U n i t e d S t a t e s G o v e r n m e n t

MEMORANDUM

FORM 0-llSf (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

L-2000-27

TO: Ronald Russo

Director of Policy and Systems AUG 2 8 2000

FROM: Steven A. Bi 

General Con

SUBJECT: Experience Rating

This is in reply to your memorandum of February 14,2000, in which you ask a number of 

questions, related to experience rating, and present specific questions related to hypothetical 

cases. This opinion incorporates answers to those questions and addresses issues presented at a 

meeting held July 27, 2000 with Bureau o f Law staff to discuss a draft response provided to your

office on June 1,2000. Mention has been made of a desire for some revisions to the Board’s 

regulations regarding experience rating. It is our understanding a request will be forwarded by 

your office at a future date describing the desired changes and/or additions to the regulations.

This is in response to the general questions on page 1 of your memorandum. They are restated 

below.

1) What is the difference between the various ownership options such as ownership and 

control, merger, successor employer and a sale or transfer of assets and what are the 

ramifications of these relations on the Experience Rating system?

“Ownership” and “control" refer to a situation where one or more companies are owned or 

controlled by another. When two companies merge, either (a) one of the two companies survives 

or (b) a new company is created. The term “successor employer” is not used in the regulations 

but would generally refer to one that takes over the assets of another employer.

If two or more employers are under common ownership or control, they may request the Board 

to consolidate their individual employer records into a joint individual employer record under 

section 345.202 of the RRB’s regulations. Such joint individual employer record shall be treated 

as though it were a single employer record and shall be effective commencing with the calendar 

year following the year of the request. Where a merger occurs, under section 345.203 of the 

RRB’s regulations, the employer record of the company surviving the merger consists of a

I - General Questions
combination of the individual employer records of the merged companies. Section 8(a)(19)(A) 

of the RUIA authorizes the Board to determine to combine employer records in the case of 

merger, consolidation, unification, or reorganization “pursuant to regulations prescribed by the 

Board.” In successor employer cases, under section 345.204, the employer record of the 

company whose assets are sold is taken over by the successor employer (pro ratal

2) Does the type of ownership dictate whether we combine the employer’s experience and 

recalculate the contribution rate?

The type of ownership of a company should not affect the experience rating. Ownership by one 

company of another company, both of which are employers, does not mean that the employer 

records of the two companies should be combined, unless requested by the employers and 

approved by the Board pursuant to section 345.202 of the Board’s regulations. The type of 

transaction by which employers are combined into a single entity, however, (e.g.. merger, 

acquisition of assets, etc.) will affect experience rating. The experience rating of a merged 

company, for example, will be calculated under section 345.203. The experience rating of a 

company which acquires the assets of another will be calculated under section 345.204.

3) In the interests of providing the lowest possible rate, should we establish parentsubsidiary relationships without a formal election by the railroads? Are there 

circumstances when we should or should not make assumptions about intent?

No. Assumptions regarding an employer’s intent as to the consolidation of employer records 

should never be made, regardless of the employer’s history of requesting such consolidation with 

other employers. Nor should assumptions be made if employers file DC-1 contributions jointly. 

If there is a history of such activity, to assure that there is no confusion, notification could be 

released to the employer(s) that a request must be filed if they wish the individual employer 

records to be consolidated.

4) If Audit and Compliance determines that a parent-subsidiary relationship exists for two or 

more existing employers, should the contribution rate be recalculated with the effective 

date of the new relationship or recalculated prospectively from the coverage 

determination date? What happens if one of the employers is a new employer? If we are 

not required to recalculate retroactively, what appeal rights does an employer have to 

have the rate recalculated retroactively?

Initially, it is noted that the three-member Board determines whether a parent-subsidiary 

relationship exists, not the Division of Audit and Compliance. Nevertheless, as explained 

previously, it is the type of transaction by which employers are combined into a single entity that 

affects experience rating, not the relationship itself.. In regard to the filing of consolidated 

employer reports, section 345.202(a) provides that “such consolidation shall be effective 

commencing with the calendar year following the year of the request.” The appeal rights of an 

employer regarding experience rating are provided under section 345.307 of the RRB’s 

regulations. The retroactivity of an experience rating determination would be subject to an 

appeal under that provision.
II - Hypothetical Questions

The situations described in your memorandum generally concern the effective dates of new rates. 

In this regard, it should be noted that the effective date of a new rate does not have to be the 

same as the beginning date of coverage under the Railroad Retirement and Railroad 

Unemployment Insurance Acts, and that retroactivity and the consequent recalculations should 

be avoided to the extent possible.

It is my understanding that the existence of more than one rate for an employer during a calendar 

year creates significant administrative difficulties, as the experience rating database is designed 

around the premise that an employer will have only one contribution rate calculation per year. In 

my opinion, there is nothing in the statute that precludes the Board from recalculating a 

contribution rate resulting from a Board coverage determination regarding a merger or transfer of 

assets effective with the calendar year following the year of the Board’s determination. Such 

procedure parallels the handling of requests for a consolidated record involving employers that 

are under common ownership or control (20 C.F.R. 345.202) and is consistent with the scheme 

of the experience rating system, which is designed to provide that an employer’s contribution 

rate will accurately reflect an employer’s experience over the long-term.

The hypothetical scenarios presented in your memorandum are restated below. The following 

discussion presumes the application of the previously discussed approach.

1. Railroad B, a new employer, acquires Railroad A. Coverage decisions establishing B and 

terminating A are made simultaneously with the same effective dates.

a) Should B be given A’s contribution rate for the current calendar year?

The acquisition of Railroad A by Railroad B is, presumably, a sale or transfer of assets under 

section 345.204, so Railroad B will acquire the employer record of Railroad A. B should be 

given A’s contribution rate for the current calendar year. There is no other rate that could be 

given to B which would have any basis in law.

b) If the coverage decisions were received after the calculation of the next calendar 

year’s rate, is B given the next calendar year rate calculated for A?

B, which by acquiring A has become an employer, stands in the place of A and should be given 

the rate that A would have been given.

c) If the coverage beginning date for B and corresponding coverage ending date for

A is in a prior calendar year, does B acquire A’s rates for the prior periods?

As in the response to la, there would appear to be no other contribution rate that B could 

reasonably be given. If B acquires the assets of A in 1997 and in 1999 is ruled to be an employer 

(effective 1997), presumably B has been paying contributions at A’s rate. If not, B should 

acquire A’s rate for the prior periods.
-4-

2. Railroad B is determined to be a new employer and given a new employer contribution 

rate. At a later date, possibly months or years later, Railroad A is terminated and the 

coverage decision indicates that A’s assets were acquired by B. The acquisition of A 

may be effective on or after B’s coverage beginning date.

a) Should B’s contribution rates - prior, current, and next year (if applicable) - be 

recalculated to reflect the joint experience?

B’s rates should reflect the joint experience beginning with the calendar year following the year 

of the Board’s coverage determination regarding the termination of railroad A.

b) If the acquisition was sometime after B’s coverage beginning date, is B allowed a

new employer rate for some period of time?

Where B is a new employer in its own right, and does not become a new employer by way of 

acquiring A’s assets, it is the date of the Board’s coverage determination regarding the 

termination of Railroad A that is relevant in determining the effective date of the contribution 

rate reflecting the joint experience, not the date of acquisition. If the acquisition occurred after 

B’s coverage beginning date, then B would have a new employer rate until the calendar year 

following the year of the Board’s coverage determination regarding the acquisition.

c) Is there a limit on retroactivity?

Under the suggested policy noted above, retroactivity is not an issue as Railroad B’s rate should 

not be recalculated to reflect the joint experience until the calendar year following the year of the 

Board’s coverage determination regarding the termination of Railroad A.

3. Railroad A terminates and is merged into Railroad B, an existing railroad, with effective 

dates in a prior calendar year.

a) Should Railroad B’s contribution rate for the current calendar year be modified to 

reflect the joint experience of A and B? Would the answer change based on 

whether or not B has paid any contributions for the current calendar year? (The 

first payments for a calendar year are due April 30.)

Railroad B’s contribution rate should not be modified until the calendar year following the year 

of the Board’s coverage determination regarding the termination of Railroad A.

b) If B’s rate for the current year isn’t recalculated to reflect joint experience, what 

contribution rate should be used for the payroll acquired from A? B’s current rate 

or the rate provided to A?

See response to 3a.
c) If the coverage decisions are received after the calculation of the next year’s 

contribution rate, should B’s next year contribution rate be recalculated to reflect 

the joint experience?

See response to 3a.

d) Should there be any change in contribution rates for prior year(s) since the 

effective date of the merger was in a prior year?

There should be no change in contribution rates for prior years. See response to 3a.

4. Railroad A terminates and is merged into Railroad B, an existing railroad, with effective

dates in a current calendar year.

a) Should Railroad B’s contribution rate for the current calendar year be modified to 

reflect the joint experience of A and B?

Railroad B’s contribution rate should not be modified to reflect the joint experience of A and B

until the calendar year following the year of the Board’s coverage determination.

b) If so, what would be the effective date of the rate change? The whole calendar 

year? The effective date of the merger? The coverage decision date?

See response to 4a.

c) Would the answers to (a) and (b) change based on whether or not B has paid any 

contributions for the current calendar year? (The first payments for a calendar 

year are due April 30.)

No.

d) If B’s rate for the current year isn’t recalculated to reflect joint experience, what 

contribution rate should be used for the payroll acquired from A? B’s current rate 

or the rate provided to A?

See response to 4a.

e) If the coverage decisions are received after the calculation of the next year’s 

contribution rate, should B’s contribution be recalculated to reflect the joint 

experience?

See response to 4a.

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