Principles governing the retirement of public employees

Front matter

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Chapter II Analysis of the Problem of Devising an Adequate Retirement

Purpose of the chapter . . 38

What contingencies are involved ? 39

Shall a benefit be granted in event of the contingency? . . 41 Upon what conditions shall a benefit be granted ? . . . .41

What shall be the amount of benefit and how shall it be determined? 44

Independent of salary • 44

Directly or indirectly dependent on salary .... 45

The salary scale 46

Objections to salary scale 46

Degree of relationship 47

In relation to length of service 47

In relation to economic need 47

Disability due to ordinary causes 48

Disability due to the performance of duty .... 49

The withdrawal benefit 50

Benefit in event of death in active service 50

Ordinary causes 50

Causes arising in performance of duty 51

Death after retirement 51

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What determines the cost of the system s , » 52

Number of benefits and cost ■, . 52

Conditions upon which granted and cost 53

The amount of benefit and cost 54

Equities between individual employees and cost . . .54

Age at entrance, sex, occupation and cost 55

How shall cost be divided between government and employees . 57

Exaggeration of the importance of the issue .... 57

Method of determining real significance 58

The basis for division 59

Direct contributions 59

Indirect contributions 59

Expenses of management 59

Guarantee of interest 60

Guarantee of solvency 60

Shall the system be operated on the actuarial reserve or the

assessment or cash disbursement basis ? 60

Description of the two with statement of differences . . 60

The merits of the two contrasted 62

Are actuarial computations necessary? 62

What is the nature of the actuarial deficit on creation of system ? 63

What can be done if the service to be provided for is small? 63

What are bad financial practices? 64

How shall the system be protected from financial indiscretions of

employees? 64

The arrangement of the detailed discussion 65

Chapter III The Contributory vs. the Non-Contributory Systems The nature of the question

Definitions

Benefits not necessarily affected Financial basis not necessarily affected . Cost of benefits not affected Unimportant economically to new employees Of moral or psychological importance mainly Contributions disclose true nature of system Promote intelligent management .

Check tendency toward "pension graft"

Contributory system more flexible .

Four principal objections to contribution The objections enumerated

Failure in the English Civil Service .

The facts as to the English experience Against interests of government .

The death benefit ....

The benefit on resignation or dismissal Provision for family of dismissed employee Disciplinary control .....

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Against interests of employees ...... 87

The low salary argument 87

Objections to contributions 88

Employees protected by contributions 89

Expensive to administer 89

Chapter IV The Wholly vs. the Partly Contributory Systems

and The Indirect Contributions of the Government

Definition 92

The merits and defects of wholly contributory systems . . 92

The merits and defects of partly contributory systems . . 95

The basis of division under partly contributory systems . . 96

The half and half basis 96

Division according to the degree of interest .... 96

Equity as between employees 97

Consideration of equities in division • 97

Uniform governmental contributions 98

Indirect contributions 99

Expenses of management 99

Guarantee of solvency 100

Guarantee of interest rate 101

Chapter V The Superannuation or Service Benefit

The objects sought in establishing the benefit .... 103

The different types enumerated 104

Retirement in discretion of the government .... 105

The theory of the discretionary pension .... 105 Discretionary pensions injurious to the government . .106

Discretionary pensions financially uncertain .... 107

Discretionary pensions against interests of employees . . 107 Retirement as a right at the option of the employee . . .108

Failure to protect the government 109

Compulsory retirement on completion of fixed conditions . 109

The inelasticity of fixed conditions . .... 109 The English device of retention after compulsory age in

exceptional cases no

Optional retirement after fulfilling minimum conditions and compulsory retirement after fulfilling maximum conditions 112

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Shall conditions be based on age alone, service alone, or age

and service combined? 112

Age conditions preferable . .112

Unwarranted demands for retirement after short service . 113

Minimum service requirements 115

Factors involved in determining upon exact retirement age . 115

The nature of the work 115

The possibility of transfers from athletic to sedentary

services and correlation of services . .. . .116

Improvement of working conditions 118

The desires of the employees and the value of their opinions 119

The interests of the public 120

The amount of the superannuation benefit 120

Three divisions of the subject 120

The amount of the superannuation benefit and the amount of

salary 121

Three different classes briefly described 121

Benefits entirely independent of salary:

The discretionary sum independent of salary . . . 123

Objections to discretionary provisions .... 123

Objections to maximum and minimum limitations . . 123

The fixed amount independent of salary .... 125

The fixed contribution independent of salary . . . 126

Benefits directly dependent on salary 126

Their natural development 126

The salary scale required in their use 127

The nature of the salary scale 127

Four objections to the use of the salary scale . . . 128

The introduction of an unstable element into the system 129

The interference with administrative changes . . 131 The introduction of an element of unfairness between classes of employees and different employees of the

same class 131

Three answers to argument of unfairness considered 133

The necessity for changes in the rates of contribution 134 The statement of Mr. William Sutton regarding the

salary scale 135

The terminal salary plan 137

Two variations of terminal salary 138

The average salary plan 139

Benefits indirectly dependent on salary 139

Method of operation described 139

Give maximum financial stability 140

Give absolute equality of return 142

Objections to this method of providing benefits . . . 142

Insufficiency of benefit, and 142

Inapplicability as a provision for disability . . . 143

Weight of these objections 144

Elaborations suggested to overcome objections . . 144

Elaboration of accounts 146

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The amount of the superannuation benefit and length of service 148

The desirability of a relationship 148

Defects of a system not establishing a relationship . . 148

Two methods of establishing relationship .... 150 Basing the amount of the benefit on the purchasing power

of contributions 151

Merits and defects 151

Elaborations to overcome defects 152

Determining the amount of benefit by an arbitrary service

scale 153

Merits and defects 154

The amount of the superannuation benefit and the economic and

social needs of the employees . . . . . . . 155

Four classes of allowances enumerated 156

A sum in aid of subsistence 156

The minimum of subsistence . . . . . . . 157

For the employee as an individual ...*.. 157 For the employee as head of a family . . . . .158

The necessaries of the standard of life 159

The absence of sacrifice 159

Changing general terms into concrete figures .... 161

The cost of the superannuation benefit 162

The factors determining cost 162

Factors causing differences in cost between different employees :

The factors enumerated * 163

Age at entrance . 164

Differences between sexes in:

Withdrawal rates § ■ . 166

Mortality 167

Superannuation retirement ...... 167

Physiological explanation . . . • . . 167

Psychological explanation 168

Economic explanation ....... 168

Occupation • 169

PART I. Ordinary Disability Not Due to the Actual Performance of Duty The objects sought in establishing a benefit 172

The danger of fraud 174

The nature of the temptation 174

Safeguards 175

Methods enumerated ....*... 175

XX or physi of salary

Medical examinations ....

Time at which made ....

Selection of physicians Diminishing attractiveness of benefits .

Placing financial burden on employees Safeguards a protection to honest employees The conditions upon which granted

The nature and the extent of the disability to be covered . Permanent disability only: leave regulations to cover tern porary disability ....

Protecting sick leave from abuse Medical examinations

Other devices

Disability must disqualify for all classes of government

work

Disability must be due to accident or disease Suggested procedure for distinguishing mental cal disability from moral disability The length of service to be required .

The problems involved Medical examinations on entrance .

The amount of the disability benefit .

Three divisions of subject ....

The amount of the disability benefit and the amount The benefits independent of salary .

The discretionary amount ....

The fixed amount

The fixed contribution

The benefits directly dependent on salary .

The salary scale

The benefits indirectly dependent on salary Correlating the superannuation benefit and the

benefit

The nature of the problem ....

Methods of solution

Disability devices giving equality of return . The amount of the disability benefit and the length of service The amount of benefit and the social and economic needs of the

employee

Four classes considered

The general factors determining cost

The factors enumerated

The founders' control over cost

The mortality rate of disability pensioners ....

The mortality rate in the active force

The real disability rate

Differences in cost for different classes of employees

Age at entrance

Sex

Occupation

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The contributory vs. the non-contributory system for disability

insurance 206

Distinction in applicability between disability and superannuation ' 206

Absence of right to return of full contribution for disability

insurance on withdrawal 206

Less danger of popular disapproval 207

Arguments in favor of non-contributory system . . . 208

PART II. Disability Due to the Actual Performance of Duty The advisability of providing a special benefit

Relation to workmen's compensation law .

Benefit non-contributory

In relation to the extent of the disability .

In relation to the economic need of the employee Correlation with other benefits ....

No return in event of withdrawal ....

Chapter VII

Benefits on Withdrawal from the Active Service Whether by Resignation or Dismissal

The extent of the benefit advocated 216

The distinction between resignations and dismissals . . . 217

Four arguments against distinction ...... 217

The arguments enumerated 217

Difficulty of making distinction 217

Danger of discrimination 218

Doubtful administrative expediency 218

Doubtful social expediency 219

Protecting the interests of the family 220

Resignations and dismissals not distinguished .... 221

The desirability of the benefit 221

To the government ......... 221

'Tutting premium on withdrawal" not a conclusive objection

to payment of benefit ....... 221

Benefit encourages elimination of the inefficient . . . 221

The real problem of the government 223

To the employee 223

The importance of the right to resign without forfeiture:

To secure opportunity for self-development . . . 224

To increase earnings . . . . . . . 224

To escape from intolerable situations .... 225

One object of the public, the prevention of destitution may

be defeated by forfeitures on withdrawal . . . 226

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The objections to the benefit 230

The objections enumerated . 230

Encouragement of resignations 230

Increase of cost 230

Chapter VIII

A Benefit in Event of Death in the Active Service, Death Not Caused by the Actual Performance of Duty

The objects sought in establishing the benefit By the government .

By the employees By the public Objections to the benefit The objections enumerated Government not interested Cost increased .

Employees can protect themselves by private insurance Voluntary insurance incomplete ....

Voluntary assessment beneficial societies financially unsound Cost of private insurance in small amounts high System can sell insurance at cost .

Life insurance for man without dependents an unnecessary expense — The Widows' and Orphans' Fund The differences in the interest of different employees in a

widows' and orphans' fund .....

Premium variation to offset differences probably impossible

A flexible benefit necessary

Two classes of benefits described

The return of contributions

A special life insurance benefit

The amount of special benefit in relation to salary

The types described

Amount entirely independent of salary:

The discretionary amount

The sum based on number of dependents

The fixed amount

The amount a fixed annual premium will purchase Amount a fixed proportion of salary ....

Amount indirectly dependent on salary ....

The unit system

The amount of the special benefit in relation to length of service

The nature of the benefit based on length of service

Social objections to benefits based on length of service

The amount of the special benefit in relation to the economic

needs of the employee .

Two important points for consideration

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Necessity for preservation of flexibility 254

Methods of preserving flexibility 254

The cost of the special insurance benefit 255

The contributory vs. the non-contributory system for special

death benefits 256

Special reasons why employees should bear costs . . . 256

Optional benefits 256

Return of contributions on withdrawal 257

Adjustment to other benefits 257

The term of the insurance 257

The disabled employee 258

Chapter IX

A Benefit in Event of Death in the Active Service, Death the Direct Result of the Actual Performance of Duty

The interests of the three parties in the benefit .... 261

The government 261

The employees 262

The public 263

Correlation with systems dealing with private employments 263

The amount of benefit in its relation to salary .... 264

Types to be considered 264

The amount entirely independent of salary :

The discretionary sum 265

The sum based on the number and class of dependents . . 265

The special damage basis of award 265

Actual dependency the criterion of special damage . . 266

Family awards vs. individual awards 267

The fixed sum regardless of dependents .... 268

The fixed proportion of salary 268

Payment of cost of benefit in a single premium . . . 269

The amount of benefit in relation to economic need of employees 269

Benefit non-contributory 271

Chapter X A Benefit in Event of Death After Retirement

The nature of the problem 273

Origin . 273

Division of subject 273

Death after superannuation retirement 274

The interest of the parties 274

Optional settlements ........ 274

The settlements described 274

Factors affecting amount of benefit 275

Objections to optional settlements 276

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Death after disability retirement from ordinary causes . . 277 Death after disability retirement; both disability and death due

to the actual performance of duty 278

Chapter XI

The Employee Who Becomes Inefficient From Causes Other Than Accident, Disease or Old Age

The problem 280

Solutions attempted 280

Objections to solutions 281

Return of contributions maximum benefit 281

Chapter XII

A Benefit in the Event of the Abolition of Position or Reorganization of Office

The problem

The argument for a special benefit

The English experience

The solution by transfers

Actuarial difficulties of special benefits

The conclusion against a special benefit

283 283 284 286 287 288

Chapter XIII The Present Employees Scope of the Chapter 289

Differences between present employees and future entrants . 290

The differences enumerated 290

Differences in homogeneity 290

Differences in economic relation to retirement system . . 291

Differences in period of social evolution 294

Differences in desires for benefits 295

Differences in ability to provide benefits 296

Differences in susceptibility to moral injury .... 299

Necessary division of the present employees into classes . . 300 The present employees who will be retired upon the adoption of

the system 301

The contingencies to be covered 301

Division of the cost 303

The amount of benefit 304 xxv

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In relation to service 306

In relation to economic need 307

Employees continued after adoption of system: Benefits for

past services 3°^

The contingencies to be covered 308

The division of the cost 309

The progressively diminishing superannuation age . . 310

In relation to length of service 313

Treatment of early entrants 313

In relation to economic need 315

Employees continued after adoption of system: Benefits for

future services 3*8

The contingencies to be covered 318

The cost and its distribution - . . 319

The benefit in event of withdrawal 322

The benefit in event of death 322

Summary of important points 322