The substance of a discussion before the Stanley Committee, January, 1912; published in The Independent, July 25, 1912.

Half a century ago nearly every American boy could look forward to becoming independent as a farmer or mechanic, in business or in professional life; and nearly every American girl might expect to become the wife of such a man. To-day most American boys have reason to believe, that throughout life they will work in some capacity as employees of others, either in private or public business; and a large percentage of the women occupy like positions. This revolutionary change has resulted from the great growth of manufacturing and mining as compared with farming; from the formation of trusts and other large business concerns; from the development of our transportation and other public utility corporations; from the marked increase in governmental functions; and, finally, from the invasion of women into industry.

As soon as we awakened to the fact that America had become largely a nation of employees, the need of a comprehensive provision for superannuated wage-earners secured attention. Given the status of employee for life, and the need of an old age pension is obvious. (The term "pension" is used throughout in its popular sense as including old age annuities.) The employee needs the pension because he cannot—or at least does not—provide adequately from his wages for the period of superannuation. The employers need a comprehensive pension system because, while the presence of the superannuated employees in a business seriously impairs its efficiency, the dictates both of humanity and of policy prevent discharge unless their financial necessities are provided for. The demand for a pension system grows more pressing as businesses grow more stable; for in older businesses there is a constant tendency to accumulate superannuated employees. The demand becomes particularly acute when businesses grow large as well as old; for then it becomes difficult to provide for the individual needs of the abnormal employee.

As stated by the Massachusetts Commission on Old Age Pensions (January, 1910):

"The problem of dealing with the aged employee is an urgent one in the modern business world. The use of machinery and the stress of industrial employment have made it increasingly difficult for aged employees to hold the pace. The universal demand nowadays is for young men. Many concerns refuse to take on inexperienced men over thirty-five years of age. Moreover, men wear out faster under the increased strain. What to do with the worn-out workers, —that is the essence of the pension problem. To carry them on the pay roll at their regular employment means waste and disorganization of the working force; to turn them adrift is not humane. In the past, large employers of labor have tried to meet this difficulty in piecemeal fashion, by retiring aged employees on pensions in certain cases, or giving them light work, each case being provided for separately, on its own merits; now they are beginning to deal with the problem in a systematic fashion, by adopting a uniform method of retirement with pension…

"The motives that have induced large corporate employers to provide retirement pensions are partly economic and partly humanitarian or philanthropic. Economic motives play the leading part. This thing has been done because it has been found to be good business policy. The economic gain from the pension system is twofold; it eliminates the waste and demoralization attendant upon the continued employment of old men who have outlived their usefulness; and it helps to promote industry, contentment and loyalty on the part of the working force."

Economically, the superannuation provision may be considered as a depreciation charge. Every prudent manufacturer makes an annual charge for the depreciation of his machines, recognizing not merely physical depreciation, but lessened value through obsolescence. He looks forward to the time when the machine, though still in existence and in perfect repair, will be unprofitable, and hence must be abandoned. This annual charge for depreciation he treats as a necessary expense of the business.

From the point of view of the workingman the expense of providing old age pensions is a part of the daily cost of living. He should contribute while able to work to a fund which will sustain him when he ceases to earn. From the point of view of the employer, the expense of providing old age pensions is a part of the current expense of his business. He should pay as he goes the accruing cost of retiring employees who will become superannuated. If the wage is insufficient to enable the workingman to provide himself with a pension, it is not a living wage. So far as the cost of the old age pension is paid by the employer for the employees' benefit, it is in substance a part of the wage. So far as such a payment by the employer is for insurance against that waste and inefficiency in his establishment which would result from retaining superannuated employees, and for protection against that discontent which would result from discharging the superannuated without providing for them financially, it is a part of the business expense. Since the cost of making old age provision is thus either a part of the employees' daily cost of living or of the employer's daily business expense, it should be treated as a current expense, and may be likened to the premium for fire or accident insurance. Whether in the adjustment of relations between the employer and the employee this current cost of providing old age pensions should be borne wholly by the employer, or wholly by the employee, or jointly by both, is an open question; but European and American experience makes it dear that under our present industrial system some comprehensive financial provision for the superannuated worker is essential to social if not to industrial solvency. To neglect such a requirement is as dangerous as it is for the manufacturer to ignore the depreciation of his machines.

For the protection of the wage-earner it is obviously necessary that the right to a pension shall not depend upon his being in the employ of a particular concern. If his right to an annuity is dependent upon his remaining in a particular employ he loses all protection whenever he ceases to be so employed, whether he leaves voluntarily, or is discharged, or in case the concern discontinues business by failure or for other cause.

Adequate old age protection, therefore, cannot be secured to the wage-earner through the promise of a pension from a particular concern. He should have old age insurance which will protect the wage-earner in whosesoever employ he may happen to be when he reaches the period of superannuation. For the protection of the wage-earner it is likewise necessary that the pension system should confer an absolute right. No pension system can be satisfactory which makes the granting—or the continuance of a pension after it has been granted—a matter of discretion.

Germany, France, England and other European countries have undertaken to secure through government action old age pensions for those who work in private businesses. The system adopted in each of these countries differs in some respects from that prevailing in each of the others; but each system embodies the essential requirements referred to above; namely, the pension is not dependent upon the workingman remaining in any particular employ, nor is it dependent upon the discretion of any individuals.

In America the providing of old age pensions for wage-earners in private businesses is left wholly to private initiative. Many large concerns—railroads, public utilities, industrial and financial concerns—have established their own pension systems. Under substantially all of these systems the wage-earner receives no protection unless he remains in the company's employ until the age of retirement is reached, and even in that event the original grant and the continuance of the pension are, in large measure, discretionary.

Thus, the pension plan of the United States Steel Corporation, which took effect January 1, 1911, provides pensions only for those who have been in the employ of the company at least twenty years, and remain until the time for retirement; but no one has the right to remain in the employ:

Article 26. "Neither the creation of this fund nor any other action at any time taken by any corporation included under the provisions of the fund, or by the board of trustees, shall give to any employee the right to be retained in the service, and all employees remain subject to discharge to the same extent as if this pension fund had never been created."

Even if the worker has remained in the employ until the time fixed for retirement, and has served faithfully, he has no right to a pension:

Article 24. "The pension plan is a purely voluntary provision for the benefit of employees superannuated or totally incapacitated after long and faithful service and constitutes no contract and confers no legal rights upon any employee."

And a board of trustees, in whose selection the workers have no voice, and on which they have no representation, may refuse to grant them a pension or may terminate it after it has been granted, for what they in their discretion deem adequate cause:

Article 22. "Pensions may be withheld or terminated in case of misconduct on the part of the beneficiaries or for other cause sufficient in the judgment of the board of trustees to warrant such action."

The pension plan of most other corporations embodies similar provisions. Thus, the pension plan of the International Harvester Company provides:

Article 14. "Neither the establishment of this system nor the granting of a pension nor any other action now or hereafter taken by the pension board or by the officers of the company shall be held or construed as creating a contract or giving to any officer, agent or employee the right to be retained in the service, or any right to any pension allowance, and the company expressly reserves unaffected hereby, its right to discharge without liability, other than for salary or wages due and unpaid, any employee, whenever the interests of the company may, in its judgment, so require."

It has often been said by the corporations that one of their purposes in establishing a pension system is to "develop loyalty." But provisions like those quoted above suggest a purpose rather to compel than to develop "loyalty." The system is in effect a form of strike insurance. The pension is made dependent upon continuity of employment for a fixed period. The worker cannot receive a pension unless he remains in the company's employ until the date for retirement, and he has no right to remain in its employ, since the company reserves the full power to discharge him at any time, with or without cause. After a wage-earner has served a number of years and feels himself growing older, the prospect of a pension becomes a potent influence. He realizes that if he abandons his position or is discharged, he loses not only immediate employment, but protection for old age. He realizes also that the chance of securing other employment is greatly diminished by reason of his advancing years; diminished not because he is already old and less efficient, but because he will become superannuated sooner than a younger man, so that his employment by another concern will impose upon it or its pension system a superannuation burden sooner than if a younger man were selected.

Features in a pension system like those quoted above tend to make the wage-earner compliant. He can be more readily relied upon to prove "loyal" and not to "go out" even if others strike for higher wages and better working conditions. The "continuous employment feature" of the pension system tends thus to rivet the wage-earner to his employer, and the provision by which the allowance of a pension is made discretionary further insures "loyalty" of the wage-earner during his employment. An employee of the United States Steel Corporation advancing in years might well be deterred from hazarding the prospect of a pension by trade-union activity, or even by joining a union.

The tendency of such provisions in a pension system to destroy industrial liberty is the more potent because the system is being adopted quite generally by those trusts and other powerful corporations which are determined to eliminate trade-unionism. Indeed, in many cases the pension system was introduced as an aid to carrying out that labor policy. Individual employees, working under conditions which preclude collective bargaining, obviously lack industrial liberty so long as they are so employed; for they have no part in determining the conditions under which they work. After entering such employment, the only remnant of liberty remaining to them is the liberty of leaving it; and the features of the pension system just referred to undermine that remnant of liberty.

A pension system with such features must either prove a delusive protection or operate as a bribe to induce the wage-earner to submit to a new form of subjection to the corporation. A frank employer recently said: "By providing so liberal a pension we have bought from the employee the right to leave us." Such a use of the pension is obviously illegitimate. The legitimate need of the employer for a pension system is satisfied if the provisions protect him from the necessity of keeping superannuated employees on the pay roll. This need of the employer is equally satisfied whether the employee retires on a pension or leaves the employ before the age of retirement. In other words, what the employer should seek to accomplish by the pension is merely to protect his business from the incubus of superannuated employees; and this purpose is accomplished as to each employee if he leaves the employ before he becomes superannuated. If the workingman so leaves, he should in some form carry with him the accrued right to a pension—the proportionate value of the time service—which would ripen into a pension if the workingman or his new employer paid the premiums of later years. Under these private pension systems that part of the pension earned by years of service is wholly lost when he leaves the company's employ, whatever the cause.

Employers seek to justify provisions in the pension systems like those quoted above by the fact that the pension fund is contributed wholly by the employer. But this fact furnishes no justification. The employer should not be permitted, even at his own expense, to establish a pension system which tends to rob the workingman of his little remaining industrial liberty. A practice bearing such fruits is clearly against public policy. Many of our States have, in aid of industrial liberty, prohibited the employers from making it a condition of employment that their employees should agree not to join a labor union. It may become necessary to apply a similar prohibition against features in private pension schemes which have a tendency to unduly abridge the liberty of the individual workingman.

The Massachusetts savings insurance banks, and several of the life insurance companies, afford employers facilities for establishing pension systems which are free from the objections discussed above. From such insurance concerns there can be purchased for each employee an old age annuity which (subject to due premium payments) confers upon the holder an absolute right to the annuity, and which is equally effective in whosesoever employ the annuitant is, or if he be without an employer.

The premiums on such an annuity policy could be made payable at frequent intervals, say monthly, so that if payable by the employee they would not be too large to be borne, and if payable by the employer, they may be figured as a part of the current wage or expense. The policy should preferably be taken out while the wage-earner is young, so that the current premium may be small; for the annual cost of old age insurance, like that of life insurance, becomes almost prohibitive when the policy is not taken out until the insured is advanced in years. If the policy is not taken out until the wage-earner grows old, the premium will be so large that, if payable by the wage-earner, it could not be borne, and if payable by the employer, might discourage the annuitant's being employed. Under the Massachusetts system a separate annuity policy is issued for each employee, so that the employee can take the policy with him when he leaves a concern. The employee can then pay the premiums himself until another employer is found who is willing to assume the charge as a part of his own system of providing against superannuation. The workingman possessing such an annuity policy taken out when young should meet with no difficulty in securing employment solely on account of advancing years; for the burden on the new employer of providing against his superannuation would be no greater than in the case of a younger employee.

Every pension system should be contributory and co-operative; that is, the cost should be borne partly by the employer and partly by the employee, and preferably in equal shares. The management of the pension system should likewise be shared in by both employer and employee. The system should also be obligatory; that is, when a system has been established, all employees should, so far as possible, become subject to its provisions; and both employer and employee should be bound to continue the system once established. For the present, however, it should be optional with the employer and his employees to establish a pension system.

The Boston and Maine Pension Act, passed by the Massachusetts Legislature in 1909 contains suggestions for such an elective obligatory co-operative system. (The act, which embodies the results of long negotiations between the company and the employees, was enacted May 29, 1909. On June 18, 1909, the Legislature of Massachusetts authorized the New York, New Haven and Hartford Railroad Company to acquire control of the Boston and Maine system. The New Haven management being opposed to the establishment of the pension plan, the Boston and Maine pension system has not yet become operative.) That act provides, among other things:

First. A pension system is established only in case the company by a majority vote of its directors and a two-thirds vote of the employees voting thereon decide so to do. When adopted by such votes the system becomes operative with the force of law upon all persons then or thereafter employed, except such as voted against establishing the system, and also within three months thereafter filed their written objections thereto.

Second. The pension fund is supplied by monthly contributions from employer and employees in equal shares, the employees' share being deducted from wages and transmitted by the company to the pension fund.

Third. The management of the pension system is vested in a board of seven trustees, three of whom are selected by the company, three by the employees (who are formed into a pension association), and the seventh by the six so chosen.

Fourth. The amount of contributions to the pension fund is fixed as a percentage of wages. What percentage shall be assessed is determined by the trustees (subject to the approval of the directors of the company) up to an amount equal to three per cent of the wages, and can be fixed at a higher amount if approved by the directors and the pension association.

Fifth. Any one who remains in the employ of the company up to the time of retirement has an absolute right to a pension. Any person who ceases to be an employee prior to the time fixed for retirement retains the right to a part only of the accrued pension; that is, a person who leaves the employ voluntarily, or who is discharged, receives not the full accrued value of the pension at the time of so leaving, but only an amount equal to his own contributions. The act embodies in this respect a very objectionable feature, which was reluctantly assented to by the committee of the employees, as necessary to secure the consent of the company to the support of the bill, and in the hope that a more just provision might be later substituted.

It is upon these general lines, consistent with individual liberty and industrial democracy, that the American pension systems should be developed.

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