s, RMRR should be

assessed rate of

r its 1995 rate of

From

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

M e m o r a n d u m

FORM 0-1151 (1-12)

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

SEP 011995 

L -95-26

Chief of Experience Rating

Bureau of Unemployment and Sickness Insurance

Steven A. BartholoWj/^^^*^

Deputy General Cetinsel

Through: Catherine C. Cook r

General Counsel

Subjects Rocky Mountain Railcar and Railroad, Inc.

(BA No. 3769)

This is in response to your memorandum dated June 27, 1995, with

respect to the experience rating status of Rocky Mountain Railcar

and Railroad, Inc. (RMRR).

RMRR was held to be an "employer" under the Railroad Retirement Act

and Railroad Unemployment Insurance Act, effective July 24, 1987,

based upon a Notice of Exemption issued by the Interstate Commerce

Commission in Finance Docket No. 31085. RMRR had filed for the

exemption in order to operate rail lines of the U.S. Department of

the Army located primarily within the Rocky Mountain Arsenal.

Apparently, RMRR did not commence operations as of that date but,

according to your memorandum, may do so now. You request advice

concerning establishing a contribution rate for RMRR.

You further report that your RUIA experience rating database has no

record for RMRR, which I understand to mean that RMRR has not filed

Forms DC-1, report of compensation and contributions, with respect

to any period of time from July 24, 1987 to date. I also

understand that RMRR filed an annual report of service and

compensation of employees for 1991 and 1992 showing "no employees"

in either year but has not filed reports for other years and has

not responded to requests from the Bureau of Research and

Employment Accounts that it do so. In responding to your

memorandum, I will assume that RMRR has not to date had any

employees who were paid "compensation" on the basis of employment

with RMRR but may have employees for the first time at some point

during 1995.

You ask whether, for experience rating purposes, RMRR should be

considered to be a "new employer" with an assessed rate of

contribution of 4.15 percent for 1995, or whether it
Chief of Experience Rating

contribution should be 0.65 percent based upon a coverage beginning

date prior to 1990.1

Section 8(a)(1)(D) of the RUIA prescribes formulas for computing

contribution rates for new employers. It provides, in part, that

notwithstanding the transitional rule in subparagraph (B), or the

eight-step process in subparagraph (C) by which an employer's rate

of contribution is otherwise computed,

. . . the contribution rate applicable to a new employer

who does not become subject to this Act until after

December 31, 1989, shall be determined as follows:

(i) 1st CALENDAR YEAR. -- With respect to compensation

paid in calendar months before the end of the first full

calendar year in which the employer is subject to this

Act, the contribution rate shall be the average

contribution rate paid by all employers during the 3

calendar years preceding the calendar year before the

calendar year in which the compensation is paid.

[Emphasis added]

That section continues by providing the methodology for computing

the "average contribution rate" and by providing formulas for

computing a new employer's contribution rate for the second and

third calendar years. A new employer, because it has not had any

experience of its own, is assigned a rate of contribution based in

whole or in part upon the recent experience of other employers that

are currently subject to the RUIA. After a new employer has been

"subject to the Act" for three full calendar years, its rate of

contribution is then computed under the regular eight-step formula

in section 8(a)(1)(C).

A new employer's rate of contribution will therefore depend on when

it first becomes "subject to the RUIA" for purposes of the RUIA

experience-rating system. The answer to the question presented by

your memorandum requires consideration of the meaning of the phrase

"subject to the RUIA."

Section 1(a) of the RUIA defines the term "employer" as including

any "carrier" subject to the Interstate Commerce Act. See also

section 1 (a) of the RRA. (The Notice of Exemption in ICC Finance

Docket No. 31085 authorized RMRR to operate as a "carrier,"

im
Chief of Experience Rating

effective July 24, 1987, thus making it an "employer.11) Section

1(d) of the RUIA defines the term "employee" as any individual who

is or has been in the service of one or more employers for

"compensation," and section 1(g) defines the term "employment" as

service performed as an "employee." Under section 1 (i) of the

RUIA, the term "compensation" means generally any form of money

remuneration paid for services rendered as an employee to one or

more employers. Finally, section 8(a) of the RUIA imposes on

employers a duty to pay "contributions" with respect to the

compensation paid to their employees.

Under a literal reading of section 1(a) of the RUIA, RMRR met the

statutory definition of "employer" in 1987. Nevertheless, I am of

the opinion that, for the reasons stated below, for purposes of

experience rating, an employer is not subject to the RUIA until it

commences paying compensation.

As you know, the purpose of the 1988 amendments to section 8 (a) of

the RUIA was to put employer contributions on an experience-rated

•

basis. In general, an employer's experience is a measurement of

its 1-year and 3-year compensation bases, the net amount of its

contributions, and the amount of its benefit charges. It is

obvious then that until an employer has employees and begins to pay

compensation, it would not have had any "experience" insofar as

section 8(a) of the RUIA is concerned.

If RMRR were held to be a "new employer" as of July 24, 1987, its

rate o & contribution for compensation paid in 1995 would be

computed under section 8(a)(1)(C), since it would have been an

"employer" for at least three calendar years. However, one does

not have to proceed far in the calculation under that section to

realize that its base rate under that section would be zero. This

is because the components in the calculation under section

8(a)(1)(C) have no meaning unless an employer has paid

compensation. In this regard, see Legal Opinion L-89-123, where we

noted that if an employer's compensation base were considered to be

zero, it would not be possible to compute a "benefit ratio" or

"reserve ratio", in which case it would not be possible to compute

a rate under section 8(a)(1)(C). Those ratios are indicative of

actual experience, and they cannot have values for an employer

(such as RMRR) that has existed only on paper and has never had any

measurable experience.

Consistent with L-89-123 is a proposed revision to the Board's

regulations (20 CFR 345.301(a)), recently adopted by the Board as

•

a proposed rule (see 60 Fed. Reg. 43300, August 18, 1995). That

section provides that the new employer rate applies when an
t* ' •

- 4-

Chief of Experience Rating

employer first becomes subject to section 8 of the RUIA, i.e., when

it first pays compensation.

Indeed, to compute RMRR's experience under section 8(a) (1) (C) would

create the anomalous situation in which an employer that has never

paid any contributions is given the lowest possible contribution

rate provided under the RUIA (0.65 percent) simply because it

delayed commencing operations until 1995, four years after it

sought ICC approval, whereas an employer that obtained approval and

commenced operations this year would pay a 4.15 percent rate.

In accordance with the above, it is my opinion that section

8(a) (1) (D) provides the exclusive method for computing the rate of

contribution for an employer that first pays compensation as of a

date after December 31, 1989. As provided in clause (iv) of section

8(a) (1) (D) , a new employer's contribution rate will not be fully

experience-rated until after the end of the third full calendar

year with respect to which it has been paying compensation subject

to section 8 of the RUIA.

t

cc: Chief Financial Officer

Attn: Bob Elling

WPWitkovich:wpw:ik

RMRR1536.WPW