MUTUAL BENEFIT ASSOCIATIONS in the UNITED STATES

What is a Mutual Benefit Association?

A simple definition of a "Mutual Benefit Association" is "a social organization which provides insurance to its members on an assessment basis"(1). A more complete definition reads: 

"A mutual benefit association means 'a corporation, society, order or association which has no capital stock, which issues certificates of membership providing for payment of benefits in case of sickness, disability or death of its members and which accumulates funds by the collection of fees or dues from its members, at either stated or irregular intervals, with which to discharge its liabilities on its membership certificates and with which to pay the administrative expenses."(2)

Mutual Benefit Associations in the United States

In 1930 the National Conference on Mutual Benefit Associations conducted a survey of all companies (some 1500) in the United States which were thought to have employees' organizations for sickness insurance. As shown in the following table from the report on the findings of that survey, among the 312 responding companies, eight reported Associations having been established more than 50 years earlier (i.e., prior to 1880). The largest group of respondents reported establishment during the preceding 10 - 14 years, i.e., between 1916 and 1930. (3)

An October 1991 article in the Monthly Labor Review commented

"The first of these associations were formed by employees of the mining and railroad industries. The hazardous nature of the jobs in these industries often made it impossible for individual employees to obtain life insurance coverage at affordable rates. As the mutual benefit associations in these industries succeeded in providing affordable coverage to their members, employees in other industries began to see the merits of organized efforts." (4)

The reason that employees in these industries would have to themselves seek to purchase life insurance was that virtually no employers of that era provided mechanisms that might assist their employees secure insurance protection. The prevailing ethic was that an employee was responsible for evaluating the risks in any job and to then make a decision to accept or reject the work knowing the risks.

Mutual Benefit Associations in the Railroad Industry

Within the American railroad industry, development and growth of mutual benefit associations can be traced back to at least 1864, as reported in a principal railroad newspaper, The Railroad Gazette. The oldest appears to be the Railway Passenger and Freight Conductors' Mutual Aid and Benefit Association (1864) followed by the Railway Employees' Mutual Benefit Association of the Northwest, Railroad Employees' Mutual Benefit Association, Railway Employes' Mutual Benefit Association of the West and the Boston and Albany Mutual Benefit Association, all in 1870.(5)

These extracts from The Railroad Gazette describe the origins of one of that early group:

(6)

(7)

To understand the mutual benefit association history within the railroad industry, it is important to recognize the economic and social history in which it occurred. Several key factors:

1. The earliest associations were established by groups of employees of a particular railroad or of several geographically related railroads because most employers did not offer assistance in response to illness, injury or death.
2. The memberships of the earliest associations were relatively small. For example, the largest membership in 1880 of the five associations noted above was 1,250.(8)
3. The 1870's, when many of the pioneer mutual associations were being formed, were an extended period of economic depression in the United States. Wage reductions, very high rates of unemployment and vast reductions in industrial activity were prevalent. The railroad industry, having grown rapidly and expansively following the Civil War, was strongly impacted. Although the country was celebrating its Centennial year in 1876 with the grand Centennial Exposition in Philadelphia, the depression wore on relentlessly. The situation in the country and for many railroads (including the Baltimore & Ohio) is described by Robert V. Bruce in his book, 1877: Year of Violence, with these words:  "People had hoped, for no good reason, that the Centennial Year would be a turning point of the depression. It was not. In July 1877 Secretary of the Treasury John Sherman took some comfort form the sound position of the Treasury. But 'in regard to wages, rents, transportation, prices, and all questions of political economy which enter into the commonweal of the people' he wrote a friend, 'you can judge as well as I'". (9)
4. What followed was the Great Railroad Strike of 1877, beginning on the Baltimore & Ohio Railroad on July 16, 1877 and lasting through the first days of August (see photo of cover of Frank Leslies's Illustrated for August 11, 1877 scenes depicting strike activity). The outcome - railroad workers returned to their jobs at the reduced rates of pay that led to the start of the strike.
   

 Establishment of the Baltimore & Ohio Railroad Employees' Relief Association

Despite the prevailing view at the time that employers were not responsible for the dangers and the resulting illnesses, injuries and deaths faced by their employees, exceptions did occur. The minutes of the Baltimore & Ohio Railroad Board of Directors meetings, as early as 1834, recorded instances of employer recognition of such employee problems and recorded situations where payments were made to families of injured and killed employees. (10) These early informal practices under which the Board considered each individual claim later led to establishment of more formal structures. The Invalid Fund (1844) and the Committee on Accidents (1853) were charged with handling claims for compensation as the result of accidents and deaths experienced by employees. (11, 12)

Much later, and following the Great Railroad Strike of 1877, the minutes of a Baltimore & Ohio Railroad Board meeting in 1880 reflect the next action:

"The President (John Garrett) also stated that he was desirous of instituting a system of Life Insurance, with special advantages for the employes of the Company. The Third Vice President (Robert Garrett), having been sometime past engaged in preparing for an organization, based to some extent upon the plans of those of the Railroad Companies of Great Britain, France and Germany, hoped to be able to present the form at an early meeting of the Board." (13)

One month later:

The President (John Garrett) stated to the Board that the plan for the establishment of a Relief Association for the benefit of the employees of the Baltimore and Ohio Company, to which he had heretofore referred, had been so far prepared by the Third Vice President (Robert Garrett) as to be ready for submission.

After full reflection on the subject, President (John Garrett) stated that he had determined to recommend to the Board that an appropriation of $6,000 per year (being the equivalent to six percent on $100,000) should be made by the Company as part of the basis and capital of the fund.

He suggested that the proposition and plan be referred to the Committee on Finance, with power, so that, as soon as the details would be properly perfected, the Association should be organized and placed in operation.

On motion of Mr. Nicholas, seconded by Mr. Chancellor, the recommendation and suggestion of the President were adopted, and the entire subject referred by unanimous vote to the Finance Committee with power. (14)

The Baltimore & Ohio Railroad Relief Department was inaugurated on May 1, 1880 with Dr. W. T. Barnard serving as Secretary (Director). The initial page of the original Constitution is show below. (15) Subsequently, the Maryland General Assembly granted a charter to the Association on May 3, 1882 (however, this charter was rescinded by the General Assembly effective April 1, 1889 in response to employee objections to the fact that they were required to participate in the relief program and pay assessments.) (16) In response, the Baltimore & Ohio Railroad established the Baltimore & Ohio Railroad Relief Department as successor to the Relief Association that same year. (17)

Growth and Change within the Baltimore & Ohio Railroad Relief Program

The first annual report of the B&O Relief Association, in 1881, reported membership of 14,439. (18) By 1890, although required membership had been eliminated in 1889, membership had grown to almost 22,000. (19) This result may be explained in part through growth in Baltimore & Ohio Railroad employment and, in part, by general satisfaction with the program among most employees.

In addition to the growth in membership, the Baltimore & Ohio Railroad program rapidly expanded the services offered to members. The original benefits offered included: (20)

• Surgical attendance when injured by accidents while in service to the railroad. The first Annual Report to the Relief Association included the list of hospitals (shown below) available to Baltimore & Ohio Railroad employees requiring surgical care. (21)
• Cash benefit while unable to work because of injury due to accidents while in service to the railroad
• Cash benefit due to injury or sickness arising from causes other than accidents occurring while in service to the railroad
• Cash benefit to a designated beneficiary or legal representative when death occurred in service to the railroad or within six months of an accident occurring while in service to the railroad
• Cash benefit to a designated beneficiary or legal representative upon death (excluding suicide, capital punishment) not associated with an accident or service to the railroad
  

In addition to the accident, sickness and death benefit program, the Relief Department offered an Annuity Fund to provide a future retirement benefit at age 65. Employees were permitted to contribute as much as they desired. If a member died before age 65, payment of accumulated contributions plus one-half more were paid to a beneficiary or designated representative.

The 2nd Annual Report of the Relief Association, issued October 1, 1882, reported the addition of two features effective July 1, 1881, the Savings Fund and the Building Association, with this explanation:

"the objects for which these new features were established were briefly defined in the prospectus to be 'the encouragement of habits of prudence, economy and thrift, by placing within the reach of every employee of the Railroad Company, upon the simplest and most advantageous terms compatible with proper security all the benefits derivable from the safest and most liberal savings institutions of the country, and from the best conducted building societies. To this end each officer or employee of the Baltimore and Ohio Railroad Company, who has been a subscriber to the relief features of the Association for the immediately preceding three months, or his wife, may deposit in the Savings Fund, in the manner and under the regulations set forth in the by-laws, any sum not less than one dollar nor more than one hundred dollars in any one day. The money thus accumulated will be invested and managed for the benefit of depositors'. (22)

Issues of the Baltimore & Ohio employee magazine contained advertisements encouraging employees to make use of the Savings Fund feature for buying a home or other purposes. (23)

The Fourth Annual Report of the Relief Association, issued on October 1, 1884, reported the addition of a Superannuation or Pension Feature, effective October 1, 1884. Under this feature, an employee with at least ten years' service with the Railroad who was experiencing total disability preventing continued employment on reaching the age of sixty may be relieved from duty or having reached sixty-five may elect to retire. The cost of this benefit was totally underwritten by the Railroad.

The Annual Report of the Baltimore and Ohio Railroad for 1926 states:

"While heretofore your Company has shared in the expense of the administration of the Relief and Savings Features, under resolution of the Board of Directors, effective October 1, 1926, your Company assumes the entire operating expense of these features, so that the employees will, directly and indirectly, receive full benefits of all contributions and earnings without any deduction for expense of operation." (24)

Was the Baltimore & Ohio Railroad Relief Department a First?

The action of the Baltimore & Ohio Railroad Board of Directors to create the Relief Association (later the Relief Department) is generally recognized as the first such action by an American railroad by reliable sources. Emory R. Johnson, Professor, University of Pennsylvania and Haverford College, in an 1890 paper presented to the American Academy of Political and Social Science, wrote:

"The first railroad company in the United States to established an organization for the administration of an employee's relief fund was the Baltimore & Ohio, whose organized relief work dates from May 1, 1880. The man to whose instrumentality the establishment of the association was chiefly due was Dr. W. T. Barnard, of Baltimore, a man actuated by a strong desire to bring about a better relationship between the railroad companies and their employes....The idea of a relief association antedated 1880. According to Mr. J. A. Anderson, Superintendent of the Pennsylvania Railroad Relief Department, the employes of that road had as early as 1876 expressed a desire that the company should provide some plan of this kind. Thereafter, the matter was taken up from time to time by that company, although without success until 1886. In England, indeed, the railroad companies had been organizing relief associations since 1850. In Canada, the Grand Trunk Railway organized an employee's Accident Insurance Association in 1873, and the plan adopted by the Baltimore and Ohio Railroad was worked out by Dr. Barnard after he made a thorough examination of benevolent railway organizations in Continental Europe, Great Britain and Canada." (25)

This view was corroborated by W. H. Baldwin, Jr., President of the Long Island Railroad Company, in an 1899 paper with the title "Railroad Relief and Beneficiary Associations", presented to the Twelfth Annual Meeting of the American Economic Association, stated:

"The first formal recognition by the railroads of the need of providing means of relief for accident, death, and sickness for employees in all departments was made by the Baltimore & Ohio Railroad Company in the formation of the Baltimore & Ohio Employes Relief Association in May 1880. A similar organization was formed by the Pennsylvania Railroad Company on February 15, 1886; by the Chicago Burlington & Quincy Railroad on March 15, 1889 and by various other companies at divers times, so that today about fifteen per cent of the employees of the railroad in the United States are provided for, through relief associations as departments of railroad organizations." (26)

However, it has been suggested that the action of the Baltimore & Ohio Railroad emulated that of the Pullman Company, a manufacturer of railroad cars in Chicago. (27) Another historian, writing a history of the Pullman Company, states:

In May 1873, he (George Pullman) had his brother Albert charter the Pullman Mutual Benefit Association. Employees who joined paid an initiation fee of two dollars and were taxed a dollar upon the death of a member with the funds providing for the family of the deceased. Two months earlier, Pullman had announced plans for the construction of a company building which included unusual facilities for employees. A restaurant would furnish a 'cheap and convenient place for the working force...to get their dinner and to cultivate a society...of harmony and good feeling.' In addition there were to be bathing facilities, a library, and family rooms. 

Actually the building was not constructed until ten years later. (28)

Differences between the Earlier Employee Associations and those Established by Railroads  

Despite the differences in membership size between the early employee organized mutual benefit associations and those later organized by companies, the ultimate goal of both was to provide financial support for the families of railroad employees injured or killed in service through forms of social insurance. The employee efforts were initiated because employers would not do so at that time. These associations, though employment based, were somewhat akin to the benevolent aid societies created in American communities during similar periods of time by virtually every immigrant group arriving in the United States.

The railroad sponsored and supported programs, on the other hand, were motivated by multiple goals:

• Desire to resist and counter unionization of employees and reduce the danger of additional major railroad strikes
• Desire to avoid the full cost of payments to families for in-service injuries and deaths
• Belief that employees should themselves contribute to injury and death benefits
• Beginning acceptance of the view that that employers had at least a minimal responsibility for the needs of the families of their employees because many of the jobs were dirty and dangerous
• Perhaps a slight beginning of recognition that employees, as human beings, were entitled to help and support from their employer because they represented more than just cogs in the industrial machine

John Geist, Archives Volunteer, B&O Railroad Museum, Baltimore MD, July 2016

Footnotes:
1-Google, USLegal, Law and Legal Definition, uslegal.com, April 2015
2-State of Delaware, 18 Del. C 5502
3-Brundage, Dean K, September 4, 1931 "A Survey of the Work of Employee's Mutual Benefit Associations", United States Public Health Service
4-Bucci, Michael, October 1991, "Growth of Employer-Sponsored Group Life Insurance", Monthly Labor Review, 25
5-The Railroad Gazette, beginning in issues from 1871, B&O Railroad Museum archives
6-Ibid, March 11, 1871, 561
7-Ibid, March 18, 1871, 585
8-Ibid, beginning in issues from 1871
9-Bruce, Robert V., 1959, 1877: Year of Violence, Indianapolis, The Bobbs-Merrill Company
10-B&O Railroad Board of Directors, Minutes, Volume C, July 17, 1834, 238, B&O Railroad Museum
11-Ibid, Volume E, June 5, 1884, 171
12-Ibid, Volume G, December 14, 1853, 298
13-Ibid, Volume J, February 11, 1880, 379
14-Ibid, Volume j, March 10, 1880, 393
15-B&O Railroad Relief Association, April 30, 1881, First Annual Report, 76
16-Baltimore Sun, March 29, 1888, 5
17-B&O Railroad Company, September 30, 1889, 63rd Annual Report, 8
18-B&O Railroad Relief Association, April 30, 1881, First Annual Report, 8
19-B&O Railroad Relief Department, October 1, 1890, Second Annual Report, 4
20-B&O Employees Relief Association, April 30, 1881, First Annual Report
21-Ibid, 75
22-B&O Relief Department, October 1, 1881, Second Annual Report, 16
23-Baltimore & Ohio Employes Magazine, March 1916, 4
24-Baltimore & Ohio Railroad, 1926, Annual Report, 10
25-Johnson, Emory R., November 1895, Railway Departments for the Relief and Insurance of Employes, 59-70
26-Baldwin, Jr., W. H., December 1899, Railroad Relief and Beneficiary Associations, 216
27-Barry, Bill, 2014, The 1877 Railroad Strike in Baltimore, CreateSpace Publishing, Baltimore, 174
28-Buder, Stanley, 1967, Pullman, Oxford University Press, 32