EMPLOYER CONTRIBUTION RATE DETERMINATION

Sierra Railroad Company (BA 2774) NOV 1 2 2003

This is a determination of the Railroad Retirement Board concerning the

contribution rate of Sierra Railroad Company (BA 2774), hereinafter Sierra,

under the Railroad Unemployment Insurance Act (RUIA) (45 U.S.C. §§ 351­

369) (RUIA). Sierra is protesting its contribution rate under the RUIA

established for calendar years 1999 through 2002.

On October 11, 2001, Form ID-40R was released to Sierra, advising that its

contribution rate under the RUIA for calendar year 2002 was established 

at 12 percent (Exhibit 4). In a letter dated April 5, 2002, Sierra's President

indicated that he believed that Sierra’s contribution rates were computed

incorrectly since 1999 and inquired whether the rates could be corrected

(Exhibit 3). In a letter dated November 20, 2002, the Director of

Assessment and Training for the Railroad Retirement Board advised Sierra

that the protest of its contribution rates under the RUIA was not timely. 

Nevertheless, the rate for 2002 was reviewed and found to be correct

(Exhibit 2). Sierra seeks a review of the determination that its rate protest

was not received timely and that the 2002 rate was computed correctly.

Sierra also seeks a review of its contribution rates for the years 1999, 2000

and 2001.

Section 345.307 of the Railroad Retirement Board's (RRB) regulations

(20 CFR § 345.307) includes the provisions for protesting a contribution rate

under the RUIA, and states, in pertinent part, as follows:

(a) Request for reconsideration. An employer may appeal a

determination of a contribution rate computed under this

part by filing a request for reconsideration with the

Director of Assessment and Training1 within 90 days after

the date on which the Board notified the employer of its

rate of contribution for the next ensuing calendar year.

1 Prior to March 25, 2002, the regulations provided that such request must be filed with

the Director of Unemployment and Sickness Insurance.
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(d) Waiver of time limits. A request for reconsideration or

appeal under this section shall be forfeited if the request 

or appeal is not filed within the time prescribed, unless

reasonable cause, as defined in this part, for failure to file

timely is shown.

Section 345.105(e) of the RRB's regulations provides that a delay is due to

reasonable cause if an employer exercised ordinary business care and

prudence and was nevertheless unable to file within the prescribed time. 

Sierra alleges that, since it received notice of its contribution rate for 

calendar year 1999 - the first year for which Sierra was assessed a

contribution rate of 12 percent - it has repeatedly contacted the RRB via

telephone to question the accuracy of its contribution rate. Sierra further 

contends that with each inquiry Sierra was assured that the rate would be

reviewed. Sierra also asserts that it was advised that “it would take some 

time before the Board could conduct its investigation" of Sierra's

contribution rate.

In support of its claims. Sierra has submitted a written declaration from 

Michael Hart, President and Chief Executive Officer of Sierra. Mr. Hart

asserts that he made telephone contacts with agency personnel, 

beginning as early as 1998. While the record does not contain

documentation of Mr. Hart’s inquiries, it does include documentation of a

communication in June of 1999 between Bob Elling with the agency's

Bureau of Fiscal Operations and Pat Hullar with Sierra, relevant to Sierra’s

contribution rate (Exhibits 9 and 9a). In light of this documentation and

the significant increase in Sierra's contribution rate, the Board finds

credible Sierra’s claims that repeated inquiries were made as to the

accuracy of Sierra's contribution rate. Furthermore, since Sierra was

repeatedly assured that its contribution rate would be investigated as the

result of such inquiries, the Board finds that reasonable cause exists for

Sierra's failure to file a timely written request for reconsideration of its

contribution rate for calendar years 1999, 2000, 2001, and 2002.

The Board next turns to the accuracy of the contribution rate established 

for Sierra for calendar year 2002. Because the 2002 rate is based upon the

prior experience attributed to Sierra, and the Board has determined that

Sierra is entitled to a review of its contribution rate for the years 1999, 2000

and 2001, it is not possible to evaluate the 2002 rate until the earlier rates

are reviewed. However, there is a substantive issue that must be

addressed by the Board before Sierra's contribution rates are reviewed.
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As explained in the reconsideration decision, Sierra’s rate increased in

1999 because the benefit experience and contributions paid with respect

to Sierra Pacific Coast Railway, Inc., d/b/a Eccles and Eastern Railroad

Company (BA No. 3789) (hereinafter, Eccles) was assigned to Sierra as

was the experience of Silver Foot, Inc., d/b/a Sierra Railroad Company

(BA No. 2752), hereinafter, Silver Foot (Exhibit 2). Eccles was an employer

covered under the Acts for the period October 1, 1994 through

September 28, 1995 and Silver Foot's successor employer. Silver Foot was

a railroad under the Acts from May 1, 1981 through March 16, 1995.

Sierra's contribution rate was adjusted to reflect the other railroads’

experience in 1999, following a Board decision that Eccles ceased to be

an employer under the Acts effective September 28, 1995. See Exhibit 6i.

Reference is also made in the reconsideration decision to the original 

Sierra Railroad Company (BA No. 2737), which ceased to be an employer

under the Railroad Retirement and Railroad Unemployment Insurance 

Acts effective April 30, 1981 (Exhibit 5a). Such reference is only for the

purpose of documenting the history of the transfer of assets. The formula

used to determine an employer’s contribution rate, which takes an

employer's experience in the system into consideration, was phased in

beginning with calendar year 1991. Previously, employers were assessed

a universal tax rate. Silver Foot acquired assets from the original Sierra

Railroad Company in 1981, long before the introduction of the experience

based formula. Therefore, the original Sierra Railroad Company's

experience under the RUIA system did not transfer to Silver Foot, or to any

other employers, and such experience is not reflected in the employer

contribution rates at issue in this appeal.

Sierra presents several arguments in support of its position that its

contribution rate should not reflect the experience of Eccles or Silver Foot

in the RUIA system. As outlined below, the Board finds that the inclusion of

such experience in Sierra’s contribution rate is consistent with applicable

law.

Section 8(a) of the RUIA provides for the computation of employer

contribution rates under the RUIA. That section provides, in relevant part, 

as follows:

(19)(C) Sale of Assets - In the event property of an employer

is sold or transferred to another employer or other entity, or is

partitioned among 2 or more employers or entities, the

cumulative benefit balance, net cumulative contribution
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balance, 1-year compensation base, and 3-year

compensation base of the employer shall be prorated

among the employers which receive the property, including

any entities which become employers by virtue of such 

transfer or partition, in such equitable manner as the Board by 

regulation shall prescribe. 45 U.S.C. § 358(a)(19)(C).

In Interstate Commerce Commission (ICC) Finance Docket 32818, Coast

Enterprises, Inc. and Sierra Railroad, a Division of Coast Enterprises, Inc.,

(BA No. 2774) filed a notice of exemption to acquire and operate over

approximately 49 miles of rail line owned by Sierra Pacific Coast Railway, 

Inc., d/b/a The Eccles and Eastern Railroad Company, a covered

employer under the Railroad Retirement Act and RUIA (Exhibit 7c). The 49

miles of rail line are between milepost 0.0 at Oakdale, California and

milepost 49.0 at Fassler, California. This transaction was consummated on

or about September 29, 1995. As a result of this transaction, the Board 

determined that Sierra Railroad, a Division of Coast Enterprises, Inc., was 

an employer under the Railroad Retirement and Railroad Unemployment

Insurance Acts effective September 29, 1995 (Exhibit 7d). Subsequently, in

a decision issued April 28, 1999, the Board held that Eccles ceased to be

an employer under the Railroad Retirement and Railroad Unemployment

Insurance Acts effective with the close of business on September 28, 1995

(Exhibit 6i).

The contribution rate for Sierra was originally established in accordance

with section 8(a)(1)(D) of the Railroad Unemployment Insurance Act

(45 U.S.C. 358(a)(1)(D)), which did not take any other employer's

experience in the system into consideration. However, following the

issuance of Board Coverage Decision 99-16 on April 28, 1999, in which the

Board determined that Eccles ceased to be an employer under the Acts 

effective with the close of business on September 28, 1995 (Exhibit 6i), the

day before Sierra purchased Eccles' assets, it was determined that Sierra

was a successor railroad to Eccles. As such, and in accordance with

section 8(a) (19) (C) of the Railroad Unemployment Insurance Act

(45 U.S.C. § 358(a)(19)(C)) and section 345.204 of the Board's regulations

(20 CFR § 345.204), it was determined that Sierra acquired Eccles’

experience under the RUIA system. Furthermore, as Eccles is the successor 

employer to Silver Foot, Sierra also acquired Silver Foot’s experience in the

system.
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Sierra argues that it was a newly formed company without a history of

railroad unemployment claims, and consequently, it is inequitable for 

Sierra to be subject to a higher tax rate resulting from a separate entity's 

experience. Section 8(a) (19) (C) of the RUIA quoted above embodies the

concept commonly referred to as the “successor employer rule" whereby

successor employers acquire the experience of predecessor employers. 

That section specifically provides for the inclusion under the successor

employer rule “of any entities which become employers by virtue of [the

sale, transfer or partition of assets].'1 This provision clearly shows that

Congress intended that, where entities become employers under the RUIA

as the result of acquiring assets of an already established employer, the 

experience of that employer under the RUIA system may be allocated to

the successor employer.

Sierra also notes that, while it purchased assets from Eccles, it did not 

purchase Sierra Pacific Coast Railway. An entity which becomes an 

employer under the RUIA as the result of the purchase of assets from an

established employer need not purchase the corporation, but only the

assets of the corporation relevant to its ability to operate as an employer

under the RUIA. Sierra purchased from Sierra Pacific Coast Railway, Inc.,

d/b/a Eccles and Eastern Railroad Company (BA No. 3789) approximately

49 miles of rail line owned by Eccles and Eccles did not operate as a

railroad subsequent to the purchase.

Sierra next argues that the record lacks evidence that Eccles purchased

all of the assets of Silver Foot, inherently arguing that the record fails to

establish that Eccles is Silver Foot's successor employer. The record

released to Sierra for review included a copy of Board Coverage

Determination 96-42 issued April 19, 1996 in which the Board determined

that Silver Foot ceased to be an employer under the Railroad Retirement 

and Railroad Unemployment Insurance Acts effective March 16, 1995

(Exhibit 5c). As indicated in the determination, such conclusion was 

based upon information that Silver Foot sold all of its assets to Eccles. The

Board is supplementing the record with the following documents marked

as Exhibit 5d to further document the record: Letters dated August 4,

1995, September 18, 1995 and January 18, 1996 from Edmund T. Fleming,

Chief, Audit and Compliance, Bureau of Fiscal Operations of the Board,

and letter dated February 5. 1996 from Marc W. O'Brien, Attorney

representing Silver Foot. Copies of such documents are attached to this
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decision. The letter from attorney O’Brien indicates that all of Silver Foot's

assets were sold to Eccles, with the exception of three locomotives, which

have historical value only. Consequently, the Board finds that Eccles is the

successor employer to Silver Foot and as such. Silver Foot's experience

transfers to Sierra via Eccles.

Sierra also asserts that it did not hire any of Eccles’ employees. This

assertion conflicts with information in the record from Eccles, which

indicates that Eccles' employees did indeed become employees of Sierra

when it began operations (Exhibit 6g). Consequently, Board records were

recently reviewed for the years 1994 through 1998 and a comparison was

made of the earnings reports of Eccles and Sierra to identify those

employees, if any, for whom both employers reported earnings. The

comparison revealed six individuals for whom both Eccles and Sierra

reported earnings, refuting Sierra's claim that it did not hire any of Eccles'

employees. Indeed, all but one of the employees for whom Sierra

reported earnings during its first year of operation also had earnings 

reported for them by Eccles. A report documenting the analysis is

attached and has been marked as Exhibit 12.

Sierra next argues that Eccles had possession of the assets purchased by

Sierra for a period of only six months. Prior to that time, the assets were the 

property of Silver Foot. Sierra also notes that the assets it did purchase

represented only a portion of Eccles' assets. There is nothing in the statute 

to suggest that Congress intended that the length of time a predecessor

employer owns assets should be a factor to consider when determining

how to allocate a predecessor employer’s experience. In addition, there 

are no provisions in the regulations to allow for such consideration.

Consequently, whether Eccles purchased Silver Foot’s assets six months or

six years before Sierra purchased Eccles’ assets, the result is the same -

Silver Foot's experience in the system transferred with its assets when

Eccles acquired such assets. As Silver Foot's experience became Eccles'

experience, such experience transferred to Sierra when it subsequently

purchased those assets.
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As to the significance of the assets acquired from Eccles, the Board finds

such assets sufficient to warrant transferring Eccles’ experience to Sierra.

The majority of Eccles’ assets were acquired from Silver Foot (BA 2752).2

Silver Foot became an employer in 1981 following the purchase of

approximately 50 miles of track acquired from the original Sierra Railroad

Company (Exhibit 5a). These assets transferred to Eccles in March of 1995

and subsequently transferred to Sierra in September of 1995 (Exhibits 6g

and 7c), resulting in Sierra becoming an employer under the Acts. Silver

Foot did not continue to operate following Eccles’ acquisition of its assets

and ceased being an employer covered under the RUIA effective March

16, 1995. Consequently, in accordance with the successor employer rule,

Silver Foot's experience in the system transferred to Eccles, and upon

Sierra’s acquisition of Eccles, transferred to Sierra.3

Sierra points to Exhibits 1, 6a, 6b, 6g, 7b, 7d, and 10b as support of its claim

that it did not purchase all of the "assets, track and employees" of Eccles

and therefore should not acquire Eccles' experience. However, the

Board finds that the purchase of all of the "assets, track and employees"

of a predecessor employer is not a prerequisite to a successor employer

acquiring the experience of a predecessor employer. Rather, what is

necessary is simply that the successor employer acquires sufficient assets

from the predecessor employer such that the predecessor employer is

unable to continue in the industry. As noted above, Eccles ceased to be

an employer under the Acts upon Sierra’s purchase of its assets.

Sierra next contends that its contribution rates for calendar years 1996,

1997, and 1998 demonstrate the inaccuracy of the contribution rates

established for calendar years 1999, 2000, 2001 and 2002 on the basis that

the rates for the years prior to 1999 were significantly lower than the 12

percent rate established for the calendar years 1999 through 2002. The

Board finds this argument without merit. As explained above, the decision

finding Eccles to no longer be a covered employer under the Acts

effective September 28, 1995 was issued in 1999 (Exhibit 6i). It was not until

this determination was made that it was appropriate to transfer to Sierra

2 Eccles became an employer six months prior to acquiring Silver Foot’s assets when it

acquired 6.7 miles of line owned by Santa Cruz, Big Trees & Pacific Railway (BA 3784),

hereinafter Santa Cruz. These assets were not acquired by Sierra. However, Santa Cruz

did not cease operations and continues to operate. Therefore, its experience was not

transferred to Eccles and such experience is not reflected in Sierra's contribution rate.

3 Because Eccles was an employer for such a short period of time. Silver Foot’s

experience was never reflected in Eccles’ employer contribution rate.
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the experience attributable to Eccles. Consequently, Sierra’s contribution

rates for calendar years 1996, 1997 and 1998 did not reflect the

experience attributable to Sierra’s predecessor employer.

Finally, Sierra argues the Board lacks the authority to prorate the successor

employer's experience. Without addressing the merit of this argument,

the Board notes that the successor employer’s experience has not been

prorated, that is, distributed proportionately. Rather, all of the experience

attributable to the successor has been transferred to Sierra and used in

the computation of its contribution rate.

The question presented to the Board is where to allocate Eccles’

experience in the system. As the only railroad to acquire assets from 

Eccles is Sierra, if Eccles' experience is not allocated to Sierra, the other

railroads in the system must absorb Eccles' experience. In the opinion of

the Board, such a result would be inequitable. Sierra exists solely because

of the assets it acquired from Eccles, which included substantially all of

Eccles’ assets, and substantially all of the assets owned by Silver Foot

when it operated as a covered employer. Consequently, it is appropriate

for the experience of Silver Foot and Eccles under the RUIA system to be

allocated to Sierra, rather than to the industry as a whole.

In its appeal, Sierra cites an example intended to demonstrate the

inequity of a successor railroad acquiring the experience of a predecessor

employer. However, the example is premised upon a misunderstanding

as to how such experience is allocated. For clarification purposes, the

Board notes that when a successor employer acquires the experience of

a predecessor employer, such experience is not allocated to the

successor employer by simply adding previously established contribution

rates, as suggested in Sierra's appeal to the Board. Rather, as noted in

section 8(a){19)(C) above, components used in the computation of the

successor employer’s contribution rate are increased to include the

amounts formerly attributed to the predecessor employer. Specifically,

the successor railroad’s cumulative benefit balance, net cumulative

contribution balance, 1 -year compensation base, and 3-year

compensation base are increased by the cumulative benefit balance,

net cumulative contribution balance, 1-year compensation base, and 3-

year compensation base of the predecessor employer. These

components are then used to compute the successor employer’s

contribution rate, up to a statutory maximum. In the years 1999, 2000,

2001, and 2002, that maximum was 12 percent.
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Sierra has requested that a hearing be held in the event the Board does 

not find in Sierra's favor. Board regulations provide that the decision to

hold a hearing in an employer rate protest is entirely within the discretion 

of the Board. See 20 CFR § 345.307(b). The Board does not find that a

hearing is warranted at this point in time. Should Sierra be dissatisfied with 

the decision on remand, Sierra is free to file another appeal with the

Board and may again request an oral hearing at that point in time.

The case is remanded to the Director of Assessment and Training to review

Sierra’s 1999, 2000 and 2001 contribution rates. In addition, since an

employer’s contribution rate depends upon its prior experience, a de

novo decision should be issued regarding Sierra's 2002 contribution rate. 

The decision of the Director should provide a detailed explanation for

each year as to the formula used to compute the contribution rate and

the value of the components used in the formula.

jviMJljUr

Michael S. Schwartz

V. M. Speakman, Jr.

Attachments