OFFICE OF LEGISLATIVE COUNSEL MEMORANDUM FOR THE RECORD RE: DANIELS BILL - H.R. 770

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP72-00337R000100120008-7
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 4
• Document Creation Date: December 19, 2016
• Document Release Date: July 12, 2006
• Sequence Number: 8
• Publication Date: March 26, 1969
• Content Type: MFR

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Z6 March 1969
MEMORANDUM FOR THE RECORD
SUBJECT: Daniels Bill - H.R. 770
1. This memorandum briefly analyzes the Daniels bill (H. R. 770).
what it does, and its possible impact on the CIA Retirement Act.
2. What it does. The Daniels bill is concerned with two aspects
of the Civil Service retirement system:
a. to improve the financing and funding practices of the
Civil Service retirement system, and
b. to improve the benefit structure.
3. Benefits. As introduced, the bill provided five benefit improve-
a. Authorize inclusion of overtime and premium compensation,
along with basic salary, to arrive at "average pay. "
b. Establish average pay over high three rather than high
five consecutive years.
c. Credit unused sick leave to total actual service.
d. Add a flat 1 percent increase to each future cost-of-living
annuity adjustment.
e. Extend the benefits of P.L. 89-504 to remarried survivor-
annuitants (age 60 rule) to cases where spouse retired or died
prior to 18 July 1966 when Section 506 became effective.
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4. Overtime compensation. The provision would increase an
agency's payroll costs yb 6 1/2 percent of overtime and premium compen-
sation paid. Employees receiving such compensation would be required to
make an equivalent contribution. In many instances the provision would not
benefit the employee, particularly in the middle and higher grades where
overtime is not paid, and does not form a basis for average salary. From
the Civil Service Commission's standpoint the most unacceptable aspect of
this provision is the $2.5 billion it would add to "unfunded liability. "
However, the agency's overtime policy could be called into question by an
employee whose average pay would be potentially increased. According
to the Daniels Subcommittee staff (21 March 1969), the Committee will most
likely defer to CSC and drop this provision.
5. Average pay. The high five element in annuity computation tends
to lead to postponement of retirement and shortening this period to three
years may have a tendancy to speed up retirement. It had been estimated
last year that this feature would increase "normal cost" by .07 percent.
6. Sick leave credit. The payroll coat to Government agencies
would be 25 percent of the sick leave so credited. There would be no cost
to the employee. In the case of disability retirements this provision would
eliminate the need to carry the participant in sick leave status and on
ceiling during sick leave (with resultant accumulation of annual and sick
leave) prior to retirement. The provision also authorizes the annuity
ceiling of 80 percent to be exceeded for this purpose.
7. Cost-of-living. The additional I percent increase authorized
when annuities are adjusted for cost-of-living in the future is intended to
offset the five-month lag between a 3 percent increase over the base period
and the effective date of any increase. All cost-of-living adjustments of
annuities add to "unfunded liability. " Further, Section 103 of the bill
(page 7 (h) ) prohibits the payment of as cost-of-living adjustment for
" . . . any fiscal year which begins more than one year after the effective
date of that increase unless and until an appropriation is made by the
Congress to compensate the Fund for the cost . . . ".
8. Remarriage survivor-annuitant. The CIA Retirement Act
presently does not contain a similar provision and, in fact, provides for
termination of survivor annuity upon remarriage.
9. Financing and funding proposals.
a. H. R. 770 in Section 102 establishes a 7 percent deduction
and contribution rate to be effective December 31, 1969. This
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feature tends to make the CIA Retirement Act, or any other retire-
ment act having a 6 1/2 percent rate, more attractive in comparison.
In the Agency, where conceivably both rates could apply, this
situation would seem to create an understandable impetus to be
covered by the CIA Retirement Act and its lower contributory rate
rather than the Civil Service system. There may be additional
ramifications if Agency employees are divided by two different
contribution rates for retirement.
b. Section 102 authorizes the Civil Service Commission to
make further adjustment of contribution rates against "normal
costs, " which are defined in Section 101(3) of the bill, subject to
congressional veto.
c. Section 103 (page 7 (g) ) requires partial funding of existing
"unfunded liability, " which is defined in Section 101(3), through a
sliding scale of payments on interest, and Section 103 (page 6 (f) )
requires full funding of unfunded liability in the future for new or
liberalized benefits, extension of coverage, or general increase
in pay structure.
d. In addition to requiring employing agencies to contribute
25 percent of the value of unused sick leave credit to the fund
(Section 103, page 8 (j) ), the Secretary of Defense is required
to pay an amount determined by the Commission sufficient to cover
annuity disbursements which. are attributable to "tmilitary service"
(Section 103, page 8 (i) ).
In the past, the unions have opposed giving the Commission the authority to
establish contribution rates administratively and this provision is a likely
candidate to be dropped in the compromise which necessarily will have to
be reached on the bill (see Memorandum for the Record, dated L1 March,
re discussion with Subcommittee staff).
10. Conclusion. It seems reasonable that any action on the Agency's
part to seek the improved benefits of the Daniels bill will also involve
questions concerning the actuarial Impact of the benefits on the CIA Retire-
ment and Disability Fund. Quite likely the minimum price for equivalent
amendments to the CIA Retirement Act would be an increase in contribution
rates. The adoption of some of the other financing and funding practices
ultimately approved in the Daniels bill may also be involved. The passage
of the Daniels bill still raises two inevitable questions:
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a. the ramifications of different contribution rates for
employees within the Agency (depending upon the retirement
system which covers therm), and
b. the continued viability of the CIA Retirement Act.
In 1964 the advantage of retirement under the CIA system in most instances
was a 3. 75 percent larger annuity and eligibility to retire at an earlier age
without reduction in annuity. This 3.75 percent annuity advantage may be
reduced to as little as 2.45 or less if the sick leave credit provision is
eventually enacted for Civil Service but not for the CIA retirement system
(last year the 1324 hours of unused sick leave to the credit of the last 29
retirees under the CIA system could generate a 1.3 percent increase in
annuity- -with an inducement to preserve sick leave, this figure most likely
would be higher). Clearly, the 1964 advantage for retiring under the CIA
rather than the Civil Service system has been eroded and can be further
diminished or completely overtaken by the enactment of other benefits
proposed by H.R. 770, such as using three rather than five consecutive
years of high salary for computing an annuity and adding a 1 percent bonus
to the cost-of-living increases generated under the more liberal Civil
Service formula. Since 1964, the age requirements for retirement with
full annuity under Civil Service have been reduced. In the case of
involuntary separations there is no reduction in annuity for retirement at
age 55 with 20 years of service. The average retiree under the CIA
system is now 55 years of age and has 24 years of. service. On balance
then, it must be concluded that the Agency must keep pace with the improved
benefits of the Daniels bill if the viability of the CIA Retirement Act is to
be maintained.
Distribution:
Orig. - Subject
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Assistant Legislative Counsel
OLC/LLM:rw (27 March 1969)
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