Mr. Chairman, and members of the Committee:
The Chairman of the Committee has asked me to outline
briefly the present provisions for old-age security contained
in the Social Security Act. Before doing so I should like to trace
very quickly the background and evolution of the present provisions.
Report of Committee
on Economic Security
As you know, the Social Security Act became law
on August 14, 1935, after many months of deliberation in Congress.
The Act was the outgrowth of the recommendations of the President's
Committee on Economic Security which was appointed in 1934, the
Report of which was transmitted by the President to Congress,
on January 17, 1935 with recommendations for legislative action.
The basis of the present old-age security provisions was outlined
in the Presidents message: "first, non-contributory old-age
pensions for those who are now too old to build up their own insurance;
. . . Second, compulsory contributory annuities . . . for those
now young and for future generations."
During 1934 the proposed plans for old-age security
were discussed with an Advisory Council consisting of 23 members,
representing employers, employees, and the public. This Council
unanimously recommended both Federal grants to the States for
old-age assistance and a "Federal system of old-age insurance
which will be compulsory for all industrial workers who can be
brought under its terms."
In recommending this two-fold approach to the problem
of old-age security the objective was to provide a system of insurance
to minimize future dependency and a program of assistance
to relieve existing dependency. The Report of the Presidents
Committee on Economic Security stated the relationship between
the two programs and their respective values and limitations,
as follows:
"An adequate old-age security program involves
a combination of non-contributory pensions and contributory annuities.
Only non-contributory pensions can serve to meet the problems
of millions of persons who are already superannuated or shortly
will be so and are without sufficient income for a decent subsistence.
A contributory annuity system, while of little or no value to
people now in these older age groups, will enable younger workers,
with the aid of their employers, to build up gradually their rights
to annuities in their old age. Without such a contributory system
the cost of pensions, would in the future, be overwhelming. Contributors
pensions are unquestionably preferable to non-contributory pensions.
They come to the workers as a right, whereas the non-contributory
pensions must be conditioned as a "means" test. . .
"Contributory annuities can be expected in time
to carry the major, but under the plan we suggest, never the entire
load. Until literally all people are brought under the contributory
systems, non-contributory pensions will have a definite place
even in long-time old age security planning."
Social Security
Act of 1935
The Social Security Act was passed by an overwhelming
majority in both the House and the Senate. In the house the vote
was 372 to 33; in the Senate, 77 to 6. Though not perfect or all
inclusive, the Social Security Act did embrace the most comprehensive
program for social security ever launched at one time by any government.
By providing for unemployment insurance, aid to dependent children,
aid to the blind, and for grants for public health, maternal and
child welfare, crippled children, and vocational rehabilitation,
in addition to aid for the aged, the Act recognized that the problem
of insecurity must be attacked on many fronts at the same time.
Before I discuss in detail the two provisions for
old-age security in the present law--that is, State old-age assistance
and Federal old-age insurance--I should like to point out some
of the recommendations made to Congress by the Committee on Economic
Security in 1935 which were not enacted into law.
The provision for Federal grants to the States for
assistance to the aged contained in the original bill recommended
by the Committee on Economic Security provided that each State
must give each aged person a sufficient amount of assistance which
when joined with the income of that person and the person's spouse,
is adequate to provide "a reasonable subsistence compatible with
decency and health." This requirement was questioned by members
of the Senate Committee on Finance and when the bill was finally
reported out this requirement was not only deleted but the word
"needy" aged was specifically written into the bill.
Moreover, in 1935, the Committee on Economic Security
recommended that agricultural workers, domestic servants, employees
of non-profit institutions, etc. be covered by the Federal old-age
insurance law. These groups were later excluded from the law by
Congress and are not included under the present system.
FEDERAL GRANTS
TO STATES FOR OLD-AGE ASSISTANCE
The 1935 law first became effective, insofar as
Federal grants to the States for old-age assistance is concerned,
on February 11, 1936. While at the end of 1934--immediately prior
to congressional consideration of the Social Security Act--only
about one-half of the States had effective old-age assistance
laws with only 200,000 aged persons in receipt of assistance,
today all States have old-age assistance laws and there are over
2,100,000 aged persons in receipt of such assistance--an increase
of over ten-fold. Since 1936, the total amount expended by the
Federal, State, and local governments for such assistance has
amounted to over $2 billion.
The number of aged persons receiving assistance
and the average amount received per person has steadily increased
during the past six years. At the present time the 2,100,000 aged
individuals in receipt of assistance are receiving an average
of $20.63 per month. Thus, present expenditures for old-age assistance
are running about $43,000,000 per month or at a rate of $516,000,000
per year.
FEDERAL OLD-AGE
INSURANCE
The Federal old-age insurance law first came into
operation on January 1, 1937 when contributions became payable
from employers and employees. At the present time about 2,000,000
employers employing nearly 40,000,000 employees during the year
are contributing under the insurance system. During the past five
years, since the system first came into operation, about 47,000,000
individuals have made some contributions under the system.
SOCIAL SECURITY
AMENDMENTS OF 1939
In 1939, the Social Security Board presented its
recommendations to the President and to Congress for amending
the Social Security Act. Among the recommendations made was a
proposal for increased Federal grants to the States for old-age
assistance, aid to dependent children, and aid to the needy blind.
The Board pointed out at that time that the result of the 50-50
matching plan "has been wide difference between the States,
both in number of persons aided and average payments to individuals.
. . while these variations may be explained in part on other grounds,
there is no question that they are due in very large measure to
the varying economic capacities of the States."
The Board stated at that time that it believed that
"It is essential to change the present system of uniform percentage
grants to a system whereby the percentage of the total cost in
each State met through a Federal grant would vary in accordance
with the relative economic capacity of the State." The Board repeated
this recommendation in its Annual Report to Congress in 1940 and
1941. In my testimony before the Committee on Civil Liberties
of which the Senator from Wisconsin was chairman, I repeated this
recommendation over a year ago. The same recommendation was made
by the Interdepartmental Committee to Coordinate Health and Welfare
Activities in 1940. In transmitting the Social Security Board's
Report to Congress in 1939, the President stated that he believed
this approach to be sound. The Senate did adopt the so-called
Connally proposal in 1939 increasing the Federal grants to the
States for old-age assistance from one-half to two-thirds on the
first $15. While this proposal passed the Senate by a vote of
43 to 35, the proposal was eliminated by the Conference Committee,
after length consideration, and the only change made in old-age
assistance as a result of the 1939 legislation was that the Federal
matching was increased from one-half of any payments up to $30
per month to one-half up to $40 per month.
ADVISORY COUNCIL
ON SOCIAL SECURITY
In the insurance program, however, Congress made
a number of significant changes in 1939 along the lines recommended
by the Advisory Council on Social Security and the Social Security
Board. The Advisory Council was created in May 1937 by the Senate
Committee on Finance and the Social Security Board. It was composed
of outstanding citizens representing employers, employees, and
the public. This Advisory Council of 25 members, composed of persons
from both political parties, including representatives from both
the A.F. of L. and CIO, and officials of life insurance companies,
banks, and business firms, university professors, and others,
spent more than a year in study and deliberation and transmitted
its final report and recommendations on December 19, 1938. The
Council unanimously reported as follows:
"After a thorough consideration of the growing
problem of old-age dependency facing our country and of the experience
thus far under the program of old-age assistance, the Council
is convinced of the wisdom of Congress in establishing a contributory
program of old-age insurance. The Council believes that such a
method of encouragement of self-help and self-reliance in securing
protection in old age is essentially in harmony with individual
incentive within a democratic society. It is highly desirable
in preserving American institutions to provide protection afforded
as a matter of right, related to past participation in the productive
processes of the country. It is only through the encouragement
of individual incentive, through the principle of paying benefits
in relation to past wages and employment, that a sound and lasting
basis for security can be afforded."
The Council also stated unanimously that:
"The contributory insurance method safeguards
not only the wage earner but the public as well. By this method
benefits have a reasonable relation to wages previously earned,
and costs may be kept in control relative to tax collections.
Through careful planning the continued payment of benefits can
be assured without undue diversion of funds needed for other governmental
services. . . Old-age insurance is only one element in the whole
structure of governmental social services. The protection of the
aged must not be at the expense of adequate protection of dependent
children, the sick, the disabled, or the unemployed; or at the
cost of impairing such essential services as education or public
health or of lowering of the standard of living of the working
population."
RESULTS OF 1939
AMENDMENTS
The specific recommendations of the Council and
the Social Security Board resulted in the following changes in
the insurance system in 1939:
- The old-age insurance system was expanded to furnish protection
for widows, orphans, and the dependent parents of insured
workers who die prematurely. This is a logical and necessary
part of any contributory insurance system since many contributors
die before reaching retirement.
- Monthly benefits became payable in 1940 instead of 1942
as provided in the original law.
- The entire system was shifted from individual protection
to family protection. In addition to the monthly survivorship
benefits, provision was made that an insured wage earner who
retires received an additional benefit of 50% when his wife
also reaches the age of 65.
Before enacting the 1939 amendments the House Committee
on Ways and Means gave lengthy consideration to various other
proposals for old-age security. The Committee, however, in its
Report to the House, concluded: "The foundations of a permanent
program have been laid and it seems wise to build upon the present
structure." The Senate Committee on Finance in reporting out the
1939 amendments said: "It is essential then that the contributory
basis of our old-age insurance system be strengthened and not
weakened." The Social Security Board has administered the program
with these objectives in mind. It has also studied the operation
of the legislation in order to improve the existing permanent
structure and to strengthen the contributory insurance program.
The Social Security Act now provides for ten different
programs which are in actual operation. I shall discuss only those
two programs dealing with old-age security.
FEDERAL OLD-AGE
AND SURVIVORS INSURANCE
The old-age and survivors insurance program is the
only one of the ten programs administered entirely by the Federal
government. Contributions are collected from the worker and his
employer through the Bureau of Internal Revenue of the Treasury
Department. The Social Security Board administers the benefits
through the Bureau of Old-Age and Survivors Insurance.
At the present time the contributions are 1% on
the wages of the employee, and 1% on the employer's payroll--making
2% in all. These rates are scheduled to increase to 2% each in
1943-44 and 45--or a total of 4%; and to 2% each--or a total of
5% during 1946-47 and 48, and to 3% each--or a total of 6% in
1949 and thereafter. These increases are already provided in existing
laws.
The revenue received comes into the Federal Treasury
and an amount equivalent to the contributions received is deposited
automatically in the Federal old-age and survivors insurance trust
fund. A Board of Trustees supervises the Trust Fund. The three
members of the Board of Trustees are the Secretary of the Treasury,
the Secretary of Labor, and the Chairman of the Social Security
Board.
Employers send their contributions and the contributions
which they have collected from their workers to the Collector
of Internal Revenue every three months on quarterly reports listing
the name, social security account number and wages of each individual
employed by the employer during the particular quarterly period.
These records are sent by the Treasury Department to the Social
Security Board offices in Baltimore, Maryland, where the records
are kept for each individual under the supervision of the Bureau
of old-age and survivors insurance.
Contributions are collected and benefits are payable
on the basis of employment covered by the insurance system. Nearly
40 million workers in industry and commerce are currently covered
under the insurance plan but self-employed businessmen and farmers,
agricultural labor, domestic servants, employees of non-profit
institutions, Federal, State and local governmental employees
and certain other groups are excluded from the system at the present
time.
The Bureau of old-age and survivors insurance maintains
477 local field offices throughout the United States and in Hawaii
and Alaska where individuals may file their claims for benefits.
The eight types of benefits provided under existing legislation
are briefly as follows:
- Primary insurance benefits are payable to each insured worker
who has reached the age of 65 and is not receiving wages of
$15 per month or more from employment covered under the insurance
plan.
- A wife's insurance benefit is payable to the wife of any
insured person in receipt of benefits if the wife is 65 years
old or older.
- A widow's insurance benefit is payable to the widow of an
insured man when she reaches age 65. The benefit is payable
in the event that the husband dies before age 65 as well as
when he dies after the age of 65.
- A widow's current insurance benefit is payable to the widow
of an insured person who has a child or children under the
age of 18 in her care.
- A child's insurance benefit is payable to each unmarried
child under the age of 18, of an individual entitled to a
primary old-age benefit or of an insured individual who died,
irrespective of age.
- 6. A parent's insurance benefit is payable to either or
both parents of an insured individual who died and left no
widow or child under the age of 18. The benefit is payable
if the parent was wholly dependent upon and supported by the
deceased individual at the tine of his death. It commences
at age 65.
- Lump-sum death payments are payable in the case of individuals
who die and leave no surviving widow, child, or parent entitled
to benefits beginning with the month in which the individual
died.
- Lump-sum death payments are payable in the case of individuals
who died prior to January 1, 1940, when the monthly survivorship
benefits of the amended legislation first became effective.
The various monthly benefits range between a minimum
of $10 per month to a maximum of $85 per month. The amount paid
to each individual depends upon the amount of wages the insured
worker received in covered employment since the insurance plan
first became effective and the length of time such person was
in the insurance system. The lump-sum benefits which are paid
may range from a minimum of $60 to $300 or more.
In computing the amount of each individual's monthly
benefits the primary insurance benefit must be computed first.
This is computed as follows:
First, take 40% of the first $50 of average monthly
wages;
Second, an additional 10% of any average monthly
wages above $50, but not over $250;
Third, to this sum there is added 1% of the amount
for each year in which the individual had $200 or more in covered
wages.
This computation yields the monthly benefit payable
to each insured individual age 65 and over. All other payments
are based upon this primary benefit. Wives, children, and dependent
parents who are eligible for monthly benefits receive one-half
of the primary amount; widows receive three-fourths. Several persons
in a family may receive benefits at one time, but the family total
may not exceed twice the primary benefit.
A simple illustration may be helpful. Suppose that
a worker receives wages of $100 per month. His employer now pays
$1 per month and the worker pays $1 per month which the employer
deducts from his wages. After the worker is in the insurance system
for ten years he becomes 65 and retires or dies. Here is how his
benefits would be computed. Since his average wages are $100 per
month, 40% on the first $50 of such wages is $20. To this is added
10% of the next $50 which amounts to $5. This makes a total of
$25. Since he has been in the system ten years he is entitled
to an additional 10% this amount or $2.50. This makes a total
of $27.50 per month which he will receive. When his wife reaches
age 65 she will receive an additional 50% which will make a total
benefit payable to him and his wife of $41.25. If he dies, his
widow will receive $20.63 in monthly benefits for the rest of
her life.
If on the other hand, this worker had died in early
life, let us says at age 40, leaving his widow with two small
children, a benefit of $20.63 would be payable to his widow plus
$13.75 for each child. This would make a family total of $58.13.
If one of the children reached the age of 18, died, or married,
his widow would still receive her three-fourths of the primary
benefit plus one-half for the other child. When that child ceased
being eligible for benefits, the widow's current insurance benefits
would cease, until and unless she became eligible for monthly
benefits again at the age of 65.
In order to be eligible for these various benefits
individuals must be insured in accordance with requirements of
the law which are necessitated by the limitation of this program
to the areas of employment now covered. In general, any individual
is fully insured for all benefits under the system if he has been
in covered employment roughly half of the time. The law measures
the insurance status of each individual in terms of quarter-years,
which is the time-period for which each employer reports concerning
each employee. Thus, each individual must earn wages of at least
$50 in half of the quarters up to age 65. There is a minimum of
six quarters and a maximum of 40 quarters. In other words, when
an individual has earned $50 per quarter--that is about $16.66
per month--in 40 quarters--equivalent to 10 years--he is fully
insured for all benefits. At the present time an individual needs
only nine quarters to be fully insured, since 18 quarters have
elapsed since the system went into operation in 1937.
An individual may be eligible for certain survivorship
benefits, however, if the deceased wage earner was only "currently"
insured. Thus, if an individual earned at least $50 in six out
of the last 12 quarters his widow and children would be eligible
for monthly benefits. The eligibility conditions for survivorship
benefits are based upon current insurance status similar to term
insurance. The eligibility requirements for old-age retirement
insurance, however, increase progressively as the insurance system
matures.
This is important since some progressive increase
in the eligibility conditions is essential, as long as the system
covers only a limited area of employment, in order to make certain
that the benefits bear a reasonable relationship to contributions
and wage loss. Otherwise, it would be possible for individuals
to work most of their lives in some non-covered occupation, and
then enter covered employment for a very brief period solely in
order to get benefits. They might have a very unrepresentative
wage record for that brief period, and they would have paid practically
no contributions. Thus, they would have an unjustified advantage
over other persons who had been in covered employment and have
paid contributions during most or all of their working lives.
So long as coverage is limited, relatively strict eligibility
requirements are necessary to distinguish bona-fide participants
in the system from those who are normally outside its scope.
On the other hand, if a social insurance system
is to be adequate, it is necessary to pay benefits to those retiring
in the early years which are in excess of the actuarial value
of their contributions, since they have not had an opportunity
to make sufficient contributions in the past. Here social insurance
does nothing more than adopt the example afforded by private group
insurance contracts, where employers assume "past-service" liability.
It is also obvious that the earnings qualifications cannot be
as strict in the early years because those reaching retirement
age in these years have had only a limited opportunity to demonstrate
their earnings record since the system went into effect. However,
as the system grows older and the opportunity to establish a contributions
and wage record increases, it is desirable that the contributions
and earnings qualifications also be strengthened in order to protect
the persons in covered employment who are paying for the benefits.
In considering the 1939 amendments the appropriate
Congressional Committees recognized the difficulties involved
in working out the various elements in the insurance plan. The
Committees pointed out that "Only after experience has been obtained
in paying benefits for several years will we have a better picture
of the probable future development of the system." It was also
specifically pointed out that "the estimates presented are subject
to a margin of error...Constant study and frequent reevaluation
are, therefore, essential for the long-run financing of our social
security system."
During the past fiscal year nearly $700 million
has been collected in contributions from employers and employees.
The expansion of employment due to the national defense program
has resulted in an income yield substantially in excess of the
estimates made in 1939. In addition, the benefit payments have
been substantially below the estimates originally made and these
two factors have resulted in a larger reserve fund at the present
time than was originally estimated by the actuaries in 1939. At
the present time, the reserve fund for this purpose totals approximately
$2.4 billion. Although the reserve fund is somewhat larger than
originally estimated, it must be remembered that the insurance
system is now incurring a tremendous liability for payments which
will become due after the defense stops and for many years in
the future. It is estimated that by June 30, 1943, there will
be approximately one million fully insured persons over 65 who
will have retired or who could retire at any time. The increase
in employment in covered industry due to the defense program will
substantially increase benefit payments later on and will necessitate
a careful reappraisal of the relationship between contributions,
benefits, and the reserve fund during the ensuing years.
Since the introduction of this system, social security
account numbers have been issued to nearly 56 million persons,
about 47 million of whom have some earnings in covered employment.
In any one year, however, as few as 32 million persons may work
in such covered employment. At the present time it is estimated
that nearly 40 million persons will be employed in covered employment
during 1941 and this figure will undoubtedly increase further
during the operation of the defense program.
Although monthly benefits under this program were
made initially only a little more than a year ago, over one-third
of a million persons already have received insurance payments.
By the end of June 1941, nearly 220,000 aged persons, including
retired workers, their wives, and surviving aged widows and parents
were on the insurance rolls. In addition, more than 120,000 young
widows and children were in receipt of monthly insurance benefits.
Total monthly insurance payments now amount to approximately $6.5
million, or an annual rate of disbursement of $78 million. The
monthly insurance payments to all aged persons in June were $4.6
million and for younger beneficiaries, $1.9 million.
The number of beneficiaries and amount of benefits
paid out for June 1941 was as follows:
Aged Beneficiaries |
219,058 |
$4,643,189 |
Primary
Wife
Widow
Parents |
163,021
45,063
9,559
1,415 |
3,833,196
570,874
218,219
20,900 |
Younger Beneficiaries |
122,120 |
1,906,609 |
Children
Widows under 65 |
89,142
32,978 |
1,187,081
719,528 |
Lump-Sum Payments |
9,299 |
1,026,202 |
In addition to the number of persons in receipt
of insurance benefits there are other persons whose claims for
benefits have been filed and approved. However, because of favorable
employment opportunities they have returned to work. Nearly 27,000
aged persons are eligible for insurance benefits but were not
receiving benefits in June because their payments were temporarily
deferred for this reason. Many other persons who would have otherwise
retired have not applied for their insurance benefits because
of favorable employment opportunities and the national defense
program.
The total number now eligible for payments is only
a fraction of the millions of workers who already have made contributions
and acquired rights toward benefits under the old-age and survivors
insurance system, and of the millions more who will come under
the program as they obtain jobs in covered employment. As these
rights now being accumulated by contributors and insured workers
mature, the number of annuitants and the total annual disbursements
will increase markedly. Despite the impact of the national defense
program on employment and the necessity of keeping aged skilled
workers on the job, insurance disbursements have more than doubled
during the past fiscal year.
Federal Grants
to States for Old-Age Assistance
The other program for old-age security incorporated
in the Social Security Act provides for Federal grants to the
States for the payment of assistance to needy aged individuals.
In addition, the Social Security Act provides similar Federal
grants to the States for aid to dependent children and aid to
the blind. These three programs together are usually referred
to as the "public assistance" program.
The Federal grants to the States are made on a 50-50
matching basis. The Federal Government, however, does not match
on any amounts paid by the State to any individual in excess of
$40 per month, or if the individual is under the age of 65, or
is an inmate of a public institution. The States have wide latitude
in the operation of their program within the framework of the
provisions of title I of the Social Security Act which contains
the provisions for this purpose. The State, or such local officer
as it designates, receives all applications for assistance and
is responsible for the determination of the eligibility of all
persons for assistance. The amount of the assistance to be given
to each individual is also determined by the State. The State
may, if it so wishes, provide aid to individuals under the age
of 65 although no Federal funds will be matched for this purpose.
The Federal law requires that before the Social
Security Board can grant Federal funds to the State that the State
plan for old-age assistance first provide for the following:
- That the plan will be in effect in all political subdivisions
of the State.
- That there will be financial participation in the plan by
the State itself in addition to any financial participation
by the counties or other political subdivisions.
- Provide for the establishment of a single State agency to
administer or supervise the administration of the plan.
- Provide for a fair hearing for the State agency for any
individual whose claim for assistance is denied.
- Provide such methods of administration as are necessary
for the proper and efficient operation of the plan, including
the maintenance of personnel standards on a merit basis.
- Provide that the State agency shall, in determining the
need of any individual, take into consideration any other
income and resources of the individual claiming assistance.
- Provide safeguards which restrict the use or disclosure
of information concerning applicants and recipients to purposes
directly connected with the administration of old-age assistance.
- No age requirement of more than 65 years can be imposed.
- No residence requirement of more than 5 years with the 9
years immediately preceding the application for assistance
can be imposed.
- No citizenship requirement can be imposed which excludes
any citizen of the United States.
As long as a State has a plan that follows these
provisions of the Social Security Act it receives regular grants
of Federal money. The State uses this money along with its own
and any it may receive from counties or other political subdivisions
to meet the cost of old-age assistance.
As a result of the Federal aid State requirements
as to age, residence and citizenship have been progressively liberalized
during the past few years. Moreover, the Federal funds have enabled
the States not only to increase the number of individuals receiving
assistance but also to increase the average amount received per
month.
The average old-age assistance payment for the United
States was $20.63 for April 1941. The average ranged from $37.82
in California to $7.49 in South Carolina. The State of Iowa came
closest to approximating the national average with an average
monthly payment of $20.82. These averages, however, do not mean
that each individual within the State receives the same amount.
Each individual receives assistance from the State on the basis
of the State's evaluation of his income and his need. During November
1940 about 30% of all aged persons in receipt of assistance were
receiving less than $15 per month. About 50% were receiving between
$15 and $30 per month and about 20% were receiving $30 a month
or more. In 18 States payments of $40 a month or more were made.
In California, for instance, nearly 80% of all payments were for
$40.
THE ECONOMIC STATUS
OF THE AGED
The passage of the Social Security Act was public
recognition of the fact that the aged constitute a large and needy
part of our dependent groups. It does not follow, however, that
the aged persons still outside the provisions of the act constitute
the largest or most needy group remaining in our dependent population.
In considering what further legislation needs to be enacted it
is imperative that careful analysis be given to the present economic
status of the aged in relation to other needy groups.
At the present time it is estimated that there are
about 14,200,000 persons age 60 and over, of whom 9,200,000 are
age 65 and over. While many of the aged still unprovided for are
needy, it is frequently assumed that all aged persons are
needy. As a matter of fact many of those with the highest income
and the largest amount of wealth or savings are to be found in
the higher age groups.
Moreover, the census indicated that 3.7 million
persons aged 60 and over were still at work in March of last year
and this number has probably increased to over 4 million at the
present time.
In addition, more than three quarters of a million
individuals have been retired upon Federal pensions, 371,000 on
veterans allowances, 30,000 on military pay, 56,000 on Civil Service
Retirement, the Foreign Service, Panama Canal Zone, Alaskan Railway,
Coast Guard and Geodetic Survey and each of the smaller Federal
retirement systems, 145,000 on railway retirement and 220,000
on Federal old-age insurance benefits.
Approximately 50,000 persons have been retired on
State pensions and 60,000 on municipal pensions.
Private industrial pensions provide for 120,000
retired workers, trade union pensions for 13,000 and other private
pensions for an additional 40,000.
The number of aged with insurance and annuity contracts
in their own right is substantially in excess of one-half a million
and this does not include approximately 250,000 with insurance
who are living with relatives to whom the policies will be paid
upon their death.
Altogether it has been estimated that 1 million
persons are retired on pensions or annuities.
Most of the persons still working or retired on
pensions are men and 1.5 to 1.7 million of them are married to
wives aged 60 and over. This is a fact which is frequently forgotten.
Oftentimes these women are considered as being "dependent" along
with persons dependent upon charity or public aid. These persons,
under our present economic system, should be considered as being
in the same economic group as their husbands. It is also estimated
that 20 to 25 percent of the aged have made some provision for
their old age through savings. After making due allowance for
overlapping with the groups mentioned above it still appears that
there are 8 to 9 million aged with independent means of support.
Of the remaining 5 to 5 million aged who are dependent
upon resources other than their own, it is known that 2.2 million
are on the public assistance rolls while an additional 800,000
are in institutions or in receipt of private or public aid. Figures
on the remaining 2 to 2 million aged are uncertain. Some have
miscellaneous means of subsistence or are dependent upon friends
and relatives, approximately 190,000 are on the public assistance
waiting lists and others are undoubtedly in need of public assistance.
It is this residual group which most needs consideration at the
present time.
Another picture of the economic situation of the
aged can be gotten from the Family Composition Study which was
conducted by the United States Public Health Service in 1935 and
1936. The income of some 520,000 households consisting of only
one family indicated the following per capita incomes for persons
of different ages:
All ages |
$431 |
Under 16 |
287 |
16-24 years |
371 |
25-44 years |
486 |
45-59 years |
564 |
60-64 years |
627 |
65 and over |
601 |
The families included in this analysis exclude aged
persons who live with their married children. The study shows
that persons aged 60-64, as a group, are members of families receiving
the highest per capita income followed by persons aged 65 and
over.
There is, therefore, good reason for believing that
the aged persons as a group receive more than an average share
of the national income or that they are members of families securing
more than an average share. In general, children stand out as
the neediest element and the group for which the Social Security
Act is doing less than. for any other segment of the population,
considering their relative needs.
EXISTING UNMET
NEEDS OF OTHER DEPENDENT GROUPS
In addition to those aged persons who are still
needy there are also other needy groups in our population who
require consideration. The dependent widow and child, the permanently
disabled, the unemployed, the sick, and other unemployables deserve
equal treatment along with the needy aged. Therefore, available
financial resources must be carefully apportioned with due regard
to all unmet needs. I should like to describe briefly some of
these unmet needs of other groups before I return to discuss what
can and should be done to provide for the unmet needs of the aged.
The Dependent Widow
and Child
As I have already pointed out, the per capita income
of families with children under age 16 is lower than any other
age group in the population. The White House Conference on Children
in a Democracy reported to the President in 1940 that as many
as two-thirds of the children in American cities live in homes
where the family income is less than sufficient for a "maintenance
level of living." These children are our citizens of tomorrow
and should receive adequate food, clothing, shelter, and other
services necessary to proper development for their responsibilities
as men and women.
It is estimated that at the present time there are
6,000,000 widows in the United States of whom about 60% or 3,500,000
widows were under the age of 65. Each year 400,000 women become
widows. Each year 220,000 children under the age of 16 become
orphans because of the death of their fathers.
At the present time there are probably 2,000,000
children under the age of 18 who are fatherless. An additional
three million children live in homes in which the father is sick,
disabled, or absent for some reason. These five million fatherless
children live in families with about 9,000,000 additional related
persons. These families are usually the neediest in the community.
Frequently, there is no employable member in the household. Often
the widow must seek employment to the neglect of the health and
welfare of the children. The result is usually more costly to
society in the long run.
Over 900,000 children are already receiving aid
to dependent children under Title IV of the Social Security Act.
However, an additional million and one-half children are in need
of such aid and would be eligible for such assistance under existing
legislation if funds were available. The average amount now being
paid per child is only about $10 per month when allowance is made
for the mother or other caretaker of the child. If the dependent
child were to receive as much as the aged person at the present
time the average payment would be doubled to about $20.
In other words, aid to dependent children could
be more than doubled in terms of the number to be aided and then
doubled again if adequate assistance were to be given to the needy
children.
Unemployment
There is no need for me to review the experience
of the last decade with respect to unemployment. We are still
making large expenditures for this purpose through the WPA, CCC,
NYA, unemployment insurance, general relief, and other programs.
What many people frequently forget, however, is that even in good
times there are probably 2,000,000 to 2,500,000 persons unemployed.
Our present economic system, even at peak performance, seems to
require about that many persons at a minimum to be unemployed
on the average due to seasonal factors, technological changes,
inventory, repair of equipment, bankruptcy, and other similar
causes.
At the present time our unemployment insurance benefits
are inadequate. In many States the waiting period is much too
long. Frequently an unemployed worker does not receive his first
payment until the fifth or sixth week of unemployment. The amount
of benefits is also inadequate. The payments in some cases have
been as low as $2 and $3 per week. But the most significant inadequacy
of the present laws is the very short duration of benefits. Last
year over one-half of all workers in the United States receiving
benefits were still unemployed when they exhausted all their benefit
rights. In one State over 80% of the worker exhausted their benefits.
In some States the maximum duration of benefits has been two or
three weeks for particular individuals. An individual may receive
a few dollars per week for only very few weeks after a three-week
waiting period and a further delay of one or two weeks for administrative
reasons.
The amounts being paid are admittedly low relative
to the need. Unemployment compensation benefits compare very unfavorably
with workmen's compensation benefits which are also not adequate
in many respects. There is no doubt that the existing benefits
must be made more nearly adequate if we are to achieve the objectives
of unemployment insurance as a real first line of defense in meeting
the ever present problem of unemployment.
At the present time unemployment insurance benefits
are financed through a 3% payroll tax on employers. However, it
is probable that in the long run 3% will be insufficient to pay
adequate unemployment insurance benefits.
We know that unemployment will again be with us
when this emergency is over and many readjustments take place.
It is not too soon to consider this problem and the cost and other
aspects involved.
Temporary Disability
and Medical Care
There is a striking paradox in our provisions for
insurance against wage loss during unemployment: If a worker becomes
ill during the course of a spell of unemployment, his benefits
stop, just at the time when he needs them most. Sickness is one
of the most important causes of dependency. On an average day
in the year seven million persons are sick and disabled. The method
of social insurance can be applied to the problem of health as
it already has been applied in the case of unemployment, old age
and death. Cash benefits to those persons who are unemployed because
of sickness should be made a counterpart of the cash benefits
paid to those persons who are unemployed because of business conditions.
Temporary disability benefits as generous as those
under any of our State unemployment compensation systems could
be provided at a cost which would probably amount to less than
1% of taxable pay rolls. Unfortunately compensation for wage loss
from non-industrial disability would not completely solve the
problem of those who are sick or temporarily disabled. Wage loss
represents only about a fifth or sixth of the total cost of ill
health to workers and their families. Our system of social insurance
should furnish protection not only against the wage loss due to
non-industrial disability, but also protection against the costs
of medical care involved. A reasonably adequate system of medical
care would cost between 4% and 5% of pay rolls, in addition to
the 1% needed for temporary disability benefits, the 6% needed
for old-age, survivors, and disability insurance, and the 3% needed
for unemployment insurance.
In connection with the problem of medical care it
is important to note the many men examined for military service
who have been rejected because of physical defects. The lack of
proper medical care reaps a heavy toll in terms of our national
security. Many of the defects of these men are remedial and a
concerted program of governmental action would repay many times
the cost.
Permanent Disability
Permanent total disability is a major risk against
which our present social security program provides no insurance
protection. On an average day in the year, about 2 million persons
are found to be suffering from disabilities that have already
lasted more than a year. Almost a third of these are persons who,
but for their disability, would be engaged in productive work.
It is significant that, with the single exception
of Spain, every other country in the world which has an old-age
insurance program has also made provision for insurance against
chronic or permanent total disability.
A substantial proportion of the chronic disability
prevalent today is merely premature old age and the incidence
of disability increases rapidly among the higher age groups. Thus
the United States is almost alone among the great nations of the
word in insisting that a worker who becomes disabled at 50 or
60-- from causes, in many cases, which are the same as those which
impel us to provide retirement pensions--must wait until he reaches
65 to receive insurance benefits.
Protection against permanent total disability could
be added to the protection now offered under our old-age and survivors
insurance system. Such benefits would cost $500,000,000 to $1,000,000,000
per year. These are large sums but the need exists and consideration
must be given to meeting this need. The permanently disabled are
perhaps the most unfortunate of the needy group. A sound system
of social insurance providing benefits for the disabled would
be both humanitarian and economical in the long run.
Goal of Comprehensive
Insurance Protection
The two social insurance programs have just gotten
under way. Remarkable progress has been made in a few short years
in getting these two programs established. Now we must take the
necessary steps to strengthen and expand these programs. We have
managed to cope effectively with the most difficult administrative
problems involved in the first years of operation and there now
exists an administrative foundation in this country capable of
supporting the task of a broader and more comprehensive social
insurance system.
Our eventual goal should be the establishment of
a well-rounded system of social insurance to provide at least
a minimum security to individuals and their families due to unemployment,
sickness, disability, old age, and death. In addition, we must
provide a series of constructive social services to supplement
the cash aids provided under social insurance.
Even though our social insurance programs provided
protection against all the economic hazards to which wage earners
in general are subject, there would still be groups of the population
for whom special public assistance--on the basis of need--would
be necessary.
It is for that reason that it is necessary to have
a program of general relief to provide for those persons who are
not cared for by other programs.
General Relief
The most conspicuous weakness in our present provisions
for public assistance is the failure of the Federal Government
to aid the States in meeting the costs of their residual relief
burdens. There are wide variations in the extent to which the
States provide for the needs of their aged, blind, and dependent
children, but the disparities are even more pronounced in the
case of assistance to needy persons who do not fall within any
of these special categories.
More than 5 million families are at present receiving
some form of public aid. About a fourth of these families are
dependent upon what has come to be known as general relief, which
is financed for the most part out of local funds and in a few
States by State funds as well. The average amount paid per family
is only $25 per month or only about $8 per person per month.
It is obvious, therefore, that this group is greatly in need of
more adequate assistance. Since the average payment to the needy
aged is over $20 per month, there remains much to be done before
this group attains the level of the aged.
More than half of the families dependent on general
relief do not include a person who is employable even under favorable
employment conditions.
Even with the general increase in employment which
is anticipated during the next few years, the States and localities
will still have a very large general relief burden.
The Federal Government should establish a system
of grants-in-aid general relief along the lines of those for the
special types of public assistance.
Such a system should not be regarded as a substitute
for the Federal work programs. On the contrary such a system should
be helpful in making work programs more effective, by reducing
the necessity for distorting work programs to meet the needs of
persons who could best be cared for through direct assistance.
A system of Federal grants to the States for general
relief would probably cost the Federal Government initially $200,000,000
to $300,000,000 per year. During periods of depression this cost
would probably be doubled or trebled. Since the persons on general
relief are so inadequately cared for at the present time it would
appear that any available funds should be expended on their behalf.
Summary
In considering various proposals for aid to the
aged and to other needy groups consideration must be given to
the existing situation with respect to the incomes received by
all of the population. Frequent mention has been made concerning
proposals to pay aged persons a flat rate per month regardless
of need. The smallest amount usually proposed is $30 a month,
yet this amount is more than the monthly per capita income
of the inhabitants of 13 States. These 13 States are as follows:
South Dakota, North Dakota, Oklahoma, Louisiana, New Mexico, Kentucky,
North Carolina, Tennessee, Georgia, South Carolina, Alabama, Arkansas
and Mississippi. In other words, the payment of $30 per month
to some groups in the community would be more than the income
of many other groups who receive their incomes from gainful employment.
Moreover, there are 20% of the earners of this country
who are working who earn less than $30 per month and this
figure varies from 15% in the New England area to 30% in the Southern
area. Under these circumstances any flat amount would be inequitable
as between various individuals and as between various States.
Unfortunately, it must be recognized that at the
present time our economic system cannot supply all our wants for
all of our people. The only way all of us can live better is by
our economic system both producing an increased amount of goods
and services, and by providing the necessary income to buy those
goods and services. There are many needs today which must be met.
Each need must be balanced against other needs.
At the present time there are about 14,000,000 persons
in the United States still in receipt of some form of public relief.
In addition there are about 30,000,000 persons in the low income
groups who are only a little better off than those who are dependent
upon public aid. Thus, nearly 45,000,000 persons are probably
ill-housed, ill-clad, and ill-fed. Their incomes are so low that
they cannot afford to buy sufficient quantities of goods, the
necessary clothing, medical services, or other needs.
In conclusion I world like to restate the underlying
purposes to be served by a program of payments to the aged and
the considerations involved in carrying out these purposes. The
first and obvious purpose, but one which requires emphasis because
it is so often neglected, is to reduce the hazards of dependency
in old age by providing to the aged a recurring stable source
of income which would permit them to maintain a level of living
on an assured and secure basis. Variations in amount of payment
and insecurity in the receipt thereof not only tend to disrupt
the lives of those dependent on such payments but also offset
in large measure the beneficial economic consequences which may
be anticipated from a program of old-age protection.
The second purpose of such a program is to aid in
achieving general economic stability and to enhance employment
opportunities. In whatever measure economic well-being of the
Nation a whole may be achieved through a program of protection
of the aged, this purpose should be pursued. Essentially, the
welfare of the aged as well as other groups of our population
is dependent upon the level of economic activity and of national
income. In the long run any proposals which may adversely affect
the level of economic activity and of the national income will
not be in the interest of the aged or any other group in the community.
There are a certain number of considerations which
are essential to any improved program for the aged which are frequently
overlooked. Perhaps the most important of these factors is the
increasing number of aged and the anticipated rise in the proportions
of aged in the total population. The population aged 65 and over,
estimated at 9 million or 6.8 percent of the population in 1940,
is anticipated to rise to 11 million within a decade and to in
excess of 22 million or 14-16 percent of the total population
by 1980. The number of aged 60 and over is expected to increase
from 14 million to 31 million in the next forty years. Whatever
mechanisms are adopted for the protection of those now aged must
be adaptable to the problems of the future. Those entering their
productive life at present require assurance that at the close
of their working life, provision for their retirement will be
no less adequate than that afforded the present aged.
The second consideration that is often overlooked
is the fact that income levels and cost of living, vary considerably
from region to region and from urban to rural areas. No single
fixed sum would provide similar real protection to the aged in
the different sections of the country. While a given amount may
be adequate in one region of the United States to maintain prior
levels of living, it will be out of line in terns of prevailing
income levels and cost of living in another, thus making this
same sum inadequate to provide for the minimum basic needs in
some areas and more than enough to meet the same minimum needs
in other areas.
One reason for regional and individual differences
arises from the fact that not all incomes can be measured in monetary
terms. There are still large numbers of the population whose incomes
are received partly in kind and much of this does not end suddenly
with old age as do cash wages.
The present program gives full weight to both of
the essential factors just mentioned. The insurance program takes
account of the secular growth in the aged population by developing
rights to specified benefits through contributions from individuals
in all age groups and by a system of financing designed to provide
adequate funds, to meet disbursements both in the immediate period
and in the long-time future. Both the assistance and insurance
programs take full account of regional and individual differences
in need and apply objective yardsticks to measure these differences--in
the case of old-age assistance by the locally devised and locally
applied tests of need and in the case of old-age insurance by
relating benefits to wage loss due to retirement from gainful
employment.
NEXT STEPS IN OLD-AGE
SECURITY
The present two-fold program for old-age security
can and should be constructively improved. I would like to lay
before you the following suggestions as meriting the consideration
of Congress:
- Extension of coverage of the insurance plan to cover all
persons who work for a living. Coverage should be extended
to the self-employed, the small-business man and professional
person, the farmer, agricultural worker, domestic servant,
and employees of non-profit institutions, etc.
- If such extension or coverage took place it would be possible
to liberalize the benefits of the insurance system since the
problems arising because of the large numbers of persons excluded
from the system would be materially minimized. The eligibility
conditions could be liberalized, benefits increased, and benefits
paid to women beginning at the age of 60.
- Permanent total disability insurance could be included so
that persons who became physically superannuated prior to
retirement age would also receive insurance benefits. This
proposal would greatly aid persons in the age group 50 to
65.
- Federal grants to the States for old-age assistance should
be modified so that these grants instead of being on a uniform,
50-50 basis would vary in relation to the per capita income
of the States. This would enable the States to increase their
average payments or to increase the number of individuals
in receipt of assistance, or both, as the State desired.
- If such additional Federal funds are provided, the Social
Security Act could be amended to permit the States to apply
simpler and more liberal tests of eligibility.
- The residence requirement for old-age assistance should
be liberalized so that instead of the present retirement of
five years within the last nine years there would be a residence
requirement of only one year within the State for the aged
person.
- The Federal Act could also be amended so that no State could
require the actual transfer of a homestead to the State and
could not enforce a lien against property used as a home until
the death of the aged person and the spouse of such person.
- The Federal Act could also be amended so that no State would
deny assistance in whole or in part to an individual on the
ground that relatives should support such individual if in
fact such relatives were not doing so.
- The Federal Act could also be amended to make it clear that
in determining the requirements of an applicant who lives
as the member of a needy family the State may take into consideration
the needs of other members of the household who are dependent
upon the aged person or whose presence in the home are necessary
to his welfare or to the maintenance of the home.
- If the Federal Act were amended to provide that the Federal
Government would pay one-half of all the necessary administrative
expenses of the State for old-age assistance, just as the
Federal Government does in the case of aid to dependent children
and aid to the blind, this would make it possible for the
States to improve the administration of their State programs.
- Consideration should also be given to an amendment to the
Federal Act to provide that the Federal Government would match
direct expenditures by the State for medical care and medical
services on behalf of persons in receipt of public assistance.
Since a large number of the aged have chronic ailments, medical
care is an important part of their needs. In many cases such
care can be furnished more effectively through direct arrangements
by the administrative agency with doctors and hospitals than
through the inclusion of an amount in the monthly payment
to the aged person. If such an amendment were included in
the Federal Act, it would go a long way toward improving and
liberalizing the program and making more adequate the assistance
given to aged persons.