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

MEMORANDUM

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

L-2000-19

JUNO 2 2000

TO : Debbie McGovern

Reconsideration Specialist

FROM : Nancy V. Russell • llC U lv j' V » JLVUOOLli /\

General A tto rn ey K

SUBJECT : Application of LPE Work Deductions to Public Officials

This is in response to your request for a determination as to whether Robert 

R.’s employment as Mayor of the Village of W., Ohio constitutes last person 

employment (LPE). As explained below, it is my opinion that the employment 

does constitute LPE and therefore, his annuity is subject to appropriate LPE 

work deductions.

Information in file indicates Robert R. was serving his second term as Village 

Mayor when he quit working for the railroad industry and filed an application 

for an annuity payable under the Railroad Retirement Act (RRA). Mr. R. was 

awarded an annuity beginning October 30, 1999, reduced for LPE work 

deductions. He was recently reelected to a third term as Mayor and objects to 

the reduction of his annuity for such employment. In support of his position, 

he argues the following:

• He is not an employee of the Village;

• The Village is not included within the definition of employer as defined in 

section 2(eXl) of the Railroad Retirement Act (45 U.S.C. § 231a(e)(l));

• His present employment as Mayor is new employment;

• The reduction applied to his annuity is excessive in light of the amount of 

compensation he receives for his service as Mayor; and

• The reduction of annuities for service as an elected officer should be 

prohibited as such reduction is against public policy.
A review of the legislative history of work restrictions, and their application to 

elected public service, is helpful in evaluating Mr. R.’s claims.

Work restrictions related to non-railroad employment have existed since the 

Railroad Retirement Act of 1937. Until the Act was recodified in 1974, an 

individual was barred from receiving an annuity unless he ceased to render 

compensated service to any person. 45 U.S.C. § 228b(a). The prohibition 

against continuing in employment was included to support the m^jor purpose 

of annuities payable under the Act, that is, to provide benefits for persons who 

were completely retired and who were dependent upon such benefits for their 

livelihood. Legal Opinion L-76-110.2. Also see United States v. Bush. 255 F.2d 

791, 793-794, for a detailed discussion on the legislative history of the statutory 

work restrictions in the Railroad Retirement Act of 1937. The Board held that 

this statutory work restriction included service as an elected public officer 

(Legal Opinion L-42-300) and courts agreed that the relevant statutory 

provisions included a governmental entity as a “person” and that they also 

applied to individuals elected to public office. Burke v Railroad Retirement 

Board. 165 F.2d 24 (D.C. 1947). Davenport v. Railroad Retirement Board. 453 

F.2d 185 (5th Cir. 1972).

When the Act was recodified in 1974, the prohibition against continuing to 

perform compensated service was carried over to section 2(eXl) of the Railroad 

Retirement Act of 1974. In addition, the following provision was added to 

section 2(eXl), excluding employment as an elected public official from the 

work restriction:

As used in this subsection, the term “compensated service” shall 

not include any service as an elected public official of the United 

States, a State, or any political subdivision of a State.

Legislative history indicates the exemption for elected public service cited 

above was introduced by Congress to provide that an individual who is an 

elected public official could receive a railroad annuity “without being required 

to resign his elected office.” S. Rep. No. 1163, 93d Cong., 2d Sess. 26 (1974).

In 1988, section 2(e)(1) of the RRA was revised to provide that an individual no 

longer has to cease non-railroad employment in order to be entitled to an 

annuity. Section 2(eXl) now reads, in its entirety, as follows:

No individual shall be entitled to an annuity under subsection

(a)(1) of this section until he shall have ceased to render 

compensated service to an employer as defined in section 231(a) of 

this title.
As section 2(eXl) now reads, the bar on entitlement to an annuity still exists if 

an individual has not stopped working in the railroad industry, but entitlement 

is no longer barred if an individual continues to work for his last person nonrailroad employer. The restriction on work for the last person non-railroad 

employer was replaced with the introduction of deductions applicable to the 

tier II component of an annuity and any supplemental annuity payable. The 

statutory authority for the deduction, commonly referred to as “last person 

employment” (LPE) work deductions, is found in section 2(f)(6) of the Railroad 

Retirement Act (45 U.S.C. § 231a(f)(6)). Without explanation, Congress did not 

exclude elected public service from LPE work deductions, and consequently, 

such service is now treated in the same manner as any other LPE.

Having reviewed the history of work restrictions involving service as an elected 

public official, we now turn to Mr. R.’s arguments as to why his annuity should 

not be reduced for LPE work deductions.

Initially, Mr. R. argues that he is not an employee of the Village, but is selfemployed. In support of his claim that he is not a Village employee, Mr. R. 

cites sections 124.57 and 145.01 of the Ohio Revised Code. Section 124.57 

provides that no officer or employee in the classified service shall participate in 

partisan political activities, other than to vote or express their political 

opinions. However, Mr. R. is not part of the classified service, but is part of the 

unclassified service as defined in section 124.11 of the Ohio Revised Code. 

That section provides, in part, as follows:

(A) The unclassified service shall comprise the following positions, 

which shall not be included in the classified service, and which 

shall be exempt from all examinations required by this chapter: (1)

All officers elected by popular vote or persons appointed to fill 

vacancies in such offices. Ohio Rev. Code Ann. § 124.11 (Anderson 

1993).

Section 145 of the Ohio Revised Code referenced by Mr. R. includes provisions 

related to the Ohio Public Employee Retirement System (PERS). Section 

145.01 defines those individuals considered to be a “public employee” as that 

term is used in section 145, and refers to persons holding an office, not elective. 

However, it should be noted that section 145.01 merely defines those 

employees for whom membership in PERS is compulsory. See § 145.03 of the 

Ohio Revised Code. However, if an elected official wishes to join PERS, the 

official may do so under section 145.20 of the Ohio Revised Code. That section 

provides, in part, “Any elective official of the state of Ohio or of any political 

subdivision thereof having employees in the public employee retirement 

system shall be considered as an employee of the state or such political
subdivision, and may become a member of the system upon application...” 

(emphasis added). Ohio Rev. Code Ann. § 145.20 (Anderson 1993).

The inclusion of elected officers in the unclassified service and their ability to 

opt into PERS on the basis of their employee status clearly establishes the 

existence of an employee-employer relationship.

Mr. R. next argues that even if he is an employee of the Village, the RRA 

reduces benefits if an individual is rendering compensated service to an 

employer as defined in the RRA and that he is not subject to the reduction 

because public service as Mayor is not within the statutory definition of 

employer. The section of the RRA which Mr. R. appears to be referring to is 

section 2(eXl) of the RRA (45 U.S.C. § 231a(e)(l)) which, as noted above, 

presently bars entitlement to an annuity if an individual does not cease 

working for his railroad employer. However the statutory provision which 

requires the reduction in Mr. R.’s annuity is found in section 2(f) of the RRA (45 

U.S.C. § 231a(f)) which provides, in relevant part, as follows:

(6)(A) Except as provided in subparagraph (B) -

(i)That portion of an annuity for any month of an individual 

as is computed under section 3(b) and as adjusted under 

section 3(g), plus any supplemental amount for such month 

under section 3(e),. . . shall each be subject to a deduction of 

$1 for each $2 of compensation received by such individual 

from compensated service rendered in such month to the 

last person, or persons, by whom such individual was 

employed before the date on which the annuity of such 

individual under subsection (a)(1) began to accrue.

f

* * *

(B) Any deductions imposed by this subdivision for any 

month shall not exceed 50 percent of the annuity amount for 

such month to which such deductions apply. (45 U.S.C. § 

231a(f)(6)).

(Section 3(b) of the Railroad Retirement Act (45 U.S.C. § 231b(b)), referred to in 

section 2(f)(6) above, provides for the computation of the tier II component.)

To determine whether the reduction in section 2(f)(6) applies to Mr. R.’s 

annuity, we must determine if his service as Village Mayor is compensated 

service for the last person, or persons, by whom he was employed prior to his 

annuity beginning date of October 30,1999. Section 1(1) of the RRA (45 U.S.C. §
231(1)) defines the term “person” as meaning an individual, a partnership, an 

association, a joint-stock company, a corporation, or the United States or any 

other governmental body.” While Mr. R. is accurate in his claim that public 

service as Mayor is not within the statutory definition of “employer”, it is 

clearly within the scope of the statutory definition of “person.” (Also see 

Davenport v. Railroad Retirement Board. 453 F.2d 185 (5th Cir. 1972) wherein 

the court held that work for a municipal government was within the scope of 

the work restrictions under the Railroad Retirement Act of 1937.) Having 

previously determined the existence of an employee-employer relationship, it 

is clear the Village of W. qualifies as Mr. R.’s last person employer.

Mr. R. next argues that his annuity should not be subject to LPE work 

deductions because his present employment as Mayor is “new employment” 

which began January 1, 2000, after his annuity beginning date. The fact that 

Mr. R. is now serving a new term as Mayor is irrelevant to the issue of whether 

his annuity is subject to LPE work deductions. The statutory language of the 

RRA does not refer to a “term of employment”. Rather, the RRA provides that 

the reduction applies to an individual’s annuity in any month in which 

compensated service is rendered to the last person, or persons, by whom such 

individual was employed before the date on which the annuity of such 

individual began to accrue. The Village of W. employed Mr. R. prior to his 

annuity beginning date of October 30, 1999, and continues to employ him 

today.

Mr. R. also argues that the reduction in his annuity is excessive, in light of the 

compensation he receives. Section 2 (f)(6) provides that the relevant 

components of an individual’s annuity are subject to a deduction of $1 for each 

$2 of compensation received, not to exceed 50 percent of the annuity 

components for such month to which such deductions apply. There are no 

statutory provisions that allow for a lesser reduction based upon the amount of 

compensation received.

Finally, Mr. R. argues that reducing his annuity due to the compensation he 

receives from his employment as Village Mayor is against public policy as it 

discourages individuals from participating in public office.

Prior to the 1974 Act, when relevant statutory provisions mandated an 

individual cease all employment, including elected public service, to be 

entitled to an annuity, the Board adopted a policy whereby continued service as 

an elected public officer would not bar entitlement. Service as an elected 

public officer was exempt from the work restrictions then in effect if the office 

was one sought solely because of the dignity and honor involved or the desire 

to render public service. Legal Opinion L-42-300. Also see Legal Opinions L51-115, L-52-547, L-52-739. The amount of compensation received was a critical
factor in determining whether public service was considered to be

“compensated service” that precluded annuity entitlement, or service

performed “solely because of the dignity and honor involved or the desire to 

render public service”, thereby allowing entitlement to an annuity. If the

compensation received was greater than that amount which an individual

receiving a disability annuity under the RRA could earn without adversely 

affecting his eligibility for that benefit, then the public service was considered 

to be “compensated service” and barred entitlement to an annuity. Legal 

Opinion L-76-110.

The above policy was no longer apropos upon the introduction of the 

exemption for elected public service with the Railroad Retirement Act of 1974. 

The exemption was introduced because Congress determined that the 

employment restriction provisions under the Railroad Retirement Act of 1937, 

as applied to elected public officials, “resulted in undue hardship for a limited 

number of people.” Therefore, the employment restrictions were modified to 

provide that an individual who was an elected public official could receive a 

railroad annuity “without being required to resign his elected office.” S. Rep. 

No. 1163, 93d Cong., 2d Sess. 26 (1974).

When the Railroad Retirement Act was amended in 1988, and the ban on nonrailroad employment was replaced with LPE work deductions, Congress did 

not exclude service as an elected public official from employment subject to 

LPE work deductions. The legislative history is silent as to the reason 

Congress did not exempt such service, when it had provided an exemption 

from the work restrictions in effect prior to the 1988 amendments. However, 

the legislative history behind the exemption introduced in 1974 as previously 

recounted provides the foundation for a reasonable inference.

Prior to the 1988 amendments, an individual had to cease all compensated 

service to be entitled to an annuity. As noted above, Congress introduced an 

exception in 1974 for individuals in elected public office so that they would not 

have to resign their office in order to receive an annuity. Subsequent to the 

1988 amendments, an individual no longer needs to end all employment to be 

entitled to an annuity, but only needs to end employment in the railroad 

industry. Therefore, the justification for the exclusion of service as an elected 

public official no longer exists.

Additionally, it should be noted that one of the purposes in originally enacting 

the work restrictions on non-railroad employment was to insure that an 

individual engaged only in railroad employment at the time of his retirement 

would not be in a worse position than an individual who had left the railroad 

industry and engaged in non-railroad employment. Legal Opinion L-77-285. 

Under the present provisions, a railroad employee is required to cease his
service in order to obtain an annuity, while an individual who left the railroad 

industry can receive his annuity and at the same time, continue in his nonrailroad employment. Requiring a reduction in that portion of an individual’s 

annuity that is based solely on his railroad compensation for continued postretirement non-railroad employment helps to compensate for the burden 

placed on the career railroad employee who must cease railroad employment, 

and thereby essentially cease all employment.

The rationale behind the statutory exclusion in 1974 was the same basis for the 

policy adopted by the Board prior to 1974 and that justification no longer exists. 

That is, an individual is no longer required to resign from non-railroad 

employment to become entitled to an annuity under the RRA. Furthermore, 

Mr. R.’s annual salary of $6,000.00 is greater than that amount which an 

individual receiving a disability annuity under the RRA can presently earn 

without adversely affecting his eligibility for that benefit. See 45 U.S.C. § 

231a(eX4). Therefore, even under the pre’74 policy, Mr. R.’s employment as 

Village Mayor would not be exempt from LPE work deductions.

To summarize, the Village of W. is the last person by whom Mr. R. was 

employed prior to his annuity entitlement. Section 2(f)(6) of the RRA (45 U.S.C. 

§ 231a(fX6» provides for a reduction where an individual receives 

compensation for services performed for the last person, or persons, by whom 

he was employed prior to his annuity entitlement. Section 1(1) of the RRA (45 

U.S.C. § 231(1)) specifically includes a governmental body within the definition 

of “person.” The 1988 amendments brought service as an elected public officer 

squarely within the scope of employment subject to LPE work deductions, as 

no provisions were included to exclude such service. Furthermore, the 

justification for the previous exclusion of elected public service where last 

person employment restrictions were involved no longer exists. The plain 

language of the RRA mandates reducing Mr. R.’s annuity for LPE work 

deductions.

NVRussell^vT-atw

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