TO: 

FROM: 

UNITED S TATES G OVERNMENT 

MEMORANDUM 

Lawrence Haskins 

FORM G-1151 (1-92) 

RAILROAD RETIREMENT B OARD 

October 31, 2016 

L-2016-53 

Acting Chief Financial Officer /} I) d 

KarlT.Blank 1 U~ /~ 

General Couns~ 

SUBJECT: National Railroad Retirement Investment Trust Assets 

Statement of Federal Financial Accounting Standards 47, Reporting 

Entity 

This is in response to your request for my analysis regarding whether the National 

Railroad Retirement Investment Trust (the Trust) may be characterized as a 

disclosure entity for reporting purposes in the RRB Financial Statement in 

accordance with guidelines specified in the Statement of Federal Financial 

Accounting Standards 4 7, Reporting Entity (SFF AS 4 7). I understand that your 

request follows discussions between the Railroad Retirement Board (RRB) and the 

Department of the Treasury in further elaboration of Legal Opinion L-2012-35 and 

a March 10, 2016, Point Paper prepared by the former Chief Financial Officer. 

Background 

The Railroad Retirement Act of 1974 (RRA), as amended ( 45 U.S.C. § 231-231 v)) 

provides benefits as a creation of Congress, which may be altered and even 

eliminated by Congress at any time. Hisquierdo v. Hisquierdo, 439 U.S. 572 at 

575 (U.S. 1979). Section 150) of the RRA (45 U.S.C. 23lnU)) establishes the 

Trust with the sole purpose of managing and investing railroad retirement assets. 

The Railroad Retirement Board and the Trust are separate entities and the RRB has 

no authority with respect to governance of day-to-day decisions and activities of 

the Trust. 

During the period of 2002 through 2004, approximately $21 billion of funds were 

transferred by the Department of Treasury from the Railroad Retirement Act to the 
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Trust in accordance with Section 15(k) of the RRA (45 U.S.C. § 231n(k)). A 2002 

Memorandum of Understanding (MOU) between the Railroad Retirement Board, 

the Trust, the Department of Treasury, and the Office of Management and Budget, 

recognized that the Trust is not a department, agency or instrumentality of the 

Federal Government. The MOU further states the Trust's cash and investments are 

"nevertheless assets of the Federal Government" based on the fact that Federal 

funds were transferred to the Trust. However, the MOU makes clear the fact that 

the Trust is not subject to requirements of Title 31 of the U.S. Code and the 

transfer of the money to the Trust does not alter the RRB's current requirements 

for monthly financial reporting of activity as they are separate entities with 

separate assets, separate reporting duties and therefore, separate ownership. 

Prior to 2005 the funds transferred to the Trust pursuant to RRA Section l 5(k) 

were disclosed in a footnote to the RRB Financial Statement. However, in the fall 

of 2005 and early 2006, the RRB, Office of Management and Budget, and 

Department of Treasury engaged in discussions concerning various RRB year-end 

reporting and auditing issues associated with the Trust. The RRB's Chief Financial 

Officer and General Counsel had maintained that the assets held by the Trust are 

not assets of the RRB. However, due to the reporting and auditing requirements to 

which the RRB is subject and to the statutory rules which govern the Trust, the 

idea to include Trust-held assets in RRB's financial statements in order to meet the 

government-wide accelerated schedule was introduced. In an October 27, 2005 

letter to the Office of Management and Budget, the RRB's General Counsel 

specified that the Trust asset data would be added to the financial statement to 

ensure the RRB audited financial statement is finalized in a complete and timely 

manner. The General Counsel further noted however, that including the Trust's 

assets would be problematic because it requires the Trust's Board members to 

attest to the accuracy and correctness of the information that the RRB did not 

prepare and over which it has no jurisdiction or control. Therefore, in the General 

Counsel's opinion, requiring the Board members to certify and attest to the Trust's 

financial information was inappropriate. 

Nevertheless, starting with the Financial Statement for Fiscal Year 2006, the RRB 

included the Trust's assets as part of the Total Intragovernmental Assets with a 

footnote specifying that the amount listed is the net value of Trust assets and the 

amount was provided by Trust. The footnote was included in an attempt to clearly 

distinguish the Trust assets as separate from the ownership and control of the RRB. 

As the requirements of RRA Sections l 5(i),(k) and (I) remained the same, this did 

not impact the ownership and control of Trust assets, or change or shift the control 

to the RRB. The assets remained with the Trust and the addition of the Trust's 
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assets in the RRB's financial statement was added solely to meet the governmentwide accelerated schedule. 

SSFAS Rule 47 

The Statement of Federal Financial Accounting Standards (SFFAS) 47, Reporting 

Entity was issued in December 2014 by the Federal Accounting Standards 

Advisory Board (FASAB), a United States Federal advisory committee created to 

develop Generally Accepted Accounting Principles (GAAP) for Federal financial 

reporting entities. The SSF AS 4 7, Reporting Entity establishes principles effective 

October 1, 2017, to identify organizations for which elected officials are 

accountable. Regarding reporting on organization, SSF AS 4 7 outlines 

characteristics used to assess the distinction between "consolidation entities" and 

"disclosure entities." Under paragraph 38 of the SSFAS 47, classification of the 

entity is based on the assessment as a whole and not all characteristics are required 

to be met or be met to the same degree. 

In paragraph 24 of the SSF AS 4 7, the Principles for Inclusion in the GPFFR 

depend on whether the, "ownership interest is a legal claim on the net residual 

assets of an organization such as holding shares or other formal equity 

instruments." Paragraph 25 goes on to state a "majority ownership exists with over 

50 percent of the voting rights or net residual assets of an organization. When the 

Federal Government holds a majority interest in an organization, it should be 

included as either a consolidation or a disclosure entity." Under the SSF AS 4 7 

paragraph 39, a "consolidation entity" is one that is: 

a) Financed through taxes and other non-exchange revenues; 

b) Governed by Congress and/or the President; 

c) Imposes or may impose risks and rewards to the Federal government; 

and 

d) Provides goods and services on a non-market basis. 

"Disclosure entities" on the other hand, are organizations with a greater degree of 

autonomy than consolidation entities. Under the SSFAS 47 paragraph 43, an 

organization that is owned or controlled by the Federal government as a result of 

(a) regulation actions or (b) other Federal government intervention actions should 

be disclosed rather than consolidated in GPFFRs. SFFAS 47 further states in 

paragraph 44 that a disclosure entity is one that maintains a separate legal identity 

with separate governance structure to insulate the organization from political 

influence and limited risks and rewards to the Federal government. 
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Railroad Retirement Act 

The RRB 's limited control over the Trust is evident in the provisions of law 

governing the Trust's authorities and duties. Section I 5(j)(2) of the RRA states that 

the Trust "is not a department, agency, or instrumentality of the Government of the 

United States and shall not be subject to title 31, United States Code" and 

establishes the ownership of the Trust to be "a Board of Trustees, consisting of 7 

member * * * The members of the Board of Trustees shall not be considered 

officers or employees of the Government of the United States." The Act 

consistently refers to the assets of the Trust as belonging to the Trust and its 

members, as opposed to the Federal Government or the RRB. The RRB's 

relationship with the Trust is established from the Act, and the RRB-Trust 

transactions are those prescribed by sections 15(k)-(I) of the Act: the required 

transfer of funds to establish the Trust and the transfer of funds to the RRB 

necessary to pay benefits. Further, it bestows all reporting requirements, fiduciary 

standards, audit and reporting duties, and transferring of the Trust's funds to the 

members of the Board of Trustees. See, section 15j(5)(a)-(I) of the RRA. See also, 

RRB Legal Opinion L-2012-35. 

Analysis 

In previous occasions, such as the above-mentioned 2002 Memorandum of 

Understanding and the inclusion of the Trust's assets on the RRB's Financial 

Statement the Trust's assets have been categorized loosely as the assets of the RRB 

and/or the Federal Government. However, the issuance of the SSFAS 47 

elaborating the distinction between consolidation and disclosure entities changes 

the interpretation of those statements made in the 2002 MOU and the subsequent 

RRB Financial Statements for purposes of reporting. Reliance on those statements 

on how the Trust should be reported in the GPFFR would be inaccurate because 

they merely result from administrative decisions and could not alter the control or 

ownership of the Trust's assets. Both the MOU's statement and the inclusion of 

Trust assets in the RRB's balance sheets are not a basis to determine whether the 

Trust is a consolidation or a disclosure entity. 

The RRB has asserted in both the March 10, 2016, Point Paper and in meetings 

with the Department of Treasury that the Trust is a disclosure entity under the 

SSFAS 47 guidelines for financial reporting purposes based on the fact the RRB 

has no ownership and control over the Trust. All issues of ownership and control 

of the Trust must be determined by the Railroad Retirement Act text itself and 

under the Act, the RRB is limited with respect to control of the Trust based on the 

law governing the authority and duties of the Trust and the structure of the Trust. 
5 

Assessed as a whole, the Trust lacks most of the criteria necessary to be considered 

a consolidation entity under the SSFAS 47. Under section 15G) of the Act, the 

Trust is not financed through taxes but through its own administrative account. The 

Trust is governed by a Board of seven Trustees elected by labor unions and 

railroad companies, not by the Congress and/or the President and no Trustee may 

also be a Member of the Railroad Retirement Board. Further, the Trust's 

governance structure is not vertically integrated to allow elected officials to make 

decisions concerning the Trust. 

Similar to the characteristics of a disclosure entity listed in the SSFAS 47 

paragraph 44, the Trust maintains a separate legal identity as a tax-exempt, not-forprofit entity domiciled in and subject to the laws of the District of Columbia. The 

decision-making authority lies with the Trust's Board of Trustees and there is no 

political influence in either the selection of board members or the decisions of the 

Trust. Although the value of the Trust's assets and investments may be said to 

impose risks and rewards to the Federal government and it is a permanent entity 

under the Act, the RRB has no governance interaction or control regarding the 

decisions or investments of the Trust. The RRB is not itself vested with powers to 

regulate the behavior or decisions made by the Trust by imposing conditions or 

sanctions on their operations. RRB may only seek to convince a court to do so in a 

court proceeding subject to contest by the Trust. 

Therefore, under the accounting standards outlined in the SSFAS 47, in my 

opinion the Trust, on balance meets the characteristics of a disclosure entity more 

than a consolidation entity. Characterizing the Trust as a disclosure entity would 

more accurately reflect the text and the intent of section 15 of the RRA. As noted 

in the March 2016, Point Paper, characterization of the Trust as a disclosed entity 

would also resolve disclaimer of audited opinions on RRB financial statement 

reporting.