79–006

106TH CONGRESS REPT. 106–777 " ! HOUSE OF REPRESENTATIVES 2d Session Part 1

RAILROAD RETIREMENT AND SURVIVORS’ IMPROVEMENT

ACT OF 2000

JULY 20, 2000.—Ordered to be printed

Mr. SHUSTER, from the Committee on Transportation and

Infrastructure, submitted the following

R E P O R T

[To accompany H.R. 4844]

The Committee on Transportation and Infrastructure, to whom

was referred the bill (H.R. 4844) to modernize the financing of the

railroad retirement system and to provide enhanced benefits to employees and beneficiaries, having considered the same, report favorably thereon with an amendment and recommend that the bill as

amended do pass.

The amendment is as follows:

Strike all after the enacting clause and insert the following:

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) SHORT TITLE.—This Act may be cited as the ‘‘Railroad Retirement and Survivors’ Improvement Act of 2000’’.

(b) TABLE OF CONTENTS.—

Sec. 1. Short title; table of contents.

TITLE I—AMENDMENTS TO RAILROAD RETIREMENT ACT OF 1974

Sec. 101. Expansion of widow’s and widower’s benefits.

Sec. 102. Retirement age restoration.

Sec. 103. Vesting requirement.

Sec. 104. Repeal of railroad retirement maximum.

Sec. 105. Investment of railroad retirement assets.

Sec. 106. Elimination of supplemental annuity account.

Sec. 107. Transfer authority revisions.

Sec. 108. Annual ratio projections and certifications by the Railroad Retirement Board.

TITLE II—AMENDMENTS TO THE INTERNAL REVENUE CODE OF 1986

Sec. 201. Amendments to the Internal Revenue Code of 1986.

Sec. 202. Exemption from tax for Railroad Retirement Investment Trust.

Sec. 203. Repeal of supplemental annuity tax.

Sec. 204. Employer, employee representative, and employee tier 2 tax rate adjustments.

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TITLE I—AMENDMENTS TO RAILROAD

RETIREMENT ACT OF 1974

SEC. 101. EXPANSION OF WIDOW’S AND WIDOWER’S BENEFITS.

(a) IN GENERAL.—Section 4(g) of the Railroad Retirement Act of 1974 is amended

by adding at the end the following new subdivision:

‘‘(10)(i) If for any month the unreduced annuity provided under this section for

a widow or widower is less than the widow’s or widower’s initial minimum amount

computed pursuant to paragraph (ii) of this subdivision, the unreduced annuity

shall be increased to that initial minimum amount. For the purposes of this subdivision, the unreduced annuity is the annuity without regard to any deduction on account of work, without regard to any reduction for entitlement to an annuity under

section 2(a)(1) of this Act, without regard to any reduction for entitlement to a benefit under title II of the Social Security Act, and without regard to any reduction

for entitlement to a public service pension pursuant to sections 202(e)(7), 202(f)(2),

or section 202(g)(4) of the Social Security Act.

‘‘(ii) For the purposes of this subdivision, the widow or widower’s initial minimum

amount is the amount of the unreduced annuity computed at the time an annuity

is awarded to that widow or widower, except that—

‘‘(A) in subsection (g)(1)(i) ‘100 per centum’ shall be substituted for ‘50 per

centum’; and

‘‘(B) in subsection (g)(2)(ii) ‘130 per centum’ shall be substituted for ‘80 per

centum’ both places it appears.

‘‘(iii) If a widow or widower who was previously entitled to a widow’s or widower’s

annuity under section 2(d)(1)(ii) of this Act becomes entitled to a widow’s or widower’s annuity under section 2(d)(1)(i) of this Act, a new initial minimum amount

shall be computed at the time of award of the widow’s or widower’s annuity under

section 2(d)(1)(i) of this Act.’’.

(b) EFFECTIVE DATE.—

(1) GENERALLY.—The amendment made by this section shall take effect January 1, 2001 and shall apply to annuity amounts accruing for months after December 2000 in the case of annuities awarded on or after that date and in the

case of annuities awarded before that date if the annuity amount under section

4(g) of the Railroad Retirement Act was computed under section 4(g), as amended by Public Law 97–35.

(2) SPECIAL RULE FOR ANNUITIES AWARDED BEFORE JANUARY 1, 2001.—In applying the amendments made by this section to annuities awarded before January

1, 2001, the calculation of the initial minimum amount under new section

4(g)(10)(ii) of the Act shall be made as of the date of award of the widow’s or

widower’s annuity.

SEC. 102. RETIREMENT AGE RESTORATION.

(a) EMPLOYEE ANNUITIES.—Section 3(a)(2) of the Railroad Retirement Act of 1974

is amended by inserting after ‘‘(2)’’ the following: ‘‘For purposes of this subsection,

individuals entitled to an annuity under section 2(a)(1)(ii) of this Act shall, except

for the purposes of recomputations in accordance with section 215(f) of the Social

Security Act, be deemed to have attained retirement age (as defined by section

216(l) of the Social Security Act).’’.

(b) SPOUSE AND SURVIVOR ANNUITIES.—Section 4(a)(2) of the Railroad Retirement

Act of 1974 is amended by striking ‘‘if an’’ and all that follows through ‘‘section

2(c)(1) of this Act’’ and inserting ‘‘a spouse entitled to an annuity under section

2(c)(1)(ii)(B) of this Act’’.

(c) CONFORMING REPEALS.—Sections 3(a)(3), 4(a)(3), and 4(a)(4) of the Railroad

Retirement Act are repealed.

(d) EFFECTIVE DATES.—

(1) GENERALLY.—Except as provided in paragraph (2), the amendments made

by this section shall apply to annuities that begin to accrue on or after January

1, 2001.

(2) EXCEPTION.—The amount of the annuity provided for a spouse under section 4(a) shall be computed under section 4(a)(3), as in effect before the date

of the enactment of this section, if the annuity amount provided under section

3(a) for the individual on whose employment record the spouse annuity is based

was computed under section 3(a)(3), as in effect before the date of the enactment of this section.

SEC. 103. VESTING REQUIREMENT.

(a) CERTAIN ANNUITIES FOR INDIVIDUALS.—Section 2(a) of the Railroad Retirement

Act of 1974 is amended—

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(1) by inserting in subdivision (1) ‘‘or, for purposes of paragraphs (i), (iii), and

(v), five years of service, all of which accrues after December 31, 1995,’’ after

‘‘ten years of service’’, and

(2) by adding at the end the following:

‘‘(4) An individual who is entitled to an annuity under paragraph (v) of subdivision (1), but who does not have at least ten years of service, shall, prior to the

month in which the individual attains age 62, be entitled only to an annuity amount

computed under section 3(a) of this Act (without regard to section 3(a)(2) of this Act)

or section 3(f)(3) of this Act. Upon attainment of age 62, such an individual may

also be entitled to an annuity amount computed under section 3(b), but such annuity amount shall be reduced for early retirement in the same manner as if the individual were entitled to an annuity under section 2(a)(1)(iii).’’.

(b) COMPUTATION RULE FOR INDIVIDUALS’ ANNUITIES.—Section 3(a) of the Railroad

Retirement Act of 1974, as amended by section 102 of this Act, is further amended

by adding at the end the following new subdivision:

‘‘(3) If an individual entitled to an annuity under section 2(a)(1)(i) or (iii) of this

Act on the basis of less than ten years of service is entitled to a benefit under section 202(a), section 202(b), or section 202(c) of the Social Security Act which began

to accrue before the annuity under section 2(a)(1)(i) or (iii) of this Act, the annuity

amount provided such individual under this subsection, shall be computed as

though the annuity under this Act began to accrue on the later of (A) the date on

which the benefit under section 202(a), section 202(b), or section 202(c) of the Social

Security Act began or (B) the date on which the individual first met the conditions

for entitlement to an age reduced annuity under this Act other than the conditions

set forth in sections 2(e)(1) and 2(e)(2) of this Act and the requirement that an application be filed.’’.

(c) SURVIVORS’ ANNUITIES.—Section 2(d)(1) of the Railroad Retirement Act of 1974

is amended by inserting ‘‘or five years of service, all of which accrues after December 31, 1995,’’ after ‘‘ten years of service’’.

(d) LIMITATION ON ANNUITY AMOUNTS.—Section 2 of the Railroad Retirement Act

of 1974 is amended by adding at the end the following:

‘‘(i) An individual entitled to an annuity under this section who has completed five

years of service, all of which accrues after 1995, but who has not completed ten

years of service, and the spouse, divorced spouse, and survivors of such individual,

shall not be entitled to an annuity amount provided under section 3(a), section 4(a),

or section 4(f) of this Act unless the individual, or the individual’s spouse, divorced

spouse, or survivors, would be entitled to a benefit under the Social Security Act

on the basis of the individual’s employment record under both the Railroad Retirement Act and the Social Security Act.’’.

(e) COMPUTATION RULE FOR SPOUSES’ ANNUITIES.—Section 4(a) of the Railroad Retirement Act of 1974, as amended by section 102 of this Act, is further amended

by adding at the end the following new subdivision:

‘‘(3) If a spouse entitled to an annuity under section 2(c)(1)(ii)(A), section

2(c)(1)(ii)(C), or section 2(c)(2) of this Act or a divorced spouse entitled to an annuity

under section 2(c)(4) of this Act on the basis of the employment record of an employee who will have completed less than 10 years of service is entitled to a benefit

under section 202(a), section 202(b), or section 202(c) of the Social Security Act

which began to accrue before the annuity under section 2(c)(1)(ii)(A), section

2(c)(1)(ii)(C), section 2(c)(2), or section 2(c)(4) of this Act, the annuity amount provided under this subsection shall be computed as though the annuity under this Act

began to accrue on the later of (A) the date on which the benefit under section

202(a), section 202(b), or section 202(c) of the Social Security Act began or (B) the

first date on which the annuitant met the conditions for entitlement to an age reduced annuity under this Act other than the conditions set forth in sections 2(e)(1)

and 2(e)(2) of this Act and the requirement that an application be filed.’’.

(f) APPLICATION DEEMING PROVISION.—Section 5(b) of the Railroad Retirement Act

of 1974 is amended by striking the second sentence and inserting the following: ‘‘An

application filed with the Board for an employee annuity, spouse annuity, or divorced spouse annuity on the basis of the employment record of an employee who

will have completed less than ten years of service shall be deemed to be an application for any benefit to which such applicant may be entitled under this Act or section 202(a), section 202(b), or section 202(c) of the Social Security Act. An application filed with the Board for an annuity on the basis of the employment record of

an employee who will have completed ten years of service shall, unless the applicant

specified otherwise, be deemed to be an application for any benefit to which such

applicant may be entitled under this Act or title II of the Social Security Act.’’.

(g) CREDITING SERVICE UNDER THE SOCIAL SECURITY ACT.—Section 18(2) of the

Railroad Retirement Act of 1974 is amended—

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(1) by inserting ‘‘or less than five years of service, all of which accrues after

December 31, 1995,’’ after ‘‘ten years of service’’ every place it occurs; and

(2) by inserting ‘‘or five or more years of service, all of which accrues after

December 31, 1995,’’ after ‘‘ten or more years of service’’.

(h) AUTOMATIC BENEFIT ELIGIBILITY ADJUSTMENTS.—Section 19 of the Railroad

Retirement Act of 1974 is amended—

(1) by inserting ‘‘or five or more years of service, all of which accrues after

December 31, 1995,’’ after ‘‘ten years of service’’ in subsection (c); and

(2) by inserting ‘‘or five or more years of service, all of which accrues after

December 31, 1995,’’ after ‘‘ten years of service’’ in subsection (d)(2).

(i) CONFORMING AMENDMENTS.— (1) Section 6(e)(1) of the Railroad Retirement Act of 1974 is amended by inserting ‘‘or five or more years of service, all of which accrues after December

31, 1995,’’ after ‘‘ten years of service’’.

(2) Section 7(b)(2) of the Railroad Retirement Act of 1974 is amended by inserting ‘‘or five or more years of service, all of which accrues after December

31, 1995,’’ after ‘‘ten years of service’’.

(3) Section 205(i) of the Social Security Act is amended by inserting ‘‘or five

or more years of service, all of which accrues after December 31, 1995,’’ after

‘‘ten years of service’’.

(j) EFFECTIVE DATE.—The amendments made by this section shall take effect January 1, 2001.

SEC. 104. REPEAL OF RAILROAD RETIREMENT MAXIMUM.

(a) EMPLOYEE ANNUITIES.—Section 3(f) of the Railroad Retirement Act of 1974 is

amended by striking paragraph (1).

(b) SPOUSE AND SURVIVOR ANNUITIES.—Section 4 of the Railroad Retirement Act

of 1974 is amended by striking subsection (c).

(c) EFFECTIVE DATE.—The amendments made by this section shall be effective

January 1, 2001, and shall apply to annuity amounts accruing for months after December 2000.

SEC. 105. INVESTMENT OF RAILROAD RETIREMENT ASSETS.

(a) ESTABLISHMENT OF RAILROAD RETIREMENT INVESTMENT TRUST.—Section 15 of

the Railroad Retirement Act of 1974 is amended by inserting after subsection (i) the

following:

‘‘(j) RAILROAD RETIREMENT INVESTMENT TRUST.— ‘‘(1) ESTABLISHMENT.—The Railroad Retirement Investment Trust (hereinafter in this subsection referred to as the ‘Trust’) is hereby established. The

Trust shall manage and invest the assets of the Railroad Retirement Trust

Fund (hereinafter in this section referred to as the ‘‘Fund’’, which is hereby established as a trust organized in the District of Columbia and shall, to the extent not inconsistent with this Act, be subject to the laws of the District of Columbia applicable to such trusts.

‘‘(2) NOT A FEDERAL AGENCY OR INSTRUMENTALITY.—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.

‘‘(3) BOARD OF TRUSTEES.—

‘‘(A) GENERALLY.—The Trust shall have a Board of Trustees, consisting

of 7 members, each appointed by a unanimous vote of the Railroad Retirement Board. The Railroad Retirement Board may remove any member so

appointed by unanimous vote. Of the 7 members, 3 shall represent the interests of labor, 3 shall represent the interests of management, and 1 shall

represent the interests of the general public. The members of the Board of

Trustees shall not be considered officers or employees of the Government

of the United States.

‘‘(B) QUALIFICATIONS.—Members of the Board of Trustees shall be appointed only from among persons who have experience and expertise in the

management of financial investments and pension plans. No member of the

Railroad Retirement Board shall be eligible to be a member of the Board

of Trustees.

‘‘(C) TERMS.—Except as provided in this subparagraph, each member

shall be appointed for a 3-year term. The initial members appointed under

this paragraph shall be divided into 3 equal groups so nearly as may be,

of which one group will be appointed for a 1-year term, one for a 2-year

term, and one for a 3-year term. A vacancy in the Board of Trustees shall

not affect the powers of the Board of Trustees and shall be filled in the

same manner as the selection of the member whose departure caused the

vacancy. Upon the expiration of a term of a member of the Board of Trustees, that member shall continue to serve until a successor is appointed.

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‘‘(4) POWERS OF THE BOARD OF TRUSTEES.—The Board of Trustees shall—

‘‘(A) retain independent advisers to assist it in the formulation and adoption of its investment guidelines;

‘‘(B) retain independent investment managers to invest the assets of the

Fund in a manner consistent with such investment guidelines;

‘‘(C) invest assets in the Fund, pursuant to the policies adopted in subparagraph (A);

‘‘(D) pay administrative expenses of the Fund and the Trust from the

money in the Fund; and

‘‘(E) transfer money to the disbursing agent to pay benefits payable under

this Act from money in the Fund and administrative expenses related to

those benefits.

‘‘(5) REPORTING REQUIREMENTS AND FIDUCIARY STANDARDS.—The following reporting requirements and fiduciary standards shall apply with respect to the

Railroad Retirement Trust and the Railroad Retirement Trust Fund (and the

assets held in such Trust Fund):

‘‘(A) DUTIES OF THE BOARD OF TRUSTEES.—The Railroad Retirement Trust

and each member of the Board of Trustees shall discharge their duties with

respect to the assets of the Fund solely in the interest of the Railroad Retirement Board and through it, the participants and beneficiaries of the

programs funded under this Act—

‘‘(i) for the exclusive purpose of—

‘‘(I) providing benefits to participants and their beneficiaries; and

‘‘(II) defraying reasonable expenses of administering the functions of the Trust;

‘‘(ii) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an

enterprise of a like character and with like aims;

‘‘(iii) by diversifying investments so as to minimize the risk of large

losses, unless under the circumstances it is clearly prudent not to do

so; and

‘‘(iv) in accordance with Trust governing documents and instruments

insofar as such documents and instruments are consistent with this

Act.

‘‘(B) PROHIBITIONS WITH RESPECT TO MEMBERS OF THE BOARD OF TRUSTEES.—No member of the Board of Trustees shall—

‘‘(i) deal with the assets of the Fund in the trustee’s own interest or

for the trustee’s own account;

‘‘(ii) in an individual or in any other capacity act in any transaction

involving the assets of the Fund on behalf of a party (or represent a

party) whose interests are adverse to the interests of the Trust, the

Fund, the Railroad Retirement Board, or the interests of participants

or beneficiaries; or

‘‘(iii) receive any consideration for the trustee’s own personal account

from any party dealing with the assets of the Fund.

‘‘(C) EXCULPATORY PROVISIONS AND INSURANCE.—Any provision in an

agreement or instrument that purports to relieve a trustee from responsibility or liability for any responsibility, obligation or duty under this Act

shall be void: Provided, however, That nothing shall preclude—

‘‘(i) the Trust from purchasing insurance for its trustees or for itself

to cover liability or losses occurring by reason of the act or omission of

a trustee, if such insurance permits recourse by the insurer against the

trustee in the case of a breach of a fiduciary obligation by such trustee;

‘‘(ii) a trustee from purchasing insurance to cover liability under this

section from and for his own account; or

‘‘(iii) an employer or an employee organization from purchasing insurance to cover potential liability of one or more trustees with respect

to their fiduciary responsibilities, obligations, and duties under this section.

‘‘(D) BONDING.—Every trustee and every person who handles funds or

other property of the Fund (hereafter in this subsection referred to as ‘Trust

official’) shall be bonded in accordance with the following:

‘‘(i) The amount of such bond shall be fixed at the beginning of each

fiscal year of the Trust by the Railroad Retirement Board. Such amount

shall not be less than 10 percent of the amount of the funds handled.

In no case shall such bond be less than $1,000 nor more than $500,000,

except that the Railroad Retirement Board, after consideration of the

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record, may prescribe an amount in excess of $500,000, subject to the

10 per centum limitation of the preceding sentence.

‘‘(ii) It shall be unlawful for any Trust official to receive, handle, disburse, or otherwise exercise custody or control of any of the funds or

other property of the Fund without being bonded as required by this

subsection and it shall be unlawful for any Trust official, or any other

person having authority to direct the performance of such functions, to

permit such functions, or any of them, to be performed by any Trust

official, with respect to whom the requirements this subsection have

not been met.

‘‘(iii) It shall be unlawful for any person to procure any bond required

by this subsection from any surety or other company or through any

agent or broker in whose business operations such person has any control or significant financial interest, direct or indirect.

‘‘(E) AUDIT AND REPORT.—

‘‘(i) The Trust shall annually engage an independent qualified public

accountant to audit the financial statements of the Fund.

‘‘(ii) The Trust shall submit an annual management report to the

Congress not later than 180 days after the end of the Trust’s fiscal

year. A management report under this subsection shall include—

‘‘(I) a statement of financial position;

‘‘(II) a statement of operations;

‘‘(III) a statement of cash flows;

‘‘(IV) a statement on internal accounting and administrative control systems;

‘‘(V) the report resulting from an audit of the financial statements of the Trust conducted under subparagraph (E)(i); and

‘‘(VI) any other comments and information necessary to inform

the Congress about the operations and financial condition of the

Trust and the Fund.

‘‘(iii) The Trust shall provide the President, the Railroad Retirement

Board, and the Director of the Office of Management and Budget a copy

of the management report when it is submitted to Congress.

‘‘(F) ENFORCEMENT.—The Railroad Retirement Board may bring a civil

action—

‘‘(i) to enjoin any act or practice by the Railroad Retirement Investment Trust, its Board of Trustees or its employees or agents that violates any provision of this Act; or

‘‘(ii) to obtain other appropriate relief to redress such violations, or

to enforce any provisions of this Act.

‘‘(6) RULES AND ADMINISTRATIVE POWERS.—The Board of Trustees shall have

the authority to make rules to govern its operations, employ professional staff,

and contract with outside advisers to provide legal, accounting, investment advisory or other services necessary for the proper administration of this subsection.

In the case of contracts with investment advisory services, compensation for

such services may be on a fixed contract fee basis or on such other terms and

conditions as are customary for such services.

‘‘(7) QUORUM.—Five members of the Board of Trustees constitute a quorum

to do business. Investment guidelines must be adopted by a unanimous vote of

the entire Board of Trustees. All other decisions of the Board of Trustees shall

be decided by a majority vote of the quorum present. All decisions of the Board

of Trustees shall be entered upon the records of the Board of Trustees.’’.

(b) CONFORMING AND TECHNICAL AMENDMENTS GOVERNING INVESTMENTS.—Subsection 15(e) of the Railroad Retirement Act of 1974 is amended—

(1) beginning in the first sentence, by striking ‘‘, the Dual Benefits Payments

Account’’ and all that follows through ‘‘may be made only’’ in the second sentence and inserting ‘‘and the Dual Benefits Payments Account as are not transferred to the Railroad Retirement Investment Trust as the Board may determine’’;

(2) by striking ‘‘the Second Liberty Bond Act, as amended’’ and inserting

‘‘chapter 31 of title 31’’; and

(3) by striking ‘‘the foregoing requirements’’ and inserting ‘‘the requirements

of this subsection’’.

(c) EFFECTIVE DATE.—The amendments made by this section shall take effect on

the date of the enactment of this section.

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SEC. 106. ELIMINATION OF SUPPLEMENTAL ANNUITY ACCOUNT.

(a) SOURCE OF PAYMENTS.—Section 7(c)(1) of the Railroad Retirement Act of 1974

is amended by striking ‘‘payments of supplemental annuities under section 2(b) of

this Act shall be made from the Railroad Retirement Supplemental Account, and’’.

(b) ELIMINATION OF ACCOUNT.—Section 15(c) of the Railroad Retirement Act of

1974 is repealed.

(c) IN GENERAL.—Section 15(a) of the Railroad Retirement Act of 1974 is amended

by striking ‘‘, except those portions of the amounts covered into the Treasury under

sections 3211(b),’’ and all that follows through the end of the subsection and inserting a period.

(d) EFFECTIVE DATE.—The amendments made by this section shall take effect

January 1, 2001, except that the Railroad Retirement Supplemental Account shall

continue to exist until the transfer authorized by the following sentence occurs. As

soon as possible after December 31, 2000, the Board shall determine the balance in

the Railroad Retirement Supplemental Account and shall direct the Secretary of the

Treasury to transfer such amount to the Railroad Retirement Trust Fund and the

Secretary shall make such transfer.

SEC. 107. TRANSFER AUTHORITY REVISIONS.

(a) RAILROAD RETIREMENT ACCOUNT.—Section 15 of the Railroad Retirement Act

of 1974 is amended by adding after subsection (j) the following:

‘‘(k) TRANSFERS TO THE FUND.—The Board shall, upon establishment of the Railroad Retirement Trust Fund and from time to time thereafter, direct the Secretary

of the Treasury to transfer, in such manner as will maximize the investment returns to the Railroad Retirement system, that portion of the Railroad Retirement

Account that is not needed to pay current administrative expenses of the Board to

the Railroad Retirement Trust Fund. The Secretary shall make that transfer.’’.

(b) RAILROAD RETIREMENT TRUST FUND.—Section 15 of the Railroad Retirement

Act of 1974, as amended by subsection (a), is further amended by adding after subsection (k) the following:

‘‘(l) RAILROAD RETIREMENT TRUST FUND.—The Railroad Retirement Trust shall

from time to time transfer to the disbursing agent described in section 7(b)(4) such

amounts as may be necessary to pay benefits under this Act (other than benefits

paid from the Social Security Equivalent Benefit Account or the Dual Benefit Payments Account).’’.

(c) SOCIAL SECURITY EQUIVALENT BENEFIT ACCOUNT.—Section 15A(d)(2) of the

Railroad Retirement Act of 1974 is amended to read as follows:

‘‘(2) Upon establishment of the Railroad Retirement Trust Fund and from time to

time thereafter, the Board shall direct the Secretary of the Treasury to transfer, in

such manner as will maximize the investment returns to the Railroad Retirement

system, the balance of the Social Security Equivalent Benefit Account not needed

to pay current benefits required to be paid from that Account to the Railroad Retirement Trust Fund, and the Secretary shall make that transfer. Any balance transferred under this paragraph shall be used by the Railroad Retirement Trust only

to pay benefits under this Act or to purchase obligations of the United States that

are backed by the full faith and credit of the United States pursuant to chapter 31

of title 31, United States Code. The proceeds of sales of, and the interest income

from, such obligations shall be used by the Trust only to pay benefits under this

Act.’’.

(2) TRANSFERS TO DISBURSING AGENT.—Section 15A(c)(1) of the Railroad Retirement Act of 1974 is amended by adding at the end the following: ‘‘The Secretary shall from time to time transfer to the disbursing agent under section

7(b)(4) amounts necessary to pay those benefits.’’.

(3) CONFORMING AMENDMENT.—Section 15A(d)(1) of the Railroad Retirement

Act of 1974 is amended by striking the second and third sentences.

(d) DUAL BENEFITS PAYMENTS ACCOUNT.—Section 15(d)(1) of the Railroad Retirement Act of 1974 is amended by adding at the end the following: ‘‘The Secretary

of the Treasury shall from time to time transfer from the Dual Benefits Payments

Account to the disbursing agent under section 7(b)(4) amounts necessary to pay benefits payable from that Account.’’.

(e) CERTIFICATION BY THE BOARD AND PAYMENT.—Paragraph (4) of section 7(b) of

the Railroad Retirement Act of 1974 is amended to read as follows:

‘‘(4)(A) The Railroad Retirement Board, after consultation with the Board of

Trustees of the Railroad Retirement Trust and the Secretary of the Treasury, shall

enter into an arrangement with a nongovernmental financial institution to serve as

disbursing agent for benefits payable under this Act who shall disburse consolidated

benefits under this Act to each recipient.

‘‘(B) The Board shall from time to time certify—

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‘‘(i) to the Secretary of the Treasury the amounts required to be transferred

from the Social Security Equivalent Benefit Account and the the Dual Benefits

Payments Account to the disbursing agent to make payments of benefits and

the Secretary of the Treasury shall transfer those amounts;

‘‘(ii) to the Board of Trustees of the Railroad Retirement Investment Trust the

amounts required to be transferred from the Railroad Retirement Investment

Trust to the disbursing agent to make payments of benefits and the Board of

Trustees shall transfer those amounts; and

‘‘(iii) to the disbursing agent the name and address of each individual entitled

to receive a payment, the amount of such payment, and the time at which the

payment should be made.’’.

(f) BENEFIT PAYMENTS.—Section 7(c)(1) of the Railroad Retirement Act of 1974 is

amended—

(1) by striking ‘‘from the Railroad Retirement Account’’ and inserting ‘‘by the

disbursing agent under subsection (b)(4) from money transferred to it from the

Railroad Retirement Trust Fund or the Social Security Equivalent Benefit Account, as the case may be’’; and

(2) by inserting ‘‘by the disbursing agent under subsection (b)(4) from money

transferred to it’’ after ‘‘Public Law 93–445 shall be made’’.

(g) TRANSITIONAL RULE FOR EXISTING OBLIGATION.—In making transfers under

subsections (a) and (c), the Board shall consult with the Secretary of the Treasury

to design an appropriate method to transfer obligations held as of the date of enactment or to convert such obligations to cash prior to transfer. The Railroad Retirement Trust may hold to maturity any obligations so received or may redeem them

prior to maturity, as the Trust deems appropriate.

SEC. 108. ANNUAL RATIO PROJECTIONS AND CERTIFICATIONS BY THE RAILROAD RETIREMENT BOARD.

(a) PROJECTIONS.—Section 22(a)(1) of the Railroad Retirement Act of 1974 is

amended—

(1) by adding the following sentence after the first sentence: ‘‘On or before

May 1 of each year beginning in 2002, the Railroad Retirement Board shall

compute its projection of the account benefits ratio and the average account

benefits ratio (as defined by section 3241(c) of the Internal Revenue Code of

1986) for each of the next succeeding five fiscal years.’’; and

(2) by striking ‘‘the projection prepared pursuant to the preceding sentence’’

and inserting ‘‘the projections prepared pursuant to the preceding two sentences’’.

(b) CERTIFICATIONS.—The Railroad Retirement Act of 1974 is amended by adding

at the end the following:

‘‘COMPUTATION AND CERTIFICATION OF ACCOUNT BENEFIT RATIOS

‘‘SEC. 23. (a) On or before November 1, 2002, the Railroad Retirement Board

shall—

‘‘(1) compute the account benefits ratios for each of the most recent 10 preceding fiscal years, and

‘‘(2) certify the account benefits ratios for each such fiscal year to the Secretary.

‘‘(b) On or before November 1 of each year after 2002, the Railroad Retirement

Board shall—

‘‘(1) compute the account benefits ratio for the fiscal year ending in such year,

and

‘‘(2) certify the account benefits ratio for such fiscal year to the Secretary.

‘‘(c) DEFINITION.—As used in this section, the term ‘account benefit ratio’ has the

meaning given that term in section 3241(c) of the Internal Revenue Code of 1986.’’.

TITLE II—AMENDMENTS TO THE INTERNAL

REVENUE CODE OF 1986

SEC. 201. AMENDMENTS TO THE INTERNAL REVENUE CODE OF 1986.

Except as otherwise provided, whenever in this title an amendment or repeal is

expressed in terms of an amendment to, or repeal of, a section or other provision,

the reference shall be considered to be made to a section or other provision of the

Internal Revenue Code of 1986.

SEC. 202. EXEMPTION FROM TAX FOR RAILROAD RETIREMENT INVESTMENT TRUST.

Subsection (c) of section 501 is amended by adding at the end the following new

paragraph:

9

‘‘(28) The Railroad Retirement Investment Trust established under section

15(j) of the Railroad Retirement Act of 1974.’’

SEC. 203. REPEAL OF SUPPLEMENTAL ANNUITY TAX.

(a) REPEAL OF TAX ON EMPLOYEE REPRESENTATIVES.—Section 3211 is amended by

striking subsection (b).

(b) REPEAL OF TAX ON EMPLOYERS.—Section 3221 is amended by striking subsections (c) and (d).

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to calendar years beginning after December 31, 2000.

SEC. 204. EMPLOYER, EMPLOYEE REPRESENTATIVE, AND EMPLOYEE TIER 2 TAX RATE ADJUSTMENTS.

(a) RATE OF TAX ON EMPLOYERS.—Subsection (b) of section 3221 is amended to

read as follows:

‘‘(b) TIER 2 TAX.—

‘‘(1) IN GENERAL.—In addition to other taxes, there is hereby imposed on

every employer an excise tax, with respect to having individuals in his employ,

equal to the applicable percentage of the compensation paid during any calendar year by such employer for services rendered to such employer.

‘‘(2) APPLICABLE PERCENTAGE.—For purposes of paragraph (1), the term ‘applicable percentage’ means—

‘‘(A) 15.6 percent in the case of compensation paid during 2001,

‘‘(B) 14.2 percent in the case of compensation paid during 2002, and

‘‘(C) in the case of compensation paid during any calendar year after

2002, the percentage determined under section 3241 for such calendar

year.’’.

(b) RATE OF TAX ON EMPLOYEE REPRESENTATIVES.—Section 3211, as amended by

section 203, is amended by striking subsection (a) and inserting the following new

subsections:

‘‘(a) TIER 1 TAX.—In addition to other taxes, there is hereby imposed on the income of each employee representative a tax equal to the applicable percentage of

the compensation received during any calendar year by such employee representative for services rendered by such employee representative. For purposes of the preceding sentence, the term ‘applicable percentage’ means the percentage equal to the

sum of the rates of tax in effect under subsections (a) and (b) of section 3101 and

subsections (a) and (b) of section 3111 for the calendar year.

‘‘(b) TIER 2 TAX.—

‘‘(1) IN GENERAL.—In addition to other taxes, there is hereby imposed on the

income of each employee representative a tax equal to the applicable percentage

of the compensation received during any calendar year by such employee representatives for services rendered by such employee representative.

‘‘(2) APPLICABLE PERCENTAGE.—For purposes of paragraph (1), the term ‘applicable percentage’ means—

‘‘(A) 14.75 percent in the case of compensation received during 2001,

‘‘(B) 14.20 percent in the case of compensation received during 2002, and

‘‘(C) in the case of compensation received during any calendar year after

2002, the percentage determined under section 3241 for such calendar year.

‘‘(c) CROSS REFERENCE.—

‘‘For application of different contribution bases with respect to the taxes imposed by subsections (a) and (b), see section 3231(e)(2).’’.

(c) RATE OF TAX ON EMPLOYEES.—Subsection (b) of section 3201 is amended to

read as follows:

‘‘(b) TIER 2 TAX.—

‘‘(1) IN GENERAL.—In addition to other taxes, there is hereby imposed on the

income of each employee a tax equal to the applicable percentage of the compensation received during any calendar year by such employee for services rendered by such employee.

‘‘(2) APPLICABLE PERCENTAGE.—For purposes of paragraph (1), the term ‘applicable percentage’ means—

‘‘(A) 4.90 percent in the case of compensation received during 2001 or

2002, and

‘‘(B) in the case of compensation received during any calendar year after

2002, the percentage determined under section 3241 for such calendar

year.’’.

(d) DETERMINATION OF RATE.—Chapter 22 is amended by adding at the end thereof the following new subchapter:

10

‘‘Subchapter E—Tier 2 Tax Rate Determination

‘‘Sec. 3241. Determination of tier 2 tax rate based on average account benefits ratio.

‘‘SEC. 3241. DETERMINATION OF TIER 2 TAX RATE BASED ON AVERAGE ACCOUNT BENEFITS

RATIO.

‘‘(a) IN GENERAL.—For purposes of sections 3201(b), 3211(b), and 3221(b), the applicable percentage for any calendar year is the percentage determined in accordance with the table in subsection (b).

‘‘(b) TAX RATE SCHEDULE.—

Average account benefits ratio Applicable percentage

for sections 3211(b) and

3221(b)

Applicable percentage

for section 3201(b) At least But less than

2.5 22.1 4.9

2.5 3.0 18.1 4.9

3.0 3.5 15.1 4.9

3.5 4.0 14.1 4.9

4.0 6.1 13.1 4.9

6.1 6.5 12.6 4.4

6.5 7.0 12.1 3.9

7.0 7.5 11.6 3.4

7.5 8.0 11.1 2.9

8.0 8.5 10.1 1.9

8.5 9.0 9.1 0.9

9.0 8.2 0

‘‘(c) DEFINITIONS RELATED TO DETERMINATION OF RATES OF TAX.— ‘‘(1) AVERAGE ACCOUNT BENEFITS RATIO.—For purposes of this section, the

term ‘average account benefits ratio’ means, with respect to any calendar year,

the average determined by the Secretary of the account benefits ratios for the

10 most recent fiscal years ending before such calendar year. If the amount determined under the preceding sentence is not a multiple of 0.1, such amount

shall be increased to the next highest multiple of 0.1.

‘‘(2) ACCOUNT BENEFITS RATIO.—For purposes of this section, the term ‘account benefits ratio’ means, with 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 Railroad Retirement

Investment Trust as of the close of such fiscal year by the total benefits and

administrative expenses paid from the Railroad Retirement Account and the

Railroad Retirement Investment Trust during such fiscal year.

‘‘(d) NOTICE.—No later than December 1 of each calendar year, the Secretary shall

publish a notice in the Federal Register of the rates of tax determined under this

section which are applicable for the following calendar year.’’.

(e) CONFORMING AMENDMENTS.—

(1) Section 24(d)(3)(A)(iii) is amended by striking ‘‘section 3211(a)(1)’’ and inserting ‘‘section 3211(a)’’.

(2) Section 72(r)(2)(B)(i) is amended by striking ‘‘section 3211(a)(2)’’ and inserting ‘‘section 3211(b)’’.

(3) Paragraphs (2)(A)(iii)(II) and (4)(A) of section 3231(e) is amended by striking ‘‘3211(a)(1)’’ and inserting ‘‘3211(a)’’.

(4) Section 3231(e)(2)(B)(ii)(I) is amended by striking ‘‘3211(a)(2)’’ and inserting ‘‘3211(b)’’.

(5) The table of subchapters for chapter 22 is amended by adding at the end

the following new item:

‘‘Subchapter E. Tier 2 tax rate determination.’’.

(f) EFFECTIVE DATE.—The amendments made by this section shall apply to calendar years beginning after December 31, 2000.

INTRODUCTION

The railroad retirement system was created separate from the

Social Security program through a series of laws enacted in the

1930’s, culminating in the Railroad Retirement and Carriers’ Taxing Act of 1937. There was ample precedent for legislation taking

into account the particular circumstances of the rail industry. NuVerDate 11-MAY-2000 21:05 Jul 22, 2000 Jkt 665906 PO 00000 Frm 00010 Fmt 6659 Sfmt 6602 E:\HR\OC\HR777P1.004 pfrm11 PsN: HR777P1
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merous laws pertaining to rail operations and safety, as well as the

Railway Labor Act of 1926, had been enacted since the Interstate

Commerce Act of 1887, and many more have been enacted since

the 1930’s.

The need for a separate railroad retirement system arose from

the inadequate financing of many of the railroads’ preexisting private pension plans, and a desire for immediate benefit payments

based on prior service. Social Security did not begin paying benefits

until 1940 and did not credit service prior to 1937.

Substantive changes to the Railroad Retirement and Carriers’

Taxing Acts of 1937, including its replacement by the current Railroad Retirement Act of 1974, and substantive amendments to that

latter Act have generally been enacted by the basis of joint recommendations negotiated by representatives of rail labor and management.

The last major reform to railroad retirement occurred in 1983

with enactment of the Railroad Retirement Solvency Act. This Act

raised Tier II tax rates on both employers and employees, and for

the first time subjected railroad retirement Tier II benefits to federal income tax. It also raised the age at which one can receive a

full annuity from 60 with thirty years of service to 62 with thirty

years of service.

The railroad retirement system is administered by the Railroad

Retirement Board, which is an independent agency in the executive

branch of the United States Government. The Board has three

members, each of whom is appointed by the President and confirmed by the Senate. The Railroad Retirement Act requires that

one Board Member be appointed upon the recommendation of railroad labor and another Member appointed upon the recommendation of rail management. The Chair is appointed to represent the

public at large.

Annuities paid under the Railroad Retirement Act consist of different components called tiers. The Tier I benefit is based upon

both the railroad and non-railroad earnings of the railroad employee, using social security formulas, and approximates what

would be payable under the Social Security Act. Tier II benefits are

based on an employee’s railroad service only and are computed

under benefit formulas in the Railroad Retirement Act. Tier II is

the functional equivalent of a private industry-wide pension plan.

In fiscal year 1999, the Railroad Retirement Board paid $8.2 billion in retirement and survivor benefits to 748,000 beneficiaries. At

the end of fiscal year 1999, there were 316,358 railroad retirees,

167,478 spouses or divorced spouses of retirees, and 219,341 survivors receiving railroad retirement benefits.

Payroll taxes on railroad employers and employees serve as the

primary source of funding for railroad retirement benefits. Other

sources include transfers under the financial interchange with the

Social Security system; investment earnings from the trust funds;

general revenue appropriations for vested dual benefits; income

taxes on benefits and a work hour tax paid by railroad employers

called the supplemental annuity tax.

The changes made in H.R. 4844 apply only to the Tier II component of railroad retirement and are funded entirely by payroll taxes

on railroad employers and employees and earnings from the investment of those taxes. Currently, railroads pay a 16.1 per cent payVerDate 11-MAY-2000 21:05 Jul 22, 2000 Jkt 665906 PO 00000 Frm 00011 Fmt 6659 Sfmt 6602 E:\HR\OC\HR777P1.005 pfrm11 PsN: HR777P1
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1This is the ratio of the fund balance to estimated annual benefit payments and administrative expenses.

roll tax and employees pay a 4.9 percent payroll tax for Tier II benefits. H.R. 4844 would not create or require any general fund subsidies to the railroad system.

On September 17, 1998, the then-Subcommittee on Railroads

held a hearing on H. Con. Res. 52, Modifying the Railroad Retirement Tier II Benefits for Widows and Widowers, which had been

introduced by Congressman Jack Quinn (R–NY). H. Con. Res. 52

was a concurrent resolution urging that the railroad industry, including rail labor, management and retiree organizations, open discussions for adequately funding an amendment to the Railroad Retirement Act of 1974 to modify the guaranteed minimum benefit for

widows and widowers. Following the hearing, rail labor and management initiated discussions on a comprehensive reform of railroad retirement. H.R. 4844, cosponsored by the bipartisan leadership of the Transportation and Infrastructure Committee and the

Ways and Means Committee, embodies the agreement between

management and a majority of rail labor that was the result of

those negotiations.

SUMMARY OF H.R. 4844

Changes to the tax structure

Both Railroad Retirement benefits and payroll tax rates are fixed

by current law. Thus, changes in the system require Congressional

action. H.R. 4844 would make the Tier II tax rates more responsive

to actual financing needs by the establishment of an automatic tax

adjustment formula. Under this statutory formula, payroll taxes

would be raised or lowered automatically, without further action by

Congress, depending on the level of funds available to pay benefits.

(A similar system of adjustable tax rates for railroad unemployment benefits was enacted in 1988.)

Payroll taxes would be set each calendar year, pursuant to a

statutory formula. In any calendar year for which the 10-year average balance ratio 1 at the close of the previous fiscal year was no

lower than 4.0 percent and no higher than 6.0 percent, tax rates

would be set at ‘‘normal’’ levels of 13.1 percent for the employer

and 4.9 percent for the employee. (The proposed reduction of the

employer tax rate from the current 16.1 percent to 13.1 percent is

discussed below.) These ‘‘normal’’ rates are projected to keep the

average balance at or above a 4-year benefit reserve over the next

75 years, based on improving returns by an estimated 2 percentage

points (discussed below). If the average fund balance ratio falls

below 4.0 percent or exceeds 6.0 percent, the tax rates would vary

in accordance with the statutory formula. The 4-year minimum

benefits reserve requirement represents the highest level of reserves in the Railroad Retirement Account over the last 40 years.

Key features of the operation of the tax adjustment mechanism include:

• Allocation of Tax Rate Changes: Any increase in the payroll

tax above the normal rates would be borne entirely by railroad employers. Any reduction in the rates below the normal rates would

be divided equally between railroad employers and employees.

13

• Future Benefit Changes: If the average fund balance ratio exceeds 6.0 percent, employees may choose between a Tier II tax rate

reduction specified in the statute, or a benefit increase of equal

value. Benefit increases would be legislated by Congress, and management has agreed to support enactment of this legislation.

• Increase in Employee Tax Rate by Additional Benefit Equivalent: If any additional benefit is enacted as agreed above, the legislation would provide that the employee tax rate that otherwise

would be effective under the statutory formula would be increased

by the cost of the benefit.

Investment of assets

Currently, investment of RRA assets is limited to U.S. government securities. Railroad Retirement Board projections for the RRA

assume an annual return of 6 percent of investments. Between

1985 and 1998, the average annual return on RRA assets was unusually high at 9.12 per cent, but this still lagged far behind the

average annual return in large multi-employer pension plans of

15.17 percent over the same period. Under H.R. 4844, authority

would be provided for Tier II RRA assets to be invested in a new

diversified investment portfolio, as are assets of private sector pension plans. A Railroad Retirement Investment Trust would be established to invest the assets of the RRA in a Trust Fund outside

of Treasury. An independent Board of Trustees would be appointed

to administer the Trust. The Trustees would be responsible for establishing investment guidelines for the prudent management of

Tier II assets and for selecting outside investment advisors and

managers to implement investment policies. There would be 7

members of the Board of Trustees, all with investment experience

and selected by a unanimous vote of the Railroad Retirement

Board.

In designing this investment proposal, it was assuming that investments by the Trust would result in an average annual return

of 8 percent, i.e., 2 percentage points above current projections. Improving performance of the Trust portfolio by this amount permits

the enhancement of employee benefits and the reduction of railroad

employer tax rates, while maintaining at least an average benefit

reserve of 4 years or more. Based on future projections about rates

of returns, employment levels, and other variables, the employee

tax rate could be reduced in the future.

Benefit improvements

More effective management of Tier II assets would allow for the

adoption of certain benefit improvements while protecting the longterm stability of the railroad retirement system. Payment of vested

dual benefits and supplemental annuity benefits would continue as

under current law. The bill would provide for the following benefit

improvements.

• Expansion of Surviving Spouse Benefit. Surviving spouses

would inherit the full Tier II annuity of the deceased retiree. Currently, the surviving spouse may receive no more than 50 percent

of the retiree’s annuity.

• Liberalized Early Retirement. Currently, an employee with 30

years of service is eligible to retire at age 62 with no actuarial reduction in benefits. H.R. 4844 would allow for early retirement at

14

2Post-retirement Health Benefit. As part of the national collective bargaining agreement between labor and rail management, an early retirement health benefits plan is available for retirees at age 61. Management and labor have agreed to re-negotiate the agreement to lower the

eligibility age to 60 and to adjust the maximum lifetime benefit for medical inflation, if H.R.

4844 is enacted. This would conform eligibility for this private health benefit plan with eligibility for early retirement.

age 60 with 30 years of service without a benefit reduction. As

such, the bill would return the early retirement eligibility age to

its pre-1983 level. The spouse of such an employee would also be

eligible for an unreduced annuity at age 60.2

• Liberalized Vesting. The ten-year service requirement to vest

for Tier I and Tier II annuities would be reduced to five years. Any

employee with five years of post-1995 service would be vested. This

requirement would be consistent with private industry practices.

• Railroad Retirement Act Maximum. The limit on certain Tier

II annuities awarded to an employee and an employee’s spouse

would be repealed.

Tax reductions

Railroad employers currently pay 16.1 percent of taxable payroll

into the Tier II account. Improved earnings from investing the Tier

II assets would permit a phased reduction of employer taxes over

the first three years following enactment of the proposal. The

phase-in would occur as follows: 15.6 percent in 2001; 14.2 percent

in 2002; and 13.1 percent in 2003. Employee tax rates would continue at the current 4.9 percent, except as provided under the tax

adjustment mechanism described above.

In addition, the supplemental annuity tax (SAT) would be eliminated and supplemental annuity benefits would be paid directly

from the Trust. (There would be no change in supplemental annuity benefits paid to eligible retirees.) The SAT is a cents-per-hour

tax, currently set at 26.5 cents, paid only by employers. Benefits

are available only to employees hired prior to October 1981.

Administration

H.R. 4844 would continue the basic administrative structure of

railroad retirement for Tier I, the railroad industry counterpart to

Social Security. Tier II benefits would be paid from the Trust,

which would be administered by a fiduciary, seven-member Board

of Trustees. The Board is required to hire professional investment

managers. Management of the Trust assets is subject to fiduciary

standards similar to those under ERISA.

CONCLUSION

H.R. 4844 is a landmark piece of legislation that provides benefits for all the participants in the railroad retirement system. It

modernizes and strengthens the financing of the program while

also providing for improved retirement benefits for railroad workers and their families.

HEARINGS AND LEGISLATIVE HISTORY

No hearings were held by the Committee on H.R. 4844.

15

COMMITTEE CONSIDERATION

On July 19, 2000, the Ground Transportation Subcommittee and

the Full Committee met in open session and favorably reported

H.R. 4844.

ROLLCALL VOTES

Clause 3(b) of rule XIII of the House of Representatives requires

each committee report to include the total number of votes cast for

and against on each rollcall vote on a motion to report and on any

amendment offered to the measure or matter, and the names of

those members voting for and against. There was one rollcall vote

on final passage with 62 ayes and 1 nay. Following are the names

of those members voting for and against.

AYES NAY

Mr. Baird Mr. Taylor (MS)

Mr. Baldacci

Mr. Barcia

Mr. Bass

Mr. Bateman

Mr. Bereuter

Mr. Berkley

Mr. Blumenauer

Mr. Boehlert

Mr. Borski

Ms. Brown

Mr. Clement

Mr. Coble

Mr. Cook

Mr. Cooksey

Mr. Costello

Ms. Danner

Mr. DeMint

Mr. Doolittle

Mr. Duncan

Mr. Ehlers

Mr. Ewing

Mr. Filner

Mrs. Fowler

Mr. Franks

Mr. Gilchrest

Mr. Holden

Mr. Horn

Mr. Hutchinson

Ms. Johnson

Mrs. Kelly

Mr. Kuykendall

Mr. Lahood

16

Mr. Lampson

Mr. LaTourette

Mr. LoBiondo

Mr. McGovern

Mr. Mascara

Mr. Menendez

Mr. Metcalf

Mr. Mica

Ms. Millender-McDonald

Mr. Miller

Mr. Morgan

Mr. Ney

Ms. Norton

Mr. Oberstar

Mr. Pascrell

Mr. Pease

Mr. Petri

Mr. Quinn

Mr. Rahall

Mr. Sandlin

Mr. Sherwood

Mr. Simpson

Mr. Sweeney

Mrs. Tauscher

Mr. Terry

Mr. Thune

Mr. Vitter

Mr. Wise

Mr. Shuster

COST OF LEGISLATION

Clause 3(d)(2) of rule XIII of the Rules of the House of Representatives is satisfied where a cost estimate and comparison prepared by the Director of the Congressional Budget Office (CBO)

under section 402 of the Congressional Budget Act of 1974 has

been timely submitted prior to the filing of the report and is included in the report. The Committee has received no cost estimate

and comparison. When available it will be printed in the Congressional Record.

COMMITTEE COST ESTIMATE

The changes in railroad employee benefits proposed by H.R. 4844

are estimated to result in an increase in budget authority of approximately $112 million in 2001, and $1.3 billion for the five-year

period from 2001 through 2005. The changes in railroad taxes proposed by the bill are estimated to result in a decrease in revenues

of approximately $87 million in 2001, and $1.4 billion for the fiveyear period from 2001 through 2005.

In addition to these benefit payment increases and payroll tax

decreases, H.R. 4844 would authorize the transfer of the balance

currently held in the Rail Industry Pension Fund to the newly created Railroad Retirement Investment Trust (RRIT). The RRIT

would be authorized to invest this balance in a diversified portfolio,

17

including corporate stocks and bonds, similar to other multi-employer pension funds.

The scoring of investments such as those authorized by H.R.

4844 is currently an unresolved issue of budget concepts. There are

two options for scoring investments held outside of the U.S. Treasury. Under a conventional budget treatment, any investments

made by the RRIT outside of U.S. Treasury securities would be

scored as an immediate outlay, since the cash would physically be

leaving the Treasury. This conventional budget treatment makes

no distinction between Government expenditures to purchase goods

or services, and Government expenditures to purchase financial assets. In terms of personal finance, this is the equivalent of saying

that writing a $1,000 check from your checking account to purchase

shares in a mutual fund is the same as writing a $1,000 check to

finance a vacation. This conventional budget treatment would result in H.R. 4844 being scored as causing an increase in outlays of

approximately $15 billion in FY 2001.

Alternatively, investments made by the RRIT outside of Treasury

could be considered to be a non-scoreable means of financing.

Under this alternative budget treatment, the upfront investment

by the RRIT in corporate stocks and bonds would not be scored as

outlays. In addition, the increased rate of return that would be

earned on the investments make outside of Treasury would be

scored as increased revenues to the Government, thereby offsetting

in part the costs of the increased benefits and decreased taxes discussed above. The Committee believes that this alternative budget

treatment is more appropriate than the conventional budget treatment in this case, as it better reflects the true cost of H.R. 4844.

The Committee will file a supplemental report containing a cost

estimate prepared by the Congressional Budget Office pursuant to

section 402 of the Congressional Budget Act when it becomes available.

COMPLIANCE WITH HOUSE RULE XIII

1. Pursuant to clause 3(c)(1) of rule XIII of the Rules of the

House of Representatives, oversight findings and recommendations

have been made by the Committee as reflected in this report.

2. With respect to the requirement of clause 3(c)(2) of rule XIII

of the Rules of the House of Representatives, and 308(a) of the

Congressional Budget Act of 1974, the Committee references the

report of the Congressional Budget Office has not been received.

When available, it will be printed in the Congressional Record.

3. With respect to the requirement of clause 3(c)(4) of rule XIII

of the Rules of the House of Representatives, the Committee has

received no report of oversight findings and recommendations from

the Committee on Government Reform on the subject of H.R. 4844.

4. With respect to the requirement of clause 3(c)(3) of rule XIII

of the Rules of the House of Representatives and section 402 of the

Congressional Budget Act of 1974, a cost estimate from the Director of Congressional Budget Office (CBO) is not available.

CONSTITUTIONAL AUTHORITY STATEMENT

Pursuant to clause (3)(d)(1) of Rule XIII of the Rules of the

House of Representatives, committee reports on a bill or joint resoVerDate 11-MAY-2000 21:05 Jul 22, 2000 Jkt 665906 PO 00000 Frm 00017 Fmt 6659 Sfmt 6602 E:\HR\OC\HR777P1.007 pfrm11 PsN: HR777P1
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lution of a public character shall include a statement citing the

specific powers granted to the Congress in the Constitution to

enact the measure. The Committee on Transportation and Infrastructure finds that Congress has the authority to enact this measure pursuant to its powers granted under article I, section 8 of the

Constitution.

FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office

pursuant to section 423 of the Unfunded Mandates Reform Act.

(Public Law 104–4.)

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the

Federal Advisory Committee Act were created by this legislation.

APPLICABILITY TO THE LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate and conditions of employment or access to public service or accommodations within the meaning of Section 102(b)(3) of the Congressional

Accountability Act. (Public Law 104–1.)

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the

House of Representatives, changes in existing law made by the bill,

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic,

existing law in which no change is proposed is shown in roman):

RAILROAD RETIREMENT ACT OF 1974

* * * * * * *

ANNUITY ELIGIBILITY REQUIREMENTS

SEC. 2. (a)(1) The following-described individuals, if they shall

have completed ten years of service or, for purposes of paragraphs

(i), (iii), and (v), five years of service, all of which accrues after December 31, 1995, and shall have filed application for annuities,

shall, subject to the conditions set forth in subsections (e), (f), and

(h), be entitled to annuities in the amounts provided under section

3 of this Act—

(i) * * *

* * * * * * *

(4) An individual who is entitled to an annuity under paragraph

(v) of subdivision (1), but who does not have at least ten years of

service, shall, prior to the month in which the individual attains

age 62, be entitled only to an annuity amount computed under section 3(a) of this Act (without regard to section 3(a)(2) of this Act)

or section 3(f)(3) of this Act. Upon attainment of age 62, such an individual may also be entitled to an annuity amount computed

under section 3(b), but such annuity amount shall be reduced for

19

early retirement in the same manner as if the individual were entitled to an annuity under section 2(a)(1)(iii).

* * * * * * *

(d)(1) The following described survivors of a deceased employee

who will have completed ten years of service or five years of service,

all of which accrues after December 31, 1995, and will have had a

current connection with the railroad industry at the time of his

death shall, subject to the conditions set forth in subsections (g)

and (h), be entitled to annuities, if they have filed application

therefor, in the amounts provided under section 4 of this Act—

(i) * * *

* * * * * * *

(i) An individual entitled to an annuity under this section who

has completed five years of service, all of which accrues after 1995,

but who has not completed ten years of service, and the spouse, divorced spouse, and survivors of such individual, shall not be entitled to an annuity amount provided under section 3(a), section 4(a),

or section 4(f) of this Act unless the individual, or the individual’s

spouse, divorced spouse, or survivors, would be entitled to a benefit

under the Social Security Act on the basis of the individual’s employment record under both the Railroad Retirement Act and the

Social Security Act.

COMPUTATION OF EMPLOYEE ANNUITIES

SEC. 3. (a)(1) * * *

(2) For purposes of this subsection, individuals entitled to an annuity under section 2(a)(1)(ii) of this Act shall, except for the purposes of recomputations in accordance with section 215(f) of the Social Security Act, be deemed to have attained retirement age (as defined by section 216(l) of the Social Security Act). For purposes of

this subsection, individuals entitled to an annuity under paragraph

(iv) or (v) of such section 2(a)(1) shall be deemed to be entitled to

a disability insurance benefit under section 223 of the Social Security Act.

ø(3) In lieu of an annuity amount provided under subdivision (1),

the annuity of an individual entitled to an annuity under paragraph (ii) of section 2(a)(1) of this Act which begins to accrue before

the individual attains age 62 shall be in an amount equal to—

ø(i) for each month prior to the first month throughout which

the individual is age 62, the amount (after any reduction on account of age but before any deductions on account of work) of

the old-age insurance benefit to which such individual would

have been entitled under the Social Security Act as of the date

on which such individual’s annuity begins to accrue if such individual had attained age 62 on the first day of the month in

which his or her annuity begins to accrue and if all of such individual’s service as an employee after December 31, 1936, had

been included in the term ‘‘employment’’ as defined in that Act,

using for purposes of this computation the number of benefit

computation years applicable to a person born in the year in

which such individual was born; and

ø(ii) for months beginning with the first month throughout

which the individual is age 62, the amount (after any reduction

on account of age but before any deductions on account of

20

work) of the old-age insurance benefit to which such individual

would have been entitled under the Social Security Act if all

of such individual’s service as an employee after December 31,

1936, had been included in the term ‘‘employment’’ as defined

in that Act.¿

(3) If an individual entitled to an annuity under section 2(a)(1)(i)

or (iii) of this Act on the basis of less than ten years of service is

entitled to a benefit under section 202(a), section 202(b), or section

202(c) of the Social Security Act which began to accrue before the

annuity under section 2(a)(1)(i) or (iii) of this Act, the annuity

amount provided such individual under this subsection, shall be

computed as though the annuity under this Act began to accrue on

the later of (A) the date on which the benefit under section 202(a),

section 202(b), or section 202(c) of the Social Security Act began or

(B) the date on which the individual first met the conditions for entitlement to an age reduced annuity under this Act other than the

conditions set forth in sections 2(e)(1) and 2(e)(2) of this Act and the

requirement that an application be filed.

* * * * * * *

(f)ø(1) If the total amount of an individual’s annuity and supplemental annuity computed under the preceding subsections of this

section would, before any reductions on account of age, before any

reduction due to such individual’s entitlement to a monthly insurance benefit under the Social Security Act, and disregarding any

increases in such total amount which become effective after the

date on which such individual’s annuity under section 2(a)(1) of

this Act begins to accrue, exceed an amount equal to the sum of

(A) 100 per centum of his ‘‘final average monthly compensation’’ up

to an amount equal to 50 per centum of one-twelfth of the maximum annual taxable ‘‘wages’’ (as defined in section 3121 of the Internal Revenue Code of 1954) for the calendar year in which such

individual’s annuity under section 2(a)(1) of this Act begins to accrue, plus (B) 80 per centum of so much of his ‘‘final average

monthly compensation’’ as exceeds 50 per centum of one-twelfth of

the maximum annual taxable ‘‘wages’’ (as defined in section 3121

of the Internal Revenue Code of 1954) for the calendar year in

which such individual’s annuity under section 2(a)(1) of this Act begins to accrue, the supplemental annuity of such individual first,

and then, if necessary, the annuity amount of such individual as

computed under subsection (b) of this section, shall be reduced

until such total amount of such individual’s annuity and supplemental annuity equals such sum or until such supplemental annuity and such annuity amount computed under subsection (b) of this

section are reduced to zero, whichever occurs first: Provided, however, That the provisions of this subdivision shall not operate to reduce the total amount of an individual’s annuity and supplemental

annuity computed under the preceding subsections of this section

below $1,200. For purposes of this subdivision, the ‘‘final average

monthly compensation’’ of an individual shall except as provided in

the following sentence be determined by dividing the total compensation received by such individual in the two calendar years,

consecutive or otherwise, in which he was credited with the highest

total compensation during the ten-year period ending with December 31 of the year in which such individual’s annuity under section

2(a)(1) of this Act begins to accrue by 24. If the individual’s ‘‘averVerDate 11-MAY-2000 21:05 Jul 22, 2000 Jkt 665906 PO 00000 Frm 00020 Fmt 6659 Sfmt 6602 E:\HR\OC\HR777P1.008 pfrm11 PsN: HR777P1
21

age monthly compensation’’ is determined under subdivision (2) of

subsection (b) of this section, the ‘‘final average monthly compensation’’ for such individual shall be the average of the compensation

for the 24 months in which the compensation determined for the

purpose of subdivision (2) of subsection (b) of this section is the

highest. For purposes of this subdivision, the term ‘‘compensation’’

shall include ‘‘compensation’’ as defined in section 1(h) of this Act,

‘‘wages’’ as defined in section 209 of the Social Security Act, ‘‘selfemployment income’’ as defined in section 211(b) of the Social Security Act, and wages deemed to have been paid under section 217

or 229 of the Social Security Act on account of military service: Provided, however, That in no case shall the compensation with respect to any calendar month exceed the limitation on the compensation for such month prescribed in subsection (j) of this section. Wages and self-employment income included as compensation

for purposes of this subdivision shall, in the absence of evidence to

the contrary, be presumed to have been paid in equal proportions

with respect to all months in the calendar quarter in which credited, in the case of wages paid before 1978, or in equal proportions

with respect to all months in the calendar year in which credited,

in the case of self-employment income and in the case of wages

paid after 1977.¿

* * * * * * *

COMPUTATION OF SPOUSE AND SURVIVOR ANNUITIES

SEC. 4. (a)(1) * * *

(2) For purposes of this subsection, øif an individual is entitled

to an annuity under paragraph (ii) of section 2(a)(1) of this Act

which did not begin to accrue before such individual attained age

62, the spouse of such individual entitled to an annuity under

clause (B) of paragraph (ii) of section 2(c)(1) of this Act¿ a spouse

entitled to an annuity under section 2(c)(1)(ii)(B) of this Act shall

be deemed to have attained retirement age (as defined in section

216(l) of the Social Security Act.

ø(3) In the case of an individual entitled to an annuity under

section 2(a)(1)(ii) of this Act which began to accrue before such individual attained age 62, the annuity of the spouse of such individual under section 2(c) of this Act shall, in lieu of an annuity

amount provided under subdivision (1), be in an amount equal to—

ø(i) for each month prior to the first month throughout which

both the individual and the spouse are age 62, 50 per centum

of that portion of the individual’s annuity as is, or was prior

to such individual’s attaining age 62, computed under section

3(a)(3)(i) of this Act, reduced to the same extent such amount

would be reduced under section 202(b)(4) of the Social Security

Act (in the case of a wife) or under section 202(c)(2) of the Social Security Act (in the case of a husband) as if such amount

were a wife’s insurance benefit or a husband’s insurance benefit, respectively, under such Act; and

ø(ii) for months beginning with the first month throughout

which both the individual and the spouse are age 62, the

amount (after any reduction on account of age are based on the

spouse’s age at the time the amount under this paragraph first

becomes payable but before any deductions on account of work)

22

of the wife’s insurance benefit or the husband’s insurance benefit to which such spouse would have been entitled under the

Social Security Act if the individual’s service as an employee

after December 31, 1936, had been included in the term ‘‘employment’’ as defined in that Act.

ø(4) In the case of an individual entitled to an annuity under

paragraph (iv) or (v) of section 2(a)(1) of this Act, the annuity of

the spouse of such individual entitled to an annuity under section

2(c)(1)(ii)(B) of this Act shall, in lieu of an annuity amount provided

under subdivision (1), be in an amount equal to the amount (after

any reduction on account of age but before any deductions on account of work) of the wife’s insurance benefit or the husband’s insurance benefit to which such spouse would have been entitled

under the Social Security Act if the individual’s service as an employee after December 31, 1936, had been included in the term

‘‘employment’’ as defined in that Act. For purposes of this subdivision, spouses who have not attained age 62 shall be deemed to

have attained age 62.¿

(3) If a spouse entitled to an annuity under section 2(c)(1)(ii)(A),

section 2(c)(1)(ii)(C), or section 2(c)(2) of this Act or a divorced

spouse entitled to an annuity under section 2(c)(4) of this Act on the

basis of the employment record of an employee who will have completed less than 10 years of service is entitled to a benefit under section 202(a), section 202(b), or section 202(c) of the Social Security

Act which began to accrue before the annuity under section

2(c)(1)(ii)(A), section 2(c)(1)(ii)(C), section 2(c)(2), or section 2(c)(4) of

this Act, the annuity amount provided under this subsection shall

be computed as though the annuity under this Act began to accrue

on the later of (A) the date on which the benefit under section

202(a), section 202(b), or section 202(c) of the Social Security Act

began or (B) the first date on which the annuitant met the conditions for entitlement to an age reduced annuity under this Act other

than the conditions set forth in sections 2(e)(1) and 2(e)(2) of this

Act and the requirement that an application be filed.

* * * * * * *

ø(c) If (A) the total amount of the annuity of a spouse of an individual as computed under the preceding subsections of this section

as of the date on which the annuity of such individual under section 2(a)(1) of this Act began to accrue (before any reduction due

to such spouse’s entitlement to a monthly insurance benefit under

the Social Security Act) plus (B) the total amount of the annuity

and supplemental annuity of the individual (before any reduction

due to such individual’s entitlement to a monthly insurance benefit

under the Social Security Act) subject to the provisions of section

3(f)(1) of this Act would, before any reductions in the amounts specified in clauses (A) and (B) on account of age and disregarding any

increases in such amounts which become effective after the date on

which the individual’s annuity under section 2(a)(1) of this Act

began to accrue, exceed the amount determined under clauses (A)

and (B) of section 3(f)(1) of this Act, the portion of the annuity of

such spouse determined under subsection (b) of this section as of

the date on which the individual’s annuity under section 2(a)(1)

began to accrue shall be reduced until the sum of the amounts

specified in clauses (A) and (B) of the subsection equals the amount

determined under clauses (A) and (B) of section 3(f)(1) or until such

23

amount under subsection (b) is reduced to zero, whichever occurs

first. If, after such amount under subsection (b) is reduced to zero,

the sum of the remaining amounts specified in clauses (A) and (B)

of this subsection still exceeds the amount determined under

clauses (A) and (B) of section 3(f)(1), the supplemental annuity of

the individual first, and then, if necessary, the annuity amount of

the individual computed under subsections (b), (c), and (d) of section 3 as of the date on which the individual’s annuity under section 2(a)(1) began to accrue, shall be reduced until the amounts

specified in clauses (A) and (B) of this subsection equals the

amounts determined under clauses (A) and (B) of section 3(f)(1) or

until such supplemental annuity and such annuity amount are reduced to zero, whichever occurs first. Notwithstanding the preceding provisions of this subsection, the provisions of this subsection shall not operate to reduce the total of the amounts specified in clauses (A) and (B) of this subsection below $1,200.¿

* * * * * * *

(g)(1) * * *

* * * * * * *

(10)(i) If for any month the unreduced annuity provided under

this section for a widow or widower is less than the widow’s or widower’s initial minimum amount computed pursuant to paragraph

(ii) of this subdivision, the unreduced annuity shall be increased to

that initial minimum amount. For the purposes of this subdivision,

the unreduced annuity is the annuity without regard to any deduction on account of work, without regard to any reduction for entitlement to an annuity under section 2(a)(1) of this Act, without regard

to any reduction for entitlement to a benefit under title II of the Social Security Act, and without regard to any reduction for entitlement to a public service pension pursuant to sections 202(e)(7),

202(f)(2), or section 202(g)(4) of the Social Security Act.

(ii) For the purposes of this subdivision, the widow or widower’s

initial minimum amount is the amount of the unreduced annuity

computed at the time an annuity is awarded to that widow or widower, except that—

(A) in subsection (g)(1)(i) ‘‘100 per centum’’ shall be substituted for ‘‘50 per centum’’; and

(B) in subsection (g)(2)(ii) ‘‘130 per centum’’ shall be substituted for ‘‘80 per centum’’ both places it appears.

(iii) If a widow or widower who was previously entitled to a widow’s or widower’s annuity under section 2(d)(1)(ii) of this Act becomes entitled to a widow’s or widow’s annuity under section

2(d)(1)(i) of this Act, a new initial minimum amount shall be computed at the time of award of the widow’s or widower’s annuity

under section 2(d)(1)(i) of this Act.

* * * * * * *

ANNUITY BEGINNING AND ENDING DATES

SEC. 5. (a) * * *

* * * * * * *

(b) An application for any payment under this Act shall be made

and filed in such manner and form as the Board may prescribe.

24

øAn application filed with the Board for an annuity under this Act

shall, unless the applicant specified otherwise, be deemed to be an

application for any benefit to which such applicant may be entitled

under this Act or title II of the Social Security Act.¿ An application

filed with the Board for an employee annuity, spouse annuity, or divorced spouse annuity on the basis of the employment record of an

employee who will have completed less than ten years of service

shall be deemed to be an application for any benefit to which such

applicant may be entitled under this Act or section 202(a), section

202(b), or section 202(c) of the Social Security Act. An application

filed with the Board for an annuity on the basis of the employment

record of an employee who will have completed ten years of service

shall, unless the applicant specified otherwise, be deemed to be an

application for any benefit to which such applicant may be entitled

under this Act or title II of the Social Security Act. An individual

who was entitled to an annuity under paragraph (iv) or (v) of section 2(a)(1) of this Act for the month preceding the month in which

he attained retirement age (as defined in section 216(l) of the Social Security Act), shall be deemed to have filed an application for

an annuity under paragraph (i) of section 2(a)(1) on the date on

which he attained retirement age (as defined in section 216(l) of

the Social Security Act), and a widow or widower who was entitled

to an annuity under section 2(d)(1) of this Act on the basis of disability for the month preceding the month in which she or he attained age 60, shall be deemed to have filed an application for an

annuity under such section 2(d)(1) on the basis of age on the date

on which she or he attained age 60.

* * * * * * *

LUMP-SUM PAYMENTS

SEC. 6. (a) * * *

* * * * * * *

(e)(1) Every individual who will have completed ten years of service or five or more years of service, all of which accrues after December 31, 1995, at the time of his retirement or death, who will have

received compensation in the nature of separation of severance pay

on or after January 1, 1985, and who would have been credited

with additional months of service pursuant to section 3(i)(4) of this

Act except for the fact that such individual was not in an employment relation to one or more employers nor an employee representative in such months, shall, at the time his annuity under section

2(a)(1) of this Act begins to accrue, be entitled to a lump sum in

the amount provided under subdivision (2) of this subsection. If the

full amount of a lump sum under this subsection cannot be determined at the time an individual’s annuity under section 2(a)(1) begins to accure, such lump sum shall be payable at such time thereafter as such amount can be determined. If an individual otherwise

eligible for a lump sum under this section dies before he becomes

entitled to an annuity under section 2(a)(1), or before he receives

payment of such lump sum, such lump sum shall be payable to the

person, if any, who is determined by the Board to be such individual’s widow or widower and who will not have died before receiving

payment of such lump sum. If there be no such widow or widower,

such lump sum shall be payable to the children, grandchildren,

25

parents, brothers and sisters, or the estate of the deceased individual in the same manner as if such lump sum were a lump sum

payable under subsection (c)(1) of this section.

* * * * * * *

POWERS AND DUTIES OF THE BOARD

SEC. 7. (a) * * *

(b)(1) * * *

(2) In the case of—

(A) an individual who will have completed ten years of service or five or more years of service, all of which accrues after

December 31, 1995, creditable under this Act,

* * * * * * *

ø(4) The Board shall from time to time certify to the Secretary

of the Treasury the name and address of each individual entitled

to receive a payment, the amount of such payment, and the time

at which it should be made, and the Secretary of the Treasury

through the Division of Disbursements of the Treasury Department, and prior to audit by the General Accounting Office, shall

make payment in accordance with the certification by the Board.¿

(4)(A) The Railroad Retirement Board, after consultation with the

Board of Trustees of the Railroad Retirement Trust and the Secretary of the Treasury, shall enter into an arrangement with a nongovernmental financial institution to serve as disbursing agent for

benefits payable under this Act who shall disburse consolidated benefits under this Act to each recipient.

(B) The Board shall from time to time certify—

(i) to the Secretary of the Treasury the amounts required to

be transferred from the Social Security Equivalent Benefit Account and the the Dual Benefits Payments Account to the disbursing agent to make payments of benefits and the Secretary

of the Treasury shall transfer those amounts;

(ii) to the Board of Trustees of the Railroad Retirement Investment Trust the amounts required to be transferred from the

Railroad Retirement Investment Trust to the disbursing agent

to make payments of benefits and the Board of Trustees shall

transfer those amounts; and

(iii) to the disbursing agent the name and address of each individual entitled to receive a payment, the amount of such payment, and the time at which the payment should be made.

* * * * * * *

(c)(1) Benefit payments determined by the Board to be payable

under this Act shall be made øfrom the Railroad Retirement Account¿ by the disbursing agent under subsection (b)(4) from money

transferred to it from the Railroad Retirement Trust Fund or the

Social Security Equivalent Benefit Account, as the case may be, except that øpayments of supplemental annuities under section 2(b)

of this Act shall be made from the Railroad Retirement Supplemental Account, and¿ payments of annuity amounts made under

sections 3(h), 4(e), and 4(h) of this Act and under sections 204(a)(3),

204(a)(4), 206(3), and 207(3) of Public Law 93–445 shall be made

by the disbursing agent under subsection (b)(4) from money transferred to it from the Dual Benefits Payments Account. In any fiscal

26

year, the total amounts paid under such sections shall not exceed

the total sums appropriated to the Dual Benefits Payments Account for that fiscal year. The Board shall prescribe regulations for

allocation of annuity amounts which would without regard to such

regulations be payable under sections 3(h), 4(e), and 4(h) of this Act

and sections 204(a)(3), 204(a)(4), 206(3), and 207(3) of Public Law

93–445 so that the sums appropriated to the Dual Benefits Payments Account for a fiscal year so far as practicable, are expended

in equal monthly installments throughout such fiscal year, and are

distributed so that recipients are paid annuity amounts which bear

the same ratio to the annuity amounts such recipients would have

received but for such regulations as the ratio of the total sums appropriated to pay such annuity amounts bear to the total sums necessary to pay such annuity amounts without regard to such regulations. Notwithstanding any other provision of law, the entitlement

of an individual to an annuity amount under section 3(h), 4(e), or

4(h) of this Act or section 204(a)(3), 204(a)(4), 206(3), or 207(3) of

Public Law 93–445 for any month in which the amount payable to

such individual is allocated under the regulations prescribed by the

Board under this subsection shall not exceed the amount so allocated for that month to such individual.

* * * * * * *

RAILROAD RETIREMENT ACCOUNT

SEC. 15. (a) The Railroad Retirement Account established by section 15(a) of the Railroad Retirement Act of 1937 shall continue to

be maintained in the Treasury of the United States. There is hereby appropriated to such Account for each fiscal year, beginning

with the fiscal year ending June 30, 1975, to provide for the payment of benefits to be made from such Account in accordance with

the provisions of section 7(c)(1) of this Act, and to provide for expenses necessary for the Board in the administration of all provisions of this Act, an amount equal to amounts covered into the

Treasury (minus refunds) during each fiscal year under the Railroad Retirement Tax Actø, except those portions of the amounts

covered into the Treasury under sections 3211(b), 3221(c), and

3221(d) of such Tax Act as are necessary to provide sufficient funds

to meet the obligation to pay supplemental annuities at the level

provided under section 3(e) of this Act and, with respect to those

entitled to supplemental annuities under section 205(a) of title II

of this Act, at the level provided under section 205(a). The Board

is directed to determine what portion of the taxes collected under

sections 3211(b), 3221(c), and 3221(d) of the Railroad Retirement

Tax Act is to be credited to the Railroad Retirement Account pursuant to the preceding provisions of this subsection and what portion

of such taxes is to be credited to the Railroad Retirement Supplemental Account pursuant to the provisions of subsection (c) of this

section. The Board shall make such a determination with respect

to each calendar quarter commencing with the quarter beginning

January 1, 1975, shall make each such determination not later

than fifteen days before each calendar quarter, and shall, as soon

as practicable after each such determination, advise the Secretary

of the Treasury of the determination made. The Secretary of the

Treasury shall credit the amounts covered into the Treasury under

27

sections 3211(b), 3221(c), and 3221(d) of the Railroad Retirement

Tax Act to the Railroad Retirement Account and the Railroad Retirement Supplemental Account in such proportions as is determined by the Board pursuant to the provisions of this subsection¿.

* * * * * * *

ø(c) The Railroad Retirement Supplemental Account established

by section 15(b) of the Railroad Retirement Act of 1937 shall continue to be maintained in the Treasury of the United States. There

is hereby appropriated to such account for each fiscal year, beginning with the fiscal year ending June 30, 1975, out of any moneys

in the Treasury not otherwise appropriated, to provide for the payment of supplemental annuities under section 2(b) of this Act, and

to provide for the expenses necessary for the Board in the administration of the payment of such supplemental annuities, an amount

equal to such portions of the amounts covered into the Treasury

(minus refunds) during each fiscal year under sections 3211(b),

3221(c), and 3221(d) of the Railroad Retirement Tax Act as are not

appropriated to the Railroad Retirement Account pursuant to the

provisions of subsection (a) of this section. Whenever the Board

finds at any time that the balance in the Railroad Retirement Supplemental Account will be insufficient to pay the supplemental annuities which it estimates are due, or will become due, under section 2(b) of this Act, it shall request the Secretary of the Treasury

to transfer from the Railroad Retirement Account to the credit of

the Railroad Retirement Supplemental Account such moneys as the

Board estimates would be necessary for the payment of such supplemental annuities, and the Secretary shall make such transfer.

Whenever the Board finds that the balance in the Railroad Retirement Supplemental Account, without regard to the amounts transferred pursuant to the next preceding sentence, is sufficient to pay

such supplemental annuities, it shall request the Secretary of the

Treasury to retransfer from the Railroad Retirement Supplemental

Account to the credit of the Railroad Retirement Account such

moneys as in its judgment are not needed for the payment of such

supplemental annuities, plus interest at an annual rate equal to

the average rate of interest borne by all special obligations held by

the Railroad Retirement Account on the last day of the preceding

fiscal year, rounded to the nearest multiple of one-eight of 1 per

centum, and the Secretary shall make such retransfer.¿

(d)(1) There is hereby created an account in the Treasury of the

United States to be known as the Dual Benefits Payments Account.

There is hereby authorized to be appropriated to such account for

each fiscal year beginning with the fiscal year ending September

30, 1982, such sums as are necessary to pay during such fiscal year

the amounts of annuities estimated by the Board to be paid under

sections 3(h), 4(e), and 4(h) of this Act and under sections 204(a)(3),

204(a)(4), 206(3), and 207(3) of Public Law 93–445. Not more than

30 days prior to each fiscal year beginning with the fiscal year ending September 30, 1982, the Board may request the Secretary of

the Treasury to transfer from the Railroad Retirement Account to

the credit of the Dual Benefits Payments Account any amount not

exceeding the amount that the Board estimates will be necessary

to pay on the first day of the next succeeding month the annuity

amounts under sections 3(h), 4(e), and 4(h) of this Act and under

sections 204(a)(3), 204(a)(4), 206(3), and 207(3) of Public Law 93–

28

445, taking into account any reduction in such annuity amounts as

determined under section 7(c)(1) of this Act, and the Secretary of

the Treasury shall make such transfer, but at no time shall the

total amount of money outstanding to the Dual Benefits Payments

Account from the Railroad Retirement Account exceed the amount

necessary to pay the annuity amounts under sections 3(h), 4(e), and

4(h) of this Act and sections 204(a)(3), 204(a)(4), 206(3), and 207(3)

of Public Law 93–445 for one month. Not more than 10 days after

the funds appropriated to the Dual Benefits Payments Account for

each such fiscal year are received into such Account, the Board

shall request the Secretary of the Treasury to retransfer from the

Dual Benefits Payments Account to the credit of the Railroad Retirement Account an amount equal to the amount transferred to

the Dual Benefits Payments Account prior to or during such fiscal

year under the preceding sentence, together with such additional

amount determined by the Board to be equal to the loss of interest

to the Railroad Retirement Account resulting from such transfer,

and the Secretary of the Treasury shall make such retransfer. The

Secretary of the Treasury shall from time to time transfer from the

Dual Benefits Payments Account to the disbursing agent under section 7(b)(4) amounts necessary to pay benefits payable from that Account.

* * * * * * *

(e) At the request and direction of the Board, it shall be the duty

of the Secretary of the Treasury (hereinafter referred to as the

‘‘Secretary’’) to invest such portion of the amounts credited to the

Railroad Retirement Accountø, the Dual Benefits Payments Account and the Railroad Retirement Supplemental Account as, in

the judgment of the Board, is not immediately required for the payment of annuities, supplemental annuities, and death benefits.

Such investments may be made only¿ and the Dual Benefits Payments Account as are not transferred to the Railroad Retirement Investment Trust as the Board may determine in interest-bearing obligations of the United States or in obligations guaranteed as to both

principal and interest by the United States. For such purpose such

obligations may be acquired (A) on original issue at the issue price;

or (B) by purchase of outstanding obligations at the market price.

The purposes for which obligations of the United States may be

issued under øthe Second Liberty Bond Act, as amended¿ chapter

31 of title 31, are hereby extended to authorize the issuance at par

of special obligations exclusively to the accounts. Such obligations

issued for purchase by the accounts shall have maturities fixed

with due regard for the needs of the accounts, and shall bear interest at a rate equal to the average market yield, computed as of the

end of the calendar month next preceding the date of such issue,

borne by all marketable interest-bearing notes of the United States

then forming a part of the public debt that are not due or callable

until after the expiration of three years from the end of such calendar month, except that where such rate is not a multiple of oneeighth of 1 per centum, the rate of interest on such obligations

shall be the multiple of one-eighth of 1 per centum nearest such

rate: Provided, That the rate of interest on such obligations shall

in no case be less than 3 per centum per annum. At the request

of the Board the Secretary shall purchase other interest-bearing obligations of the United States, or obligations guaranteed as to both

29

principal and interest by the United States, or other obligations

which are lawful investments for trust funds of the United States,

on original issue or at the market price: Provided, That the interest

yield of such obligations shall not be less than the interest rate determined in accordance with the preceding sentence. At the request

of the Board, the Secretary shall sell at the market price such obligations in the accounts (other than special obligations issued exclusively to the accounts) as the Board designates. The Board shall

from time to time request the Secretary to redeem such special obligations issued exclusively to the accounts as the Board designates

and upon such request the Secretary shall redeem such obligations

at par plus accrued interest. All requests of the Board to the Secretary, provided for in this subsection, shall be mandatory upon the

Secretary. It shall be the duty of the Board to determine at all

times what proportion of the accounts shall be invested in other

than special obligations issued to the accounts and further to determine which of such obligations available to the accounts consistent

with øthe foregoing requirements¿ the requirements of this subsection will provide the greatest rate of return on the funds invested.

* * * * * * *

(j) RAILROAD RETIREMENT INVESTMENT TRUST.— (1) ESTABLISHMENT.—The Railroad Retirement Investment

Trust (hereinafter in this subsection referred to as the ‘‘Trust’’)

is hereby established. The Trust shall manage and invest the

assets of the Railroad Retirement Trust Fund (hereinafter in

this section referred to as the Fund’’, which is hereby established as a trust organized in the District of Columbia and

shall, to the extent not inconsistent with this Act, be subject to

the laws of the District of Columbia applicable to such trusts.

(2) NOT A FEDERAL AGENCY OR INSTRUMENTALITY.—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.

(3) BOARD OF TRUSTEES.— (A) GENERALLY.—The Trust shall have a Board of Trustees, consisting of 7 members, each appointed by a unanimous vote of the Railroad Retirement Board. The Railroad

Retirement Board may remove any member so appointed by

unanimous vote. Of the 7 members, 3 shall represent the interests of labor, 3 shall represent the interests of management, and 1 shall represent the interests of the general public. The members of the Board of Trustees shall not be considered officers or employees of the Government of the

United States.

(B) QUALIFICATIONS.—Members of the Board of Trustees

shall be appointed only from among persons who have experience and expertise in the management of financial investments and pension plans. No member of the Railroad

Retirement Board shall be eligible to be a member of the

Board of Trustees.

(C) TERMS.—Except as provided in this subparagraph,

each member shall be appointed for a 3-year term. The initial members appointed under this paragraph shall be divided into 3 equal groups so nearly as may be, of which one

30

group will be appointed for a 1-year term, one for a 2-year

term, and one for a 3-year term. A vacancy in the Board

of Trustees shall not affect the powers of the Board of

Trustees and shall be filled in the same manner as the selection of the member whose departure caused the vacancy.

Upon the expiration of a term of a member of the Board of

Trustees, that member shall continue to serve until a successor is appointed.

(4) POWERS OF THE BOARD OF TRUSTEES.—The Board of

Trustees shall—

(A) retain independent advisers to assist it in the formulation and adoption of its investment guidelines;

(B) retain independent investment managers to invest the

assets of the Fund in a manner consistent with such investment guidelines;

(C) invest assets in the Fund, pursuant to the policies

adopted in subparagraph (A);

(D) pay administrative expenses of the Fund and the

Trust from the money in the Fund; and

(E) transfer money to the disbursing agent to pay benefits

payable under this Act from money in the Fund and administrative expenses related to those benefits.

(5) REPORTING REQUIREMENTS AND FIDUCIARY STANDARDS.—

The following reporting requirements and fiduciary standards

shall apply with respect to the Railroad Retirement Trust and

the Railroad Retirement Trust Fund (and the assets held in

such Trust Fund):

(A) DUTIES OF THE BOARD OF TRUSTEES.—The Railroad

Retirement Trust and each member of the Board of Trustees shall discharge their duties with respect to the assets of

the Fund solely in the interest of the Railroad Retirement

Board and through it, the participants and beneficiaries of

the programs funded under this Act—

(i) for the exclusive purpose of—

(I) providing benefits to participants and their

beneficiaries; and

(II) defraying reasonable expenses of administering the functions of the Trust;

(ii) with the care, skill, prudence, and diligence

under the circumstances then prevailing that a prudent

person acting in a like capacity and familiar with such

matters would use in the conduct of an enterprise of a

like character and with like aims;

(iii) by diversifying investments so as to minimize the

risk of large losses, unless under the circumstances it

is clearly prudent not to do so; and

(iv) in accordance with Trust governing documents

and instruments insofar as such documents and instruments are consistent with this Act.

(B) PROHIBITIONS WITH RESPECT TO MEMBERS OF THE

BOARD OF TRUSTEES.—No member of the Board of Trustees

shall—

(i) deal with the assets of the Fund in the trustee’s

own interest or for the trustee’s own account;

31

(ii) in an individual or in any other capacity act in

any transaction involving the assets of the Fund on behalf of a party (or represent a party) whose interests

are adverse to the interests of the Trust, the Fund, the

Railroad Retirement Board, or the interests of participants or beneficiaries; or

(iii) receive any consideration for the trustee’s own

personal account from any party dealing with the assets of the Fund.

(C) EXCULPATORY PROVISIONS AND INSURANCE.—Any provision in an agreement or instrument that purports to relieve a trustee from responsibility or liability for any responsibility, obligation or duty under this Act shall be void:

Provided, however, That nothing shall preclude—

(i) the Trust from purchasing insurance for its trustees or for itself to cover liability or losses occurring by

reason of the act or omission of a trustee, if such insurance permits recourse by the insurer against the trustee

in the case of a breach of a fiduciary obligation by such

trustee;

(ii) a trustee from purchasing insurance to cover liability under this section from and for his own account; or

(iii) an employer or an employee organization from

purchasing insurance to cover potential liability of one

or more trustees with respect to their fiduciary responsibilities, obligations, and duties under this section.

(D) BONDING.—Every trustee and every person who handles funds or other property of the Fund (hereafter in this

subsection referred to as ‘‘Trust official’’) shall be bonded in

accordance with the following:

(i) The amount of such bond shall be fixed at the beginning of each fiscal year of the Trust by the Railroad

Retirement Board. Such amount shall not be less than

10 percent of the amount of the funds handled. In no

case shall such bond be less than $1,000 nor more than

$500,000, except that the Railroad Retirement Board,

after consideration of the record, may prescribe an

amount in excess of $500,000, subject to the 10 per centum limitation of the preceding sentence.

(ii) It shall be unlawful for any Trust official to receive, handle, disburse, or otherwise exercise custody or

control of any of the funds or other property of the

Fund without being bonded as required by this subsection and it shall be unlawful for any Trust official,

or any other person having authority to direct the performance of such functions, to permit such functions, or

any of them, to be performed by any Trust official, with

respect to whom the requirements of this subsection

have not been met.

(iii) It shall be unlawful for any person to procure

any bond required by this subsection from any surety

or other company or through any agent or broker in

whose business operations such person has any control

or significant financial interest, direct or indirect.

32

(E) AUDIT AND REPORT.—

(i) The Trust shall annually engage an independent

qualified public accountant to audit the financial statements of the Fund.

(ii) The Trust shall submit an annual management

report to the Congress not later than 180 days after the

end of the Trust’s fiscal year. A management report

under this subsection shall include—

(I) a statement of financial position;

(II) a statement of operations;

(III) a statement of cash flows;

(IV) a statement on internal accounting and administrative control systems;

(V) the report resulting from an audit of the financial statements of the Trust conducted under

subparagraph (E)(i); and

(VI) any other comments and information necessary to inform the Congress about the operations

and financial condition of the Trust and the Fund.

(iii) The Trust shall provide the President, the Railroad Retirement Board, and the Director of the Office

of Management and Budget a copy of the management

report when it is submitted to Congress.

(F) ENFORCEMENT.—The Railroad Retirement Board may

bring a civil action—

(i) to enjoin any act or practice by the Railroad Retirement Investment Trust, its Board of Trustees or its

employees or agents that violates any provision of this

Act; or

(ii) to obtain other appropriate relief to redress such

violations, or to enforce any provisions of this Act.

(6) RULES AND ADMINISTRATIVE POWERS.—The Board of

Trustees shall have the authority to make rules to govern its operations, employ professional staff, and contract with outside

advisers to provide legal, accounting, investment advisory or

other services necessary for the proper administration of this

subsection. In the case of contracts with investment advisory

services, compensation for such services may be on a fixed contract fee basis or on such other terms and conditions as are customary for such services.

(7) QUORUM.—Five members of the Board of Trustees constitute a quorum to do business. Investment guidelines must be

adopted by a unanimous vote of the entire Board of Trustees.

All other decisions of the Board of Trustees shall be decided by

a majority vote of the quorum present. All decisions of the

Board of Trustees shall be entered upon the records of the

Board of Trustees.

(k) TRANSFERS TO THE FUND.—The Board shall, upon establishment of the Railroad Retirement Trust Fund and from time to time

thereafter, direct the Secretary of the Treasury to transfer, in such

manner as will maximize the investment returns to the Railroad Retirement system, that portion of the Railroad Retirement Account

that is not needed to pay current administrative expenses of the

Board to the Railroad Retirement Trust Fund. The Secretary shall

make that transfer.

33

(l) RAILROAD RETIREMENT TRUST FUND.—The Railroad Retirement Trust shall from time to time transfer to the disbursing agent

described in section 7(b)(4) such amounts as may be necessary to

pay benefits under this Act (other than benefits paid from the Social

Security Equivalent Benefit Account or the Dual Benefit Payments

Account).

SOCIAL SECURITY EQUIVALENT BENEFIT ACCOUNT

SEC. 15A. (a) * * *

* * * * * * *

(c)(1) Except as otherwise provided in this section, amounts in

the Social Security Equivalent Benefit Account shall be available

only for purposes of paying social security equivalent benefits

under this Act and to provide for the administrative expenses of

the Board allocable to social security equivalent benefits. The Secretary shall from time to time transfer to the disbursing agent

under section 7(b)(4) amounts necessary to pay those benefits.

* * * * * * *

(d)(1) Whenever the Board finds that the balance in the Social

Security Equivalent Benefit Account will be insufficient to pay social security equivalent benefits which it estimates are due in any

month, it shall request the Secretary of the Treasury to transfer

from the Railroad Retirement Account to the credit of the Social

Security Equivalent Benefit Account such moneys as the Board estimates will be necessary for the payment of such benefits, and the

Secretary shall make such transfer. øWhenever later in such

month there is a transfer to the Social Security Equivalent Benefit

Account under paragraph (2) or (4) of section 7(c) of this Act, the

amount so transferred shall be immediately retransferred to the

Railroad Retirement Account. The amount retransferred under the

preceding sentence shall not exceed the amount of any outstanding

transfers under this paragraph from the Railroad Retirement Account plus such additional amounts determined by the Board to be

equal to the loss of interest to the Railroad Retirement Account resulting from such outstanding transfers.¿

ø(2) Whenever the Board determines that—

ø(A) amounts in the Railroad Retirement Account will not be

sufficient to pay the annuities which it estimates are due, or

will become due, from such Account, and

ø(B) the transfer under this paragraph will not jeopardize

the present or future payment of social security equivalent

benefits,

the Board shall request the Secretary of the Treasury to transfer

from the Social Security Equivalent Benefit Account to the Railroad Retirement Account such moneys as the Board estimates will

be necessary for the payment of such annuities, and the Secretary

shall make such transfer. No transfer under this paragraph shall

be required to be repaid.¿

(2) Upon establishment of the Railroad Retirement Trust Fund

and from time to time thereafter, the Board shall direct the Secretary of the Treasury to transfer, in such manner as will maximize

the investment returns to the Railroad Retirement system, the balance of the Social Security Equivalent Benefit Account not needed

to pay current benefits required to be paid from that Account to the

34

Railroad Retirement Trust Fund, and the Secretary shall make that

transfer. Any balance transferred under this paragraph shall be

used by the Railroad Retirement Trust only to pay benefits under

this Act or to purchase obligations of the United States that are

backed by the full faith and credit of the United States pursuant to

chapter 31 of title 31, United States Code. The proceeds of sales of,

and the interest income from, such obligations shall be used by the

Trust only to pay benefits under this Act.

* * * * * * *

CREDITING SERVICE UNDER THE SOCIAL SECURITY ACT

SEC. 18. (1) Except as provided in subdivision (2), the term ‘‘employment’’ as defined in section 210 of the Social Security Act shall

not include service performed by an individual as an employee as

defined in section 1(b) of this Act.

(2) For the purpose of determining (i) monthly insurance benefits

under the Social Security Act to an employee who will have completed less than ten years of service or less than five years of service, all of which accrues after December 31, 1995, and to others deriving from him or her during his or her life and (ii) monthly insurance benefits and lump-sum death benefits under such Act with respect to the death of an employee who (A) will have completed less

than ten years of service or less than five years of service, all of

which accrues after December 31, 1995, or (B) will have completed

ten or more years of service or five or more years of service, all of

which accrues after December 31, 1995, but will not have had a current connection with the railroad industry at the time of his death,

and for the purposes of section 203 and section 216(i) of that Act,

section 210(a)(9) of the Social Security Act and subdivision (1) of

this section shall not operate to exclude from ‘‘employment’’ under

the Social Security Act service which would otherwise be included

in such ‘‘employment’’ but for such sections. For such purpose, compensation paid in a calendar year shall, in the absence of evidence

to the contrary, be presumed to have been paid in equal proportions with respect to all months in the year in which the employee

will have been in service as an employee. In the application of the

Social Security Act pursuant to this subdivision to service as an

employee, all service as defined in section 1(d) of this Act shall be

deemed to have been performed within the United States.

AUTOMATIC BENEFIT ELIGIBILITY REQUIREMENT ADJUSTMENTS

SEC. 19. (a) * * *

* * * * * * *

(c) If section 226 or title XVII of the Social Security Act is

amended at any time after December 31, 1974, to reduce the conditions of entitlement to, or to expand the nature of, the benefits payable thereunder, or if health care benefits in addition to, or in lieu

of, the benefits payable under such section 226 or such title XVIII

are provided by any provision of law which becomes effective at any

time after December 31, 1974, such reductions in the conditions of

entitlement to benefits, such expanded benefits, or such additional,

or substituted, health care benefits shall be available to every employee (as defined in this Act), and those deriving from him, in the

35

same manner, and to the same extent, as if his service as an employee after December 31, 1936, had been included in the term

‘‘employment’’ as defined in the Social Security Act. The Board

shall have the same authority, in accordance with regulations prescribed by it, to determine the rights of employees who will have

completed ten years of service or five or more years of service, all

of which accrues after December 31, 1995, and of those deriving

from such employees, to benefits provided by reason of the provisions of this subsection as the Secretary of Health, Education, and

Welfare has with respect to individuals insured under the Social

Security Act.

(d) Notwithstanding the provisions of subsections (a), (b), and (c)

of this section—

(1) * * *

(2) No annuity shall be payable to a person by reason of subsection (a) or (b) of this section unless the individual upon

whose compensation and years of service such annuity would

be based will have (A) completed ten years of service or five or

more years of service, all of which accrues after December 31,

1995, and (B) in the case of a survivor, had a current connection with the railroad industry at the time of his death.

* * * * * * *

BENEFIT PRESERVATION

SEC. 22. (a)(1) On or before May 1 of each year beginning in

1984, the Railroad Retirement Board shall prepare a five-year projection of anticipated revenues to and payments from the Railroad

Retirement Account to determine the ability of such Account to pay

benefits in each of the next succeeding five calendar years. On or

before May 1 of each year beginning in 2002, the Railroad Retirement Board shall compute its projection of the account benefits ratio

and the average account benefits ratio (as defined by section 3241(c)

of the Internal Revenue Code of 1986) for each of the next succeeding five fiscal years. No later than July 1 of each year, the

Board shall submit a written report to the President, the Speaker

of the House, and the President of the Senate setting forth the results of øthe projection prepared pursuant to the preceding sentence¿ the projections prepared pursuant to the preceding two sentences. If the projection indicates that the funds in the Railroad Retirement Account will be insufficient to pay the full amount of the

benefits under this Act which are payable from that Account at any

time during the five-year period, the Board’s report shall include—

(A) * * *

* * * * * * *

COMPUTATION AND CERTIFICATION OF ACCOUNT BENEFIT RATIOS

SEC. 23. (a) On or before November 1, 2002, the Railroad Retirement Board shall—

(1) compute the account benefits ratios for each of the most

recent 10 preceding fiscal years, and

(2) certify the account benefits ratios for each such fiscal year

to the Secretary.

36

(b) On or before November 1 of each year after 2002, the Railroad

Retirement Board shall—

(1) compute the account benefits ratio for the fiscal year ending in such year, and

(2) certify the account benefits ratio for such fiscal year to the

Secretary.

(c) DEFINITION.—As used in this section, the term ‘‘account benefit

ratio’’ has the meaning given that term in section 3241(c) of the Internal Revenue Code of 1986.

SECTION 205 OF THE SOCIAL SECURITY ACT

EVIDENCE, PROCEDURE, AND CERTIFICATION FOR PAYMENT

SEC. 205. (a) * * *

* * * * * * *

(i) Upon final decision of the Commissioner of Social Security, or

upon final judgment of any court of competent jurisdiction, that

any person is entitled to any payment or payments under this title,

the Commissioner of Social Security shall certify to the Managing

Trustee the name and address of the person so entitled to receive

such payment or payments, the amount of such payment or payments, and the time at which such payment or payments should

be made, and the Managing Trustee, through the Fiscal Service of

the Department of the Treasury, and prior to any action thereon

by the General Accounting Office, shall make payment in accordance with the certification of the Commissioner of Social Security

(except that in the case of (A) an individual who will have completed ten years of service or five or more years of service, all of

which accrues after December 31, 1995, creditable under the Railroad Retirement Act of 1937 or the Railroad Retirement Act of

1974, (B) the wife or husband of such an individual, (C) any survivor of such an individual if such survivor is entitled, or could

upon application become entitled, to an annuity under section 2 of

the Railroad Retirement Act of 1974, and (D) any other person entitled to benefits under section 202 of this Act on the basis of the

wages and self-employment income of such an individual (except a

survivor of such an individual where such individual did not have

a current connection with the railroad industry, as defined in the

Railroad Retirement Act of 1974, at the time of his death), such

certification shall be made to the Railroad Retirement Board which

shall provide for such payment or payments to such person on behalf of the Managing Trustee in accordance with the provisions of

the Railroad Retirement Act of 1974): Provided, That where a review of the Commissioner’s decision is or may be sought under subsection (g) the Commissioner of Social Security may withhold certification of payment pending such review. The Managing Trustee

shall not be held personally liable for any payment or payments

made in accordance with a certification by the Commissioner of Social Security.

* * * * * * *

37

INTERNAL REVENUE CODE OF 1986

Subtitle A—Income Taxes

* * * * * * *

CHAPTER 1—NORMAL TAXES AND SURTAXES

* * * * * * *

Subchapter A—Determination of Tax Liability

* * * * * * *

PART IV—CREDITS AGAINST TAX

* * * * * * *

Subpart A—Nonrefundable Personal Credits

* * * * * * *

SEC. 24 CHILD TAX CREDIT.

(a) * * *

* * * * * * *

(d) ADDITIONAL CREDIT FOR FAMILIES WITH 3 OR MORE CHILDREN.—

(1) * * *

* * * * * * *

(3) SOCIAL SECURITY TAXES.—For purposes of paragraph (1)—

(A) IN GENERAL.—The term ‘‘social security taxes’’

means, with respect to any taxpayer for any taxable year—

(i) * * *

* * * * * * *

(iii) 50 percent of the taxes imposed by øsection

3211(a)(1)¿ section 3211(a) on amounts received by the

taxpayer during the calendar year in which the taxable year begins.

* * * * * * *

Subchapter B—Computation of Taxable Income

* * * * * * *

PART II—ITEMS SPECIFICALLY INCLUDED IN GROSS

INCOME

* * * * * * *

SEC. 72. ANNUITIES; CERTAIN PROCEEDS OF ENDOWMENT AND LIFE

INSURANCE CONTRACTS.

(a) * * *

* * * * * * *

(r) CERTAIN RAILROAD RETIREMENT BENEFITS TREATED AS RECEIVED UNDER EMPLOYER PLANS.—

38

(1) * * *

(2) TIER 2 TAXES TREATED AS CONTRIBUTIONS.—

(A) * * *

* * * * * * *

(B) TIER 2 PORTION.—For purposes of subparagraph

(A)—

(i) AFTER 1984.—With respect to compensation paid

after 1984, the tier 2 portion shall be the taxes imposed by sections 3201(b), ø3211(a)(2)¿ section 3211(b),

and 3221(b).

* * * * * * *

Subchapter F—Exempt Organizations

* * * * * * *

PART I—GENERAL RULE

* * * * * * *

SEC. 501. EXEMPTION FROM TAX ON CORPORATIONS, CERTAIN

TRUSTS, ETC.

(a) * * *

* * * * * * *

(c) LIST OF EXEMPT ORGANIZATIONS.—The following organizations

are referred to in subsection (a):

(1) * * *

* * * * * * *

(28) The Railroad Retirement Investment Trust established

under section 15(j) of the Railroad Retirement Act of 1974.

* * * * * * *

Subtitle C—Employment Taxes

* * * * * * *

CHAPTER 22—RAILROAD RETIREMENT TAX

ACT

* * * * * * *

Subchapter E. Tier 2 tax rate determination.

* * * * * * *

Subchapter A—Tax on Employees

* * * * * * *

SEC. 3201. RATE OF TAX.

(a) * * *

ø(b) TIER 2 TAX.—In addition to other taxes, there is hereby imposed on the income of each employee a tax equal to 4.90 percent

of the compensation received during any calendar year by such employee for services rendered by such employee.¿

39

(b) TIER 2 TAX.—

(1) IN GENERAL.—In addition to other taxes, there is hereby

imposed on the income of each employee a tax equal to the applicable percentage of the compensation received during any

calendar year by such employee for services rendered by such

employee.

(2) APPLICABLE PERCENTAGE.—For purposes of paragraph (1),

the term ‘‘applicable percentage’’ means—

(A) 4.90 percent in the case of compensation received during 2001 or 2002, and

(B) in the case of compensation received during any calendar year after 2002, the percentage determined under section 3241 for such calendar year.

* * * * * * *

Subchapter B—Tax on Employee Representatives

* * * * * * *

SEC. 3211. RATE OF TAX.

ø(a) IMPOSITION OF TAXES.—

ø(1) TIER 1 TAX.—In addition to other taxes, there is hereby

imposed on the income of each employee representative a tax

equal to the applicable percentage of the compensation received during any calendar year by such employee representative for services rendered by such employee representative. For

purposes of the preceding sentence, the term ‘‘applicable percentage’’ means the percentage equal to the sum of the rates

of tax in effect under subsections (a) and (b) of section 3101

and subsections (a) and (b) of section 3111 for the calendar

year.

ø(2) TIER 2 TAX.—In addition to other taxes, there is hereby

imposed on the income of each employee representative a tax

equal to the following percentage of the compensation received

during any calendar year by such employee representatives for

services rendered by such employee representative:

øIn the case of compensation

received during: The rate shall be:

1985 ........................................................................................................ 13.75

1986 or thereafter ................................................................................. 14.75

ø(3) CROSS REFERENCE.—For application of different contribution bases with respect to the taxes imposed by paragraphs (1) and (2), see section 3231(e)(2).

ø(b) In addition to other taxes, there is hereby imposed on the

income of each employee representative a tax at a rate equal to the

rate of excise tax imposed on every employer, provided for in section 3221(c), for each man-hour for which compensation is paid to

him for services rendered as an employee representative.¿

(a) TIER 1 TAX.—In addition to other taxes, there is hereby imposed on the income of each employee representative a tax equal to

the applicable percentage of the compensation received during any

calendar year by such employee representative for services rendered

by such employee representative. For purposes of the preceding sentence, the term ‘‘applicable percentage’’ means the percentage equal

to the sum of the rates of tax in effect under subsections (a) and (b)

40

of section 3101 and subsections (a) and (b) of section 3111 for the

calendar year.

(b) TIER 2 TAX.— (1) IN GENERAL.—In addition to other taxes, there is hereby

imposed on the income of each employee representative a tax

equal to the applicable percentage of the compensation received

during any calendar year by such employee representatives for

services rendered by such employee representative.

(2) APPLICABLE PERCENTAGE.—For purposes of paragraph (1),

the term ‘‘applicable percentage’’ means—

(A) 14.75 percent in the case of compensation received

during 2001,

(B) 14.20 percent in the case of compensation received

during 2002, and

(C) in the case of compensation received during any calendar year after 2002, the percentage determined under section 3241 for such calendar year.

(c) CROSS REFERENCE.—

For application of different contribution bases with respect to the

taxes imposed by subsections (a) and (b), see section 3231(e)(2).

* * * * * * *

Subchapter C—Tax on Employers

* * * * * * *

SEC. 3221. RATE OF TAX.

(a) * * *

ø(b) TIER 2 TAX.—In addition to other taxes, there is hereby imposed on every employer an excise tax, with respect to having individuals in his employ, equal to 16.10 percent of the compensation

paid during any calendar year by such employer for services rendered to such employer.¿

(b) TIER 2 TAX.—

(1) IN GENERAL.—In addition to other taxes, there is hereby

imposed on every employer an excise tax, with respect to having

individuals in his employ, equal to the applicable percentage of

the compensation paid during any calendar year by such employer for services rendered to such employer.

(2) APPLICABLE PERCENTAGE.—For purposes of paragraph (1),

the term ‘‘applicable percentage’’ means—

(A) 15.6 percent in the case of compensation paid during

2001,

(B) 14.2 percent in the case of compensation paid during

2002, and

(C) in the case of compensation paid during any calendar

year after 2002, the percentage determined under section

3241 for such calendar year.

ø(c) In addition to other taxes, there is hereby imposed on every

employer an excise tax, with respect to having individuals in his

employ, for each man-hour for which compensation is paid by such

employer for services rendered to him during any calendar quarter,

at such rate as will make available sufficient funds to meet the obligation to pay supplemental annuities at the level provided under

section 3(j) of the Railroad Retirement Act of 1937 as in effect on

41

December 31, 1974 and administrative expenses in connection

therewith. For the purpose of this subsection, the Railroad Retirement Board is directed to determine what rate is required for each

calendar quarter. The Railroad Retirement Board shall make the

determinations provided for not later than fifteen days before each

calendar quarter. As soon as practicable after each determination

of the rate, as provided in this subsection, the Railroad Retirement

Board shall publish a notice in the Federal Register, and shall advise all employers, employee representatives, and the Secretary, of

the rate so determined. With respect to daily, weekly, or monthly

rates of compensation such tax shall apply to the number of hours

comprehended in the rate together with the number of overtime

hours for which compensation in addition to the daily, weekly, or

monthly rate is paid. With respect to compensation paid on a mileage or piecework basis such tax shall apply to the number of hours

constituting the hourly equivalent of the compensation paid. Each

employer of employees whose supplemental annuities are reduced

pursuant to section 3(j)(2) of the Railroad Retirement Act of 1937

or section 2(h)(2) of the Railroad Retirement Act of 1974 shall be

allowed as a credit against the tax imposed by this subsection an

amount equivalent in each month to the aggregate amount of reductions in supplemental annuities accruing in such month to employees of such employer. If the credit so allowed to such an employer for any month exceeds the tax liability of such employer accruing under this subsection in such month, the excess may be carried forward for credit against such taxes accruing in subsequent

months but the total credit allowed by this paragraph to an employer shall not exceed the total of the taxes on such employer imposed by this subsection. At the end of each calendar quarter the

Railroad Retirement Board shall certify to the Secretary with respect to each such employer the amount of credit accruing to such

employer under this paragraph during such quarter and shall notify such employer as to the amount so certified.

ø(d) Notwithstanding the provisions of subsection (c) of this section, the tax imposed by such subsection (c) shall not apply to an

employer with respect to employees who are covered by a supplemental pension plan which is established pursuant to an agreement reached through collective bargaining between the employer

and employees. There is hereby imposed on every such employer an

excise tax equal to the amount of the supplemental annuity paid

to each such employee under section 2(b) of the Railroad Retirement Act of 1974, plus a percentage thereof determined by the

Railroad Retirement Board to be sufficient to cover the administrative costs attributable to such payments under section 2(b) of such

Act.¿

* * * * * * *

Subchapter D—General Provisions

* * * * * * *

SEC. 3231. DEFINITIONS.

(a) * * *

* * * * * * *

42

(e) COMPENSATION.—For purposes of this chapter—

(1) * * *

(2) APPLICATION OF CONTRIBUTION BASES.— (A) COMPENSATION IN EXCESS OF APPLICABLE BASE EX- CLUDED.—

(i) * * *

* * * * * * *

(iii) HOSPITAL INSURANCE TAXES.—Clause (i) shall

not apply to—

(I) so much of the rate applicable under section

3201(a) or 3221(a) as does not exceed the rate of

tax in effect under section 3101(b), and

(II) so much of the rate applicable under section

ø3211(a)(1)¿ 3211(a) as does not exceed the rate of

tax in effect under section 1401(b).

* * * * * * *

(B) APPLICABLE BASE.— (i) TIER 2 TAXES, ETC.—For purposes of—

(I) the taxes imposed by sections 3201(b),

ø3211(a)(2)¿ 3211(b), and 3221(b), and

* * * * * * *

(4)(A) For purposes of applying sections 3201(a), ø3211(a)(1)¿

3211(a), and 3221(a), in the case of payments made to an employee or any of his dependents on account of sickness or accident disability, clause (i) of the second sentence of paragraph

(1) shall exclude from the term ‘‘compensation’’ only—

(i) payments which are received under a workmen’s compensation law, and

(ii) benefits received under the Railroad Retirement Act

of 1974.

* * * * * * *

Subchapter E—Tier 2 Tax Rate Determination

Sec. 3241. Determination of tier 2 tax rate based on average account

benefits ratio.

SEC. 3241. DETERMINATION OF TIER 2 TAX RATE BASED ON AVERAGE

ACCOUNT BENEFITS RATIO.

(a) IN GENERAL.—For purposes of sections 3201(b), 3211(b), and

3221(b), the applicable percentage for any calendar year is the percentage determined in accordance with the table in subsection (b).

(b) TAX RATE SCHEDULE.—

Average account benefits ratio Applicable percentage

for sections 3211(b) and

3221(b)

Applicable percentage

for section 3201(b) At least But less than

2.5 22.1 4.9

2.5 3.0 18.1 4.9

3.0 3.5 15.1 4.9

3.5 4.0 14.1 4.9

4.0 6.1 13.1 4.9

6.1 6.5 12.6 4.4

6.5 7.0 12.1 3.9

7.0 7.5 11.6 3.4

43

Average account benefits ratio Applicable percentage

for sections 3211(b) and

3221(b)

Applicable percentage

for section 3201(b) At least But less than

7.5 8.0 11.1 2.9

8.0 8.5 10.1 1.9

8.5 9.0 9.1 0.9

9.0 8.2 0

(c) DEFINITIONS RELATED TO DETERMINATION OF RATES OF

TAX.—

(1) AVERAGE ACCOUNT BENEFITS RATIO.—For purposes of this

section, the term ‘‘average account benefits ratio’’ means, with

respect to any calendar year, the average determined by the Secretary of the account benefits ratios for the 10 most recent fiscal

years ending before such calendar year. If the amount determined under the preceding sentence is not a multiple of 0.1,

such amount shall be increased to the next highest multiple of

0.1.

(2) ACCOUNT BENEFITS RATIO.—For purposes of this section,

the term ‘‘account benefits ratio’’ means, with 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 Railroad Retirement

Investment Trust (and for years before 2001, 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 Railroad Retirement Investment Trust during such fiscal year.

(d) NOTICE.—No later than December 1 of each calendar year, the

Secretary shall publish a notice in the Federal Register of the rates

of tax determined under this section which are applicable for the

following calendar year.

* * * * * * *

Æ