individual dies shortly after leaving Federal service
and before he has worked under OASDI long enough to be covered for
survivorship benefits.
"Additionally, an inequity may possibly exist in the relationship of the
Medicare program to Federal employees. Approximately 50 percent
of our retired Federal employees are entitled to hospital insurance
benefits under Medicare on the basis of coverage acquired while serv-
ing in the armed services or working in private employment. If the
retiree elects to pay the premium for coverage under the voluntary
supplementary medical plan open to all of our citizens, he will enjoy
health insurance protection approaching that afforded by the high
option plans offered by the Federal Employees Health Benefit Act.
In that case, the Federal Government is relieved of any obligation
to contribute to his health care as an employee distinct from a mem-
ber of the general public.
"Those Federal retirees not entitled to hospital insurance protection
under Medicare cannot benefit from the voluntary supplemental plan
toward which the Government currently contributes $3 per month on
behalf of each participant. Since the retiree must retain the health
insurance plan he selected as an employee in order to have hospital
insurance protection, the voluntary supplemental plan will duplicate
coverage he already has. As he is not permitted to collect duplicate
benefits, the voluntary supplemental plan is not worth the $3 per
month the individual would be required to pay.
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" T e Administration's bill, H. R. 5710, contained a proposal under which
cre its for work subject to a Federal staff-retirement system would be
tra sferred to social security in all cases where the worker or his sur-
viv rs do not become eligible for staff-system benefits based on that
woik. Your committee also considered the possibility of extending social
security hospital insurance coverage to Federal civilian employment,
on the contributory basis that is applicable to such coverage of almost
all other kinds of work. Although each of these ideas has some merit,
your committee believes there should be further and more comprehensive
study of the possible ways of including Federal employees in the program
before any recommendation for change is made.
"G[ concern to your committee is a situation that can occur when Govern-
we mt employees, either active or retired, work in employment covered
under the social security program and qualify for the minimum or low
benefits. This situation occurs when the Government worker with a sub-
stantial Government salary works part-time under social security or
enters covered employment after retirement; in such cases he can be-
cone entitled to social security benefits (perhaps the minimum benefit)
which will be heavily weighted in his favor, receiving a higher percentage
of wage replacement on his social security earnings. The social security
weighted benefit formula is designed for the worker who has low earn-
ings from all sources all his working life.
The committee has directed the Social Security Administration to make
a -iorough study of all of the various problems which up to now have
precluded the coverage of governmental employees under social security.
The committee directs the Social Security Administration to conduct
this study in close and constant cooperation with employee groups and
with appropriate Federal agencies with a view to resolving the problems
in a manner that is fair to both the governmental employees and the
other members of the labor force that support the OASDI system. The
report of the study, including positive recommendations for covering
of Government employees on a basis that is fair to both Government
employees and all other workers, is to be submitted to the Congress
prior to January 1, 1969."
In the following report of the results of our study, we have generally made refer-
ence to the Federal civil service retirement system for purposes of describing
present problems and possible solutions. That system covers albout 99 percent
of those Federal jobs that are not covered by social security. Whatever approach
might be used to fill gaps in the protection of workers employed under the civil
service retirement system could be adapted to some of the much-smaller Federal
staff-retirement systems such as the foreign service and Central Intelligence
Agency retirement systems. 1/
lJ The principal benefit provisions of the civil service, foreign service, and
Central Intelligence Agency retirement systems, and of social security, are
supnmarized in Appenrix A.
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There is general agreement that the Federal civil service retirement system is
an excellent staff-retirement system, appropriately designed to further the
effective administration of the Government. However, the present study, by its
nature, is concerned with certain deficiences in the protection afforded many of
the workers who have employment subject to that system, in comparison with
the basic family protection afforded workers generally under social security.
The principle that the workers of the Nation should, to the extent possible, be
assured that a basic level of family income will continue when the worker's
earnings are cut off by retirement, severe disablement, or death is today
deeply imbedded in public policy. Almost all workers other than those under the
Federal civil service retirement system or under some of the systems for State
and local. government employees, are in jobs covered by social security, which
provides this basic protection. Generally this protection continues without
interruption if the worker goes into different employment. Many workers
covered under social security have supplementary protection through employer
or collective bargaining arrangements, such as private pension, staff-retirement
or profit sharing plans.
As shown in the following chart, about 9 out of 10 Federal civilian jobs--
representing 40 percent of all Federal personnel--are in employment subject
to a Federal staff-retirement system and excluded from social security.
Members of the Federal uniformed services and most employees of the
Tennessee Valley Authority are covered by both social security and a staff-
retirement system.
Chart 1. Retirement system coverage of Federal personnel
Staff Retirement System
Coverage Only--
2.7 million
mainly workers under the
civil service retirement
system
/''Social Security-I
0.4million
mainly short-term workers
Social Security and Staff
Retirement System Coverage-
3.5 million
mainly members of the
uniformed services
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The F deral civil service retirement system has developed independently of the
sociali security system and its development has of course been strongly influenced
by obj ctives common to staff-retirement systems--including the objective of
encouraging competent workers to make a career in employment subject to the
staff-retirement system. The civil service retirement system therefore places
main emphasis on adequacy of retirement benefits for long-service employees.
Once an employee has completed long service he generally has good disability
and survivorship protection as well. 2/
Tabled. CSR retirement benefits for long-service employees, as a percentage
of pay.
Years of
Retirement Benefits as
Service
Percentage of Pay _L/
30 years
56
1/4%
35 years
66
1/4%
40 years
76
1/4%
42 years or more
80
%
CSI retirement benefits are computed as a percentage of average pay over the
5-year period of highest pay (generally the last 5 years). Cost-of-living in-
creases, related to increases in the Consumer Price Index, are provided after
entitlement.
Convet sely, because of the staff-retirement system emphasis on length of service,
there are serious gaps in protection, or deficiences in benefit levels, for large
numbers of Federal workers, including career employees who do not yet have
long Federal service. These gaps and deficiencies--mainly in family survivor-
ship and disability protection--have been largely eliminated in most other areas
of employment subject to staff-retirement systems because the workers also
have social security coverage. Under social security, in accord with social
insur4nce principles, full-scale family survivorship protection and family
disability protection for young workers arise after 6 calendar quarters of
covered work. 3/
2/ Exo.mples of monthly benefits under the civil service retirement system are
shown in Appendix B.
Examples of monthly benefit payments under social security are shown in
Ap endix C. The term "family" is here used to mean a unit that includes
at feast one dependent child. In survivorship cases involving a widow, but no
dependent child, the benefits are in many cases better under CSR than under
social security, as CSR pays an immediate annuity if an employee dies after
5 or more years of service, while social security widow's benefits are not
payable until age 60, or until age 50 if the widow is totally disabled. However,
in cases where the worker had only 5 years of Federal service, the widow's
annuity would be 4 1/8 percent of the worker's high-5 average salary. This
annuity amount would increase by about one percent of salary for each year
of Vederal service performed by the worker in excess of 5 years.
4
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1. Gaps and deficiencies in the annuity protection of workers who have Federal
employment
The shortcomings in protection of Federal employees and their families affect,
at one time or another during their working lifetimes, almost all workers who
have employment subject to the civil service retirement system. During their
first 5 years of Federal employment, Federal employees, including those who
intend to make a career in Federal service, do not have survivorship or dis-
ability protection under the civil service retirement system. 4/
About: 20 percent of the employees subject to the Federal civil service retire-
ment system, as of any one date, have less than the 5 years of service needed
for such protection. While the incidence of death and disability is low among
these younger workers, the economic effects on a young family are disastrous
when death or total disability does cut off the family income.
Even after an employee has completed 5 years of service and becomes
eligible for protection under the civil service retirement system, it generally
requires many more years of Federal service before his family survivorship
protection under-the system reaches the level that would have been afforded
by social security if his Federal service had been covered under social
security. In some situations family survivorship protection under the civil
service retirement system never reaches the social security level regardless
of the length of Federal service. In disability cases, the civil service retire-
ment system guarantees certain minimum benefit levels after 5 years of
service (generally 40% of high-5-year average pay) which are generally higher
than social security provides for a disabled worker who has no dependent
family. But family disability protection is in many cases less than under
social security because social security provides benefits to family dependents
of a disabled worker while the civil service retirement system pays benefits
to only the disabled worker himself. 5/ In other situations, the civil service
benefits are higher than social security benefits, though exceptions are not
uncommon in individual cases.
4/ When a Federal employee with less than 5 years of service dies, becomes
disabled, or leaves Federal service, he (or his survivors) receives a refund
of his contributions to the civil service retirement system (plus interest if
he had at least one year of service). Many employees also carry life insur-
ance under the Federal employees group life insurance program. The Federal
employees compensation program provides benefits in the event of work-
connected disability or death.
In general, to be eligible for disability benefits under social security a worker
must be unable to engage in any substantial gainful activity; under the more
liberal definition of disability of the civil service retirement system, an em-
ployee is eligible for disability benefits if he becomes unable to perform the
the duties of his job or a similar job.
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The 'ollowing table indicates the types of situations where benefits payable
under the civil service retirement system are generally lower than the bene-
fits that would have been payable if the worker had a similar earnings record
in work covered under social security. The table roughly indicates the dif-
ferences between the amounts of the two benefits for workers with annual pay
of $0, 000, $7, 800, and $10, 200, and the number of years of Federal service
it would take to yield civil service benefit amounts equal to the social security
monthly benefit shown.
Tae 2. Illustrative cases in which CSR benefits are less than social security
benefits
Beneficiaries
Widow and one
child
Widlow and two
children
d
Sur iving chit
alone
ed
T ot.lly disabl
ife,
worker with wife,
one child 4
It is assumed that the worker is employed from age 22 (in 1968) until death
or disability.
/ The CSR annuities are those that would be payable at earliest eligibility
i. e. , after 5 years of Federal service).
3/ Social security benefit amounts, assuming level salary, would be the same
if death or disability occurred after 5 years or after a longer period of
employment. The maximum annual earnings that can be counted in deter-
mining a worker's lifetime average earnings under social security is
~~7, 800 for 1968 and thereafter.
{/',Minimum CSR disability benefit amounts are ordinarily computed at 40% of
;sigh-5-year average salary. CSR does not pay benefits to families of dis-
_ibled employees.
Otter inadequacies in protection are associated with the considerable employee
mobility between Federal and private employment. In the 5i years from 1963
to ;1.967, an average of about 400, 000 employees a year either entered or. left
Federal employment covered by the civil service retirement system. Workers
who leave Federal employment, whether or not they have 5 or more years of
service, immediately lose all survivorship and disability protection under the
Average
Monthly Benefits i/
Years of Service
Monthly
CSR
At Which CSR
Salary
5 yrs'
Social
Equals SS
Service 2
Security
$500
$ 78
$266
40
650
84
327
40
850
92
327
31
500
135
375
$334 max at 42 years
650
141
434
$400 max at 42 years
850
149
434
36
500
69
133
CSR pays flat amount
650
69
164
which never reaches
850
69
164
SS level
- 500
200
355
37
650
260
432
35
850
340
432
27
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civil service retirement system, and a large proportion do not have social
security survivorship protection until they have worked at least a year and a
half--or social security disability protection until they have worked from a
year and a half to 5 years (depending on their age)--after leaving Federal
employment. Some of them have never worked under social security. Others
have lost social security protection they had once acquired through previous
work. A few are still insured for social security survivorship or disability
benefits when they leave Federal employment but their protection is generally
impaired because social security benefit amounts will not reflect their recent
earnings and may be quite low because of the length of time spent in non-
covered work.
Many of the workers who shift between Federal and private employment become
eligible under only one system--either social security or civil service retire-
ment--for benefit amounts which are low in comparison to total earnings be-
cause they lose credit for the years of service they had under the other system.
Some workers may end up without eligibility for benefits under either system.
Of the many thousands of workers who each year leave Federal employment
in which they are covered by the civil service retirement system, only a small
proportion eventually receive a retirement benefit based on their service.
Studies of people who left work in which they were covered by the civil service
retirement system show that less than 1 in 12 gained and kept any protection
under that system as a result of the Federal service. The number of deferred
annuities awarded in recent years has averaged less than 4, 000 a year. About
one-third of those who left did so after they had met the eligibility requirement
of a minimum of 5 years of service. Employees who leave after 5 years of
Federal service may either take a refund of their civil service contributions
(generally without interest) or forego refund and obtain a deferred annuity
beginning at age 62. _~_/ Of those who separated after 5 or more years of
coverage under the civil service retirement system, but before retirement,
more than three-fourths voluntarily withdrew their contributions soon after
separation and thereby lost all rights to benefits under the system. These
rights may be regained only if a worker re-enters Federal employment and is
again covered by the system. The following table shows the number of Federal
employees who claimed refunds of their civil service contributions in recent
years.
Table 3. Refund claims received by the U. S. Civil Service Commission
Fiscal Year Refund Claims
1963
135,761
1964
127,863
1965
119,376
1966
129,170
1967
164,851
6/ As noted earlier, employees who leave with less than 5 years of service
receive a refund, with no option as to a deferred annuity.
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2. Relationship of the Federal employees health benefits program to the Medicare
pro ram
Enactment of Medicare in 1965 initiated a national policy of providing health
insurance under the social security program for persons age 65 and older.
A health insurance program for Federal employees and retirees became
operative in 1960. Considering that over the years millions of workers will
havt their working lifetimes divided between Federal employment and work
covered by social security, there is a clear need to develop an. appropriate
relationship between the two programs.
The
Federal employees health benefits program
Tlie'Federal Employees Health Benefits Act of 1959 makes available to Federal
civi ian employees and their dependents health insurance protection under a
ar ci atin
p ~ p g private plan of their choice. About 9 out of 10 employees have
elected to be covered. The great majority of Federal civilian annuitants who
have retired since June 1960 7/ and their survivors have elected to continue
their coverage under the FEHB program after retirement. The program is
fina4ced on a current basis by premiums paid in part by employees and
annuitants and in part by the Government. Employees and annuitants have a
chore between high and low option coverage, and a choice among a number
of plans. Most of the employees are enrolled in either of two Government-
wide' plans.
In general, the Government contributes 50% of the cost of low-option coverage
and employees and annuitants bear almostall of the extra cost of the additional
protection under the high-option plans. About 86% of employees and annuitants
select high-option coverage despite its higher cost to them, with the result
that,'I overall, the Government is currently paying about one-third of the cost
of this program. Because of the limits set by present law on the amount of
Government contributions, an increase in premium rates beginning
January 1, 1969, is almost entirely added to the premiums paid by em-
ployees and annuitants, and as a result the Government contribution is now
about 28 percent of the cost of the program. 81/
Federal employees retiring after June 1960 (and their survivors) pay the same
premium rates as active employees, though health care costs for retirees and
their' dependents are about 2 1/2 times as high as those of active employees
and their dependents. The older group makes greater use of the more costly
serviIces, particularly hospitalization. The proportion of elderly people in
the eptire group is certain to increase for some time to come; at present the
size of the older segment is considerably reduced by the limitation that only
There are special provisions for those retired before July 1960 and their
surviIvors. The great majority have the hospital insurance part. of Medicare,
many having been covered by a special transitional provision, applicable to
people who reached age 65 before 1968, and, like practically all other persons,
may it age 65 participate in the supplementary medical insurance part of
Medi are.
Appe dix D shows premium rates of the Government-wide FEHB plans.
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those retired since June 1960 are included. With a uniform premium rate
for the older and younger members of the group, the young will be paying in-
creasingly higher premiums than what would be required to cover their own
health care costs, in order to help finance the higher costs of the older group.
Table 4. Comparison of increases in the cost of hospitalization with increases
in the cost of other medical care
Consumer Price Index
Increase
1960
1962
1964
1966
1967
1960-1967
Consumer Price
Index
103.1
105.4
108.1
113.1
116.3
+12.8%
Medical care,
total
108.1
114.2
119.4
127.7
136.7
+26.5%
Physicians' fees
106.0
111.9
117.3
128.5
137.6
+29.8%
Hospital service
(daily service
charges)
112.7
129.8
149.9
168.0
200.1
+77.6%
Source: Handbook of Labor Statistics, 1968, Bureau of Labor Statistics
As is true of other health insurance plans, the rising cost of benefit payments
under the Federal employee health plans has tended to overtake the income
from premiums. The increasing level of benefit payments under the high-
option plans resulted in benefit payments exceeding premium income of the
plans in 1964, and in benefit costs and other expenses exceeding premium
income in. 1965. Yearly premium increases for high-option coverage since
1965 and scheduled benefits which are not paid by the FEHB plans to members
who are covered by Medicare, have ameliorated the situation. However, the
gross benefit cost per capita has continued to rise because of the rising cost
and increased utilization of health services, and the increasing proportion of
annuitants in the covered group, so that premiums have been further increased
beginning with January 1969.
Medicare includes two related health insurance programs for persons age 65
and over: "Part A"--a basic plan providing protection against the costs of
hospital and related care; and "Part B"--a voluntary supplementary plan cover-
ing payments for physicians' services and certain other medical and health
services. 10/
.9/ Appendix D shows benefit experience by patient category under high-option
FEHB plans.
10 Appendix E summarizes major benefits under Medicare and under the
Government-wide service benefits plan (high-option) of the FEHB program.
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People covered under Part A are mainly those who have reached age 65 and
are entitled to monthly benefits under the social security or railroad retire-
ment !programs. Under a special transitional provision, Part. A coverage
was extended to most other persons who reached age 65 before 1968 and who
are not insured under the social security or railroad retirement programs,
including some retired Federal employees. However, those Federal employees
retiring after June 1960 who are covered or could have become covered under
the FEHB program after February 15, 1965, were not brought under Part A
by the special transitional provision.
Part A protection (the more costly part of Medicare) is financed on a prepay-
mentbasis through a separate earnings tax (at present 0. 6% on earnings up
to thel tax base of $7,800 a year) paid by employers, employees, and self-
empl?yed persons, except that benefits for persons who qualify under the
special transitional. provision are financed out of Federal general revenues.
Enrollment for Part B protection is open to practically all persons reaching
age 6~, including Federal. employees and annuitants. Part B is financed by
a moathly premium (now at a standard rate of $4. 00) paid by the enrollee and
a maVching amount paid by the Federal Government out of general revenues.
In general, the health insurance protection afforded the aged under Medicare is
not far below the level provided under the FEHB low-option Government-wide
plans but is substantially below the level provided under the high-option plans.
Medicare protection is of course oriented to the aged; it thus does not include
the maternity and related benefits provided under the FEHB plans but does
include coverage of care in an extended care facility after a hospital stay.
Difficulties arising from employee mobility
The difficulties arising because Federal civil service employment is not
covered under Medicare, like some of the difficulties arising in the cash
benefits area, are associated with the considerable movement of workers
into and out of Federal employment. Inequalities in protection, subsequently
discussed, result for many of these workers who, on reaching retirement,
will have contributed to both Part A of Medicare and to the FEHB program.
The number of workers contributing to both Part A of Medicare and the FEHB
program 11 is much larger than the number whose cash benefit. protection
is affected because of the movement between work covered by the civil service
retirement system and work covered by social security. This is so because
many of the 300, 000 temporary Federal employees (covered under social
security and excluded from civil service retirement system coverage) participate
in the FEHB program. Data for recent years show that, when movement into
or out of temporary Federal jobs is included, about one million employees a
year are involved.
tj/ Active Federal employees as a group contribute toward the protection of
retired workers because, while the premium rates of active employees
are the same as those of retired workers, their health care costs are
much lower than those of retired workers.
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On reaching age 65, the many workers who contribute under both programs will
be in one of the following categories:
(a) Eligible for health insurance protection under one of the two programs, with
no advantage obtained from contributions that were made to the other
program. For example, over the long run, when 10 years of social security
coverage will be needed to be insured under Medicare, a worker might
contribute under the Medicare program for 8 or 9 years, and then go into
Federal employment for the remainder of his working lifetime. On the
other hand, a worker might have coverage under the FEHB program for a
number of years, during which he contributes toward the protection of
older members of the program, and his FEHB protection terminates when
he leaves Federal employment. In both cases, the worker has contributed
for a time to health benefits for others and not for himself.
(b) Eligible under both programs, but with considerable duplication of health
insurance protection. This group gets somewhat better protection than
that afforded under the FEHB plans alone, but not the full value of the
protection of both Medicare and FEHB. Under nonduplication clauses in
the Federal employee health benefits contracts, the FEHB plans do not
pay health care expenses that are payable by Medicare.
Federal employees who qualify for Part A of Medicare on the basis of
social security contributions paid during only part of their working years
receive the same level of Medicare protection as workers who are regularly
in employment covered by social security and who pay social security
contributions throughout their work lifetimes. This raises a question of
equity from the standpoint of those who are covered under the social
security program for all or almost all of their working years and who pay
not only toward their own Medicare protection but also bear part of the
cost of Medicare protection obtained by workers who are in Federal em-
ployment during a substantial part of their working years.
(c) Not eligible under either program. The public policy implemented by
the Medicare program--that workers generally should have health insurance
protection after age 65--brings into question the propriety of an arrange-
ment under which some civil service retirees do not have such protection.
In most of the instances involving civil service retirees, the lack of pro-
tection is attributable to a choice made by the individual. No such choice
is available to workers generally, as the public policy objective is not only
the protection of individuals but also the protection of society as a whole
against the adverse effects of dependency in old age.
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Amin Cants receiving substantial civil service retirement benefits who also
quali v for heavily-weighted social security benefits
The social security program, in accordance with social insurance principles,
provides heavily-weighted benefits for persons who have had especially low
earnings over their whole work lifetimes and whose benefits would be inadequate
for minimum sustenance if their average earnings were replaced in the same
proportion as provided for higher-paid workers. Such benefits, though low,
represent a high return on a worker's social security contributions. The
[louse Committee on Ways and Means and the Senate Committee on Finance
expressed concern about situations in which a career Government worker with
a substantial salary (which is of course the basis of a substantial retirement
annuity in the case of long-term workers) has a relatively short period of
social security coverage, credits for which yield a low lifetime average of
earnings covered under social security because the divisor for determining,
this average includes many months of noncovered employment. This results
in his receiving the heavily-weighted social security benefits not intended
for payment to at beneficiary who actually had substantial earnings while he
worked in covered employment.
As the following chart indicates, the weighting in the social security benefit
formula is heaviest at the average-earnings levels where the minimum
benefit ($55 a month--$660 a year--for a retired worker) is payable. Benefits
begin', to exceed the minimum when average earnings reach $900 a year. The
weighting in the formula is diminished rapidly as the average earnings reach
levels in excess of $1200 a year.
Chart 2. Percentage of covered pay replaced by social security benefits
payable to a single retired worker
Average
Annual
Earnings
$600
Percentage of Replacement
900 73.9%
-1200 71.5%
244)0 50.8%
3600
6 000
7800
42.4%
35.5%
33.5%
-? 1100.0%
11 Lifetime average earnings for social security computation purposes.
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Federal annuitants who receive minimum or near-minimum social security
benefits
Preliminary data from a current study indicate that a little more than 40 per-
cent of annuitants retired from the Federal service who were included in the
study were drawing social security benefits. U/ The distribution of those
receiving both benefits is as follows:
Amount of monthly social
security benefits
(as of February 1968)
Percent of
dual beneficiaries
$55 or less
$55.10 - $84.90
$85.00 and over
35. 0
26.0
39.0
The median civil service annuity for those receiving minimum social security
benefits ($55 or less) was about $190 per month, compared with about $210
per month for all civil service annuitants. The median civil service pay
(high-5-year average) of those receiving minimum social security benefits
was about $4,800 compared with about $5, 000 for all annuitants. The median
civil service annuity of annuitants receiving social security benefits repre-
J When social security benefits
sented 26 percent of high-5 average salary. 13
are included, the median wage-replacement ratio rises to 41 percent which
is only a little higher than the ratio (37 percent) for annuitants not receiving
social security benefits.
Thus it is apparent that while more than 40 percent of the annuitants are
drawing social security benefits, many of those receiving both benefits have
sufficient periods of social security coverage in work other than Federal
employment to get social security benefits that are above the minimum and
close-to-minimum amounts. Of those who receive minimum or close-to-
minimum social security benefits, many get relatively low civil service
annuities, reflecting either low salaries, or short service, or both. As a
result, most dual beneficiaries receiving heavily-weighted social security
benefits do not get total benefits under the two systems that are excessive in
relation to their prior earnings.
Of those retirees whose annuities may be regarded as "substantial" and who also
get minimum social security benefits, about 13 percent had 35 or more years of
civil service, and another 9 percent had 30-34 years of service; approximately
7 percent had high-5-average civil service pay of $7,800 or more and another
16 percent had high-5-average pay of $6, 000-$7, 799.
12/ The number of civil service retirees (including disability retirees) in the
study is 497, 609--86 percent of all annuitants.
For purposes of this calculation, salaries earned by annuitants in the past
when salary levels were relatively low have been adjusted to permit compari-
son with current annuity amounts which have been increased from time to
time to compensate for cost-of-living increases, as well as with social
security benefit amounts.
13
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For purposes of determining the size of the group (insofar as Federal employ-
ees re involved) with which the Committees are most concerned, we have
cons dered several combinations of criteria. For example, the group could
reas nably include Federal civil service annuitants with (a) 35 ;years or more
of public service (the Federal civil service retirement system pays annuities
based on 35 years of service that replace 2/3 of the annuitant's high-5-average
salary); (b) a high--5 average roughly equal to or more than the average annual
pay of Federal employees in the United States---about $8, 100; and (c) a social
security benefit under $85 a month (the most heavily-weighted social security
benefit amounts fall below $85). In the current study persons with 35 years
of service, a high--5-average salary which when adjusted to today's wage
scales would equal roughly $8, 100, and a social security benefit under $85
a month, number approximately 6,200 people out of 581, 000 retirement
annuitants, or about 1. 1 percent.
Alternatively, the length-of-service criterion could be set at 25 or 30 years,
though over the long run workers with Federal service totaling 25 or 30 years
will be more likely than those with 35 or more years of service to have sub-
stantial periods of employment covered under social security and thus would
be likely to qualify for social security benefits above the minimum and near-
minimum levels. The civil service retirement benefits of Federal employees
with 25 to 30 years of service would be from 1.5 to 30 percent below the bene-
fits of workers with 35 years of service and the same high-5--average salary,
and their combined social security and civil service benefits would not be
likely to be excessive in relation to their lifetime earnings. Even a person
with 35 years of Government service who had a high-5 average of $7, 800 (and
a salary at the time of retirement probably in excess of $650 a month), would,
if also receiving the social security minimum benefit, have a monthly income
from both benefits of $486--a reduction of over 25 percent from the level of his
Federal salary at retirement. If annuitants with from 30 to 34 years of
Federal service were also included in the group under consideration, the
sum of the civil service and social security retirement benefits of some
members of the group would represent a reduction of income in. retirement of
as much as one-third.
Of all persons in the study who are getting both civil service retirement
annuities and heavily-weighted social security retirement benefits, about
1, 550 receive combined benefits that replace more than 80 percent of their
high-'5-year average pay in Federal service. These 1, 550 annuitants
constitute 0.6 percent of the total number (about 250, 000) who receive
benefits from both civil service retirement and social security.
The number of cases in which long-term Federal employees receive heavily-
weig.ted benefits under social security as well as substantial civil service
retirement benefits will gradually decrease as longer periods of covered work
are required to become insured for social security retirement benefits, and
as a result of social security coverage having become more universal. A
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man reaching age 65 in 1969 will need 18 quarters of covered work to be in-
sured for social security retirement benefits; eventually--by 1991--40
quarters of coverage will be required for insured status.
The social security coverage of a worker who is in covered work for 10 years
or more would in most cases reflect full-time employment rather than
occasional or part-time work. Social security benefit amounts based on at
least 10 years of full-time covered work will almost always be somewhat
above the levels where the benefits are heavily-weighted, though over the
long run the benefit amount obtained by the 10-year worker will of course
be much smaller than that obtained by the worker covered during his entire
work lifetime. There will of course always be a few cases in which workers
whose primary employment is not under social security will get 40 or more
quarters of coverage through secondary employment that is intermittent or
part-time.
Non-Federal annuitants who receive minimum or near-minimum social
security benefits
The type of situation about which the Committees expressed concern obviously
is not limited to Federal civil service retirees. The situation arises in all
areas of employment where the worker is covered under a staff retirement
system but not under social security. A major area is that segment of em-
ployment for State and local governments, which is not covered under social
security, involving about 2.4 million public workers, whose public employ-
ment is covered by a staff retirement system. Instances of benefit payments
made by both social security and those State and local government retirement
systems whose members are not covered by social security are comparable
to those arising between social security and the Federal civil service retire-
ment system. Such situations also occur with respect to a sizeable number
of retired railroad workers who receive retirement benefits under both social
security and the railroad retirement system, despite a limited coordination
of the two programs. The problem also is present, to a less significant
extent, in employment for those few nonprofit organizations which have not
chosen to cover their employees under social security.
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1. Extension of social security coverage to Federal employment subject to the
civil service retirement system
Social security coverage of Federal employment subject to the civil service
retirement system--i. e. , coverage on the same mandatory contributory basis
that is applicable to virtually all areas of private employment, to temporary
Federal employees and to all members of the Federal uniformed services--
has long been recognized as having certain advantages over other possible
ways of relating the protection provided by the social security and civil
service retirement systems.
Advantage s
Social security coverage would afford Federal employees the combination of
basic protection under social security and supplemental protection under a
staff plan that has been afforded many other workers who are covered under
staff-retirement, private-pension, or profit-sharing plans. It would fill
gaps in survivorship and disability protection of short-service workers since
social security survivorship protection, and disability protection for young
workers, would arise after as little as 6 quarters of coverage. It would
provide carryover survivorship and disability protection for workers who
leave Federal employment before retirement since social security credits
would continue to be built up during periods of Federal employment. The
deficiencies in protection of many of the Federal employees with 5 or more
years of Federal service would be overcome because benefit amounts would
always be at least at the social security level.
Under present law, some workers who are in Federal employment during
the major part of their working lifetime also have some social security
credits based on other work, but not enough credits to be insured under
social security. Social security coverage of Federal employment would
assure that such credits would count toward benefits; the credits would be
added to the social security credits based on covered Federal employment
and would augment a worker's lifetime social security benefit.
Social security coverage would assure Medicare protection at age 65 for all
Federal employees and their spouses. Present overlaps between Medicare
and the Federal employees health benefits program could thus be eliminated
and the latter program could provide planned supplementation to the Medicare
benefits for retired Federal employees.
In all instances in which working lifetimes are divided between work now
covered by social security and work subject to the civil service retirement
system, the monthly benefit amounts payable would be reasonably related
to lifetime earnings and contributions.
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Proppsals made in the past
When the Social Security Act was passed in 1935, the Federal, civil service
retirement system was a well-established system, already having been in
operation for 15 years. The importance of considerations such as the impact
of employee mobility was not immediately recognized. Also, the benefits
initially provided under the new social security program were relatively low,
and dud not include the survivorship, disability, and Medicare benefits that
are now an important part of social security protection. All other public
employment, as well as large segments of private employment was also ex-
cludeO from social security coverage initially, and was not included until
the coverage of the program was greatly expanded in the 195O's.
It subsequently became increasingly evident that the failure to relate staff-
retirement system protection of Federal employees to the social security
program has created serious difficulties for many workers who have Federal
employment, and for their families. Early efforts and recommendations
were largely aimed at extension of social security coverage to Federal
employees on the contributory basis applicable to employees in industry,
generfally with the benefits and contributions to the civil service retirement
system reduced to take into account the social security benefits and contri-
butions. The 1948 Advisory Council on Social Security, established by the
Senate Committee on Finance, recommended that a plan be developed for
covering Federal civilian employees under social security, and that as an
immediate temporary measure some of the gaps in protection of Federal
employees be filled by transferring credits to social security. In 1953, the
Subcommittee on Social Security of the House Committee on Ways and Means
(Curtis Subcommittee) recommended that Federal civilian employees be
covered by social security, with appropriate adjustments made in the civil.
service retirement system.
The Committee on Retirement Policy for Federal Personnel (the Kaplan
Comrtiittee) in 1954 recommended specific plans under which virtually all
personnel of the Federal Government would be covered under social
security. Under the plan applicable to the civil service retirerrient system,
the civil service benefits and contributions would have been reduced to take
into account that social security benefits and contributions would be payable,
but tl~e overall protection afforded civil service employees would have been
subst4.ntially improved. The Eisenhower Administration in 19513 recommended
that Congress enact proposed legislation carrying out the Kaplan Committee
recommendations. The Congress extended coverage to members of the
uniformed services but continued to exclude civilian employees subject to
the civil service retirement and other staff retirement systems. Subsequently,
otherl, coverage recommendations were made, and bills addressed to the
problem were introduced in the Congress, but none was enacted.
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Present problems in developing an acceptable coverage plan
In view of the independent development of the civil service retirement and
social security systems over a long period of time, and because of the benefit
liberalizations in the civil service retirement and social security systems
since the mid 1950's, the extension of social security coverage to civil service
employment would now entail high costs.
The civil service retirement system is financed by employee contributions,
currently 6 1/2 percent of pay, and by a matching contribution from the Gov-
ernment. The normal cost (13. 86 percent of payroll) is defined as the percent-
age of the salaries of new employees that is required to be paid into the civil
service retirement and disability fund, from the time they enter service until
they leave service, in order to accumulate sufficient amounts to pay their
benefits. When the fund was originally established, credit given to employees
for their prior service during which "normal costs" had not been paid, created
a "deficiency" liability, which has grown through the years for various rea-
sons, such as liberalization of benefits (including benefits based on prior
service) and more recently by automatic cost-of-living increases in annuities.
The deficiency now amounts to $53 billion so that 13. 86 percent of payroll
(normal cost) plus financing of the deficiency is required for level financing
of the system.
The social security employee contribution rate for 1969 is 4.8 percent of pay
up to $7, 800 with a matching amount paid by the employer. The contribution
rate is scheduled to rise to 5. 9 percent of pay for 1987 and following years,
so that the combined contribution rates for the employee and employer are
scheduled to level off at 11.8 percent of pay up to $7, 800 a year.
Accordingly, the extension of social security coverage to Federal employment
without making adjustments in the civil service retirement provisions (herein
referred to as the fully-additive approach) would cost--based on the systems'
cost discussed above--over 25 percent of pay up to $7, 800 and 13. 86 percent
of pay above $7, 800, apart from the financing of the deficiency liability of the
retirement fund.
A fully-additive approach would go beyond filling gaps in the retirement, sur-
vivor, and disability protection of those who shift between Federal employment
and other work and would provide benefit amounts which for many career em-
ployees would be very high when compared with prior earnings levels. Since
Federal workers could get full benefits under both the civil service retire-
ment system and the social security system, it would not be rare, under this
approach, for Federal workers to retire with benefits that equal or exceed
their salaries. For example, an individual who worked in Federal employ-
ment from age 22 to 65, with a high-5-average of $10, 000 would receive a
basic civil service retirement benefit of $8, 000 a year. Under social security
he and his wife, after she reaches 65, would get social security benefits
(based on an average of $7, 800 a year for social security purposes) of $3, 876
a year. Their total benefits under civil service and social security would be
$11, 876 a year--more than 118 percent of high-5-average salary.
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Thus a substantial part of the cost of extending social security coverage to
civil service employment would not go toward filling gaps in protection but
toward increasing the total retirement benefits (under civil service retire-
ment Alnd social security together) of long-service Federal employees who
now, finder present law, can get substantial benefits. Employees with 35 or
more years of service receive retirement benefits which replace 66 1/4
percent to 80 percent of their high-5-average salaries.
The fully-additive approach has been used to extend social security coverage
to some Government employees. 14/ Social security coverage has been extended
to employees covered under some State and local government retirement
syste s without adjustments in the provisions of the staff-retirement systems.
In mot such cases, however, the staff-retirement system benefits payable
were lbw, and when social security benefits were added the resulting total
was gejnerally well below the level which would be reached by adding social
security benefits to those of the Federal civil service retirement system.
A consideration which would be applicable to any plan involving compulsory
social 'security coverage of Federal employees is that some employees be-
lieve tiey would not receive, because of their personal situation, enough
additional financial advantage from the social security coverage of their
Federal work to make it personally advantageous to pay social. security
contributions.
Some Federal employees who intend to remain in Federal employment until
they r~tire but who expect to qualify for social security benefits on the basis
of non+Federal work, regard the advantage accruing from additional social
securitfy coverage as not worth the additional contributions they would pay.
Becau0e social security benefits based on low average earnings are heavily--
weight4d, the increases in social security benefits from the coverage of Federal
work for people who are already insured for social security benefits on the basis
of non-Federal work would not be as large relative to the social security con-
tributihns they would pay on the basis of their earnings from Federal employ-
ment as in the case of the benefits which would be payable without Federal
coverage; however, for most such employees the additional social security
protection would still represent a good buy.
14,E When'isocial security coverage was extended to the Federal uniformed
services in 1956, various existing survivor provisions were adjusted to
take to social security coverage into account but no reduction was provided
in the retirement benefits under the existing staff-retirement systems.
One consideration was that the formula for computing the retirement benefits--
both tie social security benefits and the staff-retirement benefits--of
members of the uniformed services is applicable to military base pay and
thus does not reflect the value of noncash items which represent a substantial
part Of the total pay of most servicemen. (Most servicemen do not qualify
for stiff-retirement benefits. To improve the social security protection
resulting from coverage of the military base pay, the Congress provided,
beginning with 1968, additional social security wage credits, generally $100
a month, for active duty service.)
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In many cases, women Federal workers expect to qualify for a wife's or
widow's social security benefit on their husband's account and believe that it
would not be to their advantage to have their Federal work covered under
social security and to pay the social security contributions. Finally, some
older employees who have had no previous social security coverage may expect
that they will not be covered under social security long enough to become in-
sured before they retire.
Some employee organizations have expressed their belief that social security
coverage of employment subject to the civil service retirement system should
be optional for each employee. Optional social security coverage, however,
would not fill the gaps in protection because many of those most needing
social security protection would not elect coverage. On the other hand, the
coverage would probably be elected by higher-paid employees who could afford
to pay the additional contributions, and so the Government's increased cost
would largely go toward enhancing the benefits of this group.
Alternatively social security coverage could be extended to Federal employ-
ment covered by the civil service retirement system, with some reduction in
benefits and contributions under the civil service system to take account of the
benefits and contributions of the social security system (herein referred to as
a coverage-coordination approach). Any coverage -coordination 'plan that could
be considered realistic would be designed so that the combined protection
provided under the civil service retirement system and social security would--
for every employee--be at least equal to and usually somewhat superior to that
provided under the present civil service retirement system alone.
The coverage-coordination approach more than any other has the potential for
assuring that, in the case of people who shift between Federal employment
and other work, there is a reasonable relationship between benefit amounts,
lifetime contributions, and service. Under this approach, the combined
benefits payable under social security and the civil service retirement system
(and also the combined contributions) would be at a planned and systematic
level, since the civil service retirement system benefit levels would be
modified to take into account that social security benefits would also be payable.
However, a coverage-coordination plan would require increases in certain
benefits above the increases necessary to fill gaps in protection, particularly
retirement benefits for many long-term career employees, which have already
been considerably increased in recent years. Such increases would result
because of the need to avoid deliberalizing present benefits of some other
employees. For example, if an unmarried worker's civil service retirement
benefit is reduced under a given formula so that the total of his reduced annuity
and his social security benefit is slightly in excess of the civil service retire-
ment annuity provided under present law, the same formula will, in effect,
give a married worker with a somewhat similar record of earnings and service
a substantial increase because of the social security wife's benefit that will be
payable to his spouse.
Thus if civil service retirement benefits, adjusted under a coverage-coordination
plan, are set high enough to assure that the sum of the civil service and social
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security benefits will be in all instances at least as high as present civil
service benefits, large increases, which seem difficult to justify, would re-
sultin the combined benefits which would be payable in some cases. Such in-
creises in benefits would increase the cost of the coverage-coordination plan
beyond what is necessary merely to fill gaps in existing protection. 15
Org.nizations of Federal employees have generally objected to any coverage-
cootdination proposal because they apparently fear that once social security
coverage is provided the role of the civil service retirement system in pro-
vidig protectionfor Federal employees would become much less important
and that further improvements in their retirement, survivors, and disability
protection would tend to be limited to those made in the social security system.
Many present Federal employees with long service apparently believe that a
coverage-coordination approach, looked at from a personal point of view,
wound not increase their overall protection enough to make social security
coverage desirable for them. Further, annuitants under the civil service
retirement system can earn any amount in non-Federal work without such
work affecting their annuities, while social security beneficiaries may have
part) or all of their benefits withheld under a retirement test which applies
to a l earnings. 16J Therefore, long-term career Federal employees who
exp ct to work in non-Federal employment after reaching social security
yeti ement age anticipate that they would lose by getting only the reduced
benelfit under the civil service retirement system, and no social security bene-
fit, ~ or a period of time after they leave Federal employment.
The4e existing problems, which up to now have precluded coverage under
social security of Federal employment which is covered under the civil service
retirement system, have led other groups who have studied the matter in
recent years to seek solutions in alternatives to direct coverage. Such altern-
ativos were presented by the President's Cabinet Committee on Federal Staff
Retirement Systems, which reported its findings and recommendations in 1966;
the lrnited States Civil Service Commission and the Social Security Administra-
tion, which jointly reported their findings in 1.965; and the Advisory Council
on Social Security which also reported in 1965. 17/
].5/ While the cost of a coverage-coordination plan would depend on the specific
provisions of the plan, it appears that any workable plan would have a
cost of 6 percent of civil service payroll (3 percent each for e:m-
pio;er and employee) and might well cost substantially more.
_i ur the social security retirement test, benefits are paid to people
age 72 only if they are substantially retired from work. Generally
spdLking, a beneficiary who earns less than $1, 680 in a year receives all
his, social security benefits; a beneficiary who earns more than $1,680
in a year has $1 in benefits withheld for each $2 in earnings between
$1,',t;80 and S , 880, and for each $1 of earnings above $2, 880.
1.'rr Eatlier repo,: is on social security and Federal employment are summarized
in '.ppendix -.
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2. Possible measures which could provide an alternative to coverage
We considered a number of measures which might be adopted as an alternative
to the extension of social security coverage to civil service employment.
Among the possibilities considered were the following, each of which would
deal with one major aspect of the existing problems:
(a) Where there is no benefit eligibility under the civil service retirement
system when a worker dies, becomes disabled, or retires, credits could
be transferred from the civil service retirement system to social security.
(b) Where there is benefit eligibility under the civil service retirement system,
the civil service benefits (or if social security benefits based on other
work are also payable, the civil service and social security benefits to-
gether) could be guaranteed to be at least as high as if employment subject
to the civil service retirement system had been covered by social security.
(c) Medicare hospital insurance coverage (Part A) could be extended to all
Federal employees; they could then advantageously participate in Part B
(voluntary supplementary medical insurance) of Medicare, and
complementary health insurance could be made available under the
Federal employees health benefits program to provide more compre-
hensive protection after age 65 than is provided under Medicare.
The above-described measures would be concerned with remedying the prin-
cipal difficulties that have arisen in the absence of social security coverage of
civil service employment. They would not achieve all of the results that
would be achieved by extension of coverage. For example, they would not
prevent situations in which some long-service Government retirees also
qualify for minimum or near-minimum social security benefits, nor would
they permit Government retirees to get retirement credit for relatively short
periods of social security coverage--insufficient to make them insured under
social security. Various possibilities which might achieve these results were
also studied.
Following is a more detailed description of possible measures which could,
in combination, provide an alternative to extension of social security coverage
to civil service employment.
a. Transfer of credits to social security
Credits would be transferred from the civil service retirement system to
social security for the Federal service of--
(1) People who die, become disabled, or separate from work covered
under the civil service retirement system after less than 5 years of
Federal service. Example: Worker becomes totally disabled or dies
after working one,yearer social security and then 4 years under
civil service retirement. Under present law no monthly benefits would
be payable under civil service retirement or social security. Under
the transfer-of-credit plan, if the worker were disabled he would get
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monthly social security benefits of $218, and if he has a wife and child,
the family would get benefits of $432; if he died his widow and child
~1vould get monthly social security benefits of $327. 18
(2) People who separate after 5 or more years of Federal work, obtain re-
f unds of their contributions to the civil service retirement system, and
later die, become disabled, or retire. 19/ Example: Worker has 6
years of employment under the civil service retirement system, and
separates, taking a refund of civil service retirement contributions.
ile then works one year under social security, and then dies. Under
present law, no monthly benefits would be payable under civil service
retirement or social security to his widow and two children. Under the
transfer-of-credit plan, monthly social security benefits of $434 would
be payable to the surviving family. 18
(3) People who separate after 5 or more years of Federal work, do not take
refunds of their contributions to the civil service retirement system,
and die or become disabled before age 62. Example: In the case given
iIn the previous example (except that there is no refund) no monthly
benefits would be payable under civil service retirement or social
security to the worker's widow and two children under present law; under
the transfer-of-credit plan, monthly social security benefits of $434
would be payable to the surviving family. 18
Application of the plan
The transfer-of-credit plan would be applicable to Federal employment per-
fored on or after a specified future date, such as the first day of the year
fol wing the enactment of legislation. For those in Federal employment on
the effective date, the plan would also be applicable to employment during the
preceding 1 1/2 year period, thus assuring immediate survivor protection
for the families of such workers. No credits for Federal service would be
tratisferred to social security until a valid claim is filed on the social security
account of a worker who had Federal employment covered under the civil
service retirement system, and it has been determined that the worker is
note entitled to protection under that system.
Appendix F shows additional illustrative monthly benefits that would be payable
under, a transfer-of-credit plan. The above benefits are computed on the
basis of assumed earnings of $7, 800 a year in civil service retirement or
social security work.
J, a/ As subsequently explained, under the transfer-of-credit plan, there would be
withheld from refunds of civil service contributions an amount equal to the
socials security contributions which the worker would have been required to
pay ifl his Federal employment had been covered under social security.
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Financing transfer of credits
The financing provisions of a transfer-of-credit plan should be designed to
allocate as fairly as possible between the social security and civil service
retirement systems the cost of the social security benefits that would be paid
under the plan. This objective could be achieved by providing that the social
security trust funds be reimbursed annually, with interest from the date of
benefit payment, for the proportionate cost, attributable to transferred credits
for Federal service, of social security benefits paid during the year.
For example, if in the case of a deceased employee the total earnings credits
for Federal service transferred to social security were $8, 000 and credits
previously earned under social security were $16, 000, the transferred civil
service credits would be one-third of the combined amount of the social
security and civil service retirement credits (one-third of $24, 000). If in this
case the surviving family had been paid social security benefits of $3, 000
during the year, the social security trust funds would be reimbursed for $1, 000
of the cost of the benefits paid--the proportionate cost attributed to the
transferred credits.
A substantial part of the cost of the benefits--the only part of the cost borne by
employees--would be met by those employees who would have credit for their
Federal work transferred to social security; the civil service retirement
system would withhold from all refunds of contributions to employees who
separate (or to their survivors) an amount equal to the social security
contributions that the worker would have been required to pay if his Federal
employment had been covered under social security. The amounts so with-
held (and the interest earned on them) would be available in the civil service
retirement fund to help meet the cost of reimbursing the social security trust
funds.
Expenditures in excess of income by the retirement system on account of the
transfer-of-credit plan would be very small in the early years of operation
of the plan, and would ultimately rise to a cost estimated to be about one-half
of one percent of payroll subject to the civil service retirement system.
Under this financing method, active Federal employees who have monthly
benefit protection under the civil service retirement system at the time they
retire, become disabled, or die, would bear no part of the cost of the transfer-
of-credit plan. The only cost of this plan to be borne by Federal employees
would be the cost of social security contributions paid by those who
separate after the effective date and, instead of receiving a full refund of
their civil service retirement contributions as now, they would get their
refund minus amounts equivalent to the social security contributions. In
effect, they would be paying social security contributions and getting social
security protection.
Employee representatives, practically unanimously, expressed concern
that the cost in excess of the amounts withheld from refunds might eventually
be charged, at least in part, to the employees covered by the retirement
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system. One suggestion for forestalling this result was that the Government,
as eiployer, reimburse the social security trust funds from general funds of
the 'treasury for that part of the cost of the transfer of credits which is in
excess of the amounts withheld from refunds, presumably under a permanent
indefinite authorization. Under this financing method the civil service retire-
ment system would transfer to the social security trust funds annually the
amounts withheld from refunds during the year, rather than, as in the method
discissed above, retaining the withheld amounts until they are used, with
other funds, to reimburse social security annually, on a proportionate basis,
for toe cost of social security benefits paid during the year.
Reverse transfer of credits not feasible
Consideration has been given to the idea of also transferring social security
credits to the civil service retirement system. The intent would be to assure
retirement credit for social security earnings and social security contributions
in sittiations where the person has some social security credits but not enough
to be insured for benefits. One of the problems that would result is if a
Federal employee were assured of additional civil service credit whether he
continied in his Federal employment or if he shifted to non-Federal employment,
some of the Government's most competent and highly-trained employees might
find this a further incentive to retire from Federal service while still at the
peak of their productivity. Such persons might be able to get higher salaries
and at the same time build up higher Federal staff-retirement. benefits through
employment outside of the Federal retirement system. 2 Q/
Such departure from the principle of relating civil service retirement
systexjn benefits to Federal employment'might also raise questions of equity
amon4 many Federal employees. For example, some who have worked for
many :years at lower salaries than they could have earned elsewhere--an
imporltant consideration being that they counted Government contributions to
their potential retirement benefits as part of their compensation--would find
other Federal workers getting credit toward civil service retirement benefits
based.' in part on work performed outside of the Federal civil service. The
specific provisions of any such plan would have to be quite complex to avoid
variouks types of anomalies. For example, an employee whose 29 years of
work Were all performed in the Federal service would not be eligible to
retire! under the civil service retirement system at age 55 while another
20/ When the President's Cabinet Committee on Federal Staff Retirement Systems
rep rted in 1966 on, among other studies, its study of a proposal to provide
civil service retirement system credits for non-Federal service (in this
case, credit for service performed by State employees in programs supported
wholly or in part by Federal funds), it said in part: "Precedents established
by ~uch action would inevitably lead to further broadening of creditable
service categories, and the eventual complete degeneration of CSR as an
effective instrument of Federal personnel management. In the process, sub-
stantial inequities among categories of employees would be generated."
Source: Message From the President of the United States, 89th Congress,
2nd', Session, House Document No. 402, March 7, 1966, page 42.
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with fewer years of Federal service could presumably retire at age 55
if he had sufficient non-Federal work for which civil service retirement
credit would be given. Also, a Federal employee with an annual salary
from the Government of $6, 000 and social security credits in the same
year of $4, 000 from non-Federal employment might get the same retire-
ment credit as another employee with a Government salary of $10, 000.
Difficulties of these kinds would also arise, though to a lesser degree,
if credits were transferred from social security to the civil service retirement
system only in cases involving survivorship or disability benefits based on
relatively short Federal service. However, it appears that the objectives of
such a limited provision could be effectively achieved, and the difficulties
avoided, through a combination of measures providing for transfer of Federal
employment credits to social security when there is no eligibility for civil
service benefits and a guaranteed minimum civil service benefit level where
there is eligibility for civil service benefits.
Providing new benefits under the civil service retirement system to fill
present gaps in protection
Representatives of several of the employee organizations have indicated some
interest in the possibility of providing survivorship and disability benefits
under the civil service retirement system for employees with less than 5
years' service, as a possible alternative to transferring credits to social
security in such cases. We gave careful consideration to this possibility.
If there were little or no mobility of workers between Federal civil service
employment and work covered by social security, such an approach would
appear to be quite practicable and appropriate. However, in the face of the
reality that every year hundreds of thousands of workers do move between
Federal employment and other work, the approach appears to have serious
disadvantages.
One disadvantage is that some of the gaps in protection would still be left
unfilled. The many employees who, regardless of length of service, leave
Federal service before retirement would continue to be left without survivor-
ship or disability protection based on their Federal employment. Moreover,
all who leave Federal service and obtain refunds of their contributions to the
civil service retirement system (the great majority of those who leave) would
get no retirement credit under any system for the years they worked in Federal
employment.
It also appears that the cost to the civil service retirement system of this
alternative approach would be higher than the cost of transferring credits to
social security in the kinds of cases with which the alternative would deal.
This would be true because under a transfer-of-credits plan the social security
trust funds would bear part (in many instances, a large part) of the cost of the
survivorship and disability benefits because many of the short-service
Federal workers have had some previous work covered by social security.
Under the alternative, in such cases the civil service retirement system and
the employees involved would, presumably, have to bear the entire cost of
the benefits.
27
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b. Guartnteed minimum civil service benefits related to social ;:,ecurity benefit
leveler
The guaranteed minimum annuity provision would be a liberalization of the
civil service retirement provisions, and would not involve coordination with
socio security; the social security benefit levels are simply used as an
appropriate standard of levels below which the amounts received by a bene-
ficia>hy of the civil service retirement system should not fall.
Employees and their survivors who become entitled to benefits under the civil
service retirement system would be guaranteed that the monthly benefit
amounts under that system (or, if also eligible for social security benefits,
from: social security and the civil service retirement system combined)
would be at least equal to the monthly amounts that would be payable if the
Federal service had been covered under social security. 21
The arantee provision would operate as illustrated in the following example:
Assume that the surviving family of a Federal employee is eligible for a
monthly benefit of $200 under present provisions of the civil service retirement
system and that, if the deceased worker's Federal employment had been
covered under social security instead of under the civil service retirement
system, the surviving family would have been eligible for social. security bene-
fits o~ $400 a month. If the surviving family is not eligible for social security
benefits based on any other employment which the deceased worker may have
had, the civil service benefit amount would be $400 a month under the guarantee
rather than $200 under present provisions. On the other hand, if in the same
case the surviving family is eligible for an actual social security benefit of
$100 4 month (based on work other than Federal employment)? the $100 social
security benefit would be offset against the guaranteed amount ($400), and so
the civil service retirement system would pay $300 a month. If, however, the
actual social security benefit would reduce the civil service retirement benefit
below] the amount payable by the civil service retirement system under present
law, the guarantee would not be applicable; the surviving family would receive
the actual social security benefit amount and the civil service retirement
benefit payable under present law.
Effect of the guarantee on protection
The guaranteed minimum annuity provision would have greatest impact on
survivvorship benefits, overcoming the shortcomings which in some situations
occur in survivorship benefits paid under the civil service retirement system.
Famy survivorship protection would be improved even for many employees
with 0 or more years of Federal service.
If t e guaranteed amounts under the minimum annuity provision were put into
the civil service retirement law as a table, future increases in social security
amounts would not automatically increase the amounts payable under the mini-
mu ~ guarantee; additional civil service legislation would be required to take
fut.tre social security increases into account, and the effect upon the financ-
ing,of the civil service retirement system could be given full consideration
by the Congress.
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The improvement in disability protection under this provision would mainly
involve situations where an employee qualifies for a civil service disability
annuity based on a relatively low high-5-year average pay. (In many situations,
however, a civil service employee--particularly one with a family--who meets
the social security definition of disability would find it quite advantageous to
have his civil service credits transferred to social security and thus establish
eligibility for social security disability benefits.) 22
The guaranteed minimum annuity provision would rarely increase retirement
benefit amounts payable under the civil service retirement system, since they
are generally higher than what would be payable if the Federal service were
covered under social security. Retirement benefits under social security
can be higher than under the civil service retirement system in cases where
the retiree had relatively short Federal service, but in such cases he will
very likely qualify for substantial social security benefits based on other
work, with the result that the guarantee would not increase the amount of the
civil service retirement benefit.
The improved survivorship protection which would be provided in some situa-
tions under the guarantee is illustrated in the following table involving a Federal
worker who has a wife and two children at the time he dies.
Table 6. Illustrative survivorship benefits payable under a guaranteed minimum
annuity provision
High-5-Year
Average Earnings for
Monthly CSR
Years of
Average
Social Security
Survivor Benefit
Federal
Salary
Computation 1
Present
Minimum
Service
Monthly
Monthly
Law
Guarantee
5
$500
$500
$135
$375
10
600
600
168
415
15
750
650
222
434
20
850
650
283
434
1/ $7, 800 (equivalent to $650 a month) is the maximum creditable in a year
for social security purposes under present law. It is assumed that the
worker entered Federal employment at age 22.
22 The U. S. Civil Service Commission has taken the position with respect to
previous legislative proposals to provide a guaranteed minimum annuity that
the guaranteed amount should not in effect create new classes of beneficiaries
under the civil service retirement system. In practice, this would exclude
from the guaranteed amount in a disability or retirement case any benefit
amounts for family dependents since the civil service retirement system does
not pay benefits to dependents of retirees. In the interest of administrative
simplicity, the Civil Service Commission would also compute the guaranteed
amount on the basis of high-5-average salary rather than the generally
lower average monthly wage computed over a longer period under social
security.
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Costd of providing the guarantee
Sinc6 the guarantee provision would simply be a liberalization of benefits
provided by the civil service retirement system, the cost would be entirely
an added cost to that system. While the cost of the guarantee would of course
be affected by the specific provisions adopted, it is estimated that the total
"normal" cost would be less than one-half of one percent of civil service
payroll.
Medicare for Federal employees
It appears that a sound approach to providing an appropriate relationship be-
tweeh the FEHB and Medicare programs should be one aimed at: (a) elimina-
ting duplications in coverage under the two programs; (b) assuring for all
Federal civil service employees and retirees at age 65 a continuation of the
high.-quality health insurance protection they have under the FEHB program;
and (c) providing such protection at a low cost appropriate to their reduced
income in retirement.
A p an for relating the FEHB program to Medicare
The I key provisions in this approach would be the following:
(1) Federal workers whose Government employment is not covered under the
general social security provisions would have their employment covered
under the hospital insurance provisions of social security for purposes of
becoming insured for Part A (hospital insurance) Medicare protection when
they reach age 65.
(2) civil service retirees who reach age 65 before their employment has been
covered under the hospital insurance provisions long enough for them to
become insured would be deemed insured under Part A of Medicare. The
cost of deeming these retirees to be insured would be borne by the
c overnment, as employer.
(3) 411 civil service retirees would, as now, have the option to enroll under
tart B (supplementary medical insurance) of Medicare.
(4) Healthinsurance designed to complement Medicare would be made available
unddr the FEHB program to Federal retirees and employees who become
dntitled to Part A protection. This complementary insurance would, to-
gether with Part A and Part B protection under Medicare., provide health
insurance protection at approximately the level provided under the
Government-wide high-option FEHB plans. The cost of this complementary
health insurance might be met wholly by the Federal Government or part of
the cost might be left to be borne by employees. If the whole cost were met
by the Federal Government, there would be assurance that all retirees had
this protection. Also, if the cost were borne wholly or even largely by the
lVederal Government the result would be that retirees would have a
gonsiderab y larger percentage of the cost of their Federal employee health
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benefits borne by the Federal Government than is now the case. At
present, retirees who have coverage under high-option plans pay about
two-thirds of the cost of their health insurance, while the Federal Government
pays only about one-third of the cost.
Workers in Federal employment that is excluded from social security coverage
would be covered under the Part A provisions of Medicare. The Federal
employees and the employing agencies would then make contributions (now 0.6
percent of pay up to $7,800) toward Part A protection, like other employees
(and their employers) whose jobs are covered under social security. When
the workers (and their spouses) reach age 65, they would be insured for Part A
benefits if they have credits for enough quarters of coverage to meet the
social security insured-status requirement for retirement. For the purpose
of determining insured status, the new Part A credits would be counted in the
same way as full social security credits.
A provision for deeming insured under Part A of Medicare those who
reach age 65 before having become insured through covered work seems
warranted in the interest of making the plan fully effective at the outset. Those
for whom Part A protection would be provided in this way would include retirees
and employees, their spouses at age 65, and the surviving spouses at age 65 of
deceased annuitants and employees who died in service. The group would also
include employees who are in Federal employment subject to coverage under
Part A of Medicare and who do not work long enough before retirement to meet
the insured-status requirement.
This transitional provision would be somewhat comparable to a special tran-
sitional provision included in the Medicare legislation in 1965. Under that
provision, coverage under Part A of Medicare was provided for people who
reached age 65 before 1968 and were not eligible on the basis of covered work.
The cost of benefits provided under the 1965 transitional provision is paid
from general Treasury revenues. Although some Federal annuitants were
"blanketed-in" for protection under the 1965 provision, about 175, 000 retiring
after June 1960 were excluded. Some employee representatives feel that the
exclusion of many Federal retirees from the transitional insured status pro-
visions of Medicare has been unfair and has caused hardships for the
employees, including employees who retired while young on account of dis-
ability before 1960 and were not yet 65 years old in 1968.
Coverage under present Federal employee health benefit plans would be
terminated for those who become entitled to Part A protection but the Federal
Government, as employer, would make available health benefits coverage
designed to complement Part A and Part B of Medicare in a way which would
maintain the health insurance protection of employees and annuitants at the
general high-option level of the present FEHB plans. The new complementary
insurance should make provisions for continued protection of spouses not old
enough to be eligible for Medicare where the retiree becomes eligible and for
the relatively few dependent children of retirees eligible for Medicare. Some
representatives of employee organizations were emphatic that any plan of
this kind should assure continuing protection of younger family members.
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Advantages of the proposed plan
Adoption of the approach outlined here would assure practically all Federal
employees of relatively low-cost health insurance protection after age 65.
Wijth Part A (of Medicare) protection assured, and a new complementary
FEEHB plan available, there would be greater advantage than is now the
case for Federal retirees in subscribing for Part B protection. This is
because there would no longer be present the barrier to Part B enrollment
that now results from the overlapping of Part B benefits and those under the
F*HB plans. By reason of such overlapping Federal retirees now enrolled
in',Part B get less protection for their premium dollars than do other enrollees.
This approach has the advantage inherent in the prepayment principle--that
isj the worker would contribute, with his employer, while he is working,
towards the cost of his health insurance after age 65. Also, it would assure
that people whose working lifetimes are divided between Federal and other
employment would contribute towards Part A protection throughout their
working lifetimes, as in the case of practically all other workers.
Though this approach would of course have no effect on the civil service re-
tii}ement system--the FEHB program being entirely separate from that
system--the present situation is in many respects analogous to the situation
that existed between the civil service retirement system and social security
some years ago before the two systems proceeded on a long course of in-
dependent development, which made coverage-coordination of the two systems
increasingly difficult. Because the Medicare and FEHB programs are still
reilatively new, the time is opportune to establish an appropriate coordination
between them; this will very likely become more difficult in the future as the
two programs develop independently.
Cost implications
Estimates of the specific cost effects of this approach would require extensive
analysis to develop projections of future costs of the FEHB program (taking
in4o account increasing health care costs and the increasing proportion of
aged persons covered), to determine the extent to which the amount of con-
tributions that would be made to Part A of Medicare by employees and the
Government would be offset by reductions in FEHB costs, and to evaluate
such other interacting factors as the effect of greatly increased participation
of Federal retirees in Part B of Medicare.
The approach would of course improve the health benefits protection of a
minority of older Federal employees and annuitants who do not now subscribe
to, the high-option FEIIB plans, and so would result in a moderate increase
in~ over-all costs, although the main thrust of the plan is to redistribute the
financing of the high-level protection now maintained by most of the older
employees and annuitants, so as to reduce the cost to the :individuals when
they have lower incomes in retirement.
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Because a major part of the present FEHB cost of providing health insurance
protection for the high-cost elderly members would be met through their
coverage under the Medicare program, it is clear that there would be a
significant reduction in the rate of increase in the over-all cost of the FEHB
program, and this would, in effect, produce savings in FEHB premium rates
for Federal employees that would be an offset against the cost of their
contributions toward Part A coverage of their employment. The contributions
that the Government as employer makes to the present FEHB plans for the
protection of elderly members could be used toward the financing of the new
complementary FEHB plan. Under this approach, the Government, as employer,
would be paying a substantially larger proportion of the health benefits protection
of retirees who have reached age 65, than under the present arrangement.
3. The question of special limitations on social security benefits payable to
persons also receiving substantial civil service retirement benefits.
Consideration of whether or not any special limitations should be placed on
the heavily-weighted social security benefit amounts of certain Federal
retirees who also receive substantial civil service benefits raises a number
of difficult questions. These include:
Can an effective solution be devised which would avoid the
creation of other anomalies and inequities such as the
provision of lower benefit amounts than are provided in
present law, or imposition of the special limitations
on people already getting social security benefits or on
those already insured but not getting benefits?
Can an equitable test be devised (e.g., length of
Government service, level of Government pay) to deter-
mine whether a retired employee should be subject to
special limitations on social security benefits?
How would equitable treatment be provided among the
several categories of annuitants who are in a similar
position with respect to social security benefits, such
as annuitants of the Federal civil service, annuitants
of State and local government retirement systems,
and annuitants of the railroad retirement system?
The situation which occurs when Federal retirees receiving substantial civil
service retirement benefits also receive heavily-weighted social security
benefits cannot appropriately be changed by simply reducing social security
benefit amounts of such retirees to remove the weighting. Such an approach
would reduce benefits below what is provided in present law for people who
retire after a given date while those who retire before the date continue to
receive the heavily-weighted benefits even though they have similar work
histories. Further, this inequity would become even more pronounced at the
time of general benefit increases in the future because the same percentage
increase applied to the weighted benefit and the unweighted benefit would widen
the difference between them.
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Elimination of this inequity by reducing the benefits of those already on the
ro4 below the present-law level also seems infeasible. Even if social
sec~rity benefits were reduced below the present-law level for only people
who retire in the future, it would still be unfair to people who became insured
for pocial security benefits through work performed in the past to reduce
the benefit amounts which they had every reason to believe would be payable
under present law.
We pave some consideration to a possibility under which present minimum
social security benefits would be maintained at present levels for persons
eligible for public retirement-system annuities based on substantial salary,
in the event that social security benefits are generally increased in the future.
In. slich cases, the present minimum benefit of $55 a month would continue to
be payable, and close-to-minimum benefits would be increased only enough to
blend them into the range of higher benefits. 23/
This approach would also involve some difficult problems. One of the most
difficult is that of defining equitably the group getting "substantial" staff-
reti~ement benefits and therefore subject to the special limitations on social
security benefits. Such benefits could be considered to mean benefits based
on, ,say, 35 or more years of public employment not covered under social
security, and a final salary equivalent to or greater than the top step of grade 6
in the General Schedule of the Federal civil service retirement system--now
$8, 221 a year. Such a provision would affect only those public annuitants
who; have worked relatively short periods of time under social security or
have only marginal earnings under the program.
It people with 30 or more years of public employment were included, it would
seem necessary to provide some sort of sliding scale of special benefit levels
applicable to retirees with 30 to 34 years of public employment. This would
furter complicate the provision but would avoid a sharp drop in benefit
amounts between those who have 35 years of Government service and those
who's have, say, 34 years of service. While persons with less than 30 years
of Government employment could also be included, a larger proportion of the
people affected would be people whose total retirement benefits represent
only, a very modest replacement of earnings. 24/
A possible alternative would be to make the described approach applicable
only to people who become insured under social security in the future. As
note Id earlier, however, the cases in which minimum or near-minimum social
sec~rity benefits are based on very little coverage are mainly among people
who!, are already on the benefit rolls.
23/ An illustration following this approach is described in Appendix H.
24/ Data in the current study of Federal annuitants referred to previously indicate
that )Federal annuitants who retired under the "optional 12-29 years of service"
provisions of civil service retirement with high-5 averages equivalent to
average Federal salaries today and workers' basic benefit amounts of $55 to
$85 number only 4% of all Federal annuitants.
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If, despite the new problems that would be created, the described approach or
a similar one should be considered, it clearly would be discriminatory to
limit it to Federal employees. It would, in equity, have to be made applicable
to State and local government employees receiving staff-retirement system
benefits based on public employment not covered under social security.
Obviously, the pattern of employment which may result in a minimum or near-
minimum social security benefit exists with respect to all public employment
not covered by social security. It would appear that consideration would also
have to be given to whether or not employment under the railroad retirement
system should be included under the benefit limitation provisions. Others who
receive minimum or near-minimum social security benefits are those who for
any reason work for a comparatively short time in work covered under social
security, such as employees of some nonprofit organizations.
A broad approach to the question of the heavily-weighted benefits based on
relatively short social security coverage could be developed if, in the future,
consideration is given to very substantially raising the minimum benefits, say,
to $100 or more. Provisions could then be considered that would assure that
only persons with reasonably long periods of covered work at low pay would
receive the higher minimum benefit. It seems reasonable to think that, if any
solution is required with respect to the relatively small number of civil
service annuitants who are also getting social security benefits and whose
combined retirement benefits may be regarded as excessive, it should be
in the context of a broader solution for all people who may in the future
become entitled to very substantial minimum benefits under social security.
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1. Extending social security coverage to employment subject to the Federal civil
service retirement system would be more likely than other approaches to
assure that the combined benefits (and contributions) of people who move be-
tween work covered by social security and the civil service retirement system
would be at a planned and systematic level. However, the liberalization and
independent development of the civil service retirement and social security
systems over a long period of time present formidable obstacles to the
adoption of the coverage approach. To deal effectively with the existing gaps
and shortcomings in protection, the extension of coverage would have to be
on an essentially compulsory basis; to avoid excessive costs and combined
benefit amounts that could be regarded as unduly large, a coverage plan would
have to provide for substantial reductions in the benefits of the civil service
retirement system to take into account that social security benefits would be
payable. Even a workable coverage plan providing for reductions in civil
service retirement benefits would be quite costly, in part because of increases
which would be required in some benefit levels, not needed to fill gaps or
deficiencies, in order to avoid deliberalization of benefits for some employees.
2. Some of the organizations of Federal employees favor social security coverage
of employment subject to the civil service retirement system, but only on a
basis of individual choice and with no reduction of benefits of the civil service
retirement system. Proposals to provide individual voluntary coverage under
social security have been considered from time to time by the Committee on
Ways and Means and the Committee on Finance, by the Executive Branch of
the Government, and by a number of social security advisory councils con-
sisting of experts from all major parts of the economy. It was always con-
cluded that social security coverage on an individual voluntary basis is un-
desirable. Voluntary coverage would not fill the gaps in protection because
many of those most needing social security protection would not elect coverage,
and the increased cost to the Government would largely go toward enhancing
the benefits of those employees who are best able to afford the social security
contributions, sometimes to levels exceeding earnings before retirement.
Further, the adverse selection of coverage would increase the costs of the
social security program at the expense of other workers who are covered
on a compulsory basis.
3. In view of the obstacles to the establishment of an acceptable coverage plan,
we considered alternative measures that might largely deal with the matters
indicated in the Committees' request--the gaps and deficiencies in the cash
benefit protection of workers who have Federal employment, the lack of a
satisfactory relationship between Medicare and the Federal employees health
benefits program, and the situation in which some annuitants of Government
retirement systems also qualify for the heavily-weighted minimum or near-
minimum social security benefits and thus derive an advantage not intended
for higher-paid workers. We have reviewed previously advanced proposals
intended to solve these problems and we have also explored other possibilities.
On the basis of our study we recommend that the Congress consider the
following related measures as an effective and less costly alternative to
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direct social security coverage of employment subject to the civil service
retirement system.
(a) Transfer of credits to social security:
Where there is no benefit eligibility under the civil service, foreign service,
o~ Central Intelligence Agency retirement system when a worker dies, be-
cpmes disabled, or retires, credits would be transferred from the staff
retirement system to social security. The social security trust funds would
b~- reimbursed for the proportionate cost of benefits attributable to the
transferred credits with part of this reimbursement financed through
withholding by the civil service retirement system of amounts equivalent
to social security employee contributions from refunds made to separating
employees or their survivors.
(b) guaranteed minimum civil service benefits:
Where there is benefit eligibility under the civil service, foreign service,
or Central Intelligence Agency retirement system, the staff retirement
s stem benefits (or if social security benefits based on other work are
aso payable, the staff retirement system and social security benefits
together) would be guaranteed to be at least as high as if employment sub-
j$ct to the staff retirement system had been covered by social security.
(c) Medicare coverage for Federal employment:
Federal workers whose Government employment is not covered under the
gleneral social security provisions would have their employment covered
udder the hospital insurance provisions of social security for purposes
of becoming insured for Part A (hospital insurance) Medicare protection
When they reach age 65. Those present civil service retirees who are not
insured under social security, and their spouses, would at age 65 be deemed
insured under Part A of Medicare and could then advantageously enroll
udder Part B (supplementary medical insurance); the cost of the Part A
protection would be borne by the Government, as employer. New health
insurance designed to complement Medicare would be available under the
FEHB program to Federal retirees and employees who become entitled
to Part A protection. This complementary insurance would, together
with Part A and Part B protection under Medicare, provide health insur-
ance protection at approximately the level provided under the Government-
Wide high-option FEHB plans.
4. The.Inumber of people who qualify for minimum or near -minimum social
security benefits and also for Government retirement-system annuities based
on substantial salary was found to be much smaller than might have been
anticipated. The number of such cases will decline in the future; as time
passes, longer periods of social security coverage will be required to be-
come insured for benefits, and benefit amounts based on substantial periods
of s cial security coverage will generally be above the levels at which the
heaviest weighting occurs. We believe that any legislative change designed
to eliminate such cases would give rise to inequities as between some of the
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people who would get reduced benefits and some who would get unreduced
benefits. 25
We recommend against any legislative action to provide for reduction of social
security benefits paid to Government employees. We suggest, however, that
a broad approach, going beyond Government retirees, be considered if, at
some future time, the Congress should contemplate very substantially raising
the minimum benefits, say, to $100 or more. Provisions could then be con-
sidered that would assure that only people with reasonably long periods of
covered work at low pay would receive the increased minimum benefits.
The three measures we propose would assure that workers subject to the civil
service, foreign service, or Central Intelligence Agency retirement system,
though not directly covered under social security, would nevertheless have pro-
tection under social security or at least the equivalent of such protection under
the staff-retirement system. Employees would have the assurance that if
they leave Federal service and lose protection under their staff-retirement
system their Federal employment will be credited under social security,
giving them the same continuity of basic protection that is afforded workers
who move from one job to another in private industry. Such employees would
get credit for all, not just some, of their years of work. Career employees
and their families would be afforded greatly improved survivorship protection
before they have completed long periods of service, and some would have
improved disability protection as well. An appropriate and workable
relationship would be established between Medicare and the Federal employees
health benefits program. All Federal employees would be assured that at
age 65 they would have low-cost health insurance protection.
While we do not at this time have definitive cost estimates on the additional
costs that would result from adoption of the above-described proposals, it
is clear that the costs would be very substantially below the cost of a
workable coverage-coordination plan.
We believe that these measures, taken together, would effectively remedy the
shortcomings and inequities in the existing protection of workers who have
Federal employment that were noted in the Committees' request. They would
achieve this objective without incurring nonessential costs or making any changes
in the Federal staff-retirement systems that would be inconsistent with their
basic purposes or interfere with their continued independence.
25 Among the many approaches we considered in the course of our study, the
approach described in Appendix H seemed the least fraught with possibilities
for creating new problems.
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Appendix A. Comparison of the principal benefit provisions of the civil service,
foreign service, and Central Intelligence Agency retirement systems,
and of social security.
Appendix B. Examples of monthly benefit payments under the civil service retire-
ment system.
Appendix C. Examples of monthly benefit payments under social security.
Appendix D.
(a)
Employee and Government premium rates of the Government-
wide Federal employees health benefits plans.
(b) Benefit experience by patient category under high-option Federal
employees health benefits plans authorized by the FEHB Act of
1959.
Appendix E. Comparison of major benefits under the Government-wide service
benefits plan (high option) of the Federal employees health benefits
program and the Medicare program (as of 1/1/69.)
Appendix F. Selected material from earlier reports on social security and Federal
employment.
Appendix G. Illustrative monthly benefits payable under a transfer-of-credit plan.
Appendix H. Illustrative method for reducing social security amounts of public
employees who also receive substantial staff-retirement system
benefits.
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(a) Employee and Government premium rates of the Government-wide
Federal employees health benefits plans
SERVICE BENEFIT PLAN
19
68
1969
Type of
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Monthly
Premium
Percent
Monthly
Premium Percent
Self only
Employee pays
$ 8.43
69.8
$10.79
74.8
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Government pays
3.64
30.2
3.64
25.2
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12.07
100.0
14.43
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Employee pays
20.58
69.9
26.35
74.8
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8.88
30.1
8.88
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Total cost
29.46
100.0
35.23
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3.64
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3.81
51.1
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3.64
50.0
3.64
48.9
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7.28
100.0
7.45
100.0
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8.88
50.0
9.19
50.9
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8.88
50.0
8.88
49.1
Low Option
Total cost
17.76
100.0
18.07
100.0
INDEMNITY BENEFIT PLAN
Self Only
Employee pays
8.06
68.9
11.57
76.1
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Government pays
3.64
31.1
3.64
23.9
Total cost
11.70
100.0
15.21
100.0
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Employee pays
20.15
69.4
28.84
76.5
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8.88
30.6
8.88
23.5
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Total cost
29.03
100.0
37.72
100.0
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3.16
50.0
4.57
55.7
Low Option
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3.16
50.0
3.64
44.3
Total cost
6.32
100.0
8.21
100.0
Self and
Employee pays
7.58
50.0
10.82
54.9
Family
Government pays
7.58
50.0
8.88
45.1
Low Option
Total cost
15.16
100.0
19.70
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Approved For Release 2003/12/02 : CIA-RDP71B00364R000300200001-2
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Approved For Release 2003/12/02 : CIA-RDP71B00364R000300200001-2
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 Approved For Release 2003/12/02 : CIA-RDP71B00364R000300200001-2
Selected material from earlier reports on
social security and Federal employment
(a) Report of the President's Cabinet Committee on Federal Staff Retirement
Systems, March 7, 1966
A. 4. Relationship to Social Security
(a) Transfer of credits
(b) Social security minimum
Recommendation
Employees subject to the civil service retirement or the Foreign Service
retirement and disability systems should be assured of survivor, dis-
ability, and retirement protection which is at least at the level provided
under social security. This basic level of protection should be estab-
lished through a twofold provision:
(a) Workers who have employment subject to either of these Federal
staff retirement systems but die or become disabled before they are
eligible for protection under their staff retirement system or leave
the Federal service and do not have protection under the staff retire-
ment system when they die, become disabled, or reach retirement
age, should have their credits under the staff retirement system
transferred to social security; and
(b) Employees and their survivors who become eligible for benefits
under either of these staff retirement systems should be guaranteed
that the benefit amounts they receive under the staff retirement sys-
tem (or, if they are also eligible for social security benefits, under
the staff retirement system and social security together) will be at
least at the level that would be payable if their Federal service
had been covered under social security
(c) Health insurance protection
Recommendation
Federal employees covered only by a staff retirement system should
have health insurance protection after they reach age 65 on the same
basis as other workers. This should be accomplished by covering under
the health insurance provisions of social security all such present Fed-
eral employees who desire this coverage, and all persons who in the
Approved For Release 2003/12/02 : CIA-RDP71B00364R000300200001-2
 Approved For Release 2003/12/02 : CIA-RDP71B00364R000300200001-2
future enter or reenter Federal employment that is covered only by a
staff retirement system.
For employees and annuitants who become eligible for social security
health insurance and who desire broader protection than they obtain under
social security, the Federal Government should make available comple-
mentary health insurance designed to maintain protection at approxi-
mately the level afforded by the Government-wide high-option plans,
with the cost being shared by the Government and the participants. Cov-
erage under present plans authorized by the Federal Employees Health
Benefits Act of 1959 should be terminated for future entrants who will,
of course, qualify for social security health insurance protection.
(k) Joint Report of the United States Civil Service Commission and the Social
Security Administration on Social Security and Federal Employment,
March 13, 1965.
Summary and Conclusion
In summary, it appears to us that the principal advantages and disad-
vantages of the various approaches are as follows:
Approach No. 1 (employees covered under social security and the civil
service retirement system, with no adjustment in the provisions of that
system). Avoiding adjustment in the civil service retirement system
provisions would be in accord with the views of employee organizations
but the additional cost of this approach would be very high for employees
and the Government. This approach would go beyond the objective of
filling gaps in protection and would result in large increases in the bene-
fits of many career employees; in some instances, retirement benefit
amounts would exceed the employee's pay.
Approach No. 2 (same as approach No. 1 except that present and future
employees could individually elect whether to come under social security).
This approach has been favored by some employee organizations. The
additional cost for the Government would not be quite as high as under
Approach No. 1 since some employees would not elect social security
coverage. However, the additional Government cost would go toward
providing high benefits for those employees who elected coverage--
mainly the better-paid employees who could readily afford to pay the
social security employee contributions. Individual voluntary coverage
under social security has always been considered undesirable because
it involves adverse selection, which increases social security costs at
the expense of those covered on a compulsory basis, and because some
of those who have greatest need for social security protection would not
elect coverage. Because some employees would not elect coverage, the
objective of filling gaps in protection would not be fully achieved.
Approach No. 3 (employees covered under social security and the civil
service retirement system, with adjustments in the retirement-system
Approved For Release 2003/12/02 : CIA-RDP71B00364R000300200001-2
 Approved For Release 2003/12/02 : CIA-RDP71B00364R000300200001-2
provisions to take account of social security coverage). A plan carrying
out this approach would fill the gaps in protection and could be designed
to accomplish this objective at substantially less cost than approaches
No. 1 and No. 2. This approach more than others has the potential to
assure that the combined benefits (and the combined contributions) of
people who shift between work covered by social security and the civil
service retirement system would be at a planned and systematic level.
This approach would, however, require some increase in cost beyond
that necessary to fill the gaps in protection. Past proposals which in-
volved adjustments of provisions of the civil service retirement system
to take account of social security coverage have been strongly opposed
by organizations of Federal employees.
Approach No. 4 (same as approach No. 3 except that present employees
could elect to come under the new combined coverage or to continue
under present provisions of the civil service retirement system and not
come under social security). The considerations applicable to approach
No. 3 are also generally applicable to this approach. The option provided
under approach No. 4 would meet objections of some present employees
based on individual circumstances, but this approach has also been
strongly opposed by organizations of Federal employees because of the
changes which would be made in the provisions of the civil service retire-
ment system for the long run.
Approach No. 5 (a transfer-of-credit plan broad enough to provide social
security protection for workers with Federal employment who do not
qualify for protection under the civil service retirement system). A
transfer-of-credit approach would not be as effective as coverage-
coordination plans in assuring a planned and systematic level of con-
tributions and benefits for workers who shift between Federal employ-
ment and other work. However, approach No. 5 would achieve the objec-
tive of filling major gaps in the protection of workers with Federal em-
ployment without involving costs, such as would be involved in the cov-
erage plans, for providing nonessential benefit increases. Since this
approach would not change the provisions of the civil service retirement
system relative to career employees who stay in the Federal service, it
would avoid objections which have been raised by employee organizations
against plans which would make such changes.
Approach No. 6 (transfer of credits to social security in cases where
employees die, become disabled, or separate before completing 5 years
of Federal service). This approach would leave major gaps in protection
unfilled, and would be even less effective than approach No. 5 in assuring
a planned and systematic level of contributions and benefits for workers
who shift between Federal employment and other work. It would, however,
involve less additional cost than other approaches.
Approved For Release 2003/12/02 : CIA-RDP71B00364R000300200001-2
 Approved For Release 2003/12/02 : CIA-RDP71B00364R000300200001-2
On the basis of our exploration of the advantages and disadvantages of
these six approaches, a transfer-of-credit plan which follows approach
No. 5 appears to offer "a workable and sound solution" to the problem
of filling gaps In the protection of workers who have Federal employ-
ment. It does not, on the other hand, have certain advantages that some
coverage-coordination plans have. This approach would require no
changes in the provisions of the civil service retirement system, other
than provisions for financing the plan, and would avoid difficulties which
so far have prevented legislative action in this area. Thus, by providing
benefit protection under social security in all situations where, under
present law, no benefits would be payable under the civil service retire
ment system, the plan would close major gaps in the protection of workers
who have Federal employment and would, moreover, be a relatively
inexpensive approach.
Under this transfer-of-credit plan, credit for the Federal employment
of workers who die, become disabled, or leave work covered under the
civil service retirement system with less than 5 years of work under
that system would be transferred to social security. (In this type of
situation, the separated employees have no disability or survivorship
protection under the civil service system.) Also, the credits of workers
who leave Federal employment with more than 5 years of work covered
under the civil service retirement system, and who lose their benefit
protection under that system, would be transferred to social security.
Appropriate financial adjustments between the two systems would be
made to take account of the transfers of credit.
The Advisory Council on Social Security recently completed its study of
the social security program and reported its findings and recommenda-
tions. In respect to social security protection for Federal employees,
the Council recommended a transfer-of-credit plan that is similar to
the one described above.
We recognize that this approach has shortcomings. For example, ap-
proach No. 5 would provide social security survivor and disability pro-
tection for workers with less than 5 years of Federal service which
would be better than the survivor and disability protection afforded many
of the workers with more than 5 years of service under the civil service
retirement system. To correct this situation would require changes in
the survivor and disability protection now provided by the civil service
retirement system, perhaps by adding to a transfer-of-credit plan a
provision guaranteeing benefit amounts that would be no Less than those
that would be paid under social security. Also, a transfer-of-credit
plan would have no effect in situations where workers qualify for benefits
under both social security and the civil service retirement system in
total amounts which may be considered high in relation to the worker's
lifetime earnings and contributions.
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 (c)
Approved For Release 2003/12/02 : CIA-RDP71B00364R000300200001-2
Report of the Advisory Council on Social Security, January 1, 1965
Social security credit should be provided for the Federal employment of
workers whose Federal service was covered under the civil service re-
tirement system but who are not protected under that system at the time
they retire, become disabled, or die.
Unlike almost all private pension plans and a high proportion of State and
local retirement systems, the Federal civil service retirement system
is not supplementary to the social security program. Thus when a person
leaves Federal employment, his years of previous Federal service do not
count toward social security benefits. Moreover, protection under the
civil service retirement system does not start until after 5 years of
Federal employment. As a result, although the civil service retirement
system provides good protection for people who stay in Federal employ-
ment, Federal workers who leave, or those who die or become disabled
before having worked for the Government for 5 years, may have in-
adequate protection or none at all under either civil service retirement
or social security.
A practicable and relatively inexpensive way of filling the most serious
gaps that result from this situation is to provide for social security
credit for the Federal employment of those workers who are not pro-
tected under the civil service system at the time they retire, become
disabled, or die. As part of the financing arrangement, the civil service
retirement system would withhold, from the returns of contributions
that are made from the civil service retirement system to separating
employees, amounts equal to the social security employee contributions
which would have been payable if their Federal work had been covered
under social security. These withholdings would be transferred to the
social security fund and additional financial adjustments made between
the two systems to take account of the transfers of credit.
The plan includes the following principal elements, all of which the
Council considers essential to its effective operation:
1. Credit would be transferred to social security for the Federal
service of individuals who die, become disabled, or separate from
work covered under the civil service retirement system after less
than 5 years of Federal service. (At present, the only provision
made where a person with less than 5 years of service dies or ter-
minates his employment is for a refund of employee contributions.)
2. Credit would be transferred to social security for the Federal
service of people who separate after 5 or more years of Federal
work and obtain refunds of their contributions to the civil service
retirement system. (The civil service retirement system does not
provide any protection for people who separate from the civil serv-
ice and take refunds.)
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 Approved For Release 2003/12/02 : CIA-RDP71B00364R000300200001-2
3. Former civil service employees who have not taken refunds of
their civil service contributions and who die or who become disabled
before age 62 could have credit for their Federal service transferred
to social security. (Former employees do not have disability or
survivorship protection under the civil service retirement system
after separation.)
This transfer-of-credit approach would forego certain advantages which
would be achieved by a straight extension of social security coverage.
For example, an extension of social security coverage would provide
superior protection for workers who become disabled or die relatively
early in their careers. However, the transfer-of-credit approach the
Council is suggesting would be considerably less costly for the Federal
Government than a straight extension of social security coverage. Equally
important, whereas an extension of social security coverage would re-
quire substantial modification of the civil service retirement system to
take account; of social security benefits and contributions,, no modifica-
tions would be required to carry out the Council's recommendation ex-
cept for the financing of the transfer of credits.
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 Approved For Release 2003/12/02 : CIA-RDP71B00364R000300200001-2
Illustrative Monthly Benefits Payable Under a Transfer-of-Credit Plan
The following charts illustrate the effect of the transfer-of-credit plan in cases
involving various combinations of work under social security and under CSR.
In all cases, it is assumed that the plan has been in operation over the entire
work lifetime of the individual, and that he earns at least $7800 each year (the
maximum amount creditable under social security under present law). It is also
assumed that individuals begin working at age 22, with the exception of case F in
which a female worker begins employment at age 18.
In none of the cases would monthly benefits be payable under the CSR system; if
such benefits were payable, the transfer-of-credit plan would not apply. In all
cases the employee's contributions (including interest, if Federal service was
less than 5 years) to the CSR system are refunded, either to the separated em-
ployee or the survivors of the deceased employee or former employee. Under
the transfer-of-credit plan, the amount refunded would be reduced by an amount
equal to the social security contributions the employee would have paid if his
Federal employment had been covered under social security.
Mr. A works for 1 year under SS, then works 4 years under CSR, when he becomes
disabled or dies.
System
paying
benefits
Transfer-of-credit plan
Monthly disability benefits
Worker I Worker, wife
alone and 1 child
CSR 0
SS 0
CSR 0
SS $218
0
$432
Monthly
survivor
benefits,
widow and
1 child
0
$327
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 Approved For Release 2003/12/02 : CIA-RDP71B00364R000300200001-2
Mr. BSI works 12 years under CSR, separates, then works 12 years under SS,
when he becomes disabled or dies.
Present Law
Transfer-of-credit plan
Mrs. C: works 12 years under CSR, separates to become a housewife, and later
becoms disabled.
Monthly disability benefits
Present Law
TransfOr-of-credit plan
System
Monthly disability benefits
Monthly
survivor
paying
benefits
Worker
alone
Worker, wife
and 2 children
benefits,
widow and
2 children
CSR
0
0
0
SS
$156
$330
$330
CSR
0
0
0
SS
218
434
434
System
paying
benefits
CSR
SS
CSR
SS
Disabled 0
to 5 years
after
separation
0
$218
Nfr. D vrorks 2 years under SS, then 10 years under CSR, separates, then works
1 year under SS when he becomes disabled or dies.
System
Monthly disability benefits
Monthly
survivor
paying
benefits
Worker
alone
Worker, wife
and 1 child
benefits,
widow and
1 child
'17ransfei
'-of-credit plan
CSR
SS
CSR
0
0
0
SS
218
432
327
_
72
Disabled more
then 5 years
after
separation
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 Approved For Release 2003/12/02 : CIA-RDP71B00364R000300200001-2
Mr. E works 24 years under CSR, separates, then works 12 years under SS,
when he becomes disabled or dies.
System
Monthly disability benefits
Monthly
survivor
paying
Worker Worker, wife
benefits,
benefits
alone and 1 child
widow and
1 child
Present Law
CSR
0 0
0
SS
$105 $173
$158
Transfer-of-credit plan
CSR
0 0
0
SS
218 432
327
Mrs. F works 4 years under CSR, separates. After 6 years at home, works
2 years under SS, when she becomes disabled or dies.
System
Monthly disability benefits
Monthly
survivor
paying
Worker Worker and 2
benefits,
benefits
alone children
2 children
Present Law
CSR
0 0
0
SS
0 0
$242
Transfer-of-credit plan
CSR
0 0
0
SS
$128 $434
327
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 Approved For Release 2003/12/02 : CIA-RDP71B00364R000300200001-2
Illustrative method for reducing social security benefit amounts of public employees
who also receive substantial staff-retirement system benefits.
The reduction of social security benefits provided in this method would be appli-
cable to governmental employees--Federal, State, and local--who receive sub-
stantial staff-retirement benefits in addition to heavily-weighted social security
benefits. Because of basic differences between length-of-service, benefit-com-
putation, and other provisions of the Federal civil service retirement system and
of many of the State and local retirement systems, some differentials, designed
to make the provisions universally effective for governmental employees, would
have to be worked out. The key provision, however, would be to maintain, when
social security benefits are generally increased in the future, the present mini-
mum benefit of $55 a month, and to provide close-to-minimum benefits increased
only enough to blend them into the range of higher benefits, for civil service re-
tirement annuitants if they are eligible for substantial staff-retirement system
benefits. The special benefit levels could be maintained under successive general
benefit increases until the Congress finds that an appropriate differential in the
levels of benefits has been reached.
Social security benefits adjusted under this approach would gradually range upward
from the present minimum benefit of $55 rather than from a higher minimum en-
acted at the time of the next general social security benefit increase. The approach
would affect only the lower, most heavily-weighted, benefit levels based on aver-
age monthly earnings of $110 or less.
The following table indicates how the approach would affect social security retire-
ment benefits paid to Federal civil service annuitants. Where benefits are also
payable to a wife or dependent husband, the spouse's benefit would (as under
present law) equal 50% of the worker's benefit. For illustrative purposes, the
table columns headed "Generally Increased Benefits" and "Benefits for Certain
Long-Term Civil Service Workers" are based on a 15% benefit increase and an
increase in the minimum benefit to $70 from the present $55.
Present
Generally
Benefits for Certain Long-Term Civil
Service Workers
Monthly
Law
fi
B
YEARS OF GOVERNMENT SERVICE
ene
ts
Benefits
30
31
32
33
34
35
$ 74 or less
$55.00
$70.00
$68.70
$67.20
$65.40
$62.90
$59.50
$55.00
80
57.70
70.00
68.90
67.70
66.30
64.70
61.70
59.00
85
61.10
70.30
69.40
68.40
67.30
66.10
64.60
63.00
90
64.50
74.20
73.30
72.30
71.20
70.00
68.60
67.00
95
67.80
78.00
77.30
76.40
75.30
74.00
73.00
71.50
100
71.50
82.30
81.60
80.80
79.90
78.80
77.70
76.00
105
75.10
86.40
85.90
85.30
84.60
83.70
82.50
81.00
110
78.70
90.60
90.30
89.90
89.40
88.70
87.40
86.00
111
78.70
90.60
90.60
90.60
90.60
90.60
90.60
90.60
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 Approved For Release 2003/12/02 : CIA-RDP71B00364R000300200001-2
Under is method, adjustments would be made only in social security benefits
based of average monthly earnings of $110 or less because the most heavily
weightel benefits fall in this range. The $55 minimum social security retirement
benefit in present law equals at least 74% of a worker's average monthly earnings
in covered work, and in some cases may be a much higher proportion. The
presenti1benefit based on average monthly earnings of $110 (the main "bend point"
in the slbcial security benefit formula) is 71% of average monthly earnings. As
the average monthly earnings increase above the $110 bend point, the percentage
decline4 more rapidly; at the highest level of average monthly earnings, the
worker's benefit equals about one-third of his average monthly earnings covered
by social security.
Approved For Release 2003/12/02 : CIA-RDP71B00364R000300200001-2
 App
App
UNCLASSIFIED CONFIDENTIAL
SECRET
OFFICIAL ROUTING SLIP
TO
NAME AND ADDRESS
DATE
INITIALS
1
The Director -
*01
2
Mr. Houston
"~ G 9
3
Legislative Counsel
4
5
6
ACTION
DIRECT REPLY
PREPARE REPLY
APPROVAL
DISPATCH
RECOMMENDATION
COMMENT
FILE
RETURN
CONCURRENCE
INFORMATION
SIGNATURE
Remarks :
Jack: Since you are handling this, we
assume you will continue to be the focal
point. Note, however, that the Director
specifically initialed this to Kr. ouston.
J rn
FOLD HERE TO RETURN TO SENDER
FROM: NAME, ADDRESS AND PHONE NO.
DATE
N
FORM NO.
n37
1-67 G
25X1A
 ROUTE SLIP
Do not use this route slip for
approvals, disapprovals, concurrences
JAN 1 0 196
or similar official actions.
TO
BLDG.
ROOM
ACTION
Mr. John Maury
0 APPROVAL
E SIGNATURE
Legislative Counsel
E COMMENT
FOR YOUR INFO
0
.
.
Central Intelligency A en
REVIEW
E NOTE AND SEE ME
Washin on D.C. 20505
F-] NOTE AND RETURN
R CONVERSATIO
E PER
F__] AS EQUESTED
REQUESTED
NECESSARY ACTION
E FIL
E
Enclosed are three copies of a draft of a proposed
report on social security and Federal employment
which the House Committee on Ways and Means and the
Senate Committee on Finance directed the Social
Security Administration to make.
Since a report must be released before the end of
next week, the enclosed draft, which we are sending
to Mr. Richard Helms, can be regarded as close to
completed form. Revisions to improve the presentation
have been made in the draft previously sent to you,
and a section has been added which represents our
views as to what conclusions are to be drawn and what
recommendations should be made to the Committees.
I would appreciate having any further comments you
may wish to make on this version of the report.
_ (Fld
-A u
4Fi lv' 4.11 ssist commissioner ----
FROM 0 ice of Program Eva uation and Planni
01-2
Appnavetl o A
:$7VVIU,5IUIUZIUUU
130-x+672 4
00, Adm.
9
N
FORM SSA-1746 (8-67 *U.S. GOVERNMENT PRINTING OFFICE: 19570-262-165
 25X1 A
ROUTE SLIP
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1)A 2 2
approvals, disapprovals, concurrences
or similar official actions.
TO
BLDG.
ROOM
ACTION
r-1 APPROVAL
O SIGNATURE
Office of gis tine Coun
sel
LiCOMMENT
Central Intelligence Agenc
y
LiFORYOURINFO.
w as on, D.C. 20505
Li RE
VIEW
Q NOTE AND SEE ME
AND RETURN
F__j NOTE AND RETURN
R CONVERSATIO
PER
Li AS
REQUESTED
QNE
Li FILE
Enclosed is a copy of the report on social
security and Federal employment, as submitted
by Robert M. Ball, Commissioner of Social
Security, to the House Committee on Ways and
Means and the Senate Committee on Finance.
If you would like any additional copies of
the report at this time please let me know.
cc:
Mr. Richard Helms
Mr. John M. Maury
TO Alvif David, Assistant Commissioner
FROM Office of Program Evaluation and Planni
13o-4672 Woodlawn Baltimore, Maryland 400 Adm.
-2
N
 Do not use this route slip for
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approvals, disapprovals, concurrences
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TO
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ACTION
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SIGNATURE
Legislative Counsel
0 COMMENT
Central Intelligence
^ FOR YOUR INFO.
Washington, D.C. 20505
LJ REVIEW
E NOTE AND SEE ME
NOTE AND RETURN
Q PER
AS REQUESTED
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L FILE
PREPARE REPLY FOR SIGNATURE OF:
REMARKS
Enclosed are 5 copies of the report on social
security and Federal employment, as submitted
by Robert M. Ball, Commissioner of Social
Security, to the House Committee on Ways and
Means and the Senate Committee on Finance.
If you would like any additional copies of
the report at this time please let me know.
cc:
Mr. Richard Helms
25X1 A
gp _ Alvin David, Assistant Commissioner
1
01-2