GENTLEMEN:

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78-03089R000100030019-2
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 7
• Document Creation Date: December 12, 2016
• Document Release Date: March 11, 2002
• Sequence Number: 19
• Content Type: LETTER

Approved r Release 2002/03/20 : CIA-RDP78-039R000100030019-2
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Gentlemen:
With the permission and encouragement of the DD/SS, I am submitting
a specific proposal to you today for your consideration. It is a proposal that
I think would contribute significantly to the CIA personnel program and make
CIA a leader among government departments and agencies.
My specific proposal is shown on the first page of your "handout."
Each of you has received previously a copy of an analysis I have made
of the Tennessee Valley Authority "Take Stock Flan." This Take Stock Plan
is the basic inspiration for my proposal. To my knowledge, TVA, through
this plan, is the first and only instrument of the Federal government to use
a "Qualified Pension Trust" to assist its employees to save and invest personal
funds without income tax dilution for their eventual retirement. It is also
the first to foster, if not encourage, the investment of such funds in common
stocks and other equity securities.
The law of the land provides a tax shelter for limited investment of
retirement funds. Private industry and self-employed persons make extensive
use of these provisions in retirement planning, so why should not the CIA take
the lead in government?
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The basic reasons why I think CIA would be justified in incurring the
expense and difficulty of operating a voluntary employee retirement savings
and investment plan are enumerated in my paper on TVA activities in this
field. I overlooked or underrated the simple reason that the opportunity to
do something outstandingly constructive for the benefit of our employees is
too great to ignore.
Purposely omitted from your copies of my analysis of the TVA Take
Stock Plan are several exhibits which demonstrate the efficacy of investing
personal savings for retirement in common stocks through a tax exempt
mechanism.
To fully understand these exhibits, it is necessary that I give you a
brief description of the total TVA retirement program and its historical
evolvement.
The TVA normal retirement benefits consist of the following:
a. Social Security
b. A pension based on TVA contributions (approximately
6.45% of current payroll) to a pension fund. Pensions are based on
years of service and average salary.
c. An annuity based on mandatory employer contributions
at 6% of salary (less social security taxes) to a separate annuity fund.
The combination of all three of these retirement benefit programs roughly equates
to Civil Service Retirement.
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Originally the annuity portion of this package provided the retired
employee with a fixed monthly payment for life determined actuarially by the
amount of money the individual would contribute during his working career
and presuming compounded interest at a fixed rate. Initially the rate was
4%, reduced to 3% for new employees during the cheap money depression years,
and currently 4970 for all employees.
In 1959, however, employees were given the new option of having all
or part of their annuity contributions invested in a separate fund which would
be invested in common stocks and high yield securities. To the extent this
fund appreciated more than 4% per year compounded, eventual annuities would
be larger. In the event the fund appreciated at less than 4970, annuities would
necessarily be less. In brief, the employee could elect to seek a substantially
larger annuity by accepting the risks of receiving a variable annuity.
Are there any questions?
Now for the results - in view of the growth of our national economy
and the inflation that has occurred, you will not be surprised. The second
page of the handout gives the latest story.
Look first at the box in the lower right-hand corner and the starting
date of January 1959. If an individual's contributions had been invested in the
fixed 4% fund, contributions of $100 per month during the past ten years would
have grown to $11, 700. The same amount invested in the variable fund would
have grown to $19, 892.
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Let me caution you not to be misled by the dollar figures. $20 to $50
per month is more realistic than $100. The important thing is the percentage
of growth. In lieu of a fixed 4% growth, the factual record shows an average
annual growth of 10.6% for the variable annuity fund. Those who entered this
plan in later years have had even more phenomenal growth in their annuity
fund. In any event, at the moment it appears that all participants can anticipate
substantial increases in their ultimate variable annuity payments.
If you will turn for the moment to the next page, you can see the actual
effect upon annuities of several persons who retired between 1959 and 1967 and
who were participating in the variable annuity fund.
Case #1 is an employee who elected in 1959 to put his annuity contributions
into the variable fund even though he was scheduled to retire four years later.
His few years of contributions to the variable fund started him with an annuity
of $57.33. The same money in the fixed annuity fund would have brought $52.47,
almost as much.. Yet another four years later, his annuity has increased to
$73.00 per month. This is an increase of 39%. During the same period, no
increase has occurred in his TVA pension and increases in social security occur
only if enacted by law.
Returning to the prior page, the tabulation in the lower left corner shows
how the value of a unit share of the variable annuity has fluctuated with stock
market trends. In 1960 and 1962 employees clearly had lost part of their retire-
meat contributions. Nevertheless, the forces of a growing economy and inflation
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inexorably show up and unless all generally accepted economic theory proves
false, good equity investments will out perform investments in dollar instruments
in the long run.
Initially only a small percentage of TVA employees put all or part of
their annuity contributions in the variable annuity fund. Today 50% of them
are not only doing so, but when permitted in 1966, some $4, 000, 000 in prior
contributions to the fixed fund was transferred to the variable fund.
It was the success and fevered acceptance of the variable annuity concept
that led to the adoption of the supplemental optimal retirement savings and
investment plan - Take Stock.
This plan was two years old in'October 1968. The results are reflected
in the top part of page two of the handout. In Take Stock, the employee savings
are invested exclusively in common stocks and other equity securities through
the mechanism of two load mutual funds. The Fidelity, Trend Fund seeks capital
growth in its common stock acquisitions. The Puritan Fund primarily emphasizes
high investment dividends.
In this connection, it is extremely interesting and important to note that
the more conservative, high income fund - the Puritan Fund - has appreciated
more than the more speculative Fidelity Trend Fund. It is even more important
to note that the conservative variable annuity fund which is managed by the First
National City Bank of New York has a yearly average growth rate in excess of
either of the two mutual funds. The time spans are, of course, very different
and direct comparison would be ill advised.
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This brings me to the last point of my discussion.
The selection of the investment media is clearly of utmost importance.
The TVA selection of two mutual funds having the common goal of high growth
but by differing investment philosophies permits employees to invest under
either or both philosophies. A unique feature of selecting two funds under,
the same management is that it permits employees to transfer their funds
without any penalty from one fund to the other depending upon their personal
appraisal of future economic trends.
In any event, the selection of investment media, be they 'load" mutual
funds, "no load"' funds, open or closed end investment companies such as
Lehman Brothers, Tri Continental Corporation, trust companies or investment
bankers, must be a matter of primary concern to CIA and a matter over which
CIA must retain ultimate control. As the materials given you indicate, the
TVA has such control.
I am open for questions.
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