M emorandum

U nited States G o v e r n m e n t FORM G-115V (1-92)

Ra il r o a d R etirement Bo a r d

April 25, 2002

L-2002-07

TO Kenneth P. Boehne 

Chief Financial Officer

Frank J. Buzzi 

Chief Actuary

FROM Steven A. Barth 

General Couns

SUBJECT : Sections 108 and 204 of Public Law 107-90

This is in response to your memorandum dated April 9,2002 wherein you request 

my advice concerning the computation required under section 108 of the 

Railroad Retirement and Survivors' Improvement Act of 2001 (RRSIA).

Section 108 of the RRSIA requires the Board to calculate the “account benefits 

ratio" with respect to the railroad retirement system for the most recent 10 

preceding fiscal years and to compute a projection of the account benefits 

ratio for the next 5 succeeding fiscal years. For purposes of computing the 

account benefits ratio, section 108 directs the Board to the definition of that 

term contained in section 3241 (c) of the Internal Revenue Code of 1986, as 

added by section 204 of the RRSIA. The term “account benefits ratio" is defined 

in section 3241 of the Internal Revenue Code as:

[WJith respect to any fiscal year, the amount determined by the Railroad 

Retirement Board by dividing the fair market value of the assets in the 

Railroad Retirement Account and of the National Railroad Retirement 

Investment Trust (and for years before 2002, the Social Security Equivalent 

Benefits Account) as of the close of such fiscal year by the total benefits 

and administrative expenses paid from the Railroad Retirement Account
and the National Railroad Retirement Investment Trust during such fiscal 

year.

In order to compute the "accounts benefits ratio," you request guidance as to 

the meaning of several terms within the above definition of “account benefits 

ratio." In determining the meaning of a statute, we must first look to the specific 

statutory language. See, Mallard v. United States District Court for the Southern 

District of Iowa. 490 U.S. 296, 300 (1989). If that language is plain, that is the end 

of the inquiry into the statute’s meaning. The only exception to this rule occurs 

when a literal reading of the statute would produce a result at odds with the 

intentions of the drafters of the statute. See, Griffin v. Oceanic Contractors. Inc.. 

458 U.S. 564,571(1982).

Initially, you ask for guidance with respect to the meaning of the term “total 

benefits and administrative expenses paid." With respect to this term you ask 

whether in determining this amount you should use cash accounting or accrual 

accounting. You also ask whether the total amount of benefits paid should be 

only benefit outlays or should be benefit outlays minus recoveries m ade in a 

particular year. Concerning the method of accounting to be employed in 

computing the benefits and administrative expenses, you note that the use of 

the term "paid" denotes a cash basis of accounting. As to whether total 

benefits means gross benefits or net benefits, you state that the agency's 

current cash statements reflect net benefit amounts.

Although the term "total benefits and administrative expenses paid" is not 

without ambiguity, I agree with you that the use of the word "paid" 

demonstrates that the computation should be made on a cash basis. In 

addition, in my opinion, “total benefits... paid" means net benefits paid, i.e. the 

gross benefits paid in a particular fiscal year minus any cash recoveries made in 

that fiscal year. The purpose of computing the account benefits ratio is to 

ensure that there are adequate funds to pay benefits due under the Act. Using 

net benefits paid more accurately reflects the amount of benefits paid in a 

given year.

The next term that you inquire about is the term "assets." You ask whether that 

term should include only investments and cash or whether it should or also 

include accounts receivable. As stated above, the purpose of computing the 

account ratio is to ensure that there are adequate funds to pay benefits due 

under the Act. While a receivable may be viewed as an asset under certain 

circumstances, it is my opinion that Congress did not contemplate inclusion of 

accounts receivable in the computation of the account benefits ratio. By 

providing that the computation is to be made based on the fair market value of 

the assets in the Investment Trust and the accounts, Congress signaled that the 

computation should be m ade based on the amount of cash and the value of
investments in the Investment Trust and the accounts. Moreover, disregarding 

accounts receivables in computing the account benefits ratio is consistent with 

the cash basis being used to determine total benefits and administrative 

expenses paid in a given fiscal year, as discussed above.

Further, you ask for clarification of the term "administrative expenses paid." As 

you note in your memorandum, funds for administrative expenses are 

transferred from the Railroad Retirement Account to a single administrative 

account from where funds are expended. As noted earlier, Section 3241 (c) of 

the Internal Revenue Code of 1986, as added by Section 204 of RRSIA, provides 

that the account benefit ratio shall be calculated by "...dividing the fair market 

value of the assets in the Railroad Retirement Account and of the National 

Railroad Retirement Investment Trust...by the total benefits and administrative 

expenses paid from the Railroad Retirement Account and the National Railroad 

Retirement Investment Trust during such fiscal year.” The wording 

"administrative expenses paid from the Railroad Retirement Account" clearly 

contemplates that administrative expenses for the purposes of calculating 

account benefit ratios shall be such funds "paid from the Railroad Retirement 

Account" when transfers are made to the single administrative account.

finally, you ask if the cash transfers by the Railroad Retirement Account to the 

Limitation on the Office of Inspector General should also be considered 

administrative expenses for purposes of calculating account benefit ratios. 

Office of Inspector General administrative expenses are appropriate railroad 

retirement program expenses and should be considered administrative 

expenses when they are transferred from ("paid from") the Railroad Retirement 

Account to the Limitation on the Office of Inspector General.

Although I have provided guidance with respect to your questions in this 

memorandum, I believe that this guidance should be memorialized in a 

regulation adopted by the Board. Such a regulation would serve to provide 

notice to all interested parties, rail labor, rail management, and the public as to 

the methodology we will employ in computing the account benefits ratio. I will 

ask a member of my staff to begin drafting a regulation on this subject. We will 

contact your offices for advice as to what should be included in the regulation.

cc: The Board