f^WSftm^, :5TP Report of ension Laws Commission of Milwaukee Nov. 15, 1020 of Pension Laws Commission of Milwaukee Nov. 15, 1920 .109 CONTENTS Page Act Providing for Creation of Pension Laws Commission 3 Members and Staff of Pension Laws Commission 4 Letter of Transmittal . 5 Chapter I.- Basic Principles of a Sound and Equitably Adjusted Annuity and Benefit System 15 JL '> ,. Chapter II. General Outline of Proposed Plan 23 Chapter III. Cost of Maintaining the System in Accordance with the Proposed Plan . 36 Chapter IV. Main Provisions of Proposed Plan 42 Chapter V. Explanation and Accompanying Tables, Illustrative of the Operation of the Proposed Plan .' . . . 63 Chapter VI. Experience of the United States and of Other Countries with the Operation and Growth of Pension Legis- lation for Public Employes 78 Chapter VII. Investigation of the Operation of Existing Pension Systems in the City 90 Chapter VIII. Actuary's Chapter 101 INDEX Page Accumulation tables Explanation of 63 Firemen and policemen. 65, 69, 70, 72, 74 Teachers and municipals 71,73,76 Actuary Appreciation and thanks 102 Computations of costs 11, 38, 90 Method 101 Allocation versus "pot" plan 16 Annuity Age and service 44, 57, 76, 77 Classes 43 Maximum 43, 45 Method of determination 64 Time available 32 Appreciation and acknowledg- ments 13, 102 Attractions of plan 19 Benefits Accumulation tables 69 Certainty of 25 Classes of 27 Death and disability 33, 56 Inconsistencies 81 Service First 4 years 67 5th-10th year 68 10th year age 55 70 Age 65 age 75 75 Sickness 34 Special, fire and police v . 12 To employes To public service 19 Children's annuities 10, 33, 54, 61 Contributions By city 41 By employes 36, 56 By employes entering late in 'life 44,48,52 By employes, method of 56 Limitation of 45 Refunds 53 Termination of payment of 37, 45 Cost of pension, present plans Firemen 91, 93, 96 In European countries 87 Police 90, 91, 93, 95 Teachers 92, 94, 97 Page Cost of pension, proposed plan Spread over period of years 39 Summary 40 To city 11,38 To employes 36 Death benefits 33, 56 Deficits in present funds 38, 39 Disability Limitation of benefits 34 Performance of duty, incurred in 56.57 Performance of duty, not in- curred in 55 Employes, future entrance Method of raising funds 27 Employes, present Back costs spread over period of years 39 Method of raising funds 28 Modification of proposed system 57 Service credited / 28 Transfer of funds with transfer of employes 62 Equivalent for city's contribu- tions 8,19,21 European funds 86 Firemen's fund Accumulation tables.. . .65, 69, 70, 72, 74 Actuarial report 38,91 Criticism of 5 Future cost of present system 96 Present cost 99 Special recommendations 12 Funds-j- Administration 23, 42 Cost of present system 90 Criticism 5 Interest rate 31 'Merger of old with new 24 Method of raising 28 Modification to insure maximum annuity 77 Operation funds, explanation 63 Present condition of 90, 98 Proposed, number of 27 Solvency, assured 25 Time effective 24 Transfer with transfer of employes 62 Page History of pensions 78 Fraternal societies 16, 17 Funds in Europe 86 Funds in Milwaukee 5 Funds in U. S 78 Reports of other pension commis- sions 85 Teachers' 83 Investment, safeguards to 26 Municipal employes (See Employes, Future entrance; Employes, Present; Teachers) New York City experience 82 Pension Amount varying with period of service 8 Amounts and percentage of salary 76 Classes 43 Individual accounts 18 Modern conception as deferred pay 15, 86 Pension Laws Commission Act of creating body 3 Duties of 3, 5 Members and staff 4 Recommendations 8, 12 Pensioners in existing funds Annual cost 25 Certainty of benefits Plan- Main provisions 42 Outline 23 Time effective 24 Policemen's fund Accumulation tables . . .65, 69, 70, 72, 74 Actuarial report 38, 90 Criticism 5 Future cost of present system. ... 98 Present cost 95 Special recommendations 12 Page Recommendations- General 8 Proposed plan, outline of 23 Special, firemen and policemen... 12 Refunds- City 33 Widows' contribution . . 29 Reserve system Arguments for , Costs 18 10 Retirement, age for 45 Revenues, inconsistency of 81 Sickness and accident 34 Superannuation, cost of. Teachers' fund Accumulation tables 71, 73, 76 Actuarial report 38, 92 Criticism 7 Future cost of present system 97 Present cost 100 Typical example of operation of existing funds 82 Widows' annuities 47, 60 Accumulation table 69, 75 Computation, time of 10 Funds, method of raising 29 Refunds 47 Remarriage 35, 53 Withdrawals from service 45, 59 Workmen's compensation act, effect of. 57 ACT PROVIDING FOR CREATION OF THE PEN- SION LAWS COMMISSION AND DEFIN- ING ITS POWERS AND DUTIES CHAPTER 514, LAWS OF 1919 AN ACT to provide for the creation of a commission in cities of the first class, to be known as the "pension laws commission" and defining the powers and duties of such commission. The people of the state of Wisconsin, represented in senate and assembly, do enact as follows: Section 1. There shall be in every city of the first class a com-' mission to be known as the "pension laws commission," to consist of five members. No salary or other compensation for service shall be paid to any member of such Commission. Three members of the commission shall constitute a quorum necessary for the transaction of business. It shall be the duty of the Mayor of such city on or before the second Monday in July to appoint five members of said commis- sion, not more than two of whom shall at any time belong to the same political party, which appointment shall be subject to the approval of the common council, and the said commissioners shall hold office for two years. Section 2. It shall be the duty of said commission to investigate the operation of all pension laws heretofore enacted in such cities of the first class ; to gather together all available information as to the present and probable future cost of maintaining the funds created by said laws and to collect all available information in regard to the operation of similar laws in other states and countries. The com- mission shall report the results of its investigations, together with any recommendations it may see fit to make, to the Mayor and the common council of such city not later than December 1, 1920. Section 3. The commission shall have power to call upon the insurance department of this state and other departments of this state for such assistance as it may require, and to employ an actuary and other necessary employes, whose salary shall be fixed by the common council as other salaries are fixed. It shall also have the power to examine the books of all present public pension funds now existing by law in such city, to compel the production of all books and papers belonging to any of said funds, to administer oaths and to take the testimony of all witnesses necessary for the purpose of this act. Section 4. The expense of said commission shall be paid out of the funds, in such amounts as the common council shall appropriate for that purpose, out of the contingent fund of the common council. Section 5. This act shall take effect upon passage and publication. Approved July 8, 1919. 3 MEMBERS AND STAFF OF THE PENSION LAWS COMMISSION i His Honor, Mayor DANIEL W. HOAN, appointed as members of the Pension Laws Commission: THOMAS M. DUNCAN ERNEST W. HELLER HERMAN O. KENT JOHN H. MANSCHOT CARL J. ZAISER The .officers of the commission are: JOHN H. MANSCHOT, Chairman ERNEST W. HELLER, Secretary The staff consists of: Actuary DONALD F. CAMPBELL, Professor of Mathematics at Armour Institute of Technology, Chicago, who was actuary of the Illinois Pension Laws Commission in 1916, and of the Illinois Pension Laws Commission of 1918. Technical Adviser JOHN P. DILLON, a member of the Illinois Bar, who was a member of the Illinois Pension Laws Commission of 1916, and of the Illinois Pension Laws Commission of 1918. Executive Secretary A. FRANTZ HERWIG, a newspaperman of Milwaukee. Counsel, assigned by City Attorney WALTER J. MATTISON, As- sistant City Attorney of Milwaukee. LETTER OF TRANSMITTAL To His Honor, DANIEL W. HOAN, Mayor, and to the Honorable, the COMMON COUNCIL of the City of Milwaukee: The Pension Laws Commission, appointed by His Honor, the Mayor, under authority of an Act of the Legislature, approved July 8, 1919, submits herewith its report on the results of its work. DUTIES The duties imposed on the Commission may be classified under distinct heads as follows: Recommendations regarding provisions which a pension plan for public employes should contain. A collection of available information regarding the operation of pension systems in other states and countries. An investigation of the operation of all pension systems now existing in the city. In pursuance of these duties, the Committee issues this Report, containing a detailed account of its findings and recommendations. Findings Regarding Policemen's and Firemen's Pension Systems We find that these systems are a means of attracting young men to these services and of holding them there, and that because of this, the city is justified in making fair expenditures for their support. At the same time, the systems are fundamentally unsound in at least five particulars : First. An employe has no rights to pension until he has served for 22 years, and no rights to refund of his own contributions to the fund, at any time. The tendency of such a provision is to lessen the enthusiasm of young employes for the pension system. Second. An employe attains to his maximum pension after 22 years of service, and except in the cases of firemen who entered or will enter the service on or after July 1, 1913, payment is conditional only upon withdrawal of the employe from the service. The effect of this is that men may leave the service at as early an age as 45, in some instances, and receive each as large a pension as he would receive if he remained in service until his efficiency began to decline. Thus the system actually encourages men to leave the service while they are still in full physical and mental vigor. Firemen who entered or will enter the service on or after July 1, 1913, have no right to pension unless disabled, superannuated or dis- charged. The tendency of such a provision is to encourage an employe, who is not disabled or superannuated, to commit some act which will bring about his discharge, when he has served the required length of time, if he desires to quit the service. 5 The cost of any such early withdrawals from the service is very great. There are to be reckoned: (a), The cost of Pension while the former employe is still able to perform his duties; (b), The cost of the pension rights which his successor has been acquiring during such time; and, (c), There is the not inconsiderable cost of "labor turn- over," that is, the cost of breaking in the man who took his place. The cost of early withdrawals from service inures to the hardship of those who make the service their life work, because such men must retire on an amount of pension insufficient to support them during their declining years, or else the cost of the system would mount to impossible heights. Also, because of this provision, the city loses an equivalent which should be its in that a pension should be of sufficient amount to encourage employes to retire on pension when their effi- ciency is beginning to decline because of advancing age. Third. The systems are fundamentally unsound in that they afford pensions to widows without regard to the relative ages of men and their wives. The statistics of the services show that about 12 per cent of the employes who are age fifty or older are unmarried. The oppor- tunity is thus afforded to many men to marry women of a later generation than that to which they themselves belong. The effect' on the fund of the marriage of one man to a woman much younger than himself may be equally as disastrous as that of an employe retiring from service 15 years before his efficiency has begun to decline. Fourth. The systems are fundamentally unsound, in that the pensions being offered to aged widows who were wives of employes throughout the greater part of, if not the entire period of such employe's services, are entirely inadequate to enable any such widow to afford the comforts of life to which she was accustomed. No one will deny that the wife, who was married to the employe throughout his period of service, is as worthy of receiving from the fund an amount sufficient to provide her with the comforts of life during her few years of ,old age as is the employe himself, yet such cannot be afforded her under the present plans, without increasing the cost beyond reason, because of the provision that young widows will draw as much in pension per year as will old widows. Also, the tendency of a provision affording inadequate benefits to worthy widows is to rob the city of its equivalent for the moneys contributed to a pension system, in that such a provision tends toward holding men in service after they become inefficient through age. Fifth. Another particular in which these systems are unsound , is that there is little if any provision made for accumulating funds during an employe's period of service to provide the pensions promised 6 LETTER OF TRANSMITTAL after the employe retires from service. Thus the burden of paying the pensions is not being carried by the generation that receives the service but is thrown on to the succeeding generations. Findings Regarding Public School Teachers' Annuity and Retire- ment System We find that in this system, no benefits are afforded an employe prior to the end of 15 years of service, and that the right of the employes to refunds, upon resignation or dismissal from service, is limited to one-half the total amount of the contributions made by the employe, without interest. After 15 years of service, the employe is entitled to a totally inadequate disability pension, during disability. To become entitled to an old age pension, the employe must have been in service for at feast 35 years, if still under the age of 65, or for at least 25 years, if 65 or more years of age. The usual amount of old age pension is $400 per year, although an employe, by reason of long service and advanced age, may attain to a pension of $500 a year. This system does not tend to attract young men and women to the service, nor does it tend to hold them there, but rather the reverse. Nor does it afford to the man or woman whose efficiency is declining because of advancing age a pension of sufficient amount to induce him or her to retire from service. Thus the city is not reaping the full benefit of the expenditures it is making on behalf of this fund. Viewed solely as a business prop- osition, it should make more ample provisions for this group of employes, especially for those who have grown old in the service. Over One-Half of the Employes of the City do not Come under any Pension System Employes of the city other than city policemen, firemen and public school teachers, comprising over one-half of the whole body of em- ployes, do not come under any pension system at the present time. Those employes, mostly men with families in a greater or less degree of dependence upon them, receive no larger a remuneration for their services than do employes in any other branch of the city's service. It cannot, therefore, be expected that they can save enough from their wages during their active years to provide them with the comforts of life when they become old. If an adequate pension system is not put into effect for them, the result will be that, as time goes on, the city will suffer through the presence in its service of men whose efficiency will have become impaired through age. The extent to which the city will thus suffer cannot be determined 7 LETTER OF TRANSMITTAL in terms of dollars and cents, yet some idea of it can be gained perhaps by reference to a report submitted to President Taft in 1912, by a federal Commission. The data, which President Taft termed con- servative, submitted in said report, show that the federal government could retire all employes whose efficiency had declined upon pensions of 50 per cent of salary and still save money in doing so. Statistics submitted in said report prove that employes over 70 years of age earn only 46 per cent of their salaries ; that they are not only costly, but that they also retard the process of promotion and thereby dis- co'urage the younger employes, and as a consequence also make them less efficient by destroying their initiative and abating their spirit of industry. In view of these facts, the Commission recommends that an ade- quate pension system be put into effect for these employes. Provisions which a Pension System for Public Employes should contain . The Commission believes that the city can get its equivalent for the moneys paid into a pension fund for its employes as fully as it gets the equivalent for salaries paid. But to obtain this equivalent, the pension system must be so designed that young men and women will be attracted to. the service, or at least not repelled from the service because of it; that the tendency of employes in service to seek service elsewhere will be reduced to a minimum; and that the pension paid will be so graded as to years of service and salaries that the head of a department will not be deterred, by humanitarian motives, from bringing pressure to bear on an employe whose usefulness is becoming impaired through age, to induce him or her J:o make way for a younger man or woman. It believes, further, that any such system should be so designed that employes cannot order their affairs in such a manner as to take advantage of their fellow employes and the city, by drawing benefits for themselves or those closely related to them by marriage, blood or adoption, out of proportion to those drawn by other employes and their relatives, where the services performed are similar. In other words, no employe should have the opportunity to "select against the fund" to his own advantage. Commission Recommends an entirely new Plan for City For the reasons stated in the two preceding paragraphs, the Commission recommends that all present systems be discontinued, and that in place of them, and for all employes of the city who do not now come under any system, there be instituted four systems, as stated 8 LETTER OF TRANSMITTAL in Chapters II and IV, in which the benefits provided will he uniform for all employes of the city, on the bases of salary and length of service, except that the age for retirement on maximum annuity in the cases of policemen and firemen will be lower than in the other services because of the greater need for physical vigor in such services. A general outline of the provisions which the Commission rec- ommends is given in Chapter II, a more detailed outline in Chapter IV, while tables illustrative of the amounts of benefits to be obtained are given in Chapter V. A statement of the cost of a system operated on the proposed plan is given in Chapter III. Provisions designed to give the City its Equivalent The provisions designed to attract young men and women to the service and to hold them there during their younger years are: (a). Generous benefits in cases of injury or death incurred in or as a consequence of the performance of dutjr. (b), Benefits in cases of sickness or accident not incurred in the performance of duty. * (c), Children's annuities, as an attraction to young men, and for that matter to many young women who enter the city's service after becoming widow r ed. (d), Refunds of deductions from salary for Age and Service An- nuity and Widow's Annuity with interest at the rate of 4 per cent per annum, if the employe resigns or is dismissed from service before be- coming eligible for annuity. The provisions designed to rid the service of men and women whose efficiency is becoming impaired through age are pensions to those who have given their lives to the service of amounts sufficient to provide them with those comforts of life to -which they have become accustomed; and pensions less generous but 6"f equitable amounts, to those who entered the service later in life. Provisions designed to prevent selection against the fund The Commission believes that a pension system should not be designed to bind an employe to a service under penalty of a great loss, when the service has ceased to offer him anything but the salary of Ms position and a pension. But it also recognizes the neces- sity of preventing the possibility of selection against the fund on the part of any employe, and to that end has taken every precaution: Under the plan proposed, according to which Age and Service Annuity is payable, the amount to the credit of the employe as well as his attained age on the date of resignation from service are the elements that fix the amount of annuity which he will receive. The 9 LETTER OF TRANSMITTAL amount to his credit increases as his length of service increases, and of course his age increases as well. The employe who retires at an unusually low age will receive therefore very much less in annuity than he would receive if he had remained in service to the end of his active life. The amount of a Widow's Annuity is computed, if her husband is alive at the time the annuity is fixed, by taking into account the relative differences in age as between husband and wife. If the husband is not alive when the amount of the Widow's Annuity is fixed, her annuity is determined according to her attained age at the time of death of her husband. In either case the young widow will receive less than the older one because of the expectation that she will live longer to enjoy it. Children's annuities are limited to children of the blood, and among the requirements for eligibility for such annuity, the employe must have been in service for at least four years. The reason for this latter provision is to prevent persons, who feel that they have nof much longer to live, from seeking service with the city for the sake of the benefits that would accrue to their children upon their death. Benefits in cases of injury or death incurred in or as a conse- quence of the performance of duty are payable only upon order of the Commission, which will be composed entirely of representatives of the city. Toward payment of benefits in ordinary cases of sickness or injury, the employes contribute with the city in the ratio of 1 to 1. The reason for this ratio is that, because of it, employes will be zealous in guarding their own interests, and while doing so, will guard those of the city as well. Commission recommends Reserve and Allocation Plan of Accumu- lation The Commission recommends that to provide funds necessary to meet payments of annuities to employes and their widows, the reserve "plan of accumulation be adopted. For a further discussion of this plan, see page 25. The advantages of such a plan are two in number; First. .The pension burden is carried by the generation that receives the service, and the employe is thus assured that the annuities promised will be paid because he sees that the actual funds are being accumulated for such purpose. Second. The yearly cost to the city becomes vastly less burden- some, because of interest accretions on funds already accumulated, 10 LETTER OF TRANSMITTAL under such a plan, than under one where funds are being raised yearly in amounts only sufficient to meet pension payments as the need arises. To provide the sums necessary to place the funds on a reserve basis, the Commission recommends that, until the funds are placed on a reserve basis the city pay certain specified amounts into the funds each year and also allow sums, which would otherwise revert to it as refunds, to remain in the funds. In addition, it would maintain its share of the contributions required because of current service. After any fund is placed on a full reserve basis, the city would contribute for such group only to keep up its share of the contribu- tions required because of current service, and it would receive refund of its own contributions, with interest, according to the provisions of the proposed plan. Cost to City under Proposed Plan The Commission recommends that the extra amounts required, as stated in the second paragraph preceding, be such that each fund will come to a full reserve basis at or near the end of 40 years from January 1, 1922. The yearly amounts required from the city for all pension pur- poses during such accumulation period, until the funds are placed on a full reserve basis, as computed by the actuary (see page 40), will be: For Policemen's Fund $ 246,225 For Firemen's Fund 270,054 For Public School Teachers' Fund 279,023 For Municipal Employes' Fund 400,282 ^ Total $1,195,584 The yearly amounts required from the city after the funds are placed on a full reserve basis, also computed by the actuary (see page 40) , will be : For Policemen's Fund $1 12,818 For Firemen's Fund 115,112 For Public School Teachers' Fund 155,798 For Municipal Employes' Fund 213,562 Total $597,290 Results stated as Percentages of Payroll Because these results are based on the payroll of January 1, 1920, they do not give an adequate measure of the cost of pensions each year under a payroll that is increasing from year to year. A much more accurate measure can be had by expressing these figures in terms of percentages of the payroll: In terms of such percentages, the city would pay: During the accumulation period, 13.9 per cent of the payroll. After the accumulation period, 6.8 per cent of the payroll. 11 LETTER OF TRANSMITTAL During the accumulation period, under an increasing payroll, the amount paid into the funds, above that required for current service, would decrease as a percentage of the payroll while that required for current service wouid increase slightly. The net result would be that the percentage of the current payroll required would differ only slightly from that stated, namely 13.9 per cent. After the accumulation period under an increasing payroll, the amount required each year, stated as a percentage of the current payroll, should not exceed that stated, namely 6.8 per cent. Cost to city under present laws as compared with that under pro- posed plan A comparison of total costs to the city as between a continued operation of the present laws and an operation of a system according to the proposed plan would be of little value because of the inclusion in the proposed plan of the whole body of municipal employes, com- prising approximately one-half of the entire service. The Commission presents its recommendations with the argument that a cost to the city, for a period estimated as 40 years of an amount equal to 13.9 per cent of the current payroll and afterwards of an amount equal to 6.8 per cent of the current payroll, is not excessive in view of the fact that all the employes of the city would come under an equitably arranged pension plan. At the same time, the results of Chapter VII disclose that forty years from January 1, 1922, the city will be paying approximately $600,000 each year for policemen's and firemen's pensions alone, on the basis of the payroll of January 1, 1920, if the present laws remain in effect. On the basis of such payroll, it would be paying at that time under the proposed plan approximately $600,000 each year for all employes of the city. The problem then can be stated thus : By payment of $1,200,000 each year for a period estimated as 40 years, instead of the ever increasing amounts which it will be called upon to pay under present laws, the city would be paying after 40 years, under the proposed plan, for all 'employes of the city an amount equal to that which it will be paying into the policemen's and firemen's funds alone under a continued operation of their present laws. Special Recommendations relating to Policemen and Firemen In our consultations with employes, the policemen and firemen presented the argument that inasmuch as the greater part, if not all, of their service for the city was given while they were under their present laws, and many of them have been making their plans for the future in accordance with these laws, it would result in more satisfied services if they were allowed to receive the benefits for themselves 12 LETTER OF TRANSMITTAL and their dependents which are provided in their present acts, upon fulfilment of the requirements prescribed therein. The Commission believes that their point is well taken. It fur- thermore believes that in passing from plans which are easily under- stood to one more or less intricate, the change in these services should be brought about gradually. It therefore recommends that policemen and firemen who will be in service on December 31, 1920, and their dependents, will receive all the benefits provided in their present acts when such are in excess of those which they would receive under the provisions of the proposed plan, and will receive the benefits provided in the proposed plan when such are in excess of those afforded under their present acts. It may appear on first thought that those, provisions will involve an extra cost to the city, and indeed, if resignations and dismissals from service, w ; hile employes are still able to perform their duties properly, will continue at the same .rates as in the past ten years, an extra cost will be involved. On the other hand, however, it may be expected that the rates of resignation of the past ten years will not continue under an operation of the proposed system, and for the following reasons: An employe will hesitate to quit the service on a. pension of 50 per cent of salary when he sees before him, if he remains in service a few years longer, a prospect of a pension for himself of possibly as large an amount as 75 per cent of his salary and a pension for his wife sufficient to maintain her in comfort if she should survive him. It is reasonable to assume that the cost to the city because of these provisions will not be increased excessively. Commission is presenting Recommendations in Form suitable for Legislation In order that our recommendations may be enacted into law, if such is deemed. advisable, we are preparing them in forms suitable for legislation. These will be presented to you along with this report or very shortly afterwards. Appreciation In closing this letter, the Commission wishes to acknowledge its obligations for courtesies received from all with whom it has come in contact, but especially it wishes to embody herein an acknowledg- ment of the many acts of kindness and courtesy and the very valuable assistance given to it, and more especially to its Chairman, at the 13 beginning of its labors and duties and continuously thereafter up to the day of his death, by the late Charles E. McLenegan, Librarian of the Milwaukee Public Library. His words of advice and encour- agement will ever be gratefully remembered. It also wishes to state that this letter would be incomplete if we failed publicly to acknowledge the very valuable services rendered by 'Dr. Donald F. Campbell, actuary of the commission, of whom it may truthfully be said that his word is as good as his bond; for while we had no written contract with him he carried out his part of the verbal agreement honestly and faithfully. He rendered services of inestimable value and his judgment was at all times sound and his advice came from a clear brain and an honest heart. 9 Respectfully submitted, THOMAS M. DUNCAN, HERMAN O. KENT, CARL J. ZAISER, JOHN H. MANSCHOT, Chairman. ERNEST W. HELLER, Secretary. Milwaukee, Wis., November 15, 1920. 14 CHAPTER I BASIC PRINCIPLES OF A SOUND AND EQUITABLY ADJUSTED ANNUITY AND BENEFIT SYSTEM AN ANNUITY IS ESSENTIALLY DEFERRED PAY Pensions systems for public employes in this country originated in the police and fire services and were at the outset designed solely for the purpose of offering relief in cases of injury or death resulting from the performance of duty. At the outset, the public was the sole contributor to the fund, and the amount of pension paid was such as the corporate authorities deemed just. Soon thereafter, the provisions were changed to the extent that a small 'assessment was levied on the employes, and certain benefits be- came payable to an employe or his dependents if he remained in service for a specified number of years, or died while in service after a speci- fied number of years, or died while on pension. Also, pension systems began to extend to other services than the police and fire services. When employes who had paid their assessments for quite a num- ber of years fulfilled the conditions required for the benefits provided, they came to look upon their pensions as something "earned" by rea- son of service and contributions to the fund. Thus the idea that a pension is deferred pay originated. The employes had not come, however, to view their assessments in any other light than as contributions made for the good of the sendee as an aid to their less fortunate fellow-employes and families. While their assessments were small this matter gave them no concern, but when it began to become apparent that the resources of the funds were entirely inadequate to provide the benefits promised, and assess- ments had to be increased, the services other than police and fire usual- ly had provisions incorporated in their plans providing for partial re- turn of the moneys paid in if an employe resigned or was dismissed from service before becoming eligible for pension. But the idea still prevailed that it was just and proper that an employe should contribute something to aid his less fortunate fellow-employes and their families. The modern conception of a pension, among students of the sub- ject, is that a pension promise is a contract between the employe and the public as his employer whereby the public provides that certain pay- ments on account of salary be deferred, and paid if the employe ful- fills certain conditions, and only if he fulfills such conditions. 15 BASIC PRINCIPLES If the principle is accepted that a pension promise is a contract entered into between the employe and the public as his employer, where- by certain payments to the employe are earned if he fulfills certain re- quirements, then it follows at once that the employer in simple justice to the employe should lay aside each year while service is being ren- dered, and allocate to the employe, the amount required to meet these deferred payments because of service given during the year in question. Thus arise the Reserve and Allocation principles as applied to pensions. If the principle is accepted that an employe who has fulfilled all the conditions of the contract entered into has earned his pension, then his pension becomes an annuity in the sense in which the term is under- stood, namely, future payments bought by the employe himself from his own earnings. This removes any element of charity from the trans- action. ALLOCATION PLAN AND "POT" PLAN In the foregoing a sufficient reason was given for the adoption of a Reserve and Allocation plan for payment of annuities. Another rea- son may also be given, which is that it automatically forces a proper system of cost accounting. During the last one hundred and fifty years there have been started in this country probably over 10,000 friendly or fraternal socie- ties. These were started with the extremely laudable purpose of ren- dering help to those in trouble and promoting a feeling of friendly co- operation among the members. They, however, carried their feeling of friendly co-operation so far that their rules prescribed that all should pay equally into the fund and that this money when paid should be placed as it were in a "pot" and from this pot all benefits would be paid. There was no attempt made to determine the amounts necessary to maintain the solvency of the institution, and usually all alike, both young and old, paid the same amounts toward death benefits. In many cases the amounts paid were entirely inadequate to pay, for any extended period of years, the benefits promised even if all who joined were young men; but in some cases the amounts contributed would have been sufficient to maintain the solvency of the society throughout a long period, provided that young men in ever increasing numbers would join the society. It was soon found out that young men would not join the society, and thus help to carry the older men, while the older men would join because the rates gave evidence that they might get something for nothing out of the society. This selection against the society on the part of the public soon led to the society's undoing except in a few 16 BASIC PRINCIPLES cases where the leaders foresaw the inevitable result and made pro- visions to put the society on a sound basis before it became hope- lessly insolvent. The methods they adopted were these: They saw that no business could be conducted properly unless it had a proper system of cost accounting. They saw also that such a system involves a careful study of the cost of each item that goes to make up the total cost. This principle, they argued, applies as well to the building of a friendly society as to the building of a house. When applied to a friendly society, it involved the determination, regarding each individual separately, of the actual cost of providing the benefit promised to that individual. Thus they instituted a system of charging all individuals of the same age at entrance, the same rates, and individuals of different ages at entrance different rates, making these rates so high at the outset that they would not need to raise them afterwards, and of allocating to each individual the difference between what he paid into the fund and his fair share towards the benefits paid from the fund, and holding this amount to the credit of the individual not to be used for any purpose but to pay the benefits provided in his individual case. We thus came to have the Reserve and Allocation plan, a plan which proved the salvation of all the friendly societies that survived, and one that is now in force in almost, if not every, friendly or fra- ternal society in existence, although the members themselves may not all be aware of it. Pension systems started with the same objects in view as did the friendly societies and along the same lines. They first had the "pot" plan which proved" disastrous to so many friendly societies. This plan proved disastrous to some of the pension systems and would have proved disastrous to many others only that the legislatures came to their assistance. Furthermore, the disasters occurred for the very same reason as in the case of friendly societies, namely, by those interested selecting against the fund. Employes would retire on pension while still able to perform their duties, and seek employment elsewhere, being attracted by the fact that their new salaries plus their pensions would amount to more than their old salaries. Young girls would marry old men for their pension prospects and thus draw from the fund three or four times as much as the widows would draw who married men of their own generation. This selection against the fund became so common that legisla- tures began to demand that these abuses of the fund would have to cease, because under such conditions the public was not getting its 17 BASIC PRINCIPLES equivalent for the money it paid into the fund. Then those interested in pensions began to devise a proper systerrl of cost accounting. They naturally adopted the Reserve and Allocation plan that proved so sat- isfactory in friendly and fraternal societies. Under this plan the contributions made by any employe and by the public on behalf of such employe would be credited when made to the employe who made them or for whom they were made. Against these credits would be charged the proper share, fairly and equitably determined, of the cost of the benefits paid. The balance would be held as a credit to the employe and no part of it could be taken away from him in order to create assets to pay benefits to any who preceded him, but would be used solely to provide benefits for him and his de- pendents. Under such a plan, an employe may retire from service while still able to perform valuable service elsewhere, and receive his just share from the fund, while the employe who elects to hold his present position until it is necessary for him to relinquish it because of ad- vanced age will also receive his just share from the fund, which will be very much more than the other received. Then, too, under the Reserve and Allocation plan, no injury can come to the fund if a man marries a woman of a younger generation. The allocation plan provides the same aggregate benefit for the widow of a man of her own generation as it does for the younger generation widow. In the case of the same generation widow, the benefit would be paid in larger instalments and during a shorter period of time than to the younger generation widow. In other words, the younger gen- eration widow would be drawing a benefit for a longer period of years, but the payments would be that much smaller. The totals for each would be the same. ARGUMENTS AGAINST A RESERVE SYSTEM WITH REPLIES There are those who argue against a Reserve and Allocation sys- tem. They state that it is now a common custom for a municipality to issue bonds for a public improvement and fix the dates of maturity so that the burden of repaying the principal will fall on a later gen- eration. Without entering into a discussion of the advisability of issuing long-time bonds for public ' improvements, it may be said here that the two problems are entirely unlike. In the one case, the generation that pays back the principal has the use of the public improvement. In the other case, service is of so intangible a character that the gen- eration that would provide the annuity, if disbursement on a current 18 BASIC PRINCIPLES liability basis were adopted, may lose sight of the benefit it derived from the service. Another argument against a Reserve System is that it requires the accumulation of large sums which may be used for purposes other than those for which they were created. The answer to this argument is that there are many instances where large funds have been accumulated, and are being disbursed only in accordance with the purposes for which they were accumu- lated. All that is necessary for a proper disbursement of the funds is the presence in the plan of well-known safeguards against improper distribution. One of the best of these is the allocation plan whereby by far the greater part of the assets would be assets accumulated to meet a liability which is definitely determined, and only an extremely, small part of the assets would be in the form of free surplus. THE PUBLIC'S EQUIVALENT FOR THE MONEYS PAID TO AN ANNUITY FUND AND PROVISIONS DE- SIGNED FOR OBTAINING SAME It will probably be accepted without argument that if the public contributes towards an annuity fund for the benefit of its employes, then it should receive its equivalent for the contributions made. This equivalent must take the form of an increase in loyalty to- wards, and enthusiasm for, the service on the part of all employes, without regard to ages or lengths of service. The plan according to which annuities are to be paid must therefore : 1. Be attractive to men and women during their earlier years of service. . ' 2. Be a means of holding employes in the service during their active years. 3. Offer an annuity of sufficient amount to the employe who has given a life-time of service to the public to enable him to spend his declining years in a manner somewhat in keeping with the standards of living to which he has accustomed himself. 4. Be so designed that those having in charge the tenure of of- fice of an employe may know that, when his efficiency is be- coming impaired through age, there is provided for him an annuity in keeping with the length and character of the service rendered. 19 BASIC PRINCIPLES PROVISIONS DESIGNED TO MAKE AN ANNUITY SYS- TEM ATTRACTIVE TO EMPLOYES DURING THEIR EARLIER YEARS OF SERVICE No service can retain its efficiency for any length of time unless men and women enter it while still young in years. An annuity system should then be so arranged as to be attractive to men and women view- ing it through youthful eyes. What is the viewpoint of such men and women? When they enter the service, they seldom, if ever, intend that the service shall be their life work. They look upon it merely as a stepping-stone to some 4 other line of endeavor. The prospect to such people of an annuity when they become old and inefficient stirs not the slightest enthusiasm in them,, for their present thought is that they will not be in the service when they are old, and they can hardly picture a possibility of their ever becoming inefficient. However, the years go by and many of them are still in the service, and the young men that remain have, in nearly every instance, mar- ried and are bringing up families. During these years their principal care is for the immediate present, not for the remote future when they are no longer able to work. If the annuity plan offers nothing more to any such employe than the prospect of something in old age, it still does not appeal to him. It is only when he is getting up in years and his family has become comparatively self-supporting that the annuity prospect begins to attract him. In the meantime, the .employer has been deprived throughout the best years of the employe's life of that equivalent of its contributions that ought to be its through an increase in loyalty and enthusiasm on the part of the employe for the service. Although a service cannot maintain its efficiency unless young - men and women enter it, still, men and women of more mature years should not be discouraged from entering it. Indeed, in certain lines of work the elimination of such people would be a positive detriment to the public. These people usually enter the service near the top of the salary list of that class of service into which they enter. In the great ma- jority of such cases, however, such service is the lowest paid service in the city, while at the same time it requires a grade of service which cannot be given when the employe has become inefficient through age. To impose a length of service requirement for annuity on such men and women that would carry them well beyond the age when their ef- 20 BASIC PRINCIPLES ficiency might reasonably be expected to decline, would have the ef- fect of lowering their salaries by the amounts deducted from salaries for annuity purposes, without offering them benefits of any value. This the employes would very quickly recognize, with the result that the public would fail to receive an equivalent for its contributions in the way of any increase in loyalty on the part of such employes, while in practice the effect would be that men and women would be retained in service long after their efficiency becomes impaired through age. An annuity system would offer attractions to such men and women if it contained the following features: 1. Return of the amounts deducted from salary, with as high a rate of interest as can be realized from safe investments, in the event that the employe withdraws from service before being eligible to enter upon annuity. 2. A provision for disability benefits permitting the employe to participate in such benefits from the beginning of his service. 3. A provision for a Widow's Annuity and for annuities to young children of the employe in the event of his death while in service. PROVISIONS DESIGNED TO HOLD EMPLOYES IN THE SERVICE DURING THEIR ACTIVE YEARS A system designed to hold the employes in service until it may be expected that their usefulness is becoming impaired through age, while at the same time leaving them free to seek employment elsewhere if they choose without sacrifice of their just rights in the fund, must provide annuities graded so that the amount of an annuity in any given case will increase as the years of service of the employe increase. If an employe has satisfied all requirements for a maximum an- nuity, while yet in full mental and physical vigor, it is but natural for him to accept employment elsewhere, if an opportunity presents itself whereby his new salary plus his annuity will be more than equal to his present salary. When any such employe withdraws from service, however, the public loses an employe especially trained for the work he was performing and is thus put to the expense of training an- other for this position. It furthermore has to pay the cost of the an- nuity to the one who has withdrawn from service while at the same time assuming an annuity liability on the one who took his place. This three- fold expense will be almost entirely eliminated with- out detriment to the service if the employe can look forward to an in- creasing annuity as his years of service, during his active period of life, increase. 21 This is from the viewpoint of the public as employer. From the viewpoint of the employe himself an equally cogent reason for graded annuities may be advanced. If an annuity system is so arranged that an employe may retire on his maximum annuity while yet having in prospect a number of active years, the annuity must be so low that the one who remains faithful to the service to the end of his active period cannot retire on an annuity that will provide for him those comforts of life to which he has become accustomed. VIOLENT CHANGES IN EQUITIES ARE AVOIDED IN A GRADED ANNUITY SYSTEM To illustrate what is meant by violent changes in equities : Sup- pose that a man enters the police or fire service at age 25 on a salary of $1,764, per year, and remains at that salary during his period of service. When he attains an age just short of 47, having completed a period of service just short of 22 years, he has paid into the fund $1,540, including interest at 4 per cent. At this time his equity in the fund, if he should resign or be dismissed from service, is nothing. When he has completed his 22 years of service, however, his equity upon retirement is $882 per year for life. If he retires immediately after completion of 22 years of service and lives the average length of life of a man of his age, he will receive these payments for 23 years, or payments in the aggregate of $20,286. His equity has thus grown overnight from nothing to this amount. By means of a graded annuity system, violent changes in equities may be avoided. The principles discussed in this Chapter have all been taken into consideration in devising the plan outlined in Chapter IV and illus- trated in Chapter V. 22 CHAPTER II GENERAL OUTLINE OF PROPOSED PLAN A general outline of the plan proposed by the Pension Laws Com- mission for the payment of annuities and other benefits to public em- ployes of the city of Milwaukee is given in this chapter. For a more detailed outline, the reader is referred to Chapter IV. System to be Composed of Four Funds The proposed system involves the maintainance of four funds, each distinct from the others, constituted as follows : A Policemen's Annuity and Benefit Fund, for all policemen of the city, including the policemen in the public parks. A Firemen's Annuity and Benefit Fund, for all firemen of the city. A Public School Teachers' Annuity and Benefit Fund for all pub- lic school teachers of the city, including those not now in any pension ,system. A Municipal Employes' Annuity and Benefit Fund for all em- ployes of the city who are not included in any of the other funds. Provisions in all Four Funds Identical The provisions regulating the funds are identical in all four funds except for minor differences to meet peculiar needs in the different services, and except that a policeman or a fireman who will be in service on December 31, 1920, and his dependents, shall be granted any privilege contained in the act regulating the fund to which he is then contributing when such privilege offers a greater benefit for himself or his dependents than could be obtained under the provisions of the pro- posed plan. Management of Funds It is recommended that each of the funds be under the control of a Board of Five Trustees constituted as follows : 1. Three members, elected by the employes concerned from among their own number, one to be elected each year to serve for a period of three years. 2. One person to be appointed annually to serve for a period of one year, the appointment to be made by the Mayor in the cases of the Policemen's, Firemen's*, and Municipal Employes' Funds, and by the Board of School Directors in the case of the Public School Teachers' Fund. 3. The Chairman of the Commission, in the event that a Com- mission is created, as stated later, or if no such Commission is created, the Comptroller of the City. 23 GENERAL OUTLINE OF PLAN It is recommended that, for economy and greater efficiency in ad- ministration, a commission be created to be constituted as follows : Three members to be appointed by the Mayor, one to be appointed each year to serve for a period of three years. Duties of Boards of Trustees and Commission Each Board of Trustees will pass upon all applications for an- nuities or .other benefits for employes coming under the provisions of the act regulating the fund under its control, except for benefits for injury or death incurred in, or as a result of, the performance of duty. It will authorize all transactions regarding the purchase or sale of se- curities, except that investments can be made only from the lists of securities approved by the Commission as being suitable investments for such funds. It will have power to appoint its own medical exam- iners to investigate cases of disability not incurred in the performance of duty. The Commission will have charge of the administration of all four funds, with power to employ all assistance necessary, and to incur all necessary expense for a proper administration of such funds. It will, from time to time, prepare lists of securities in which the Boards of Trustees may invest funds, which lists will be compiled from among the classes of securities stated in the acts as being classes in which in r vestments may be legally made. . It will pass upon all applications for annuities and other benefits arising from injuries received in the per- formance of duty. When Proposed System Would Take Effect It is proposed that, as soon as practicable after the passage of the acts, the Boards of Trustees and the Commission, as stated hereinbefore under "Management of Funds" will be created. From the dates of their creation until January 1, 1922, their duties will be confined to a preparation of the books and records, and a compilation of the neces- sary data, for a proper conduct of the affairs of the system. On Janu- ary 1, 1922, deductions from salaries and contributions" by the city as required under the proposed plan will begin, and on and after such date, all annuities and other benefits will be payable under the provisions of the proposed plan. On said date the entire management will pass to the Boards and Commission created as hereinbefore stated. Merging of Existing Funds with Superseding Funds It is proposed that all Boards of Trustees of existing pension funds will exercise the full duties of their offices until January 1, 1922, and on that date, each Board will turn over to the custodian of the funds of the Board of the Fund which such Fund supersedes all the assets in its possession, and will thereupon cease to exist. 24 GENERAL OUTLINE OF PLAN Provisions for Pensioners on the Rolls on January 1, 1922 Pensioners on the rolls of any Fund at the time the assets of the Fund will be turned over to the new Board of Trustees will henceforth receive their pensions from the fund to which the assets were trans- ferred. The amounts of pension they and their dependents will receive will be those provided under the act according to which they received their pensions. Reserve and Allocation Plan of Accumulation Recommended To provide funds necessary to meet payment of annuities to employes and the widows of employes because of service rendered by the employe after January 1, 1922, what may be called the Reserve and Allocation Plan of Accumulation is adopted. This consists in setting aside each year on behalf of each employe, while he is in active service, certain sums, which sums will be allocated to the employe when set aside, and with interest accretions thereon will be used to provide him, or his widow, or both, under prescribed condi- tions, with an annuity or annuities of such amount as the accumulated sum to his credit will provide, without having to draw from sources outside the fund for payment of any part of such annuity or annuities after the service of the employe has ceased. The amounts of such annuities will be determined by means of a specified table of mortality and a specified rate of interest. This plan applies only to service rendered on or after January 1, 1922. To provide annuities or parts of annuities because of service rendered before such date, and because of contributions made to exist- ing funds, and also to guarantee the payment of pensions to those on the pension rolls on January 1, 1922, payment by the city of certain stated amounts will be made each year into each fund until there is paid into the fund an amount sufficient to provide the annuities or parts of annuities granted because of such prior service and contributions. When a sufficient amount is thus paid into each fund, the system will be entirely on a reserve basis. For the yearly amounts thus to be paid and the accumulation period necessary to place the funds on a reserve basis, see Chapter III. Reserve and Allocation Plan Assures Permanent Solvency Under the reserve and allocation plan recommended, the solvency of the funds will be assured for all time, provided: 1. The mortality table used in the computations will be found to measure, within reasonable limits, the actual mortality experienced among the groups of annuitants. 25 GENERAL OUTLINE OF PLAN 2. The rate of interest adopted can be realized in practice. 3. There are no losses from investments. To safeguard the funds on these points, the Commission has taken every precaution: One Safeguard The table of mortality recommended is the American Experience Table of Mortality a table used by practically all legal reserve life insurance companies in the United States and the rate of interest recommended is 4 per cent. A Further Safeguard If this table should show a higher death rate at the older ages than will actually occur in an operation of the system, or if the rate of interest adopted should not be realized throughout a long period of years, there is still a further safeguard involved in the recommen- dations. The plan provides that in all cases where the employe enters the police or fire service on or before age 42 or any other service on or before age 50, the annuity rights of the employe will be determined and fixed when the employe attains age 57 if he be a policeman or a fireman, or age 65 if he be in any other branch of the service. When the employe enters after such age, the annuity rights are determined at the end of the fifteenth year of service. The Commission believes, from past experience, that so many will remain in service beyond the age stated, and thus not take their annuities as soon as the maximum amount of annuity becomes available, that the funds accumulated will be ample to provide the annuities promised according to the table of mortality and rate of interest adopted. A Still Further Safeguard In this belief, however, it may be mistaken, so a further safeguard is recommended. The proposed plan provides that the city shall pay into each fund, certain sums until all annuities become payable on a reserve basis. Until all such payments are made, part of these pay- ments may be diverted to make up any deficiency, if such should occur, through the specified table of mortality and rate of interest proving inadequate. At the same time, until all such payments are made, any surplus accruing because of the adoption of such standards will go to shorten the period during which these payments are necessary. When the system finally comes to a full reserve basis, enough time will have elapsed to enable the city to work out for itself a mortality table founded on its own experience. To reduce losses from investments to a minimum, the Commission recommends the prescribing of the classes of securities outside of which no funds can be invested. At the same time it recommends 26 GENERAL OUTLINE OF PLAN that the Commission pass upon each issue of securities within the classes prescribed in the Acts before securities of such issue may be purchased. To guard against a disbursement of the funds for purposes other than those for which they were created, all moneys paid in are set aside for certain purposes, and no funds can be withdrawn other than relatively small amounts of free surplus, without robbing some person or group of persons of funds actually allocated to him or them. Proposed Plan in General Outline In general outline, the proposed plan is as follows: Classes of Benefits Provided Each proposed system provides for five classes of benefits, namely : 1. Age and Service Annuities for employes. 2. Widows' Annuities for widows of employes. 3. Children's Annuities for children of employes who die while in service. 4. Benefits in cases of sickness or injury not incurred in the performance of duty. 5. Benefits in cases of injury or death incurred in or as a result of the performance of duty. Method of Raising Funds to Provide Age and Service Annuities The method of raising funds to provide Age and Service Annuities is as follows: For Employes Who Enter Service on or after January 1, 1922 From each payment on account of salary of each such employe, 3 per cent is deducted, until the "employe attains age 57 if he be a policeman or a fireman, or age 65 if he belong to any other branch of the service. In the few cases where an employe enters the police or fire service at an older age than 42 or any other service at an older age than 50, deductions continue for fifteen years, if 'the employe remains in service. With each contribution of the employe, the city contributes 9 per cent of the salary of the employe if he be a policeman or a fireman, or 6 per cent of his salary if he belong to any other branch of the service. The amounts thus contributed are allocated to the employe when paid, and are improved periodically at interest at the rate of 4 per cent per annum. When the employe resigns or is dismissed from service, or dies while in service, the amount thus accumulated is used in whole or part to provide annuity according to specified provisions as stated, or, in case no annuity is granted, then refund will be made 27 of the accumulation from the employe's own contributions as stated hereinafter. For Employes Who Shall be in the Service on January 1, 1922 Each such employe contributes 3 per cent of salary, if he remains in serVice, until he has contributed an amount equal to that which he would, have contributed if he had been under the provisions of the proposed act since the beginning of his service with a salary for service rendered prior to January 1, 1922, equal to that which he will be receiving on such date. The city contributes 9 per cent of the salary of the employe as of January 1, 1922, if he be a policeman or a fireman, or 6 per cent if he belong to any other branch of the service, until the employe attains age 57, if he be a policeman or a fireman, or age 65 if he belong to any other branch of the service, or until the end of the fifteen-year period in the cases of employes entering at the older ages as stated. When an employe attains such age or has completed such period of service, the city ceases to contribute on his behalf. In addition, the city assumes two further obligations for the benefit of employes who shall have entered the service before January 1, 1922: 1. It assumes as an obligation to provide Age and Service Annuities for such employes, of such amounts as can be provided from an amount equal to the accumulation that would have been to the credit of the employe on January 1, 1922, from contributions of the city, if the city had been contributing according to this plan from the beginning of the employe's service, and the salary of the employe during the period of service before January 1, 1922, was that which it will be on such date. 2. It assumes as an obligation to provide Age and Service Annuities for employes in service on January 1, 1922, of such amounts as can be provided from the contributions which employes made to existing pension or annuity funds with interest at the rate of 4 per cent per annum. An employe who will be in service on January 1, 1922, will thus receive an Age and Service Annuity made up from accumulations from contributions from one to four sources, namely: 1. Contributions made by himself on and after January 1, 1922. 2. Contributions made by the city for him because of service rendered on and after January 1, 1922. 3. Contributions made by the city for him because of service rendered before January 1, 1922. 4. Contributions made by the employe to existing pension funds. There are provisions in the plan that any annuity provided from the sources stated above shall not exceed the amount which the employe 28 GENERAL OUTLINE OF PLAN would receive if he had been under the provisions of the plan from the beginning of his service with a salary for service rendered before January 1, 1922, equal to that received on such date, except that if the employe be a policeman or a fireman who will be in service on December 31, 1920, he will receive the benefit provided in this present act when such would be greater than that which would be received under the proposed plan. Method of Raising Funds to Provide Widows' Annuities The method of raising funds to provide Widows' Annuities is as follows: s For Widows of Employes who enter the Service on or after January 1, 1922 With every deduction from salary for Age and Service Annuity from each man employe who will enter the service on or after January 1, 1922, is made an additional deduction of 1 per cent of salary to provide annuity for a possible widow of such employe. These deduc- tions are made whether the employe is married or not. With each contribution of the employe, the city contributes 2^ per cent of salary of the employe if he be a policeman or a fireman, or 2 per cent of salary if he belong to any other branch of the service. The amounts thus contributed are allocated to the employe for a Widow's Annuity, when paid, and are improved periodically at interest at the rate of 4 per cent per annum. If the employe has a wife living when he attains age 57 if he be a policeman or a fireman, or age 65 if he belong to any other branch of the service, having had at least 15 years of service, the accumulation to his credit for Widow's Annuity purposes will be used to provide such wife with a Widow's Annuity. If an employe has no wife living upon attainment of such age, the employe and the city will receive refund of the accumulation from his and its contributions for a Widow's Annuity, and if the employe should afterward marry, such wife will not be eligible for annuity. If an employe attains age 57 in the police or fire service or age 65 in any other branch of the service, not having had at least 15 years of service to his credit, if he has a wife, contributions on her behalf will continue if the employe remains in service until he has completed 15 years of service, or until her death, whichever event shall first occur. If she should die while he is in service and before he com- pletes his 15 years of service, the employe and the city will receive refund of the accumulation from his and its contributions for a Widow's Annuity, and if the employe should afterward marry, such wife will not be eligible for annuity. 29 GENERAL OUTLINE OF PLAN For Widows of Employes who shall be in Service on January 1, 1922 Each man employe contributes 1 per cent of salary whenever he makes a contribution for his own Age and Service Annuity, except that if he has no wife when he attains age 57 if he be a policeman or a fireman, or age 65 if he belong to any other branch of the service, he shall cease to contribute for a Widow's Annuity. If on January 1, 1922, he shall have attained at least such age and have no wife living, he will not be permitted to contribute for a Widow's Annuity. The city assumes as an obligation the payment in annuity of such an amount as would be provided from the accumulation that would be to the credit of the employe on January 1, 1922, for a Widow's Annuity from contributions of both the city and the employe, if each had been contributing under the provisions of the proposed plan from the beginning of the employe's service, and the salary of the employe for service rendered before 'January 1, 1922, was the same as. it will be on such date. For service rendered after January 1, 1922, the city contributes 2y 2 per cent of the salary ,of the employe if he be a policeman or a fireman, or 2 per cent of salary if he belong to any other branch of the service, until the employe attains age 57 in the case of a policeman or a fireman, or age 65 in any other case. If the employe has a wife living when he attains such age, having had at least 15 years of service, the accumulation to his credit for Widow's Annuity purposes will be used to provide such wife with a Widow's Annuity. If an employe has no wife living upon attainment of such age, the employe and the city will receive refund of the accumulation from his and its contributions for a Widow's Annuity, and if the employe should afterward marry, such wife will not be eligible for annuity. The provisions relating to those who will not have had 15 years of service upon attainment of age 57 or age 65 are the same as those stated above in like cases where employes will enter the service on or after January 1, 1922. As in the case of Age and Service Annuities, there is in each plan a provision that the annuity which any widow of an employe who will be in service on January 1, 1922, will receive will not exceed that which she would receive if her husband had been under the pro- visions of this plan from the beginning of his service with a salary for service rendered before January 1, 1922, equal to that which he will receive on January 1, 1922. There is an exception to this in cases of widows and other dependents of policemen and firemen who will be in service on December 31, 1920. In any such case, such 30 GENERAL OUTLINE OF PLAN dependents would receive the benefits provided in the present Act when such would be greater than those which they would receive under the proposed, plan. General Outline Regarding Provisions for Payment of Age and Service Annuities and Widows' Annuities The provisions regarding payment of Age and Service Annuities and Widows' Annuities are given in general outline as follows: Illustrative examples are given in Chapter V. After Employe Attains Age 57 or Age 65 While in Service After an employe attains age 57 in the police or fire service, or age 65 in any other service, all the accumulation from contributions both by himself and the city for Age and Service Annuity become available to provide him with such annuity. Also all the accumulation from contributions both by himself and the city for a Widow's Annuity become available to provide his wife with a Widow's Annuity. If he enters the service on or after January 1, 1922, the amount available for Age and Service Annuity and for a Widow's Annuity will be the accumulations to his credit for such annuities when he attains age 57 if he be a policeman or a fireman, or age 65 if he be an employe in any other branch of the service, provided he has at that time at least 15 years of service to his credit. If he has less than 15 years of service to his credit, the maximum accumulations to provide him with an Age and Service Annuity and his wife with a Widow's Annuity will be the accumulations to his credit for such purposes at the end of his fifteenth year of service. If he will have been in service before January 1, 1922, the max- imum accumulations to his credit for Age and Service Annuity and for Widow's Annuity will not be those to his credit when he attains age 57 or age 65 or at the end of the fifteenth year of service as the case may be, if he remains in service, but will be those which can provide him and his wife with annuities equal to those which they would receive if he had been under the provisions of this plan from the beginning of his service with a salary for service rendered before January 1, 1922, equal to that which he will receive on such date. An Age and Service Annuity can only begin upon resignation or dismissal of the employe from service, and a Widow's Annuity upon death of the employe. Before Employe Attains Age 57 or Age 65 While in Service The discussion under this head divides itself naturally into three parts: First. If the employe resigns or is dismissed from service after at least ten years of service and after attainment of age 50 if he be 31 GENERAL OUTLINE OF PLAN a policeman or a fireman, or age 55 if he belong to any other branch of the service. In any such case, the employe will enter upon Age and Service Annuity immediately, the amount of such annuity being that which can be provided as of his attained age on date of resignation or dismissal from service, from: a) The accumulation to his credit for Age and Service Annuity from his own contributions for such purpose, and b} One-tenth of the accumulation to his credit for Age and Service Annuity from contributions of the city for such purpose for each complete year of service rendered in addition to ten complete years of service. The wife of any such employe will receive as a Widow's Annuity that which can be provided from the accumulation to the credit of her husband from his own contributions for such purposes and one- tenth of the accumulation from . contributions of the city for such purposes for each year of service rendered in addition to ten complete years ,of service. In computing these annuities, the rate of interest will be assumed to be 4 per cent per annum. In any such case the remainder of the accumulation from con- tributions of the city not used for the purposes stated will be refunded to the city. Second. If an employe resigns or is dismissed from service after at least ten yea"rs of service and before attainment of age 50, if he be a policeman or a fireman, or age 55 if he belong to any other branch of the service. In any such case, the employe will be entitled to refund of the accumulation from his own contributions for Age and Service and for Widow's Annuity purposes, but if he so elects, he may leave such accumulation in the fund. If he does so, it will henceforth earn interest at the rate of 3^ per cent per annum until he attains age 50 if he was a policeman or a fireman or until he attains age 55 if he was an employe in any other branch of the service. At such time, the accumulation to his credit from his own contributions plus one-tenth of the accumulation from contributions of the city, similarly improved at interest, for each complete year of service rendered in addition to ten complete years of service, will be used to provide him with an annuity upon which he can then enter. Also, the accumulation from his own contributions and from those of the city for a Widow's Annuity will be used in a similar manner to provide his wife with a Widow's Annuity, if he was married to her before he resigned or was dismissed from service. 32 GENERAL OUTLINE OF PLAN In computing these annuities, the rate of interest will be assumed to be $ l /2 per cent per annum. Third. If an employe resigns or is dismissed from service before completion of at least ten years of service while still under the age of 57 if he be a policeman or a fireman, or age 65 if he belong to any other branch of the service. In any such case the employe will be entitled to refund of the accumulation from his own constributions for Age and Service Annuity and for Widow's Annuity purposes. If he does not accept refund, his accumulation will henceforth bear interest at the rate of Z l / 2 per cent per annum until he attains age 57 if he was a policeman or a fireman, or age 65 if he belonged to any other branch of the service, and, if he returns to service, such accumulation and the accu- mulation from contributions of the city for such purposes, similarly improved at interest, will be to his credit. If he does not return to service before attainment of such age, refund of the accumulation to his credit at such time will be made to him. Provisions affecting Widows' Annuities When an Employe Dies While in Service If an employe dies while in service before his accumulation is sufficient to provide him with a maximum annuity or if he dies after withdrawal from service and before entering upon annuity as stated under the third heading hereinbefore, all the accumulation to his credit on the date of his death both for Age and Service Annuity and for Widow's Annuity purposes will be used to provide his widow with an annuity except that the contributions of the city for such purposes shall be used only to such an extent that the widow will not receive an annuity greater than that which she would receive if her husband had lived to the date when the maximum amount of his annuity would be fixed and had entered upon annuity. Refunds to City In all cases where the accumulation from contributions of the city or any part of it is not used to provide annuities, refund of the whole or such unused part shall be made to the city in the form of a credit to reduce the amount which the city would otherwise need to pay during the following year. This applies only after the fund is placed on a reserve basis. During the accumulation period, these refunds would apply to diminish the period of accumulation necessary to place these funds on a reserve basis. Children's Annuities The plan provides for annuities to children under 18 years of age who are the issue of employes who die while in service after at " 33 i GENERAL OUTLINE OF PLAN least 4 years of service or while on annuity. For further particulars see Chapter IV. The amount of annuity provided in such case is $15.00 per month for each such child if no wife of the employe survives, or if a sur- viving wife dies while the children are under 18 years of age, and $10.00 per month if a wife of the employe survives. It is proposed that these payments be made currently as the obligation matures. The entire cost of these annuities would be borne by the city. Benefits in Cases of Sickness or Injury Not Incurred in the Per- formance of Duty The plan provides for disability benefits of 50 per cent of salary while the employe is under the age of 57 in the cases of policemen or firemen, or age 65 in other cases, or until the completion of the period of 15 years of service for employes of older ages. These benefits will begin when the employe ceases to draw salary, but not earlier than 15 days after the beginning of the disability, and will extend for the period of disability, but not to exceed a period equal to one-quarter of the period of service of the employe nor in any case five years. During any such period when the employe is in receipt .of dis- ability benefits he will keep up contributions for Age and Service Annuity and Widow's Annuity purposes, so that the net income avail- able to him will be 46 per cent of salary in cases .of men and 47 per cent in cases of women. During such period, the city will keep up its contributions for Age and Service Annuity and for Widow's Annuity purposes so that the amounts of such annuities will not become impaired while the employe is in receipt of disability benefits. During the year 1922 employes eligible for such benefits would contribute therefor one-half of one per cent of salary and the city would contribute one-half of one per cent of salary. Thereafter, the employes would contribute one-half of the cost of such benefits and the employer one-half. It is proposed that the city make pay- ment yearly for its share of the payment of such benefits and the employes make payment by deduction from each payment on account of salary. Benefits in Cases of Injury or Death Incurred in or as a Result of the Performance of Duty The plan provides for disability benefits for all employes of 55 per cent of salary while the employe is under the age of 57 in the cases of policemen and firemen, or age 65 in other cases, or until 34 GENERAL OUTLINE OF PLAN the completion of the period of 15 years of service for employes of older age. These benefits will begin when the employe ceases to draw salary and will extend during disability until the employe attains the age stated or has completed 15 years of service, counting the period of such disability as a period of service, as stated in the preceding paragraph. During any such period of disability the city will keep up the contributions for Age and Service Annuity and Widow's Annuity purposes that were being made by the employe and city at the time of disability so that the amounts of such annuities will not become impaired by reason of such disability. If an employe is killed while in performance .of duty or receives injuries while in performance of duty from which he afterwards dies, his widow, if she does not remarry, will receive an annuity of that which would be provided for her if her husband had lived to age 57 in the case of a policeman or a fireman, or age 65 in the case of any other employe, or to the end of the 15-year period of service, and had in the meantime the salary he had at the time when death or disability occurred. If she remarries, her annuity after remarriage will be that which she would have received if her husband had died from injuries not incurred in performance of duty. An annuity in any case is subject to reduction because of benefits that may be received under the Workmen's Compensation Act. If, however, such annuity would be less than 50 per cent of the employe's salary, she will receive an annuity of 50 per cent of the em- ploye's salary until such time as her husband, if he were alive, would have attained age 57, or age 65, or would have served to the end of the 15-year period of service. The entire cost of benefits in cases of injury or death incurred in or as a result of the performance of duty will be borne by the city. It is proposed that payment for these benefits be made yearly by the city and only in amounts necessary to defray the expenses incurred during the year. 35 CHAPTER III COST OF MAINTAINING THE SYSTEM IN ACCORDANCE WITH THE PROPOSED PLAN This chapter is devoted to a statement of the cost, to employes and to the city, of maintaining the system in accordance with the proposed plan. Cost to Employes The cost to employes, stated in percentages of salaries, would be: Men Women Percentage Percentage For Age and Service Annuity for employe 3.00 3.00 For Widow's Annuity for wife ef employe 1.00 0.00 For Disability Benefits in cases of sickness or injury not incurred in performance of duty 50 .50 For expense of administration 125 .125 Totals (expressed in percentages of salaries) 4.625 3.625 In the foregoing, the cost of disability benefits is an estimate based on the supposition that the payment of benefits would begin 15 days after the sickness began or after the injury occurred and would continue only during actual disability. On this supposition, the actual cost under an operation of the system would not differ materially from the estimate made. If the payment of benefits were to begin earlier than 15 days after the beginning of the sickness or the date of the injury, or if malinger- ing should occur to any great extent, the cost would be greater than the estimate. The percentages stated above would be payable under the follow- ing conditions: Employes Who Enter the Service after January 1, 1922 All such employes would contribute for Age and Service Annuities from dates of entrance into service until attainment of age 57, in the cases of policemen and firemen, or until attainment of age 65 in all other cases ; except that those who enter the police or fire service after attainment of age 42, or any other branch of the service after attainment of age 50, would contribute for 15 years if they remain in service for that length of time. All such men would also contribute for Widows' Annuities when they contributed for Age and Service Annuities, whether married or not; except that no policeman or fireman would contribute for a Widow's Annuity after he attained age 57, or no one belonging to any other branch of the service after he attained age 65, if he had no 36 COST OF MAINTAINING SYSTEM ^wife living upon attainment of such age. And such employe would cease contributing for a Widow's Annuity upon death of his wife if she should die after he attained such age and during his contribution pefiod. Contributions for Sickness and Accident Benefits would cease when the employe attained age 57 in the police or fire services or age 65 in any other branch of the service, if he will have had at least 15 years of service to his credit. If he will have had less than 15 years of service to his credit, his contributions will continue, if he remains in service, to the end of the 15-year period of service. Contributions for Cost of Administration would continue as long as the employe was contributing for Age and Service Annuity. Employees Who will be in Service on January 1, 1922 All such employes would contribute for Age and Service Annuities from January 1, 1922, until they attained age 57 or age 65 or to the end of the 15-year period as stated heretofore for those who enter the service after January 1, 1922. They would also contribute afterward, provided they remained in service, each until he had contributed an amount which, improved at interest at the rate of 4 per cent per annum and taken with the amounts contributed to existing pension funds, similarly improved at interest, would be equal to the amounts he would have paid, similarly improved at interest, if he had been under the pro- visions of the proposed plan from the beginning of his service, with a salary for service rendered before January 1, 1922, equal to that being received on January 1, 1922. For a Widow's Annuity, all such men employes would contribute the percentage stated, when they contributed for Age and Service Annuity, except that if any such employe had no wife living when he attained age 57 or age 65 as the case may be, he would then cease to contribute for a Widow's Annuity, and if his wife should die after he attained such age and while he was still contributing for Age and Service Annuity, he would then cease contributing for a Widow's Annuity. The provisions regarding contributions for Sickness and Accident Benefits and for Cost of Administration would be the same as those stated above for employes who enter the service after January 1, 1922. Refunds Refunds of contributions as explained in Chapter IV apply only to contributions for Age and Service Annuity and Widow's Annuity. They do not apply to contributions for Sickness and Accident Benefits or for Cost of Administration. 37 COST OF MAINTAINING SYSTEM Cost to City under Proposed System Under the proposed system, the city would contribute for four distinct purposes, as follows: First. It would contribute to make up the deficits, in the police- men's and firemen's present funds, of the amounts required to pay pensions to those on pension on January 1, 1922, and to their depend- ents, over the amounts actually on hand at that time. These deficits on January 1, 1922, were equivalent to amounts on hand on that date as shown in Chapter VII, as follows : In Policemen's Fund $ 701,491 In Firemen's Fund 1,037,397 Total $1,738,888 Assuming that the balances in the funds on that date will be $225,000 in each fund, the resulting deficit under the first head will be $1,288,888. Second. The city would contribute amounts equal to an amount on hand on January 1, 1922, sufficient to credit each employe in service on said date with contributions made to existing pension funds, with interest from the date of contribution to said date at the rate of 4 per cent per annum, after the surplus in any such fund, when a proper amount is reserved to provide pensions for those on the pension rolls at that time and their dependents under the conditions of the present acts, is used for such purpose as far as it will extend. These amounts would be payable in the form of annuities. The amounts required for such purposes would be substantially equivalent to amounts on hand on January 1, 1922, as follows: For Policemen's Fund $320,704 For Firemen's Fund 335,085 For Public School Teachers' Annuity and Retirement Fund 7,984 Total $663,773 Third. The city would provide, in the form of annuities for each employe in service on January 1, 1922, and for his dependents, in accordance with the provisions of the proposed plan, an amount equal to that which would be to the credit of such employe from contribu- tions of the city and the employe for a Widow's Annuity, if the employe had been under the provisions of the proposed plan from the beginning of his service with a salary for service rendered prior to January 1, 1922, equal to that being received on January 1, 1922. Such annuities are known as Prior Service Annuities. The city would also provide for those in the police and fire services on January 1, 1921, in the form of annuities, the extra amounts required to give such employes and their dependents the pensions 38 COST OF MAINTAINING SYSTEM provided in their present act when such pensions would exceed those otherwise provided under the proposed plan. The amounts required for such purposes, after account is taken of refunds to the city as stated hereinafter, would be substantially equivalent to amounts on hand on January 1, 1922, as follows: For Policemen's Fund $1,576,116 For Firemen's Fund 1,671,849 For Public School Teachers' Fund 1,985,647 For Municipal Employes' Fund '. 3,200,888 Total .$8,434,500 Summary of Costs by Funds under the First, Second and Third Heads The cost to the city by proposed funds under the first, second, and third heads would thus be: Policemen's Fund (CoL 1) Deficiency on account of pensioners of 1/1/20 $ 476,491 Firemen's Fund (Col. 2) $ 812397 Public School Municipal Teachers' Employes' Fund Fund (Col. 3) (CoL 4) $.. $.. Deficiency on account of contribu- tions of employes in service 1/1/22 320,704 335,085 7,984 For Prior Service Annuities 1,576,116 1,671,849 1,985,647 3200,888 Totals $2,373,311 $2,819,331 $1,993,631 $3,200,888 Grand Total of Costs . ..$10.387.161 Costs Spread over 40 Years It is proposed that these amounts be raised by equal annual con- tributions over a period of years until each fund is on a reserve basis. Taking this period as 40 years, the cost to the city each year for such period, assuming interest at the rate of 4 per cent per annum, would be : For Policemen's Fund $119,907 per year For Firemen's Fund 142,442 per year For Public School Teachers' Fund 100,725 per year For Municipal Employes' Fund 161,720 per year Total . . . .' $524,794 per year Fourth. The city would contribute to provide its share of the payments for annuities and other benefits granted, under the provisions of the proposed plan, because of service rendered after January 1, 1922, both by those in service on that date and by those who enter after that date. The yearly amounts required for such purposes during the period when sums are being accumulated to place the funds on a reserve basis, would be as follows: 39 COST OF MAINTAINING SYSTEM For Policemen's Fund $126,318 per year For Firemen's Fund 127,612 per year For Public School Teachers' Fund 178,298 per year For Municipal Employes' Fund 238,562 per year Total $670,790 per year Yearly Payments by the City after the Funds Are on a Reserve Basis After a sufficient ^amount is accumulated in any fund to place it on a reserve basis, the city would receive refund each year^in the form of a credit to reduce the amount it would otherwise need to pay during the following year, of the amounts reverting to it in refund. The amounts thus reverting to the credit of the city each year after the funds are on a reserve basis would not be less than those stated below: Credit from Policemen's Fund $13,500 per year Credit from Firemen's Fund 12,500 per year Credit from Public School Teachers' Fund 22,500 per year Credit from Municipal Employes' Fund 25,000 per year Total $73,500 per year After sufficient amounts are accumulated in the several funds to place the funds on a reserve basis, the city would therefore be paying for pensions the sum of $670,790 less $73,500 per year, or $597,290 per year. ' These payments would be distributed among the several funds as follows : To Policemen's Fund $112,818 per year To Firemen's Fund 115,112 per year To Public School Teachers' Fund 155,798 per year To Municipal Employes' Fund 213,562 per year Total $597,290 per year Summary of Annual Payments to be Made by the City To summarize the results already given: During the accumulation period, estimated as 40 years, the city would pay each year under an operation of the proposed system, sums as follows: Public School Municipal Policemen's Firemen's Teachers' Employes' Fund Fund Fund Fund Under the first, second and third head- ings $119,907. $142,442 $100,725 $161,720 Under fourth heading 126,318 127,612 178,298 238,562 Totals $246,225 $270,054 $279,023 $400,282 Grand Total of Yearly Payments for- 40 years $1,195,584 40 COST OF MAINTAINING SYSTEM After sufficient funds are accumulated to place the system on a reserve basis, the city would be paying for pension purposes, the sum of $597,290 per year. Pension Payments as Percentages of the Payroll The above figures represent pension payments in percentages of the city's payroll on January 1, 1920, as follows: During the Accumulation Period, 13.9 per cent of the payroll. After the Accumulation Period, 6.8 per cent of the payroll. Cost to City Stated under Benefits Offered and as Percentages of Salary The cost to the city, stated under benefits offered and as per- centages of salary, would be: Others Police Fire (Percentage) (Percentage) (Percentage) Men Women For Age and Service Annuities for Employes 9.00 9.00 6.00 6.00 For Widows' Annuities 2.50 2.50 2.00 0.00 For Children's Annuities 50 .50 .50 2S For Disability Benefits in cases of sickness or injury not incurred in performance of duty 50 .50 .50 .50 For Benefits resulting from injury or death incurred in, or as a result of, performance of duty 1.00 1.00 .50 For Expense of Administration 25 .25 .25 .25 Totals (Expressed in Percentages of salaries) 13.75 13.75 9.75 7.50 41 CHAPTER IV MAIN PROVISIONS OF PROPOSED PLAN Four Funds Proposed For the payment of annuities and disability benefits to employes of the city and their dependents, there is proposed a system of four funds, distinct from each other, but under one administrative body, a"s follows : a) A Policemen's Annuity and Benefit Fund b} A Firemen's Annuity and Benefit Fund c} A Public School Teachers' Annuity and Benefit Fund d) A General Municipal Employes' Annuity and Benefit Fund. Boards of Trustees Each of these funds would be administered by its own Board of Trustees constituted as follows: 1. Three persons elected by the group of employes concerned, one to be elected each year to serve for a period ,of three years. 2. One person appointed in each of the funds a, b, and d by the Mayor of the city, and in c by the Board of School Directors. 3. The Chairman of the Commission as explained below. Commission For purposes of administration and supervision, a commission of three members would be appointed by the Mayor, one to be appointed each year to serve for a period of three years. Duties of Boards of Trustees Each Board of Trustees would have the power to buy, sell, or transfer securities pertaining to its own fund, except that securities could be purchased only upon certification by the Commission that they are valid and secure the amount invested. It would also pass on all claims for annuities or for sickness or accident benefits where disability did not result from performance of duty. Before the first payment on account of annuity or benefits was made, the approval of the Commission concerning the legality of the payment would be necessary. It would have the power to appoint its own physician or physicians. 42 MAIN PROVISIONS OF PLAN Duties of Commission The Commission would keep the books and records of all four funds, and employ such actuarial, medical, and clerical help as might be necessary for a proper administration of the funds. It would make a list of securities in which the Boards of Trustees would invest their funds. It would pass on the legality of each claim for annuity or benefit and would determine the amount of annuity or benefit to be paid. It would pass on all claims for disability or death benefits resulting from the performance of duty. The City Treasurer would be the custodian of all funds. ANNUITIES AND DISABILITY BENEFITS The Annuities and Disability benefits proposed are of five classes : 1. Age and Service Annuities 2. Widows' Annuities 3. Children's Annuities 4. Disability Benefits, where the disability is not incurred in the performance of duty 5. Disability and Death Benefits, where the disability or death is incurred in, or as a consequence of the performance of duty. The main features of the proposed plan follow. In arrangement, those relating to Age and Service Annuities and to Widows' Annuities are classified under four heads : 1. Age and Service Annuities for future entrants 2. Widows' Annuities for' widows of future entrants 3. Age and Service Annuities for present employes 4. Widows' Annuities for widows of present employes. Under each head, the topics discussed are classified under the letters of the alphabet, similar topics being discussed under the same letter. For instance, the topic "Deductions from Salaries" is discussed under the letter "A" under each head. The provisions relating to Age and Service Annuities and to Widows' Annuities, as classified under the letters of the alphabet, under all four heads, are subject to the following modifications: The amount of annuity which any employe or the widow of any employe may receive would not exceed 75 per cent of the salary of the employe during his last year of service, if he resigned or was dismissed from service before his attainment of age. 65 (Police and 43 MAIN PROVISIONS OF PLAN Fire 57), or 75 per cent of his salary for the year .preceding the date when he attained age 65 (Police and Fire 57), if he remains in service to such date. If the accumulation to the credit of an employe from deductions from salary for Age and Service Annuity, or for Widow's Annuity, on the date when he enters upon annuity or attains age 65, whichever event first occurs, is more than sufficient to provide an annuity of 75 per cent of salary, as stated in the preceding paragraph, the part of the excess ,of such accumulation over that necessary to provide such annuity arising from deductions from the salary of the employe will be refunded to him. If a wife is older than her husband, the amount of a Widow's Annuity for her will be that which can be provided on the assumption that her age is the same as that of her husband. AGE AND SERVICE ANNUITIES (Future Entrants Only) A. Deductions from Salaries Deduct 3 per cent from each payment on account of salary of each employe. These deductions are to begin when the employe enters the service and to continue until he or she attains age 65 (Police and Fire 57) and not beyond that time. An exception occurs if the employe enters the service after age 50 (Police and Fire 42). In any such case, if he or she remains in service after attainment of age 65 (Police and Fire 57), deductions from salary will continue for fifteen years from the date of his or her appointment, and not beyond that time. B. Contributions of Public With every contribution of an employe, the public is to contribute 6 per cent of -the salary of the employe (Police and Fire 9 per cent). These contributions will not necessarily be made when the deductions from salary are made, but will involve interest at the rate of 4 per cent per annum, so that their effect will be the same as if they were made at the times when the deductions from salary are made. Contributions of the public on behalf of an employe will cease when deductions from the salary of the employe ceases. C. Allocation of Contributions Contributions by and on behalf of an employe for Age and Service Annuity will be allocated to the employe when made. As long as the employe remains in service, they will be improved periodically at interest at the rate of 4 per cent per annum, until he or she attains age 65 (Police and Fire 57), or to the end of the fifteen-year period 44 MAIN PROVISIONS OF PLAN in any case where the employe entered the service after attainment of age 50 (Police and Fire 42). Funds thus allocated to an employe for Age and Service Annuity cannot be used to pay annuities to those who precede the employe on annuity. D. Age When Employe May Obtain Maximum Annuity When an employe attains age 65 (Police and Fire 57), while in service, his Age and Service Annuity rights will be determined, and such annuity will not be increased by reason of service beyond that time. This applies to all employes except those who entered the service after age 50 (Police and Fire 42). In these cases, the annuity rights would be determined fifteen years after the dates of appointment. E. Provisions Regarding Withdrawal from Service, with Less Than Ten Years of Service and before Age 65 (Police and Fire 57) First. If an employe resigns or is dismissed from service with a period of service of less than ten years to his credit, while yet under age 55 (Police and Fire 50), he will be entitled to refunds of deduc- tions from his salary for Age and Service Annuity, with interest compounded at the rate of 4 per cent per annum to the date of his resignation or dismissal. If he so elects, however, the contributions made as deductions from salary for Age and Service Annuity may be left in the fund, and, if they are left in the fund, they will bear interest at the rate of 3 1/2 per cent per annum from the date when he resigned or was dismissed from service to the date when he attains age 55 (Police and Fire 50), or until he requests refunds, whichever event shall first occur. If such contributions are left in the fund to accumulate at interest, the public's contributions for Age and Service Annuity from the employe will also remain in the fund to the employe's credit, so that if the employe should return to the service of the city, an accu- mulation to provide for the years of service theretofore rendered would be awaiting him. If the employe does not return to service before attainment of age 55 (Police and Fire 50), then upon attainment of such age, interest earnings on his accumulation shall cease. Second. If an employe resigns or is dismissed from service with a period of service of less than ten years to his credit, after attainment of age 55 (Police and Fire 50) and before attainment of age 65 (Police and Fire 57), he will be entitled to refunds of deductions from salary for Age and Service Annuity with interest compounded at the 45 MAIN PROVISIONS OF PLAN rate of 4 per cent per annum to the date of his resignation or dismissal. On such date interest earnings on his accumulation cease. When refunds are made, or when interest earnings on an employe's accumulation cease, as explained under "First" or "Second" in this section above, the employe will have no further rights to contributions of the public for Age and Service Annuity for the employe made during the period when such deductions from salary were made. F. Provisions Regarding Withdrawal from Service after at Least Ten Years of Service and before Age 55 (Police and Fire 50) If an employe resigns or is dismissed from service after a period of ten years from the date of his appointment, and before attainment of age 55 (Police and Fire 50), he will be entitled to refunds of deductions from his salary for Age and Service Annuity, with interest compounded at the rate of 4 per cent per annum. If the employe so elects, however, the contributions made as deductions from salary for Age and Service Annuity may be left in the fund, and-, if they are left in the fund, they will bear interest at the rate of Z l / 2 per cent per annum from the date when the employe resigned or was dismissed from service to the date when he attains age 55 (Police and Fire 50) and will be used to provide an Age and Service Annuity for the employe beginning at age 55 (Police and Fire 50) under the following provisions : a) The accumulation from the contributions of the employe with interest as stated will be used to provide such annuity. b) One-tenth of the accumulation from contributions of the public for Age and Service Annuity for the employe on the date of his or her resignation or dismissal from service for each full year that has elapsed, in excess of ten years, from the date when the employe entered service, to the date of his or her resignation ,or dis- missal from service, but not to an amount in excess of the total accu- mulation, improved at interest at the rate of 3^2 per cent from the date of resignation or dismissal from service to the date of entrance upon annuity. , c) The table of mortality and rate of interest to be used in these calculations will be the American Experience Table of Mortality and 3*/2 per cent interest. G. Provisions Regarding Withdrawal from Service after at Least Ten Years of Service and after Age 55 (Police and Fire 50) and before Age 65 (Police and Fire 57) If an employe resigns or is dismissed from service after a period of ten years from the date of his appointment, and upon or after 46 MAIN PROVISIONS OF PLAN attainment of age 55 (Police and Fire 50), but before attainment of age 65 (Police and Fire 57), he will not be entitled to refunds of deductions from his salary. Instead, he will enter upon Age and Service Annuity immediately. The amount of such annuity will be that which can be provided as of his attained age on the date when he enters upon annuity, in accordance with the provisions stated in "F" above, except that the rate of interest used in computing the annuity will be 4 per cent instead of 3^2 per cent. H. Provisions Regarding Withdrawal from Service on or after Age 65 (Police and Fire 57) If Employe Entered Service before Age 50 (Police and Fire 42) If an employe resigns or is dismissed from service on or after attainment of age 65 (Police and Fire 57), having entered the service before attainment of age 50 (Police and Fire 42), he will not be entitled to refunds of deductions from his salary for Age and Service Annuity. Instead, he will enter upon annuity immediately. The amount of such annuity will be that which can be provided from the accumu- lation to his credit for Age and Service Annuity on the date when he attained age 65 (Police and Fire 57), from contributions of both the public and himself, determined as if the age of the employe were 65 (Police and Fire 57). The rate of interest used in this calculation is 4 per cent. I. Provisions Regarding Withdrawal from Service on or after Age 65 (Police and Fire 57) If Employe Entered Service after Age 50 (Police and Fire 42) + If an employe resigns or is dismissed from service on or after attainment of age 65 (Police and Fire 57), having entered the service after attainment of age 50 (Police and Fire 42), he will not be entitled to refunds of deductions from hi salary for Age and Service Annuity. Instead, he will enter upon annuity immediately. The accu- mulation to provide such annuity will be that to his credit for Age and Service Annuity, from contributions of both the public and him- self, on the date when he enters upon annuity, except that if a period of more than fifteen years has elapsed since he entered service his accumulation will be that at the end of the fifteen-year period. The annuity will be of the amount that can be provided from such accu- mulation, when the age of the employe is taken as age 65 (Police and Fire 57). WIDOWS' ANNUITIES (Future Entrants) A. Deductions From Salaries Deduct 1 per cent from each payment on account of salary of 47 MAIN PROVISIONS OF PLAN each man employe for an annuity for a possible widow of such employe. These deductions are to be made when deductions are made for Age and Service Annuity for the employe, whether the employe is married or unmarried when such deduction is made. An exception to the foregoing occurs in the case where an employe enters the service after age 50 (Police and Fire 42), and remains in service after age 65 (Police and Fire 57). In such a case the employe contributes to age 65 (Police and Fire 57), and, if he has no wife upon attainment of such age, deductions from salary for a Widow's Annuity then cease. If he has a wife, however, upon attainment of such age, deductions for a Widow's Annuity continue, while he remains in service, to the end of the fifteen-year period or until the death of his wife, whichever event first occurs. B. Contributions of Public With every contribution of an employe for a Widow's Annuity, the public is to contribute 2 per cent of the salary of the employe (Police and Fire 2*/2 per cent) for the same purpose. These contri- butions bear interest at the rate of 4 per cent per annum, so that the effect is the same as if the contributions were made when deductions from salary were made. C. Allocation of Contributions The contributions by and on behalf of an employe for a possible widow of the employe would be allocated to the employe when made, and while he remains in service would be held to his credit with interest at the rate of 4 per cent per annum, to provide an annuity for a possible widow under the conditions to be stated later. D. Age of Employe When Widow May Obtain Maximum Annuity When an employe attains age 65 while in service (Police and Fire 57), if he has a wife, the annuity rights of such wife will then be determined, and her annuity will not be increased by reason of service of the employe after his attainment of such age. An exception to this* would occur in the case of an employe who enters the service after age 50 (Police and Fire 42), and remains in service after age 65 (Police and Fire 57). In such a case the annuity rights of the wife would be determined fifteen years from the date of the employe's entrance into service. If an employe has no wife when he attains age 65 (Police and Fire 57) while in service, the deductions from his salary for a Widow's Annuity will be returned to him with 4 per cent compound interest. After that no one will be eligible for a Widow's Annuity because of this employe's service. 48 MAIN PROVISIONS OF PLAN The preceding paragraph applies to those who enter the service after age 50 (Police and Fire 42) as well as to all other employes. In any case, however, where the employe enters the service after age 50 (Police and Fire 57), and his wife dies while the employe is in service and before a period of fifteen years has elapsed from the. date of his appointment, the accumulation on date of death of wife from deductions from salary of the employe for a Widow's Annuity will be returned to the employe. After that no one, will be eligible for a Widow's Annuity because of this employe's service. E. Provisions Regarding a Widow's Annuity if the Employe Withdraws from Service with Less Than Ten Years of Service and before Age 65 (Police and Fire 57) If an employe resigns or is dismissed from service with a period of service of less than ten years to his credit, while yet under age 65 (Police and Fire 57), he will be entitled to refunds of deductions from his salary for a Widow's Annuity with interest at the rate of 4 per cent per annum to the date of his resignation or dismissal. If he is still under age 55 (Police and Fire 50), however, and elects to leave his deductions from salary for Age and Service Annuity to remain in the fund, his deductions from salary to provide a Widow's Annuity will also remain in the fund to be refunded or used for annuity purposes according to the provisions governing refunds or use of his deductions from salary for Age and Service Annuity, as stated under "E," above. F. Provisions Regarding a Widow's Annuity if the Employe Withdraws from Service after at Least Ten Years of Service and before Age 55 If an employe resigns or is dismissed from service after completion of at least ten full years of service and before attainment of age 55 (Police and Fire 50), and has a wife at the time of his resignation or dismissal from service, he is entitled to refunds of deductions from his salary for a Widow's Annuity, with interest compounded at the rate of 4 per cent per annum. If, however, he allows the accumula- tion from deductions from his salary to provide an Age and Service Annuity for himself to remain to his credit in the fund, the accumu- lation to his credit for an annuity for a possible widow also remains in the fund at interest at the rate of 3^2 per cent per annum, until the employe attains age 55 (Police and Fire 50). When this age is attained, the annuity rights of such wife will be determined as of her attained age at such time, under the following provisions, except that the amount of annuity will not exceed 75 per cent of salary as stated under "J" below. 49 MAIN PROVISIONS OF PLAN a) The accumulation from contributions of the employe to pro- vide an annuity for a possible widow, with interest as stated, are used to provide such annuity. b) One- tenth of the accumulation from contributions of the public for a Widow's Annuity on the date of his resignation or dis- missal from service, for each full year that has elapsed in excess of ten years from the date when the employe enters the service to the date of his resignation or dismissal from service, but not to an amount in excess of the total accumulation, improved at interest at the rate of 3^2 per cent per annum, from the date of resignation or dismissal from service to the date of entrance upon annuity. c} The table of mortality and the rate of interest to be used in these calculations will be the American Experience Table of Mortality and 3^2 per cent interest. G. Provisions Regarding a Widow's Annuity if the Employe Withdraws from Service after Age 55 after at Least Ten Years of Service (Police and Fire 50), but before Age 65 (Police and Fire 57) If an employe resigns or is dismissed from service after a period of ten years from the date of his appointment and upon or after attain- ment of age 55 (Police and Fire 50), but before attainment of age 65 (Police and Fire 57), and has a wife at the time of his resignation or dismissal, his wife will be eligible for a Widow's Annuity as deter- mined at the time her husband enters on annuity, according to the provisions stated in "F" above, except that the rate of interest used in computing the annuity will be 4 per cent instead of Zy 2 per cent. H. Provisions Regarding a Widow's Annuity if the Employe Withdraws from Service on or after Age 65 (Police and Fire 57), Having Entered the Service before Age 50 (Police and Fire 42) When an employe is in service upon attainment of age 65 (Police and Fire 57), having entered the service before attainment of age 50 (Police and Fire 42), if he has a wife, he will not be entitled to refunds of deductions from salary for a Widow's Annuity. Instead, the annuity rights of such wife will be determined immediately. The amount of annuity she will receive will be that which can be provided from the entire accumulation to the credit of her husband from contributions of both the public and himself to provide a Widow's Annuity, on the date when her husband attains age 65 (Police and Fire 57), determined according to her attained age on such date. 50 MAIN PROVISIONS OF PLAN I. Provisions Regarding a Widow's Annuity if the Employe Withdraws from Service after Age 65 (Police and Fire 57) Having Entered the Service after Age 50 (Police and Fire 42) These provisions are classified under two heads, as follows : First. If the employe resigns or is dismissed from service inside of a period of fifteen years from the date of his entrance into service. Second. If the employe resigns or is dismissed from service on or after a period of fifteen years from the date of his entrance into service. First. If an employe resigns or is dismissed from service after attainment of age 65 (Police and Fire 57), and inside of a period of fifteen years from the date of his entrance into service, if he has a wife to whom he was married upon his attainment of age 65, he will not be entitled to refunds of deductions from salary for a Widow's Annuity. Instead, the annuity rights of such wife will be determined immediately. The amount of the annuity which she will receive will be that which can be provided from the entire accumulation to the credit of her husband on the date when he resigned or was dismissed from service, from contributions of both the public and himself, to provide a Widow's Annuity, computed according to her attained age when her husband was of age 65 (Police and Fire 57). Second. If an employe resigns or is dismissed from service after attainment of age 65 (Police and Fire 57), on or after a period of fifteen years from the date of his entrance into service, having entered the service after 'attainment of age 50 (Police 'and Fire 42), if he shall have a wife at the expiration of the fifteen-year period to whom he was married upon his attainment of age 65 (Police and Fire 57), he shall not be entitled to refunds of deductions from salary for a Widow's Annuity. In this case the annuity rights of the wife will be determined at the end of the fifteen-year period. The amount of the annuity which she will receive will be that which can be provided from the accumulation to the credit of her husband at the end of the fifteen-year period from contributions of both the public and himself to provide a Widow's Annuity, computed according to her age when her husband was of age 65 (Police and Fire. 57). J. Provisions Regarding a Widow's Annuity if the Employe Dies before Age 65 (Police and Fire 57) If an employe dies while in service before attainment of age 65 (Police and Fire 57), leaving a wife, the accumulation to the credit of the employe at the time of his death, to provide both an Age and Service Annuity and a Widow's Annuity, will be used to provide an 51 MAIN PROVISIONS OF PLAN annuity for the widow of such employe at her age on the date of her husband's death, except that the contributions of the public will not be used for such purpose to such an extent as would provide, when combined with the accumulation from deductions from salary of the employe, an annuity for such widow in excess of that which she would have received if her husband had lived to age 65 (Police and Fire 57), and during such period received the salary he received at the time of his death. If an employe who withdrew from service after at least ten years of service and before attainment of age 55 (Police and Fire 50), does not receive refunds of the accumulation from deductions from salary, then if the employe dies before attaining age 55 (Police and Fire 50) leaving a wife to whom he was married before he withdrew from service, the accumulation to the credit of the employe at the time of his death to provide both an Age and Service Annuity and a Widow's Annuity will be used to provide an annuity for such wife at her age on the date of her husband's death, except that the contribu- tions ,of the public will not be used for such purpose to such an extent as would provide, when combined with the accumulation from deductions from salary of the employe, an annuity to such widow in excess of that which she would have received if her husband had lived to age 55 (Police and Fire 50) and had entered upon annuity. K. Provisions Regarding a Widow's Annuity if the Employe Enters the Service after Age 50 (Police and Fire 42) and Dies While in Service after Attainment of Age 65 (Police and Fire 57) but before the End of His Fifteenth Year of Service If an employe enters the service after attainment of age 50 (Police and Fire 42) and dies while in service after attainment of age 65 (Police and Fire 57) but before the end of his fifteenth year of service, leaving a widow, then, if they were married before his attain- ment of age 65, such widow will be entitled to a Widow's Annuity. The amount of such annuity will be that which can be provided from the accumulation to the credit of the employe at the time of his death from contributions of both the public and the employe for Age and Service Annuity, and Widow's Annuity, according to her attained age on the date when her husband attained age 65 (Police and Fire 57), except that the contributions of the public will not be used to such - an extent that the widow would receive a greater annuity than she would have received if her husband lived to the end of the fifteen- year period, and during such period received the salary he received at the time of his death. 52 MAIN PROVISIONS OF PLAN L. Provisions Regarding a Widow's Annuity if the Employe Dies While in or as a Consequence of Performance of Duty If an employe dies while in or as a consequence of the perform- ance of duty, the widow of such employe if she does not remarry will receive in annuity the annuity which she would have received if her husband had lived to age 65 (Police and Fire 57), and had received during the period the salary he received at the time of death or disability. If she remarries, her annuity after remarriage will be that of the widow of an employe who dies while in service but not in or as a consequence of the performance of duty. FURTHER REFUND PRIVILEGES 1. If a man employe dies while in service before attainment of age 65 (Police and Fire 57), leaving no widow, the amount of accu- mulation to the credit of such employe on the date of his death, from deductions from salary for Age and Service Annuity, and also for a Widow's Annuity, will be refunded. 2. If a man employe resigns or is dismissed from service after a period of at least ten years of service and before attainment of age 55 (Police and Fire 50), and has no wife on the date of his resigna- nation or dismissal from service, then the accumulation to his credit on the date of his resignation or dismissal from service from deductions from salary for a Widow's Annuity will be refunded. If any such employe has a wife on the date of his resignation or dismissal from service, and such wife dies before he enters upon Age and Service Annuity, the accumulation to his credit on the date of such wife's death, from deductions from salary for a Widow's Annuity, will be refunded. If thereafter any such employe should die before entering upon Age and Service Annuity, the accumulation to his credit on the date of his death from deductions from salary to provide an Age and Service Annuity will be refunded. 3. If a man employe attains age 65 (Police and Fire 57) while in service, and has no wife upon attainment of such age, the accumu- lation to his credit on the date when he attains such age, from deduc- tions from salary to provide a Widow's Annuity, will be refunded. If the employe should afterward die while in service, the accumulation to his credit from deductions from salary to provide an Age and Service Annuity will be refunded. 4. If a woman employe dies while in service, the accumulation to her credit on the date of her death, from deductions from salary to provide an Age and Service Annuity, will be refunded. 5. If a retired employe dies before an amount equal to the accu- mulation to his credit on the date when he entered upon annuity, 53 - MAIN PROVISIONS OF PLAN from deductions from salary to provide an Age and Service Annuity and a Widow's Annuity, if any, less any amount paid in refunds to him, has -been paid in annuity to him and his widow, if any, the balance of such accumulation with the total of the amounts thus paid in annuity will be refunded. Refunds will be made as directed by the employe, former employe, or retired employe in writing. If no directions were given, such refunds will be made to the children of the blood in equal amounts to each, if such exist; or, if none such exist, then to the employe's parents in equal amounts to each, if such exist; or, if none such exist, then to the heirs, administrators, or assigns of the employe, former employe, or retired employe. ANNUITIES FOR CHILDREN OF FUTURE ENTRANTS (Applicable to Men and Women) Children Eligible for Annuity It is proposed that children eligible for annuity shall be all chil- dren of the blood under 18 years of age of deceased employes, and of retired employes who died after entering upon annuity, except the following : 1. Any child whose employe parent was in service formless than four years, unless the death of such parent was the result 0 41 484 29.9 613 37.8 820 50.6 21 . . .T 42 502 31.0 636 39.3 850 52.5 22 43 519 32.1 658 40.6 880 54.3 23 . 44 537 33.1 680 42.0 909 56.1 24 45 553 34.2 701 43.3 937 57.9 25 46 570 35.2 722 44.6 965 59.6 26 47 586 36.1 742 46.8 992 61.2 27 48 601 37.1 762 47.0 1,019 62.9 28 49 616 38.1 781 48.2 1,044 64.5 29 50 631 39.0 800 49.4 1,070 66.0 30 51 646 39.9 819 50.5 1,094 67.5 31 52 660 40.8 837 51.6 1,118 69.0 32 53 674 41.6 854 52.7 1,142 70.5 33 54 688 42.5 872 53.8 1,165 71.9 34 55 770 47.5 966 59.6 1,215 75.0 35 56 808 49.9 1,018 62.8 36 57 848 52.3 1,073 66.2 37 58 888 54.8 1,132 69.9 38 59 933 57.6 1,198 74.0 39 60 977 60.3 1,215 75.0 40 61 1,024 63.2 41 62 1,071 66.1 ... :.. 42 63 1,123 69.3 43 64 1,173 72.4 .... 44 65 1,215 75.0 73 EXPLANATION AND TABLES TABLE VIII. Showing the Amount of a Widow's Annuity in the Assumed Case, Where the Employe Is a Policeman or a Fireman, for Certain Assumed Ages of the Widow, if the Employe Resigns or Is Dismissed from Service after the Years of Service Indicated. Also the Percentage Which Such Annuity Bears to Salary. Salary $1,764 Per Year. Amount of Widow's Annuity and Percentage Which Such An- nuity Bears to Salary, if the Age of the Wife as Compared with That of Her Husband Is: 10 Years Younger 5 Years Younger Of Same Age or Older Age Percent. Percent. Percent. Years Upon Amount Annuity Amount Annuity Amount Annuity of With- of Bears to of Bears to of Bears to Service drawal Annuity Salary Annuity Salary Annuity Salary 11 34 $ 111 6.3 $ 137 7.8 $ 177 10.0 12 35 143 8.1 177 10.0 228 12.9 13 36 179 10.1 220 12.5 285 16.1 14 37 217 12.3 268 15.2 346 19.6 15 38 259 14.7 318 18.1 412 23.3 16 39 302 17.1 373 21.1 482 27.3 17 . 40 349 19.8 430 24.4 556 31.5 18 . 41 398 22.6 490 27.8 634 35.9 19 42 450 25.5 554 31.4 716 40.6 20 .' 43 504 28.5 620 35.2 802 45.5 21 44 522 29.6 643 36.5 832 47.2 22 . ..'.... 45 541 30.6 666 37.7 861 48.8 23 46 558 31.7 688 39.0 889 50.4 24 47 576 32.6 709 40.2 917 52.0 25 48 593 33.6 730 41.4 944 53.5 26 . 49 610 34.6 751 42.6 971 55.t) 27 50 695 39.4 851 48.2 1,084 61.5 28. 51 727 41.2 895 50.7 1,151 65.2 29 52 762 43.2 943 53.5 1,224 69.4 30 53 798 45.2 993 56.3 1,296 73.5 31 54 836 47.4 1,045 59.2 1,323 75.0 32 55 878 49.8 1,101 62.4 33 56 923 52.3 1,163 65.9 34 57 969 55.0 1,223 69.3 If such employe, after resignation ,or dismissal from service, should die before attaining age 55 [Police and Fire 50], his widow, if any, will be eligible for annuity, provided they were married before he resigned or was dismissed from service. No tables illustrating the amount which a widow would receive in any such case is given here. If the employe should leave no such widow, the accumulation from deductions from salary at the time of his death would be refunded. If he left such a widow who died before she drew in annuity an amount equal to the accumulation from deductions from salary at the time of his death, the excess of such accumulation over the total of such amounts paid would be refunded. Provisions Affecting Employe from Attainment of Age 55 (Police and Fire 50) to Attainment of Age 65 (Police and Fire 57) During this period, the provisions stated under a, b, c, and' d under the heading "Provisions Affecting Employe from the First to the Fourth Year of Service, Inclusive" would apply, except as follows : 74 EXPLANATION AND TABLES 1. The limitation applies that disability benefits would be payable for not longer than five years and not beyond the time when the employe attains age 65 (Police and Fire 57). 2. The employe upon resignation or dismissal from service will not be eligible for refunds of deductions from salary with interest, for Age and Service Annuity purposes. Instead, he will enter upon Age and Service Annuity immediately. For amount of such annuity in the assumed case, see Table V (Police and Fire Table VI). 3. If the employe has a wife at the time of resignation or dis- missal from service, such wife will be entitled to a Widow's Annuity. For amount of such annuity see Table VII (Police and Fire Table VIII). If the employe has no wife at such time, he will be entitled to refunds of deductions from salary, with interest, for a Widow's Annuity. For amount of such refund see Table I (Police and Fire Table II). Provisions Affecting Employe upon Attainment of Age 65 (Police and Fire 57) If the employe in the assumed case remains in service to age 65 [Police and Fire 57], then upon attainment of such age, his annuity . rights, and those of his wife if he has a wife at that time, will be determined. If the entire accumulation to his credit for an Age and Service Annuity were used to provide him an annuity, his annuity would exceed 75 per cent of salary and he would receive in refund the difference between his accumulation for Age and Service Annuity at the time he attained age 65 [Police and Fire 57], and the accumula- tion necessary to provide an annuity of one-third [Police and Fire one- fourth] of 75 per cent of salary at that age. If the employe has a wife, the accumulation to provide such wife with a Widow's Annuity may be more than sufficient to provide her with an annuity equal to her husband's annuity. Refund in any such case of excess of the actual accumulation over the necessary accumu- lation will be made. If the employe upon attainment of age 65 [Police and Fire 57] has no wife, all the accumulation to his credit from deductions from salary to provide a Widow's Annuity will be refunded. Thereafter no wife of such employe would be eligible for annuity. If the employe dies while in service, leaving no widow, or if he leaves a widow who died before she has received in annuity an amount equal to the amount of the accumulation to the credit of the employe when he attained age 65 [Police and Fire 57], from deductions from salary for Age and Service Annuity and Widow's Annuity, the excess of the accumulation over the amount received in annuity will be refunded. If he dies while on annuity, leaving no widow, or if he 75 EXPLANATION AND TABLES leaves a widow who dies before both he and she receives in annuity an amount equal to the amount of such accumulation, the excess of such accumulation over the total of such amounts paid will be refunded. After attainment of age 65 [Police and Fire 57], the employe would be excluded from Sickness and Accident Benefits, and would be exempt from payment for Sickness and Accident Benefits or toward the cost of Administration of the Fund. Amount of Age and Service Annuity and Widow's Annuity When Employe Entered at an Age Other Than That Stated in the Assumed Case If an employe other than a policeman or a fireman entered the service at an age other than that- stated in the assumed case, at a salary of $1,620 per year, and remained at that salary during his period of service, the amount of his Age and Service Annuity, and. the per- centage which such annuity bears to salary, upon attainment of age 65 would be as follows: Age at Entrance Amount of Annuity Percentage 25 $1,215 75.0 30 1,215 75.0 35 991 61.1 40 736 45.4 50 or over 354 21.8 If the employe be a policeman or a fireman, the amount of Age and Service Annuity and the percentage which such annuity bears to salary ($1,764 per year) would be as follows: Age at Entrance Amount of Annuity Percentage 24 $1,285 72.8 25 1,217 69.0 26 1,151 65.3 27 1,088 61.7 30 914 51.8 35 665 37.7 42 or over 389 22.0 If the employe remains in service to age 65 [Police and Fire 57], or to the end of the fifteen-year period, if he enters after attainment of age 50 [Police and Fire 42], the amount of Widow's Annuity for the wife would be as follows: Employe Other Than a Policeman or a Fireman. Salary $1,620 Age of Amount of Widow's Annuity and Percentage of Annuity to Salary Employe at if Wife Is Entrance 10 Years Younger 5 Years Younger Of Same Age or Older Amount Percent. Amount Percent. Amount Percent. 25 $1,011 62.4 $1,215 75.0 $1,215 75.0 30 .... 784 48.4 1,044 64.5 1,215 75.0 35 , 597 36.8 795 49.1 1,132 69.9 40 443 27.4 590 36.4 841 51.9 50 or over. . 213 13.2 284 17.5 404 25.0 76 EXPLANATION AND TABLES Employe a Policeman or a Fireman. Salary $1,764 25 $870 49.3 $1,098 62.2 $1,323 75.0 30 653 37.0 824 46.7 1,104 62.6 35 475 26.9 600 34.0 803 45.5 42 or over 278 15.8 351 20.0 470 26.6 Note For other provisions regarding policemen or firemen in service January 1, 1921, or their dependents, see page 64, or page 67. Widows' Annuities The tables in this chapter that apply to widows of future entrants will apply without change to widows of present employes in all cases where the employe remains in service to the attainment of age 65 [Police and Fire 57]. This is because of the provision in the plan that the public con- tributes for a Widow's Annuity because of past service of -present employes all that both public and employe would have contributed if the employe had been under the provisions of the plan from the beginning of his service. In the case of the death of an employe while in service before the attainment of age 65 [Police and Fire 57], the Widow's Annuity would be less than that stated in the illustrations for future entrants because in any such case the accumulations to the credit of the employe to provide an Age and Service Annuity would be less than that which would be to the credit of a future entrant under like conditions. In the police and fire services the difference would not be great, due to the fact that the contributions required from future entrants for Age and Service Annuity do not differ greatly from those made to existing pension funds. In the teaching service, the difference would be greater than in the police and fire services, and in the municipal service, still greater. Age and Service Annuities The Age and Service Annuity of a present employe who retires from service on or before the attainment of age 65 (Police and Fire- men 57), would be less than that of a future entrant because the pres- ent employe would not have made as great contributions to the fund as a future entrant, under like conditions, would have made. In the most unfavorable case, however, namely, where an em- ploye who contributed nothing to any existing pension fund is of age 65 on the date when the plan takes effect and retires from service immediately after, the amount of Age and Service Annuity which the employe would receive would be two-thirds of the amount a future entrant under like conditions would receive. 77 CHAPTER VI EXPERIENCE OF THE UNITED STATES AND OF OTHER COUNTRIES WITH THE OPERATION AND GROWTH OF PENSION LEGISLATION FOR PUBLIC EMPLOYES This chapter presents, in condensed form, a survey of the pension experience of the United States and of other countries, in compliance with part-, of the duties delegated to the Milwaukee Pension Laws Commission by the Act creating the Commission. First Pension Projects in This Country The first pension projects in this country were established for the purpose of providing rewards for military or naval service. It was not until the year 1920 that the government of the United States enacted pension legislation for its civil servants and thereby subscribed to the social philosophy which demands that pensions for public employes should be based on something more than a mere sentimental consideration or a reward for past services. The federal civil service pension act, passed recently, is based on the social philosophy that the government is justified in contributing toward such pensions be- cause it is receiving its equivalent in increasing the efficiency of its service. While the United States was the last of the great nations of the wprld to establish a pension fund for its civil servants, nearly all the states ,of the union have enacted laws to pension public servants, particularly policemen, firemen, and teachers. Some of these laws were passed as long as fifty years ago, but the great majority of pension plans were not enacted into law until after 1900, and, though the number of pension plans in this country exceeds- 300, the experience with such legislation is still young. It may be said, however, that it is exceedingly convincing in establishing the verity that nearly all prevailing pension plans are based upon false principles as well as upon unsound financial foundations. The first pension fund to be established for civil servants in this country was created for the benefit of the police force of the city of New York in 1857. New York was also the first municipality to establish a fund for its firemen. This fund was placed in operation in 1871. The first pension fund for teachers was established in New York in 1894. The first fund for general municipal employes was established in New York City in 1894 for the specific benefit of the employes of the Board of Health. Just as New York took the lead in establishing 78 HISTORY OF PENSIONS the first pension funds, so its commissions also are among the first to replace -the makeshift schemes with scientific systems that will live for all time without imposing larger costs for maintenance upon one generation than upon another. Pension projects for public servants originated in this country much in the same manner that they originated in the older countries. In a generalization on the subject it can be said that groups of men in certain well-organized city departments banded together for mutual protection in cases of sickness. Other benefits were added gradually. At first all participants in such funds were required to make contri- butions of like sums or agreed to subject themselves to special assessments. Most Funds Are Makeshifts For the first few years, when but few participants needed aid, the income from such sources was sufficient to meet expenses. As the number of participants who needed aid increased and- as more and more benefits were included, it was soon realized that larger revenues were needed to meet the mounting costs. In cases where city govern- ments did not come to the assistance of such funds they were aban- doned. Where outside aid was procured the funds survived for a longer time. As soon as employes realized they could procure revenues from the city or state they began to liberalize their benefits, never taking into consideration the fact that with the incorporation of each new benefit they were adding to the costs of maintaining their funds. However, so long as the city and the state were ready to aid such funds, they continued to grow and to multiply. It was not long, however, before legislators began to balk and to question the advisability of assisting such funds. The cry for more money and for further amendments finally led cities and states to appoint commissions to study the pension situation and the merit of the claims of employes. To date about twelve of such commissions have been appointed and have made reports. All of them have con- cluded that the prevailing pension funds in this country can hardly be dignified with the term "system." A study of their reports leads to the conclusion that the prevailing funds should be characterized as nothing more than makeshifts, for, until 1913, when Massachusetts established a system for teachers, there was no pe*nsion fund in this country worthy of a more dignified name. An examination of the prevailing makeshifts reveals the fact that nearly all the proven fallacies and proven erroneous principles of the early pension makeshifts of Europe were incorporated in the laws en- acted in this country with the result that, unless revised, they will prove as costly as the European makeshifts where some governments are pay- 79 HISTORY OF PENSIONS ing as high as 40 per cent of the payrolls to maintain pension payments. Most of the older schemes in this country already are on the verge of bankruptcy. A great many of them have been abandoned without ful- filling their obligations to participants. That legislators are taking cognizance of the financial unsoundness of funds is made manifest in the most recent report on the subject. This report was made in April of this year by the Joint Committee on Taxation and Retrenchment to the New York legislature. Among other things this official report declares : "The pension funds in municipalities are a delusion and a snare until they are placed on an actuarial basis." The mayor of Troy is quoted as stating that pension funds as now constituted are the biggest jokes in municipal government. The report further asserts that all the funds in New York state, except that of the teachers' act, are funda- mentally unsound and must be radically revised. / Revision of Funds Imperative What that committee concluded concerning the situation in the state of New York can be equally as well concluded concerning the situation in every state in 'the union which has modeled its pension legislation after the prevailing fashion "Revision of pension funds is imperative." Fortunately in the United States, where there are only about 40 funds older than 30 years, the cost of maintenance has not reached the enormous cost such makeshifts have reached in European countries, and therefore they can still be revised without placing too great burden on the taxpayers. An idea of the cost of revising unsound pension funds can be gained from the experience of Australia, a nation that was quick to abandon unsound schemes as soon as the cost of main- taining them became apparent. Australia established an unsound plan in 1884 and in 1895 aban- doned the fund, but in order to make good its promises, Australia as- sumed to pay all its obligations to participants in the fund. . At the time of abandonment, the amount which the government assumed as a debt was $4,771,267. It is still paying retirement allowances to those participants whom it required for years to contribute to an insolvent fund, and it must continue payments until all those persons who en- tered the fund prior to 1895 are dead, an obligation that will not be fulfilled until about the year 1945. In order to give concrete examples of the prevailing inconsistencies with reference to the different provisions contained in the different pen- sion funds there is presented here a summary of such provisions : 80 HISTORY OF PENSIONS Provisions on Revenues In regard to provisions on revenues, it was found that most funds called for contributions from the employes as well as from the cities or states. The sources of revenue from which the cities or states derived their income for coptributions are of a mixed character. The cities' contributions toward police and fire funds were obtained from dog licenses, liquor licenses, fines on participants for violation of some de- partmental rules, forfeitures of wages in cases of illness, witness fees, forfeited bail, moneys derived from benefit dances and bazaars, per- centages of police and fire permits, percentages of sales of condemned or unclaimed properties, percentages of license fees paid by pawn- brokers, second-hand dealers, junk dealers, billiard hall owners, per- centages of the license tax on insurance companies, percentages of premiums collected by foreign insurance -companies, percentages of theater licenses, percentages on dance hall permits, percentages of the income tax, rewards, gifts, and so forth. All such sources of revenue amount to indirect taxation. The sums derived each year were found to be different each year. They are un- reliable and of a constantly fluctuating character. Participants in the older funds have grown to realize that. Where such funds proved in- sufficient to meet the needs of the fund political pressure was exer- cised, with the result that cities and states enacted amendments pro- viding for guarantees to make up discrepancies. When cities and states obligated themselves to that extent, they did not realize that the discrepancies would also increase yearly and that they were imposing higher and higher taxes upon all citizens each year. Inconsistency of Benefits Just as there was a multiplicity of sources of revenue, so there also was found a multiplicity of provisions relating to such fundamentals as management, amounts of contributions from employes, amounts of pension allowance, ages of retirement, years of service required for eligibility to pensions, benefits in event of sickness, accident, resigna- tion, or death. The only uniformity found was the unsoundness of the funds ; the only consistency, inconsistency. In a generalization on management it was found that the tendency was to give employes representation. In many of the funds the em- ployes have a majority on the managing boards. Amounts of contributions by employes in the police and fire funds vary from nothing to 2^ per cent of salary; by teachers, flat sums, ranging from $6 to $50 a year. Pension allowances vary from flat sums averaging from $300 a year to $1,000, and from 25 per cent of final salary to 75 per cent. 81 HISTORY OF PENSIONS , In most cases in the police and fire funds the amount of pension is set at 50 per cent of salary. In the teachers' funds it is usually a flat sum ranging from $300 to $800 a year. Ages of retirement range all the way from 41 years to 65 years in the police and fire services. In the teaching and municipal services it ranges from 45 to 70 years. In a great number of funds no age of re- tirement is specified at all. In such cases the number of years of service is the qualification for pension. Years of service in the police and fire departments for pension qualification range from 15 to 25 years; for teachers, from 20 to 35 years. Allowances for disability benefits are so complex and so variable that it is impossible to make accurate statements, except to say that in the case of widows' pensions, the benefits range from about $20 to $50 a month. Only a very few schemes provide for refunds .of contri- butions to employes in event of resignation or dismissal. With such a profusion of conflicting provisions characterizing the prevailing schemes, it should readily be apparent that a brief history of a typical example of the history and development of one of the pre- vailing plans will suffice for all. For this reason the New York police pension scheme is cited; also because it is the oldest pension scheme in existence in this country. A Typical Example When the New York policemen realized that their makeshift was not meeting its expenses with contributions from participants and rev- enues from the various sources designated, more and greater demands were made upon the government. Almost every year amendments were added that supplied additional revenues. All in all there were about forty-six amendments made to the police pension scheme, nearly all of which provided more money for the insolvent fund. Mandatory pro- visions requiring the city to meet deficiencies were passed in 1892. Since 1914 annual deficiencies have been covered by means of direct budgetary appropriations and the issue of special revenue bonds. The first commission to make a study of conditions reported in 1913 that there was a deficiency of $68,000,000 in the police fund, $31,500,000 in the fire fund and $55,000,000 in the teachers' fund. The police fund began with a "cash balance" of $423.10 the first year of its existence. That "balance" increased for 24 years until it reached $332,701.58. Then the "balance" due to the liberalization of the provisions, to include, in 1867, disability not incurred in the per- formance of duty ; to include, in 1877, retirement on application after 20 years of service without proof of incapacity; to include, in 1864, 82 HISTORY OF PENSIONS small benefits to the widows and children began to recede until at the end of 32 years of experimentation there was no money in the fund. The reports then showed a deficit of $2,365.28. At the present time the city pays more than 85 per cent of the pension payments and that sum represents in excess of 20 per cent of the payroll. Similar conditions, though not so appalling, were found by the commissions appointed in Illinois, Massachusetts, Pennsylvania, New Jersey, Connecticut, Vermont, California and Ohio, and if other states appoint commissions there is no doubt that they will make the same revelations. PENSIONS FOR TEACHERS Naturally, the inclusion of provisions which did not arise directly out of the hazardous occupations of policemen and firemen established precedents for the enactment of pensions for other public employes, of which the teachers were the first to take advantage. As stated before, the first scheme for teachers was stablished in New York in 1894. At first teachers formed the usual mutual aid societies which paid benefits in cases of sickness and provided funeral expenses. No regu- lar contributions were required. Assessments were made whenever the money was necessary. It did not take long before the teachers realized that such arrangements were entirely inadequate. Regular assessments were soon imposed and, when they did not suffice, revenues were sought from various sources, and when they again did not suf- fice the legislatures were appealed to with the usual good results. Teachers' schemes show the same inconsistency of principle and lack of standardization that the police and fire pension schemes show, the same multiplicity of different provisions, the same inequities of bene- fits, the same differences of contributions required, the same ranges of retirement ages, and the same ranges of qualifications for years of service retirement. Commissions of Same Mind More commissions have studied the pension situation as it ap- plies to teachers than as it applies to other public services. All of them Massachusetts, New York, Illinois, New Jersey, Pennsylvania, Ohio, Connecticut, Vermont, Maryland, and California have come to the same conclusion and have proved convincingly that a pension sys- tem is neither sound nor secure unless it is in a position to meet its obligations to all participants when they become eligible for pension benefits. All these commissions reported that either the pension sys- tems in their respectives states were bankrupt or were on the verge of insolvency, and that all of them were facing deficits. 83 HISTORY OF PENSIONS Turning to pension schemes for public employes other than police- men, firemen, or teachers, it was found that such laws were enacted under pressure of the better-organized departments. The first of such general municipal pension schemes was established for the employes of the Board of Health of New York City in 1894. Only a few cities thus far have followed the precedent of New York City and have en- acted laws for the benefit of their general municipal employes. Records available show that only the cities of New York, Chicago, Boston, Philadelphia, Pittsburg, Jersey City, Cleveland, Oakland, Omaha, and Atlanta have such pension schemes. Their history is practically identical with that of the development of .the police, fire, and teachers' plans. While the most recent laws recommended by the commissions which were appointed to study the problem were not in all cases en- acted as presented, due to compromises that were made and due to concessions that were made in order to expedite legislation, all of them nevertheless represent distinct steps of advancement. All of them pro- vide for the first essential necessary for a sound pension system, and that is provision for an adequate reserve to meet obligations for all time. The two most recently enacted laws of this kind were put into operation only within the last four months by the city and state of New York. The New York City legislation applies to general mu- nicipal employes and the New York state legislation applies to civil service employes. Unanimity in Reports In conclusion it might be of interest to present a summary of the unanimous findings and conclusions of the different expert commis- sions which have made reports in the past five years. Such unanimous and paramount conclusions may be stated as follows : 1. Radical revision of nearly all pension schemes necessary be- cause nearly all of them were established without the knowledge of the ultimate costs and therefore have either encountered deficiencies or soon will meet them. Recommendation: Establishment of a system on reserve basis. 2. Practice of obtaining revenues from indirect sources con- demned because cost of provisions are thereby disguised without tax- payers realizing the extent of city's support. Recommendation : Ap- propriation of specified sums each year to be calculated by an actuary. Money to be raised by direct taxation. Costs to be divided between government and participants. 3. Practice of placing contribution of employe on a "flat" basis termed inequitable. Recommendation: Contributions should be made on percentage basis of salary. HISTORY OF PENSIONS It was on the incorporation of these three fundamental principles that the various commissions experienced their hardest fights. All the commissions found that the prevailing pension schemes had a number of vociferous champions, and in nearly every instance, it was on the establishment of a reserve for the fund that the disagreement waxed most acrimonious. The champions of the old schemes would not admit that their funds were even facing deficiencies. They pointed proudly to their books and put their fingers on their "cash balances." They failed to realize that their "surplus" was merely the difference between the year's re- ceipts and the year's disbursements, that their figures considered every contributor an asset instead of a future liability which they were not providing for. They failed to recognize the fact that they were not putting aside money each year to let it accumulate to the time when de- mand would be made for it, for when they spoke of liabilities they had in mind only their liabilities toward their annuitants. They therefore were working under the delusion that they were already meeting their heaviest liabilities. They did not realize that the -liabilities would keep on increasing for forty or fifty years and that not until such a period had elapsed would the liabilities have reached their maximum. They did not realize that the money to pay the accruing liabilities must be provided each year during the service of the employe, that they must be credited when paid and then left to accumulate, together with inter- est to the time when the employe would be eligible for a pension. They did not realize that their method of financing, or any other method that does not provide for a reserve, is parallel to the issuance of bonds with- out making provisions for their retirement The entire experience of the prevailing pension schemes proves that during the early period of operation only a small part of the lia- bility matures. Each new year another portion of the liabilities be- comes due for payment or is added to the liabilities already outstand- ing. As the amount of pension payments added each year is bound to exceed the amount liquidated through death among pensioners for some fifty or more years, so the pension disbursements grow steadily until the bulk of liabilities mature about fifty years after the establishment of the fund. Though this picture of the past has a gloomy aspect, the remark- able progress made in the development of sound pension principles in the last few years, through the influence of the special commissions that have been appointed, has been so enlightening it is impossible to be- lieve that the mistakes of the past will be perpetuated by legislators of the present or the future. A more serious study of the problem by our 85 HISTORY OF PENSIONS law makers will clear the track for the establishment of pension sys- tems on sound financial, economic, and social principles everywhere. EXPERIENCE IN OTHER COUNTRIES Pension schemes in foreign countries originated with the general conception that some individuals or some group of employes were en- titled to special favors or awards from the government for the perform- ance of some distinguished service. The first records of pensions indicate that pensions were awarded to individuals as early as the Roman era. Such pensions took the form of rewards for 'special court favorites. The first group pensions were awarded to persons engaged in military or naval services. Next they began to include persons who rendered distinguished services in the realm of art, science, and literature. Then they included public servants who were engaged in everyday hazardous services, such as policemen and firemen. Liberalization of pension provisions soon set precedents which resulted in the establishment of makeshifts for the other branches of public service. Gradually the idea spread that pensions were not to be considered as rewards, but rather as a right of employes in both public and pri- vate occupations. That is the reason governments began to regard pen- sions as a responsibility that ought to be assumed by society toward employes who gave them a lifetime of service, and that is the reason that the governments alone provided for the costs of maintaining the projects that were established. Europe's experience with its early makeshift schemes were just as disastrous as the early experience of the United States. Europe, of course, had the first experience. The United States suffered from the makeshifts only because the schemes that were established here un- wittingly or otherwise, incorporated most of the fallacies and*erroneous principles which caused the distress with pensions in Europe. Had the framers of the pension schemes in this country profited from the mis- takes of the experiences in the older countries, we would not today have such an innumerable number of projects that must be revised in order to be sound and in order that the contributions of employes may be safe. Pensions Deferred Pay Just as legislators in the United States began to demand that em- ployes contribute toward the funds, so European governments long be- fore enacted provisions compelling participants in funds to contribute. Participants in European funds met with deficiencies just as afterward participants in this country came face to face with deficiencies and, as their contributions were increased to meet the ever-mounting costs, 86 HISTORY OF PENSIONS participants soon began to regard pensions as deferred pay. That is exactly what American participants will consider them if some do not already Consider them so. Even though in some European countries participants do not make actual contributions, they regard their par- ticipation in such funds as entailing actual contributions by virtue of the fact that their salaries are lower than those paid for the same service in private occupations. Out of those facts there developed a world-consciousness which produced a feeling of social responsibility for those persons who be- come disabled through sickness or accident or incapacitated through age. This social philosophy was made stronger by the idealism that was awakened throughout the civilized world by the late war. Today social justice holds that the old idea that pensions are an award is not tenable, and that pensions should be made and should be regarded as an inherent right of every employe. Pension schemes have been in operation for more than a century. France established a pension system for municipal employes before the year 1800; Austria-Hungary established a pension system for sev- eral groups of employes as far back as 1760. Naturally in those coun- tries, as well as in England and Germany, many schemes have been abandoned and many new ones have been developed. To this day, however, there are very few systems in those countries that can serve as models. For this reason it would be merely a duplication of the findings of the other commissions if there were included herein a sur- vey of individual experiences of other countries. We refer the inter- ested reader for such a survey to the reports issued by the Illinois Com- mission in 1916 and the Massachusetts Commission in 1910. Though pension legislation in this countiy is generally of an unsound character, recent legislation in this country is far better than that recently en- acted in Europe, and therefore serves as a better model. We will refer here only to the recently enacted pension systems in other countries, and we will mention only such general facts as the re- port of the Illinois Commission does not contain. As an illustration that the pension legislation of the older coun- tries should not serve as a model, we mention here the costs of some of the prevailing projects. The latest reports issued by European countries just previous to the war show that the pension systems for civil service employes in France had reached 26 per cent of the pay- roll ; Paris police, 34 per cent of the payroll ; London police, 32 per cent of the payroll ; British civil service, 31 per cent of the payroll ; Berlin municipal service, 42 per cent of the payroll ; Austrian civil service, 40 per cent of the payroll. Among the countries to enact pension legislation recently are Eng- 87 HISTORY OF PENSIONS land, Italy, Spain, and Uruguay. With the exception of the system established for teachers in England, they are all based on a contribu- tory basis. England In 1918 the urgent need of securing men and women to promote the development of education prompted the government to introduce a pension system for all grade teachers in institutions below university rank. The government assume^ responsibility for paying old age and disability pensions to teachers in schools aided by state grants. Teach- ers became eligible for superannuation allowances at the age of sixty and after 30 years of service. The amount of superannuation allow- ance is one-eightieth of average salary for each year of service or one- half of average salary, whichever is the lesser. In addition a gratuity is given in one sum of one-thirtieth of average salary for each year of service. Disability allowances are paid at the rate of one-twelfth of average salary for each year of service after ten years of service. Death benefits amounting to one year's salary will be paid if the teacher has served five years. This non-contributory system departs from the generally accepted contributory systems in vogue and is due to the influence of Mr. Herbert Fisher, president of the Board of Education. It is estimated that the total cost of the plan will reach $12,500,000 in ten years and then continue to increase in big sums. British critics of the plan point out that it is unsound and entirely too costly to be maintained for any length of time. That this plan was hurriedly planned to meet an emergency is made evident by the recent report issued by the De- partmental Committee on the Superannuation of Teachers in Secondary Schools and the report of the Sub-committee of the Executive Com- mittee of King Edward's Hospital Fund for London. Both those re- ports indirectly condemn the Fisher scheme and emphatically favor the contributory systems. Italy Compulsory old age and invalidity insurance for practically all manual laborers, salaried employes, and professional classes was en- acted in 1919. It took the place of the non-contributory systems in vogue. The age of retirement is set at 65 years. The cost of the sys- tem is maintained by equal contributions from the employes and em- ployers with a guaranteed subsidy by the government. Pension allow- ances are measured by the accumulation to the credit of each partici- pant. Such amounts can be increased "by voluntary increase of contri- butions during the service of an employe. HISTORY OF PENSIONS Spain Provisions for deferred life annuities were enacted in 1908 on a contributory basis. This act was supplemented in 1919 by a compulsory old-age insurance law for all wage-earners from 16 to 65 years of age whose total income is below $800. The deferred life annuities act is voluntary. Uruguay An old age pension law was enacted in 1919 providing a small pen- sion for all employes who reach the age of sixty. It is semi-contribu- tory in character, the employer making most of the contributions for its employes. Note The information, presented in this 'chapter was collected from official sources. All the books, pamphlets, and reports containing- material were obtained for the Pension Laws Commission by Mr. Ovid B. Blix, Milwaukee Municipal Reference Librarian, whose graciousness and co-operative spirit are gratefully acknowledged. 89 CHAPTER VII INVESTIGATION OF THE OPERATION OF EXISTING PENSION SYSTEMS IN THE CITY There are three public pension systems in operation in the city at the present time, namely : Policemen's Pension Fund Firemen's Pension Fund Public School Teachers' Annuity and Retirement Fund. Results of the investigation made in each of these cases are given in this chapter. . The data was assembled as of January 1, 1920, and all calcula- tions were made as of that date. In Table I, page 95, in the case of the policemen ; Table II, page 96, in the case of the firemen ; and Table III, page 97, in the case of the public school teachers, is given the expected cost of pensions dur- ing each year, for a period of 50 years from January 1, 1920, under a continued operation of the fund. After 50 years, the payments may be expected to run comparatively uniformly from year to year and to be those scheduled for the 50th year. Tables IV, V, and VI each contain a statement of the actual operation of the fund in question for each of the last five fiscal years of operation. Increases in Pension Payments during Forty-two Years A study of Table I discloses that the payments from the police- men's fund will run from 6.1 per cent of the payroll in the year 1920 to 29.7 per cent of the payroll in and after the year 1962. A study of Table II discloses that the payment from the firemen's fund will run from 10.1 per cent of the payroll in the year 1920 to 34.1 per cent of the payroll in and after the year 1962. A study of Table III discloses that the payments from the Public School Teachers' fund will run from 1.3 per cent of the payroll in the year 1920 to 6.8 per cent of the payroll in the year 1962. These percentages in each case have been determined by actual computations based on the experience of the fund as to ages at en- trance and rates of resignation, dismissal and death for the last ten years of operation of the fund. Level Yearly Payments required until the year 1962 Policemen's Fund The pension payments per year as given in Table I, page 95, would require a sum on hand on January 1, 1922 of $3,382,748, as tabulated hereafter, in order to pay pensions to policemen and their dependents 90 COST OF EXISTING SYSTEMS for 40 years from such date or until the year 1962, if the rate of inter- est be assumed as 4 per cent per annum. That is, if the sum of $3,382,748, were in the treasury on January 1, 1922, and no further payments were received into the funds, other than interest payments, there would be on hand an amount sufficient to pay all pensions pay- able from this fund until the year 1962, it being assumed that all bal- ances in the treasury will earn interest at the rate of 4 per cent per annum. Toward providing this sum, employes will contribute yearly amounts equivalent to an amount on hand on January 1, 1922 of $519,739, and the sum in the treasury on such date will be approxi- mately $225,000, making a total of $744,749. There will therefore need to be provided from sources other than contributions of employes, amounts equal to $3,382,748, less $744,739, or $2,638,009, on hand January 1, 1922, if pensions are to be paid as under the present plan until the year 1962, assuming interest at the rate of 4 per cent per annum. This is equivalent to equal yearly payments throughout this period of $133,281, per year or 12.7 per cent of the payroll as of January 1, 1920. On and after the year 1962, the annual payments required, out- side of contributions of the employes, will be 27.2 per cent of the payroll. TABULATION OF RESULTS Equivalent, on January 1, 1922, of amounts necessary to pay pensions to those on the pension rolls on January 1, 1920, until the year 1962. .$ 700,095 Equivalent, on January 1, 1922, of amounts necessary to pay pensions to those in service on January 1, 1920, until the year 1962 2,401,427 Equivalent, on January 1, 1922, of amounts necessary to pay pensions to those entering the service after January 1, 1920, until the year 1962 281,226 Total $3,382,748 Equivalent, on January 1, 1922, of amounts to be contributed by em- ployes until the year 1962 $ 519,739 Estimated sum in treasury, January 1, 1922 225,000 Total .......$ 744,739 Balance Amount to he provided from sources outside contributions of employes, if pensions are to be paid until the year 1962 $2,638,009 Firemen's Fund The pension payments per year, as given in Table II, page 96, would require a sum on hand on January 1, 1922, of $4,591,490, as tabulated hereafter, in order to pay pensions to firemen and their de- pendents for 40 years from such date, or until the year 1962, if the rate of interest assumed be 4 per cent per annum. That is, if the sum of $4,591,490, were in the treasury on January 1, 1922, and no further payments were received into the fund, other than interest payments, there would be on hand an amount sufficient to pay all pension's pay- 91 COST OF EXISTING SYSTEMS able from this fund until the year 1962, it being assumed that all bal- ances in the treasury will earn interest at the rate of 4 per cent per annum. Toward providing this sum, employes will contribute yearly amounts equivalent to an amount on hand on January 1, 1922 of $489,555, and the sum in the treasury on such date will be approxi- mately $225,000, making a total of $714,555. There will therefore need to be provided, from sources other than contributions of employes, amounts equal to $4,591,490, less $714,555, or $3,876,935, on hand January 1, 1922, if pensions are to be paid as under the present plan until the year 1962, assuming interest at the rate of 4 per cent per annum. This is equivalent to equal yearly payments throughout this period of $195,876 per year, or 19.8 per cent of the payroll as of January 1, 1920. On and after the year 1962, the annual payments required, out- side of contributions of the employes, will be 31.6 per cent of the payroll. TABULATION OF RESULTS Equivalent, on January 1, 1922, of amounts necessary to pay pensions to those on the pension rolls January 1, 1920, until the year 1962 $1,033,331 Equivalent, on January 1, 1920, of amounts necessary to pay pensions to those in service on January 1, 1920, until the year 1962 2,917,372 Equivalent, on January 1, 1922, of amounts necessary to pay pensions to those entering the service after January 1, 1920, until the year 1962. . 640,787 Total $4,591,490 Equivalent, on January 1, 1922, of amounts to be contributed by em- ployes until the year 1962 489,555 Estimated sum in treasury January 1, 1922 225,000 Total $ 714,555 Balance Amount to be provided from sources outside contributions of employes, if pensions are to be paid until the year 1962 $3,876,935 Public School Teachers' Fund The pension payments per year, as given in Table III, page 97, would require a sum on hand on January 1, 1922, of $2,188,173, as tabulated hereafter, in order to pay pensions to public school teachers for 40 years from such date or until the year 1962, if the rate of in- terest assumed be 4 per cent per annum. That is, if the sum of $2,188,173, were in the treasury on January 1, 1922, and no further payments were received into the funds other than interest payments, there would be on hand an amount sufficient to pay all pensions pay- able from this fund until the year 1962, it being assumed that all bal- ances in the treasury will earn interest at the rate of 4 per cent per annum. Toward providing this sum, employes will contribute yearly amounts equivalent to an amount on hand on January 1, 1922, of 92 COST OF EXISTING SYSTEMS $801,608, and the sum in the treasury on such date will be approxi- mately $340,000, making a total of $1,141,608. There will therefore need to be provided, from sources other than contributions of employes, amounts equal to $2,188,173, less $1,141,608, or $1,046,565, on hand January 1, 1922 if pensions are to be paid as under the present plan until the year 1962, assuming interest at the rate of 4 per cent per annum. This is equivalent to equal yearly payments throughout this period of $52,876 per year, or 2.2 per cent of the payroll as of January 1, 1920. On and after the year 1962 the annual payments required out- side of contributions from employes, will be 5.2 per cent of the payroll. TABULATION OF RESULTS Equivalent, on January 1, 1922, of amounts necessary to pay pensions to those on the pension rolls January 1, 1920, until the year 1962 $ 135,468 Equivalent, on January 1, 1922, of amounis necessary to pay pensions to those in service on January 1, 1920, until the year 1962 1,924,527 Equivalent, on January 1, 1922, of amounts necessary to pay pensions to those entering the service after January 1, 1920, until the year 1962. . 128,178 Total .'.$2,188,173 Equivalent, on January 1, 1922, of amounts to be contributed by em- ployes until the year 1962,. (Intimated at $40,500.00 per annum) $ 801,608 Estimated sum in treasury January 1, 1922 340,000 Total * -.$1,141,608 Balance Amount to be provided from sources outside contributions of employes, if pensions are to be paid until the year 1962 $1,046,565 Policemen's Fund as Compared with Firemen's Fund The expected payments in the policemen's fund run low as com- pared with those in the firemen's fund. This is the usual experience in such funds and is accounted for in that policemen do not retire on pension at as early an age on the average as do firemen. This is pos- sibly because there are more positions available in the police depart- ment, than in the fire department, which an employe can properly fill after his physical vigor has begun to decline. In the case of the Milwaukee funds, however, the difference is greater than usual, a fact Which can readily be accounted for in this instance because the policemen do not have as strong a guarantee of sufficient income to meet pension demands as do the firemen. Policemen's and Firemen's Funds as Compared with Funds in other Cities In both funds, the expected payments run rather low as compared with those in funds of other cities for like services and regulated by somewhat similar provisions. This is due to tw r o causes: First. Although 'a few have retired on pension at somewhat early 93 COST OF EXISTING SYSTEMS ages, the ratio of the number that have done so to the number in the whole department is smaller than is usual in funds for like services where the systems are older. Second. Evidences of young women marrying old employes, which appear in some of the older systems, have been entirely lacking in these services. The acts regulating both funds, however, provide a maximum pension, upon completion of a definite number of years of service, namely 22 years, and provide certain stipulated pension payments per month to widows without reference to the difference in ages as be- tween such widows and their husbands. The history of pension funds that have been established for a considerable number of years, both in this country and foreign countries, has been that payments from funds where such provisions obtain will eventually run to something in the neighborhood of 40 per cent of the payroll . There is no reason to believe that the experience of these funds will be different from that of older funds if these provisions are al- lowed to remain in these acts without modification. Public School Teachers' Annuity and Retirement Fund The .expected payments from the Public School Teachers' Annuity and Retirement Fund run somewhat low as compared with those of other public school teachers' funds operated under somewhat similar provisions. This is due to the fact that an unusually long period of service, namely 35 years, is required for service pension when teachers leave the service before attainment of age 65. 94 COST OF EXISTING SYSTEMS TABLE I. POLICEMEN Showing the Annual Pension Payments to Policemen under the present plan and the percentages these payments are to salaries. I Year i 'ayments to pensioners of 1/1/20 ind to their dependents Payments to those in service on 1/1/20 and to their dependents Payments to those who enter service after 1/1/20 and to their dependents Total Pension Payments Ratios of pension payments to salaries In percentages (Col. 1) (Col. 2) (Col. 3) (Col. 4) (Col. 5) 1920 . $55,683 $ 8,562 $ 32 $ 64,277 6.1 1921 53,774 20,505 74 . 74,353 7.1 1922 52,846 31,778 128 84,752 8.1 1923 51,893 42,049 194 94.136 9.0 1924 50,907 52,591 290 103,788 9.9 1925 49,887 62,270 414 112,571 10.7 1926 . 48,830 71,077 572 120,479 11.5 1927 47,741 79,302 760 127,803 12.2 1928 46,612 87,461 982 135,055 12.9 1929 45,449 95,161 1,242 141,852 13.5 1930 44,253 102,596 1,538 148,387 14.1 1931 43,035 108,396 1,870 153,301 14.6 1932 41,790 113,972 . 2,242 158,004 15.0 1933 40,526 119,444 2,788 162,758 15.5 1934 39,249 124,772 3,510 167,531 16.0 1935 37,951 130,251 4;418 172,620 16.4 1936 36,642 135,751 5,516 177,909 16.9 1937 35,325 <* 141,250 6,814 183,389 17.4 1938 33,998 146,950 8,314 189,262 18.0 1939 32,663 152,639 10,024 195,326 18.6 1940 31,316 158,182 12,284 201,782 19.2 1941 29,959 163,405 15,160 208,524 19.9 1942 28,597 168,453 18,710 215,760 20.5 1943 27,227 173,043 23,094 223,364 21.3 1944 25,853 177,239 28,436 231,528 22.0 1945 24,477 180,775 34,844 240,096 22.9 1946 . 23,104 183,657 42,432 . 249,193 23.7 1947 21,730 185,866 51,128 258,724 24.6 1948 20,363 187,264 61,006 268,633 25.6 1949 18,999 187,972 72,096 279,067 26.6 1950 17,647 187,489 84,330 289,466 27.6 1951 16,303 186,233 90,897 293,433 27.9 1952 14,966 184,121 98,108 297,195 28.3 1953 13,617 181,038 105,753 300,408 28.6 1954 12,334 177,227 113,816 303,377 28.9 1955 '.. 11,088 172,631 122,291 306,010 29.1 1956 . 9,373 167,320 131,072 307,765 29.3 1957 7,823 161,315 140,106 309,244 29.4 1958 6,340 154,734 149,411 310,485 29.6 1959 4,974 147,529 158,762 311,265 29.7 1960 3,569 139,854 168,087 311,510 29.7 1961 2,546 131,823 177,312 311,681 29.7 1962 1,836 123,494 186,405 311,735 29.7 1963 1,371 115,366 195,317 312,054 29.7 1964 1,178 106,366 204,551 312,095 29.7 1965 . 912 97,742 213,446 312,100 29.7 1966. , 757 89,138 222,208 312,103 29.7 1967 638 80,646 230,824 312,108 29.7 1968 529 72,189 239,392 312,110 29.7 1969 434 64,235 247,441 312,110 29.7 95 COST OF EXISTING SYSTEMS TABLE II. FIREMEN Showing the Annual and the percentages thesi Payments to pensioners Year of 1/1/20 and to their dependents (Col. 1) 1920 $86,210 1921 84,411 1922 82,794 1923 81,136 1924 79,405 1925 77.624 Pension Payments to Firemen under the z payments are of salaries. Payments to Payments to those in those who service on enter service 1/1/20 and after 1/1/20 Total to their and to their Pension dependents dependents Payments (Col. 2) (Col. 3) (Col. 4) $ 13,247 $ 103 $ 99,560 26,198 264 110,873 36,717 488 119,999 47,383 778 129,297 57,938 1,140 138,483 68,383 1,586 '147,593 78,540 2,121 156,484 89,010 2,749 165,696 99,381 3,471 174,844 109,603 4,339 183,919 119,253 5,352 192,447 128,643 ' 6,517 200,811 138,209 7,832 209,433 149,363 9,296 219,712 159,482 10,912 229,093 168,517 12,678 237,509 176,527 14,592 244,982 184,488 16,654 252,564 192,363 18,860 260,072 199,359 21,209 266,849 206,035 23,701 273,^84 211,763 26,654 279,647 217,535 30,084 286,577 221,937 34,015 292,071 225,121 38,468 297,149 227,428 43,470 301,917 228,935 49,033 306,512- 229,290 55,152 310,574 228,786 61,836 314.441 227,371 69,076 318,204 224,873 76,874 321,619 221,540 85,199 324,736 217,281 94,025 327,472 212,240 103,310 329,800 206,253 112,965 331,740 199,487 122,951 333,333 191,983 133,217 334,647 183,734 143,710 335,641 174,817 154,371 336,301 165,176 165,135 336,536 155,130 175,908 336,546 145,073 186,664 336,601 135,076 197,339 336,628 125,140 207,879 336,683 115,301 218,224 336.756 105,682 228,322 336,854 96,225 238,095 336,869 87,266 247,449 337,000 78,884 256,114 337,043 71,188 264,086 337,085 present plan Ratios of pension payments to salaries in percentages (Col. 5) 10.1 11.2 12.1 13.1 14.0 14.9 15.8 16.7 17.7 18.6 19.5 20.3 21.2 22.2 23.2 24.0 24.8 25.5 26.3 27.0 27.6 28.3 29.0 29.5 30.0 30.5 31.0 31.4 31.8 32.2 32.5 32.8 33.1 33.3 33.5 33.7. 33.8 33.9 34.0 34.0 34.0- 34.0 34.0 34.0 34.0 34.1 34.1 34.1 34.1 34.1 1926 . 75,823 1927. 1928 . 1929 . 1930 . . 73,937 . . .... 71,992 69,977 67,842 1931 . 65,651 1932 . . 1933 . , 1934 . . 63,392 61,053 58,699 1935 . 1936 . 56,314 53,863 1937 . . 1938 . . 51,422 48,849 1939 . . 46,281 1940 . . 43,748 1941 . . 1942 . . 1943 . . 1944 . . 41,230 38,958 36,119 33,560 1945 . , 31,019 1946 . 1947 . . 28,544 26,132 1948 . . 23,819 1949 . . 21,757 1950 . . 19,872 1951 . . 17,997 1952 . . 16,166 1953 . . 14,250 1954 . . 12 522 1955 . . 10,895 1956 . 1957 . . 9,447 ..... 8,197 1958 . . 7,113 1959 . . 6,225 1960 . . 1961 . . 1962 . . 5,508 4,864 4,213 1963 . . 1964 . . 1965 . . 3,664 3,231 2850 1966 . 2,549 1967 . . 1968. . 1969 . . 2,285 2,045 1,811 96 COST OF EXISTING SYSTEMS TABLE III. TEACHERS Showing the Annual Pension Payments to Teachers under the present plan and the percentages these payments are of salaries. Payments to Payments to those In Payments to those who Ratios of pensioners service on enter service pension Year of 1/1/20 1/1/20 and after 1/1/20 Total payments to and to their to their and to their Pension salaries in dependents dependents dependents Payments percentages (Col. 1) (Col. 2) (Col. 3) (Col. 4) (Col. 6) 1920. $18,095 $ 12,900 $ 104 $ 31,099 1.3 1921 16,588 21,170 261 38,019 1.5 1922 15,957 28,648 457 45,062 1.8 1923 15,308 36,248 691 52,247 2.1 1924 14,640 43,903 949 59,492 2.4 1925 13,531 51,931 1,224 66,686 2.7 1926. , 12,642 58,953 1,508 73,103 3.0 1927 12,020 65,998 1,781 79,799 3.2 1928 11,174 72,207 2,038 85,419 3.5 1929 10,400 79,278 2,283 91,961 3.7 ' 1930 9,650 86,242 2,519 98,411 4.0 1931 8,795 91,592 2,747 103,134 4.2 1932 , 7,583 97,520 2,969 108,072 4.4 1933 6,686 102,701 3,189 112,576 4.6 1934 6,156 106,417 3,407 115,980 4.7 1935 5,521 109,800 3,627 118,948 4.8 1936 . 4,677 113,268 3,851 121,796 4.9 1937 4,147 115,736 4,066 123,949 5.0 1938 3,773 118,033 4,310 126,116 5.1 1939 3,520 120,229 4,595 128,344 5.2 1940 3,267 122,356 4,943 130,566 5.3 1941 2,691 124,553 5,335 132,579 5.4 1942 2,377 126,374 5,793 134,544 5.4 1943 1,872 128,292 6,325 136,489 5.5 1944 1,619 129,519 6,934 138,072 5.6 1945 1,598 130,373 7,625 139,596 5.6 1946 . 1,403 131,284 8,402 141,089 5.7 1947 1,319 133,113 9,267 143,599 5.8 1948 940 134,986 10,228 146,154 5.9 1949 872 136,563 11,291 148,726 6.0 1950 805 137,760 12,465 151,030 6.1 1951 556 138,559 13,638 152,753 6.2 1952 425 138,832 14,812 154,069 6.2 1953 . 368 139,578 16,280 156,226 6.3 1954 206 139,836 18,060 158,102 6.4 1955 100 139,595 20,153 159,848 6.5 1956 . 138,602 22,561 161,163 6.5 1957 . . . 137,037 25,282 162,319 6.6 1958 . . . 134,966 28,404 163,370 6.6 1959 . . . 132,444 31,907 164,351 6.6 1960 ... 129,399 35,761 165,160 6.7 1961 . . . 125,900 39,939 165,839 6.7 1962 . . . 121,934 44,405 166,339 6.7 1963 117,636 49,080 166,716 6.7 1964. .. 113,059 53,901 166,960 6.7 1965 108,249 58,815 167,064 6.8 1966. . 103,239 63,843 167,082 6.8 1967 . . . 98.136 68,964 167,100 6.8 1968 . . . 92,979 74,137 167,116 6.8 1969 . . . 87,772 79,332 167,104 6.8 97 CO s w H CO fH CO ^ o > ^ *7 ^ !-l M H W .S, CO i-J O H O u CQ "c S ' c^2 g" B i c OS O to rt 8 PH s s s | CM IO o N?1 CM NO ON ON 1 S- 00 3 $ S "3 5 tt *! 8 s X g 8 & ^j o 08 CO CO 3 g CO CO ^q" CO cO Q CM" 01 CO a S S2 00 ^^ 2 CO 3 ^o to NO O .0 t, o CO* CM ^il 5 r M fc C ffl CO S CO CM ON fn CO fO ^1 ss to NO NO CM i o" IO 3 CM 2S L iS CO m = 2 ON i 3 to 3 i CO ft tx CO CM O r 1 0) to to Tf- CO 0~ tfi- K 3 s to ON ~ CM ff >> Is - a 00 CM o to to NO feg NO J^ 00' o' Tj- H ft* Assets at inning of cal Year CM | i to' 00 r-H 10 odto' to ^j- CM ^ - 3 to .2 In* ^ to CM 3 c^ ON ON CM CM EH I H oooo ON ON "3 ON ON C\ O\ON ON ON ON ON ON ON o E ^H"-l CTj 03 CTj ^^^ -^l^l^t rt rt 5<5! 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H. r/3 c/^ c OCO CO COG A C- ococ a o, o, J 1> QJ OCO CO 100 CHAPTER VIII ACTUARY'S CHAPTER The yearly costs of present pension systems, as given in Chapter VI, were computed by means of an Active Service Table, and Salary and Pension Scales, according to the usual methods. For a descrip- tion of the methods employed, the reader is referred to the Report of the Illinois Pension Laws Commission of 1916.* The cost under the proposed plan was computed, in the cases of the firemen's and public school teachers' funds, by use of the same service tables and salary scales as were used in determining the costs under the present plans. In each case, the actual liability as of Janu- ary 1, 1922 was first computed and then by means of the tables men- tioned, the part of such liability that might be expected to become an actual liability after resignations, dismissals and deaths were accounted for, was determined. As the method of attack on such a problem is obvious, no good purpose would be served in entering into detail as to the exact manner in which this part of the work was performed. In computing the cost under the proposed plan, in the case of the policemen's fund, the actuary did not employ the methods used in the other cases but based his computations on the cost to be expected under the operation of this fund, on a sound financial basis. His adoption of such a course was due to the low rates of service retirement exhibited by the statistics of this fund, and the certainty in his mind that such low rates would not continue if the fund was placed on a sound financial basis. If he is in error in assuming that these low rates will not continue, the only effect would be that this fund would be placed on a full re- serve basis a few years earlier than it otherwise would be, while if it should happen that the low rates would not continue and his calcula- tions were based on the supposition that they would continue, an in- justice might result to this group of employes. In determining the cost under the proposed plan in the case of the municipal employes, the actuary was unable to construct an active service table because this group is not now in any pension system. In this case, he took the only course possible for him and used the table he had himself assisted in preparing for the municipal service of Chi- cago. He believes that the amounts stated will be entirely sufficient to finance this fund. In the preparation of this Report and the Bills accompanying it, the greater part of the actual details of the work naturally fell to the A copy may be obtained by addressing D. F. Campbell. 78 W. Monroe St. Chicago. 111. 101 ACTUARY'S CHAPTER Actuary and the Technical Advisor of the Commission. But although the actual working out of the details fell, for the most part, to them, the designing of the plan in its outlines was a duty imposed on the Commission, and each member of it responded to the call to perform this public duty with a faithfulness of purpose and conscientious effort, worthy of the cause. During the period when the plan was under con- sideration, each gave of his time unsparingly, and each contributed ma- terially to the work. Where all have done so well, it may be perhaps unjust discrimina- tion to particularize, but the other members of the Commission, and the Commission's Staff, wish the public to know that Mr. Manschot, the Chairman of the Commission, devoted his entire time to this work and brought to it the experience of a long life, with the conscientious eflfort .of manhood, and the enthusiasm of youth, and all without hope of re- ward other than the satisfaction that would be his if the work were well done. HIS HONOR, the Mayor, THE HONORABLE, the Common Council, and all in position of authority have aided the Commission in its work in every way possible. The Commission was extremely fortunate in the choice of its Executive Secretary. Mr. Herwig joined the staff about March 1, without extensive knowledge of pensions. Since then, he has become a real expert on the subject. He gathered, under direction of the Actuary, the data used in preparing this Report. He devised and wrote Chapter V, the chapter dealing with the History of Pensions, and among the many articles dealing with this subject, this is quite the best. He had in charge the publicity end of the work, and the gratifying situation existing where the great body of employes understand the proposed plan and approve of it, is due in great part to Mr. Herwig's efforts in explaining the plan to them. The City Attorney assigned to the Commission as Legal Advisor, Mr. W. J. Mattison, whose knowledge of the law with his willingness to help have been invaluable. The thanks of this Commission are due and are hereby tendered to the Milwaukee Public Library and to the Municipal Reference Library and more particularly to Mr. Ovid B. Blix and Miss C. H. McGovern of the Municipal Reference Library. A deterrent influence to sound pension legislation in this country has been the hostile attitude toward such Jegislation on the part of the employes concerned. That this Commission will have no unpleasant recollection of hostility on the part of the employes is due in great. measure to its own 102 ACTUARY'S CHAPTER wisdom and in great measure to fhe good, sound, common sense dis- played by the employes of the city. One of the first acts of the Commission was to classify the em- ployes into groups, corresponding to the groups that they had in mind would comprise the several groups in the proposed system. It then asked each group to elect an Advisory Council of some 50 to 80 em- ployes, depending on the size of the group. Each Advisory Council was asked in turn to elecjt a Consulting Committee who would be the body to bring before the Commission, after approval by the Advisory Council, any recommendations which the employes might see fit to make. A duty imposed on each Advisory Council and Consulting Commit- tee was to explain the provisions of the proposed plan to their fellow- employes. All Advisory Councils, without exception, performed this duty well, as did also all Consulting Committees with one exception. In one single instance, the employes of the group concerned were placed in an unfortunate position in that two members of their Con- sulting Committee, one of them the chairman, adopted, from the out- set, an attitude toward the work of the Commission which could be in- terpreted only as one of hostility. As a result this group did not ex- perience the full benefit of the campaign of education and friendly co- operation with the Commission which was expected when this Commit- tee was authorized. The Commission, however, through its Executive Secretary and Actuary did everything in its power to see that the em- ployes of this group were made acquainted with the provisions of the proposed plan. If the proposed plan is adopted, the city of Milwaukee will be the first city in this or any other country to adopt a uniform and equitable pension system for all its employes, with adequate 'provisions for financing it, instead of the makeshifts now too often in effect. The Actuary and the Technical Advisor hope that this honor will come to your city, and if it does, their principal reward will lie in their consciousness that in doing their part, they haye done it, each to the best of his ability. 103