government of fifty or sixty millions of dollars in order to put the employees already in the service on an approximate parity with those entering the government's employ after the plan is enacted into law. And, if the rest of its scheme will withstand careful examination and reasonable criticism, this recommendation of the Subcommittee does not seem to us to be open to serious objection. Indeed, if, as the Keep Sub-committee clearly implies, the expenditure of fifty or sixty millions of doilars distributed through a long series of years would be the only cost to the government of ridding itself of all loss through the inefficiency of superannuated employees, it is possible that the expenditure mentioned might even be an economic gain to the taxpayers. But those portions of the plan which are open to most serious objection and deserve the severest criticism are either not discussed by the Sub-committee at all or only very slightly.

A Premium on Resignations.

For example, it is an integral part of the Keep Subcommittee's scheme that whenever an employee is separated from the government service for any reason he shall be entitled to receive at once in cash the entire amount of his forced monthly loans to the government with four per cent interest compounded annually, and if this should amount to as much as $1,000 he has certain further options which we have already mentioned in our synopsis of the sub-committee's scheme.* This is a direct inducement to and premium upon resignation of the brightest and most enterprising of the government's civil employees. A pension system needs for its justification two distinct advantages, first, it rids the service of the superannuated, and second, it tends to keep in the service the capable through their years of usefulness by offering them a greater pecuniary advantage if they stay than if they resign. Under the plan which we are examining, employees in the prime of their usefulness get just as much advantage, pro rata, from

See pages 69 to 71 supra.

their loans to the government if they resign as if they stay on. Indeed, getting a lump sum at once, instead of having to wait for many years, would be, to many persons, a distinct privilege. In our last report, we stated, "Any retirement scheme which provides for refunds is objectionable because it puts a cash premium upon resignation." The Sub-committee tried to meet this by saying that our objection was "predicated upon the theory of a flat assessment of 5% or some such rate upon all salaries, and has no application to the plan of accumulated individual savings here described." Our objection was not based upon any such flat rate assessment alone; it was an intensely practical objection. We believe that. any plan through which the government undertakes to make provision for the old age of its employees should furnish some inducement to prevent resignations of its employees in the prime of life.

This subject of resignation is no small matter. The United States Civil Service Commission, in its 23rd Report (p. 12) .complains of the great "loss of valuable employees after they have acquired experience;" and in the last report of the League on superannuation (in 1906), we called attention to the fact that the deaths, resignations and removals for the year 1904-5 (the latest data then obtainable), in the competitive classified service, amounted to over 8%, the resignations alone being nearly 6% (p. 4). The data for the very next year, 1905-6, show that the percentage of separations has increased to 12.6%, () and of resignations to nearly 8% (); and more significant still, this 8% is mostly among the most capable in the very prime of life, who are tempted to leave the service for better positions outside. To meet this condition, the provisions of a well considered scheme should be so planned as not only to

(") See 23rd Report, U. S. Civil Service Commission, p. 13, for number of competitive positions (average about 178,000) and p. 168 for resignations (13,934) and separations 22,433, not including 13,883 by transfer of temporary appointments and special cases, which are deducted from the total of 36,326 separations before figuring out the 12.6 per cent.)

weed out the superannuated, but, at the same time, to keep in the most efficient, and not to give special inducements to the most efficient to resign, and let the least efficient, not good enough to be in demand outside, be the only ones to remain in the service until old age. The present plan, it appears to us, even if it should get rid of the superannuated, tends at the same time to increase rather than diminish the loss of the younger and more capable civil servants.

Employees Treated Separately.

The plan of the Keep Sub-committee resembles that recommended in 1901 and 1906 by the Council, in so far as it would compel employees to provide for old age by taking out deferred annuity policies. Such a plan has many advantages over a system of direct pension or of payment out of a general fund made up of deductions from salaries. The fact that each employee is treated separately very much lessens the danger of increasing pensions en masse, or of repeating the experience of other countries of presently finding the general fund insufficient through unforeseen burdens upon it.

Incapacity Before Retiring Age Reached.

Another advantage of the proposed plan, which also exists under the scheme proposed, by the League in its last two reports on this subject, is the power to get rid of those who become inefficient through ill health or ol age, but who have not yet reached the retiring age, without exposing them to destitution. This is a great advantage over the pension system as it usually exists, where unless one is allowed to stay until the retirement age, (except in some cases of injury incurred in the service), old age provision is lost. We learn, from experienced government officials in the British service, that, if some such power as this existed, it would enable them greatly to increase the efficiency of the government service.

Enormous Cost.

But the Keep Sub-committee differs radically from the Council in recommending that, instead of an insurance company organized and equipped for the purpose issuing the annuity policies as a part of its ordinary business, the United States government should issue the policies. Apparently the Sub-committee believes this to be an extremely simple and innocent proposition, for it says that "the fund necessary for the payment of the annuities should be furnished by the employees themselves, without expense to the government, other than the payment by the government of a reasonable rate of interest on the money held by it, and the payment of salaries to the clerical force required to keep the accounts and distribute the fund."

Waiving all discussion of whether the expense of a clerical force competent and adequate "to keep the accounts and distribute the fund" would be so slight as to be neglegible-though this seems to us at least doubtful when we consider that these accounts will involve transactions with scores upon scores of thousands of separate persons we pass at once to a fundamental error of the Sub-committee which vitiates its entire scheme.

The part of the proposed plan to which we wish to call special attention is the "reasonable rate of interest" to be paid by the government on all "loans" to it by its employees to establish annuities. This is passed over in the report as if it were a small matter, the Sub-committee contenting itself with fixing four per cent compounded annually as too obviously "reasonable" to require argument or explanation though it gives an abundance of argument and explanation to justify the expenditure by the government of the fifty or sixty millions needed to take care of those who may be already in the service when the proposed plan is enacted into law, as if these millions would be, if not the only, certainly the greatest part of the cost to the taxpayer if the sub-committee's plan were followed. Now, the proposed plan contains no provision for allowing these deductions from salary loaned to the United States government to be invested, so as to secure

a net return to the government. How much, then, can the government earn on these loans to it? If at any time the government does not need to borrow these sums, or any part of them, how can it be said to have any use whatever for them? Even assuming that the government should need to borrow these amounts of money, it can only save what it would have to pay, were it to borrow equal amounts on its bonds in the open market. In other words, it can afford to pay as much interest to its employees as to other lenders. The proposed plan, once inaugurated, will outlast all who are now living and who shall say what rate or rates of interest the United States will pay on the money it borrows during this long period?

Let us assume that in the long run the United States government may have to pay as much as 2%. (1) Taking the illustration furnished by the Sub-committee, a person entering the service at the age of twenty and receiving a salary of $1,200 a year till the age of 70 would be entitled to a pension of $900 a year, which would cost $6,678, or to that sum in cash. To furnish this $6,678, $3.57 monthly or $42.84 a year is taken from his salary, amounting in all to $2,142 in the course of fifty years. As calculated by the actuaries employed by the Sub-committee, the interest on these monthly loans at 4%, compounded annually, amounts to $4,536. Interest at 2% for the same period, compounded annually, would amount to only $1,430. The cost therefore to the taxpayer for this one annuity, above what the government would be paying in case it should need to borrow, is $3,106. If the government does not need to be a borrower during any of the period, then the cost to the taxpayer of such annuity is $4,536.

Now, how many such cases are there likely to be? As to those already in the service, their ages are ascertained, and it can be calculated on life tables how many will arrive at the age of 70; but even as to them, no one knows how many will resign or be removed before that age; and as to those entering the service hereafter, there

(1) At present it is paying less than 2 per cent.