The calculations made indicate that approximately 11.72 percent of the pay roll is required annually as a total normal contribution if benefits are continued at their present rate and if a fund is to be accumulated during the active service of new employees which will be adequate at the time when they retire to provide their benefits. If we subtract from the total normal cost the 5-percent contribution of members, we have 6.72 percent as the normal cost to the Government. Active service employees, by paying 5 percent of their salaries, contribute approximately 43 percent of the normal cost of benefits. The normal rate of 11.72 percent is the rate applicable to the average new employee on the assumption that, the average age at entrance of new employees will be the same as that of the present active force. The cost of benefits for individual entrants varies according to the employee's age at entrance. Table 11 gives the rates of contribution for new employees entering at ages ranging from 22 to 40. These rates are shown in terms of the percentages of salary, which, if contributed annually throughout the active service, would provide the benefits allowable. TABLE 11.-Rates of contribution expressed as level percentages of salary which if contributed from age at entrance throughout active service are computed to be sufficient to provide the total benefits for new members-Alaska Railroad retirement and disability fund COST OF BENEFITS TO PRESENT EMPLOYEES Had the proposed method of financing been in force in the past and had contributions been made at the percentages of salary given in table 11 by, or in behalf of, every employee from the time he entered the service, the funds in hand, together with future contributions at these rates, would be adequate to provide all benefits payable. But employees in service at the time of the establishment of the fund have been given credit for their past years of service and special benefits have been allowed not only on account of general service for the Alaska Railroad but also on account of construction service for the Alaska Railroad and service rendered on the Isthmus of Panama either in the employ of the Isthmian Canal Commission or the Panama Railroad Company between May 4, 1904, and April 1, 1914. For this reason, contributions in the future at the normal rate alone will not be sufficient to provide benefits for the present employees. In order to obtain knowledge of the contributions required in addition to normal contributions to provide the benefits for the employees covered by the fund on June 30, 1940, a valuation of the total liabilities of the fund on account of the prospective benefits payable to present annuitants and employees was made. As an offset against these liabilities, there are available the present assets of the fund and the prospective contributions of employees at 5 percent of salary. The remainder represents the liabilities which are not covered by employees' contributions. The detailed figures are given in the balance sheet which follows: TABLE 12.-A valuation of the assets and liabilities of the Alaska Railroad retirement and disability fund, as of June 30, 1940 Benefits payable to annuitants on the roll: Retired on account of age and voluntary and in voluntary separation.... Total.. Prospective benefits to members in active service who will retire on account of age. $481, 234 $570, 144 4, 129, 612 25, 819 208, 030 5, 120, 389 Contributions to be returned to present employees with interest at 4 percent upon separation from service without retirement benefits.. Grand total.. PROVISION FOR ACCRUED LIABILITY The preceding balance sheet shows that the total liabilities of the Alaska Railroad retirement and disability fund have a present value of $5,120,389 on June 30, 1940, of which $570,144 represents the liabilities on account of benefits already granted and the balance, or $4,550,245, represents the liabilities on account of annuities and other benefits to be granted in the future on account of active members. To meet its liabilities, the fund has present assets amounting to $802,825. The present value of the prospective contributions of employees at 5 percent amounts to $868,831. Subtracting the value of these contributions and the present assets from the total liabilities, we have $3,448,733 as the liabilities to be met by contributions by the Government. If the Government were to make normal contributions at the normal rate of 6.72 percent of the total pay roll annually, such contributions, together with the 5 percent paid by the employees, would equal 11.72 percent, which is the average total normal rate of contribution indicated by the valuation to be required for new employees. This contribution would be sufficient to cover the continuing or normal cost, but it would not be sufficient to cover the liability on account of service rendered by employees prior to the establishment of the fund in 1935, when no contributions were made, nor to cover the deficiencies in the Government contributions since 1935. The liability which has not been covered by past contributions may be obtained by deducting from the total liabilities to be met by the Government contributions, the value of the future contributions which would be payable by the Government to cover the normal cost. An actuarial calculation shows that a contribution from the Government at the normal rate of 6.72 percent per annum, based on the future pay roll of present employees, has a present value of $1,160,783. If the latter amount is deducted from the item of $3,448,733, shown' as the value of the Government's prospective appropriations, $2,287,950 is left as the amount which must be placed in the fund to offset the lack of contributions in the past. This amount is known technically as the accrued liability. Under the plan of financing adopted by the Government in 1929, the accrued liability of the civil-service retirement and disability fund will be amortized by the end of the seventy-eighth year from the date of establishment of the fund. In order to amortize the accrued liability of the Alaska Railroad retirement and disability fund by the end of the seventy-eighth year from the date of its establishment, an annual payment of $97,122 for 73 years from 1940 is needed. This is equivalent to 5.44 percent of the present pay roll annually. Therefore, on the basis of the valuation as of June 30, 1940, the annual contribution required for the support of the plan is 17.16 percent of pay roll. The employees contribute 5 percent which may be considered as an offset against the normal contribution rate. This leaves a total of 12.16 percent of pay roll to be met by the Government of which 6.72 percent is the normal rate and 5.44 percent is the deficiency rate. ANNUAL CONTRIBUTIONS REQUIRED TO SUPPORT FUND The following table has been prepared to show the annual contributions required for the support of the fund from both employees and the Government on the basis of the pay roll as of June 30, 1940. TABLE 13.-Annual contributions required to support the Alaska Railroad retirement and disability fund, prepared as of June 30, 1940 The preceding table shows that on the basis of the pay roll as of June 30, 1940, an annual appropriation of $217,096 is required of the Government to support the Alaska Railroad retirement and disability fund if contributions are made to it on the same basis that they are made to the civil-service retirement and disability fund. This table shows that the present rate of payment of $175,000 per annum is inadequate. The Board of Actuaries recommends that the Government adjust its appropriations so that each year it will make a payment to the Alaska Railroad retirement and disability fund equivalent to 12.16 percent of the pay roll. BASIS FOR COST FIGURES Sufficient data were not available from the records of the employees covered by the Alaska Railroad Retirement Act to furnish a basis for developing service and mortality tables that would be applicable to this group of employees. The decision was made to use for the present valuation the active service table and salary scale used for the 1935 valuation of postal employees of the civil-service retirement and disability fund, the retirement table used for the 1936 valuation of the Canal Zone retirement and disability fund, and the mortality tables. for service annuitants and for disability annuitants that were used in the 1940 valuation of the civil-service retirement and disability fund. At the time of the next quinquennial valuation, which will be due as of June 30, 1945, the Board hopes to have data which may be used for checking the tables used this year and for making any necessary modifications in the tables due to the special experience of Alaska Railroad employees. In the meantime, the Board believes that the basis used for the present valuation is conservative and that the results may be safely used in determining the appropriations required of the Government, pending the next quinquennial valuation. SUMMARY OF TABULATIONS OF ACTIVE MEMBERS The following tables summarize the distributions by age and length of service of the number and pay roll of members included in the valuation. TABLE 14.-The number and salaries of active members classified by age as of June 30, 1940-Alaska Railroad retirement and disability fund TABLE 15.-The number and salaries of active members classified by years of total service as of June 30, 1940-Alaska Railroad retirement and disability fund |