U n i t e d S t a t e s G o v e r n m e n t FORM 0-115f (1-92)

R a i l r o a d R e t i r e m e n t B o a r d MEMORANDUM

AUG 1 4 2000

L -2 0 0 0 - 2 5

TO: Edmund T. Fleming

Chief, Audit and Compliance Section

Through: Peter A. Larson

Director of Fiscal Operations

FROM: Steven A. Ban

General Cornu

SUBJECT: Norfolk Southern Corporation

Salary Continuation Policy

This is in reply to your memorandum of June 23,2000, regarding the salary continuation policy 

of Norfolk Southern Corporation. That policy provides that full salary will continue to be paid to 

certain employees who are unable to work because of illness, injury, or pregnancy. An employee 

is placed on salary continuance after the employee has been absent from work for at least 15 

days, and the policy provides coverage for up to six months (depending on the employee’s years 

of service). Employees who are unable to return to work at the end of the period (or who are 

earlier determined will not return to work at the end of the period) are placed on long term 

disability under the Norfolk Southern Long Term Disability Plan.

The Norfolk Southern presents the following argument to the effect that payments made under 

the salary continuation policy do not constitute compensation under the Railroad Retirement Act. 

Section 3231(e)(1) of the Railroad Retirement Tax Act specifically excludes from the definition 

of “compensation” any payment made to an employee under a plan or system established by an 

employer for a class of employees on account of sickness or accident disability. Analogously, 

section 3121(a)(1) of the Federal Insurance Contributions Act excludes all such payments from 

the definition of “wages.”1 Section 31.3231(e)-l(a)(l) of the Treasury regulations provides that 

the term “compensation” as used in section 3231 has the same meaning as the term “wages” in 

section 3121(a), except as specifically limited by the Railroad Retirement Tax Act or by

1 Actually the Norfolk Southern argument refers to section 3121(a)(4) of the Federal Insurance Contributions Act,

which excludes from the definition o f “wages” “any payment on account of sickness or accident disability, or

medical or hospitalization expenses in connection with sickness or accident disability, made by an employer to, or

on behalf o f an employee after the expiration o f 6 calendar months following the last calendar month in which the

employee worked for such employer * * However, what appears to be at issue here is whether the salary

continuation policy o f the Norfolk Southern constitutes a plan or system as provided under section l(h)(6Xv) o f the

Railroad Retirement Act which, like sections 3231 (eX 1) o f the Railroad Retirement Tax Act and 3121 (a)( 1) o f the

Federal Contributions Act, does not refer to the expiration of six months.
Edmund T. Fleming

regulation. Section 31.3121 (a)(2)-1 (a) of those regulations provides that “wages” does not 

include payments made by an employer under a plan to a class of employees on account of 

sickness or accident disability, and section 31.3121(a)(2)-1(d) provides that it is im m aterial

whether the amount or possibility of such benefit payments is taken into consideration in fixing 

the amount of an employee’s remuneration or whether such payments are required by contract.

Section l(h)(l)(6)(v) of the Railroad Retirement Act excludes from the definition of 

“compensation:”

the amount of any payment (including any amount paid by an employer for insurance or 

annuities, or into a fund, to provide for any such payment) made to, or on behalf of, any 

employee or any of his dependents under a plan or system established by an employer 

which makes provision for his employees generally (or for his employees generally and 

their dependents) or for a class or classes of his employees (or for a class or classes of his 

employees and their dependents), on account of sickness or accident disability or medical 

or hospitalization expenses in connection with sickness or accident disability * * *.

The legislative history of section l(h)(l)(6)(v) states that its purpose was to “provide the same 

exclusions under the railroad program for these payments as is currently provided similar 

payments under the social security program.” H.R. Rep. No. 1465, 94 Cong., 2nd Sess.; 

reprinted in 1976 U.S. Code Cong. Ad. News 5608-5609.

The analysis presented by the Norfolk Southern regarding this issue under the Railroad 

Retirement Tax Act and the Federal Insurance Contributions Act is correct, and the relation 

between those acts regarding this issue is analogous to that between the Railroad Retirement Act 

and the Social Security Act. In other words, the determination regarding whether sick pay 

constitutes compensation under the Railroad Retirement Act should be the same as the 

determination regarding whether sick pay constitutes wages under the Social Security Act.

Paragraph 10,274.07 of the CCH Unemployment Insurance Reporter reports, in pertinent part, 

the definition of a qualifying plan or system as specifying the following characteristics:

(1) makes provisions for employees generally, and/or their dependents; or a class 

or classes of employees and/or their dependents; provides for payment to or on behalf of 

an employee or any of the employee’s dependents; and assures employee awareness, i.e., 

the terms and conditions must be communicated directly or indirectly, via a bulletin 

board or similar method customarily used by the employer, to all employees or the class 

affected;

(2) contains definite payment eligibility standards that may include length of 

service, salary, classification, or occupation, but may not be based solely on need, 

efficiency, or loyalty;

(3) contains a formula for determining the minimum benefit amount for each 

eligible employee; and
Edmund T. Fleming

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(4) specifies the minimum period of payments, e.g., payments will be made for 

the duration for the employee’s illness, or for as long as the employment relationship 

continues.

The Norfolk Southern’s description of the salary continuation system constitutes a plan under the 

foregoing definition, and the Norfolk Southern is correct in contending that payments under that 

plan should be excluded from the definition of “compensation” under the Railroad Retirement 

Act. Legal opinions L-92-20 and L-99-13 to the contrary are overruled.

NV

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