Old Age Pensions: A Brief History
A Brief History of Old Age Pensions
By Abe Bortz, Social Security Administration Historian (1963-1985)
Note: This entry is a portion of Special Study #1, a lecture Dr. Bortz, the first SSA Historian,developed as part of SSA’s internal training program. Up until the early 1970s new employees were trained at SSA headquarters in Baltimore before being sent to assume their new duties in offices around the country. As part of this training, Dr. Bortz presented a curriculum on the history of Social Security. This lecture, developed in the early 1970s, was the core of that curriculum. It features an extensive overview of social policy developments dating from pre-history up to the passage of the Social Security Act in 1935.
The Problem of Economic Security for the Aged
The problem of the aged became a more important one in the industrial age because, among other things, the capacity of the aged for self-support was being undermined. Changes in economic organization and family structure had relegated them to a marginal status in the modern industrial society. Modern industrial techniques had hastened economic superannuation by using up human energy at greater speed within a shorter period of time. No longer was there this patriarchal family, as in the primitive agricultural community when one large family existed and where all starved or prospered together.
Lacking both authority and a significant economic function, the aged were also affected by the spatial mobility of the modern nucleated family. For the economic system depended on this mobility, but it loosened home ties and family solidarity in the process.
Thus the aged could no longer rely upon the institution of the family as a buffer which had protected them against dependency in pre-industrial societies. Yet, protection through voluntary thrift or insurance was more impractical than in the case of any other risk.
In contrast to other areas, where preventive efforts lessened risk, improvement in hygiene seemed to aggravate it rather than relieve it. Old age was a long term rather than a transitory condition. So the amount of savings required was more than most workers could afford. Nor could anyone time, or predict, the duration of old age. Besides, the very remoteness of the risk tended to discourage saving.
Would children support their aged parents? In all too many cases, no, for many workers could barely support their own families. And as for those aged without children, this had no relevance at all.
Since the end of the 19th century, the increasing number of industrial workers left without an income in old age had been a matter of growing public concern. In the 1890’s a number of trade unions established homes for their aged members and shortly afterwards began to experiment with retirement benefit systems. About the same time, first the railroads, then a few of the large corporations, set up private pension plans for their employees. By 1929, railroads, public utilities, the metal trades, ore, banking and insurance, along with electrical apparatus and supply industries, accounted for more than 80% of the employees covered.
It was estimated that in 1930 only 3 1/2 million persons were covered, and by 1932 about 140,000 persons were receiving such industrial pensions, with less than 15% of all wage and salaried employees being covered.
Keep in mind that the industrial pensions were often poorly funded — most were discretionary, implying a moral rather than a legal obligation on the part of the employer.
Jumping ahead a bit, it should be noted that a special national retirement system for railroad workers, which, in effect, took over the pension obligation of their railroad companies, was enacted in 1934 but declared unconstitutional the following year. A revised act, designed to overcome the objections raised by the Supreme Court was adopted in August 1935.
A bill introduced in the Massachusetts legislature in 1903 was probably the first to offer assistance to the aged on a State level. It did not pass. The general attitude, here as in most of the United States, however, was that the thrifty and worthy did not become destitute and that to take from children the obligation of supporting their parents would destroy the family. Before the 1920’s Arizona was the only State to enact an old age pension measure, and, since it was declared unconstitutional, an Alaska pension law of 1915 was the only one in operation until 1923.
In the 1920’s, old age pensions became a leading issue. A number of State survey commissions were set up–with the Pennsylvania commission of 1920-1927 the first to take a clear-cut position in favor of State assistance to aged persons without responsible relatives. Between 1923 and 1933, the majority of States enacted old age pension legislation, with Pennsylvania, Montana and Nevada taking the initiative in 1923. However, Pennsylvania’s law was declared unconstitutional in 1924, and Nevada’s measure was converted from a compulsory to an optional one. Other States did follow soon after and, in summary, by 1928, 11 states had enacted pension laws and between that year and 1933 — more were added, making a total of 28 States, with 23 mandatory on the localities and 15 that provided State financial aid.
The measures in effect up to 1929 were optional and locally financed. Like similar mother’s pension legislation, they were either inoperative or defective. Many States had long residence requirements and other restrictive eligibility conditions. By 1932, only 102,000 persons were receiving pensions with $22,000,000 the annual cost of assistance.
A trend toward mandatory laws with State financial aid to the localities began in 1929 with the enactment of such a law in California.
On the federal level it is true that old age pension legislation had been introduced in Congress earlier than 1920. Representative William B. Wilson of Pennsylvania (later to become Secretary of Labor) prepared a bill in 1909 providing for pensions of $120 a year to the aged who satisfied the property or income qualifications. The bill was never reported out of the Committee on Military Affairs. Interesting enough the A.F. of L. endorsed this measure.
In 1911, Congressman Victor L. Berger, a socialist from Wisconsin, introduced a bill which provided for pensions up to $4 a week for those aged whose income was less than $10 a week. It, too, failed but it did attract attention.
Pressure was exerted and legislation was proposed for a retirement annuity plan for Federal workers. Strong agitation began to make itself felt in 1914 and success was finally achieved in 1920– with the Sterling-Lehlbach Act. It covered some 300,000 Federal employees and its passage added impetus to State measures.
On the State level, major growth in the development of State and municipal pensions for policemen, firemen and teachers occurred after 1910. Massachusetts, in 1911, was the first to establish a compulsory retirement program for State employees. By the late 1920’s municipal retirement systems for firemen and policemen were practically national, and teacher’s pensions were common. As time passed and experience was gained, there was an increasing preference for contributory systems and more concern shown for actuarial soundness.
A shift in the content of proposed Federal legislation occurred in the late 1920’s and early 1930’s. A measure introduced in 1927 by Representative William L. Sirovich of New York, which had been prepared by the American Association for Old Age Security, substituted the Federal grant-in-aid technique for direct Federal pensions. A similar bill was introduced in 1932 by Senator Clarence Dill and Representative William Connery, Jr. It was reported favorably by the House Labor and Senate Pensions Committees, but it failed to come to a vote before the congressional session ended. These proposals and the precedents established in Vocational Rehabilitation and maternal and child care during the 1920’s helped pave the way for the Federal categorical assistance programs later included in the Social Security Act.
It should be emphasized that there was never, prior to the 1930’s, any serious consideration of compulsory, contributory, old age insurance in the United States. The pension approach was more expedient, it avoided the onus of compulsion, was simple to administer, and it bypassed the problem of workers already retired or nearing old age. As an assistance rather than an insurance program, pensions could be made conditional and work incentives could be protected.