BLANK PAGE FOR PRINTING PURPOSES
 

Railroad Retirement Board 
 

Performance and Accountability Report 
 

Fiscal Year 2007 
 

TABLE OF CONTENTS 

PAGE 

Message from the Board Members ......................................................................... 3
 


Management’s Discussion and Analysis................................................................ 7
 


Overview of the Railroad Retirement Board....................................................................... 7
 


Mission ......................................................................................................................... 7
 


Major Program Areas ................................................................................................... 7
 


Railroad Retirement Act ......................................................................................... 8
 


Railroad Unemployment Insurance Act.................................................................. 9
 


Reporting Components ................................................................................................ 10
 


RRB Organizational Structure ...................................................................................... 10
 


Financial Highlights ...................................................................................................... 13
 


Comparison of Net Cost of Operations and Financing Sources............................. 14
 


Railroad Retirement Investments at Treasury........................................................ 18
 


National Railroad Retirement Investment Trust ..................................................... 19
 


Program, Operations, and Financial Performance and Results......................................... 20
 


Strategic Goals and Objectives .......................................................................................... 21
 


Future Plans/Objectives ............................................................................................... 30
 


Program Improvements.......................................................................................... 30
 


Improper Payments Information Act (IPIA)............................................................. 32
 


Systems and Controls ............................................................................................ 32

 Management Assurances................................................................................. 34
 


Summary of Actuarial Forecast .............................................................................. 36
 


Limitations of the Financial Statements ............................................................................. 36
 


Performance Section – Government Performance and Results Act (GPRA) 
 

Report............................................................................................................................. 39
 


Financial Section ...................................................................................................... 57
 


Message from the Chief Financial Officer .......................................................................... 57

 Financial Statements.......................................................................................................... 58
 


Consolidated Balance Sheet........................................................................................ 58
 


Consolidated Statement of Net Cost............................................................................ 59
 


Consolidated Statement of Changes in Net Position ................................................... 60
 


I
 

TABLE OF CONTENTS
 


PAGE 

Combined Statement of Budgetary Resources............................................................ 62
 


Statement of Social Insurance ..................................................................................... 63
 


Notes to the Financial Statements ..................................................................................... 64
 


Required Supplementary Information ................................................................................ 80
 


Social Insurance........................................................................................................... 80

 Program Financing................................................................................................. 80

 Benefits .................................................................................................................. 81
 


Program Finances and Sustainability..................................................................... 81
 


Disaggregate of Budgetary Resources ........................................................................ 89

 Auditor’s Reports................................................................................................................ 90
 


Other Accompanying Information........................................................................... 101
 


Inspector General’s Statement on Management and Performance Challenges ................ 101

 Management’s Comments ................................................................................................. 104
 


Improper Payments Information Act (IPIA) Reporting Details............................................ 105
 


Summaries of Financial Statement Audit and Management Assurances .......................... 110
 


Appendices ............................................................................................................... 113
 


Glossary of Acronyms and Abbreviations .......................................................................... 113
 


RRB Board Members, Inspector General, and Executive Committee ............................... 116
 


RRB’s fiscal year 2007 Performance and Accountability Report is available on the Internet at: www.rrb.gov 

II
 

MESSAGE FROM THE BOARD MEMBERS 
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Message from the Board Members 

This fiscal year 2007 Performance and Accountability Report highlights the goals and 

accomplishments of the Railroad Retirement Board (RRB) in achieving its mission of 

administering the retirement, disability, and survivor benefit program provided under the 

Railroad Retirement Act (RRA) and the unemployment and sickness insurance benefit program 

provided under the Railroad Unemployment Insurance Act (RUIA). This report describes our 

continuing efforts to provide timely and useful information to RRB managers, the Office of 

Management and Budget (OMB), the Congress, and our constituents. We are proud of the 

agency’s dedicated employees whose achievements are reflected in this report. 

The RRB has a long and distinguished tradition of excellence in serving our customers and 

safeguarding the agency’s trust funds. In recent years, we have achieved high levels of 

accuracy and timeliness in the benefit programs we administer. In fiscal year 2007, the RRB’s 

two benefit programs (the RRA and RUIA) were evaluated for the first time under the Program 

Assessment and Rating Tool (PART) process. Each program earned an overall performance 

rating of “Effective”, which is the highest rating a program can achieve. According to OMB, 

“Programs rated Effective set ambitious goals, achieve results, are well-managed and improve 

efficiency.” 

We believe the performance and financial data presented in this report are complete and 

reliable in accordance with OMB guidance. The adequacy and effectiveness of our 

management controls and the compliance of our financial management systems with 

governmentwide requirements is delineated in the Systems and Controls part of the 

Management’s Discussion and Analysis section. That part also provides the status of the 

actions we are taking and progress we are making to correct Office of Inspector General 

identified material weaknesses in information technology security and the actuarial projection 

process–fund balance. 

We will continue to apply information technology and innovation to provide excellent customer 

service to the railroad employers, railroad employees, and the beneficiaries whom we serve. 

We are also committed to prudent stewardship over the agency trust funds and the 

administrative resources entrusted to us. 

Original signed by: 

Michael S. Schwartz, Chairman 

V. M. Speakman, Jr., Labor Member 

Jerome F. Kever, Management Member 

November 2, 2007 

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MANAGEMENT’S DISCUSSION AND ANALYSIS 
PAGE INTENTIONALLY LEFT BLANK 
 
Management’s Discussion and Analysis 

Overview of the Railroad Retirement Board (RRB) 

Mission 

The RRB is an independent agency in the executive branch of the Federal Government. The 

agency’s mission statement is as follows: 

The RRB’s mission is to administer retirement/survivor and unemployment/sickness insurance 

benefit programs for railroad workers and their families under the Railroad Retirement Act and the 

Railroad Unemployment Insurance Act. These programs provide income protection during old 

age and in the event of disability, death or temporary unemployment and sickness. The RRB 

also administers aspects of the Medicare program and has administrative responsibilities under 

the Social Security Act and the Internal Revenue Code. In carrying out its mission, the RRB will 

pay benefits to the right people, in the right amounts, in a timely manner, and will take appropriate 

action to safeguard our customers’ trust funds. The RRB will treat every person who comes into 

contact with the agency with courtesy and concern, and respond to all inquiries promptly, 

accurately and clearly. 

Major Program Areas 

The RRB was created in the 1930’s by legislation establishing a retirement benefit program for 

the nation’s railroad workers. Private industrial pension plans had been pioneered in the 

railroad industry; the first industrial pension plan in North America was established on a railroad 

in 1874. By the 1930’s, pension plans were far more developed in the rail industry than in most 

other businesses or industries, but these plans had serious defects which were magnified by the 

Great Depression. 

The economic conditions of the 1930’s demonstrated the need for retirement plans on a national 

basis because few of the nation’s elderly were covered under any type of retirement program. 

While the social security system was in the planning stage, railroad workers sought a separate 

railroad retirement system which would continue and broaden the existing railroad programs 

under a uniform national plan. The proposed social security system was not scheduled to begin 

monthly benefit payments for several years and would not give credit for service performed prior 

to 1937, while conditions in the railroad industry called for immediate benefit payments based 

on prior service. 

Legislation was enacted in 1934, 1935, and 1937 to establish a railroad retirement system 

separate from the social security program legislated in 1935. Such legislation, taking into 

account particular circumstances of the rail industry, was not without precedent. Numerous 

laws pertaining to rail operations and safety had already been enacted since the Interstate 

Commerce Act of 1887. Since passage of the Railroad Retirement Acts of the 1930’s, 

numerous other railroad laws have subsequently been enacted. 

While the railroad retirement system has remained separate from the social security system, the 

two systems are closely coordinated with regard to earnings credits, benefit payments, and 

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taxes. The financing of the two systems is linked through a financial interchange under which, 

in effect, the portion of railroad retirement annuities that is equivalent to social security benefits 

is coordinated with the social security system. The purpose of this financial coordination is to 

place the social security trust funds in the same position they would be in if railroad service were 

covered by the social security program instead of the railroad retirement program. 

Legislation enacted in 1974 restructured railroad retirement benefits into two tiers, so as to 

coordinate them more fully with social security benefits. The first tier is based on combined 

railroad retirement and social security credits, using social security benefit formulas. The 

second tier is based on railroad service only and is comparable to the pensions paid over and 

above social security benefits in other industries. 

The railroad unemployment insurance system was also established in the 1930’s. The Great 

Depression demonstrated the need for unemployment compensation programs, and State 

unemployment programs had been established under the Social Security Act in 1935. While the 

State unemployment programs generally covered railroad workers, railroad operations which 

crossed State lines caused special problems. Unemployed railroad workers were denied 

compensation by one State because their employers had paid unemployment taxes in another 

State. Although there were cases where employees appeared to be covered in more than one 

State, they often did not qualify in any. 

A Federal study commission, which reported on the nationwide State plans for unemployment 

insurance, recommended that railroad workers be covered by a separate plan because of the 

complications their coverage had caused the State plans. The Congress subsequently enacted 

the Railroad Unemployment Insurance Act (RUIA) in June 1938. The RUIA established a 

system of benefits for unemployed railroad workers, financed entirely by railroad employers and 

administered by the RRB. Sickness insurance benefits were added in 1946. 

Railroad Retirement Act 

Under the Railroad Retirement Act (RRA), retirement and disability annuities are paid to railroad 

workers with at least 10 years of service. Such annuities are also payable to workers with 

5 years of service if performed after 1995. 

Full age annuities are payable at age 60 to workers with 30 years of service. For those with 

less than 30 years of service, reduced annuities are payable at age 62 and unreduced annuities 

are payable at full retirement age, which is gradually rising from 65 to 67, depending on the year 

of birth. Disability annuities can be paid on the basis of total or occupational disability. 

Annuities are also payable to spouses and divorced spouses of retired workers and to 

widow(er)s, surviving divorced spouses, remarried widow(er)s, children, and parents of 

deceased railroad workers. Qualified railroad retirement beneficiaries are covered by Medicare 

at age 65, or earlier if disabled, in the same way as social security beneficiaries. 

Jurisdiction over the payment of retirement and survivor benefits is shared by the RRB and the 

Social Security Administration (SSA). The RRB has jurisdiction over the payment of retirement 

benefits if the employee had at least 10 years of railroad service, or 5 years if performed after 

1995; for survivor benefits, there is an additional requirement that the employee’s last regular 

employment before retirement or death was in the railroad industry. If a railroad employee or 

his or her survivors do not qualify for railroad retirement benefits, the RRB transfers the 

employee’s railroad retirement credits to SSA, where they are treated as social security credits. 

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Payroll taxes paid by railroad employers and their employees are the primary source of funding 

for the railroad retirement and survivor benefit programs. By law, railroad retirement taxes are 

coordinated with social security taxes. Employees and employers pay tier 1 taxes at the same 

rate as social security taxes. In addition, both employees and employers pay tier 2 taxes which 

are used to finance railroad retirement benefit payments over and above social security levels. 

Tier 2 taxes are based on the ratio of certain asset balances to the sum of benefit payments and 

administrative expenses. Historically, railroad retirement taxes have been considerably higher 

than social security taxes. 

Revenues in excess of benefit payments are invested to provide additional trust fund income, 

and legislation enacted in 2001 allows for the investment of railroad retirement funds in 

non-governmental assets, as well as in governmental securities. This legislation also 

established the National Railroad Retirement Investment Trust (NRRIT), whose Board of seven 

trustees oversees these investments. The Board of Trustees is comprised of three members 

selected by rail labor to represent the interests of labor; three members likewise selected by rail 

management to represent management interests; and one independent member selected by a 

majority of the other six members. 

Another major source of income to the railroad retirement and survivor benefit program consists 

of transfers from the social security trust funds under a financial interchange between the two 

systems. The financial interchange is intended to place the social security trust funds in the 

same position in which they would have been had railroad employment been covered by the 

Social Security Act and Federal Insurance Contributions Act (FICA). In fiscal year 2007, the 

RRB trust funds realized a net of $3.6 billion, representing 39 percent of RRB financing sources 

(excluding transfers to/from the NRRIT and the increase in NRRIT net assets), through the 

financial interchange. 

Other sources of income currently include revenue resulting from Federal income taxes on 

railroad retirement benefits, and appropriations from general Treasury revenues provided after 

1974 as part of a phase-out of certain vested dual benefits. 

Railroad Unemployment Insurance Act 

Under the RUIA, unemployment insurance benefits are paid to qualified railroad workers who 

are unemployed but ready, willing, and able to work and sickness insurance benefits to railroad 

workers who are unable to work because of illness, injury, or pregnancy. The RRB also 

operates a placement service to assist unemployed railroad workers in securing employment. 

A new unemployment and sickness insurance benefit year begins every July 1, with eligibility 

generally based on railroad service and earnings in the preceding calendar year. Up to 

26 weeks of normal unemployment and 26 weeks of sickness insurance benefits are payable to 

an individual in a benefit year. Additional extended benefits are payable for up to 13 weeks to 

persons with 10 or more years of service. 

The railroad unemployment and sickness insurance benefit program is financed by taxes on 

railroad employers under an experience rating system initiated in 1991. Each employer’s 

payroll tax rate is determined annually by the RRB on the basis of benefit payments to the 

railroad’s employees. 

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Reporting Components 

The RRB, as an independent agency in the executive branch of the U.S. Government, is 

responsible for administering the RRA and the RUIA. The financial statements include the 

accounts of all funds under the control of the RRB and the Office of Inspector General (OIG). 

These funds consist of two administrative funds, three trust funds, two general funds and 

two deposit funds. 

RRB Organizational Structure 

The RRB is headed by three Board Members appointed by the President of the United States, 

with the advice and consent of the Senate. One member is appointed upon recommendation of 

railroad employers; one is appointed upon recommendation of railroad labor organizations; and 

the third, who is the Chairman, is appointed to represent the public interest. The Board 

Members’ terms of office are 5 years and are scheduled to expire in different years. The 

Chairman of the Board is Michael S. Schwartz, the Labor Member is V. M. Speakman, Jr., and 

the Management Member is Jerome F. Kever. The President also appoints an Inspector 

General for the RRB; the Inspector General is Martin J. Dickman. 

The primary function of the RRB is the determination and payment of benefits under the railroad 

retirement and survivor and the unemployment and sickness insurance programs. To this end, 

the RRB employs field representatives to assist railroad personnel and their families in filing 

claims for benefits, examiners to adjudicate the claims, and information technology staff, 

equipment, and programs to maintain earnings records, calculate benefits, and process 

payments. The RRB also employs actuaries to predict the future income and outlays of the 

agency’s trust funds and accounts, statisticians and economists to provide vital data, and 

attorneys to interpret legislation and represent the RRB in litigation. Internal administration 

requires a procurement staff, a budget and accounting staff, quality assurance staff, and 

personnel specialists. The Inspector General employs auditors and investigators to detect 

waste, fraud, or abuse in the benefit programs. 

The RRB’s headquarters is located at 844 North Rush Street in Chicago, Illinois. As of 

September 30, 2007, the RRB field structure was comprised of 3 regional offices and 53 local 

offices located throughout the United States as shown on page 12. 

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Financial Highlights 

Amounts in the Railroad Retirement (RR) Account not needed to pay current benefits and 

administrative expenses are transferred to the NRRIT whose Board of seven trustees is 

empowered to invest NRRIT assets in non-governmental assets, such as equities and debt, as 

well as in governmental securities. Amounts in the Social Security Equivalent Benefit (SSEB) 

Account not needed to pay current benefits and administrative expenses are transferred to 

either the RR Account or the NRRIT. Amounts transferred from the SSEB Account to the 

NRRIT may be used only to pay benefits or to purchase obligations that are backed by the full 

faith and credit of the United States. 

Shown below are snapshots of the net position, financing sources, and benefit payments 

(before elimination of inter-fund transactions) for the RRB accounts. All dollar amounts are in 

millions. 

Net Position, Financing Sources, and Benefit Payments 

(In millions) 

2007 2006 

NET POSITION AT SEPTEMBER 30

 Social Security Equivalent Benefit Account $ 450.4 $ 321.1 

 Railroad Retirement Account 1/ 32,954.2 29,443.8 

 Railroad Retirement Administration Fund 6.2 5.6 

 Railroad Unemployment Insurance Trust Fund -- 

 Benefit Payments 100.7 97.3 

Administrative Expenses 9.1 9.4 

 Limitation on the Office of Inspector General .2 .1 

 Dual Benefits Payments Account 6.1 8.4 

 Federal Payments to the Railroad Retirement Accounts .5 .4 

Total $33,527.4 $29,886.1 

FINANCING SOURCES FOR FISCAL YEAR

 Social Security Equivalent Benefit Account $ 6,010.8 $ 5,909.0 

 Railroad Retirement Account 2/ 7,544.7 5,325.6 

 Railroad Retirement Administration Fund 111.4 108.9 

 Railroad Unemployment Insurance Trust Fund -- 

 Benefit Payments 78.0 75.7 

Administrative Expenses (.3) 1.9 

 Limitation on the Office of Inspector General 7.5 7.5 

 Dual Benefits Payments Account 86.5 96.0 

 Federal Payments to the Railroad Retirement Accounts 3/ 460.1 466.1 

Total $14,298.7 $11,990.7 

BENEFIT PAYMENTS FOR FISCAL YEAR 4/ 

 Social Security Equivalent Benefit Account $5,701.6 $ 5,632.1 

 Railroad Retirement Account 4,034.4 3,733.1 

 Railroad Unemployment Insurance Trust Fund -- 

 Unemployment Insurance 28.5 30.7 

 Sickness Insurance 46.1 42.5 

 Dual Benefits Payments Account 86.5 96.0 

Total $9,897.1 $ 9,534.4 

1/ NRRIT-held net assets are a financing source and are included in the Railroad Retirement Account above. 
 

2/ Change in NRRIT-held net assets is included in the Railroad Retirement Account above. 
 

3/ Includes funds subsequently transferred to other accounts. Such inter-fund transfers are eliminated in the preparation of the 
 

consolidated statements. 

4/ Net of recoveries and excludes SSA benefit payments. 

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The RRB’s financial statements are comprised of: Balance Sheet and Statements of Net Cost, 

Changes in Net Position, Budgetary Resources, and Social Insurance and notes which are an 

integral part of the statements. We also present as required supplementary information a 

discussion of the actuarial outlook for the railroad retirement program and the Disaggregate of 

Budgetary Resources. 

Comparison of Net Cost of Operations and Financing Sources 

The net cost of operations for fiscal years 2007 and 2006 were $10,195.1 million and 

$9,823.0 million, respectively. The details of the net cost of operations by type, amount, 

increase or decrease, and percentage change from fiscal year 2006 to fiscal year 2007 are 

shown below. Additional information regarding the net cost of operations and financing sources 

for fiscal years 2007 and 2006 is shown on the following pages. 

NET COST OF OPERATIONS 

(In millions) 

FY 2007 FY 2006 

Amount of 

Increase 

(Decrease) 

Percent of 

Increase 

(Decrease) 

Interest expense – Treasury borrowing $ 179.8 $ 172.7 $7.1 4.1% 

Salaries and expenses 117.5 115.5 2.0 1.7% 

Benefit payments – RRB 9,922.4 9,562.0 360.4 3.8% 

Other expenses 9.0 9.0 0 0%

 Subtotal 10,228.7 9,859.2 369.5 3.7% 

Less: Earned revenues 33.6 36.2 (2.6) (7.2)%

 Net cost of operations $10,195.1 $9,823.0 $372.1 3.8% 

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FY2007 

NET COST OF OPERATIONS 

(In millions) Benefit 

Payments 

$9,922.4 

97.00% 

Other 

Expenses 

$9.0 

0.09% 

Salaries 

and 

Expenses 

Interest 

Expense 

$117.5 $179.8 

1.15% 1.76% 

Totals $10,228.7 million, excluding reimbursements and earned revenues of $33.6 million. 

FY2006 

NET COST OF OPERATIONS 

(In millions) Benefit 

Payments 

$9,562.0 

96.99% 

Other 

Expenses 

$9.0 

0.09% 

Salaries 

and 

Expenses 

Interest 

Expense 

$115.5 $172.7 

1.17% 1.75% 

Totals $9,859.2 million, excluding reimbursements and earned revenues of $36.2 million. 

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The following table shows financing sources (excluding changes in unexpended appropriations) 

by type, amount, increase or decrease, and percentage change from fiscal year 2006 to fiscal 

year 2007. 

FINANCING SOURCES 

(In millions) 

AMOUNT PERCENT 

OF OF 

INCREASE INCREASE 

FY 2007 FY 2006 (DECREASE) (DECREASE) 

Appropriations used $ 546.6 $ 562.1 $ (15.5) (2.8) 

Taxes and other non-exchange revenues: 

 Payroll taxes 4,717.9 4,673.5 44.4 1.0 

 Interest revenue and other income 58.3 58.9 (0.6) (1.0)

 Carriers refunds – principal* 164.3 12.9 151.4 1,173.6 

RUI revenue 90.3 87.4 2.9 3.3 

Subtotal $ 5,030.8 $ 4,832.7 $ 198.1 4.1 

Imputed financing (amount to be provided

 by the Office of Personnel Management to 

 pay future retirement benefits to RRB 

 employees) 8.9 8.8 0.1 1.1 

Transfers in: 

 Financial Interchange, net 3,573.5 3,467.8 105.7 3.0 

NRRIT 1,391.0 947.0 444.0 46.9 

Subtotal $ 4,964.5 $ 4,414.8 $ 549.7 12.5 

Other: 

 Change in NRRIT net assets 3,287.8 1,706.2 1,581.6 92.7 

Subtotal $13,838.6 $11,524.6 $2,314.0 20.1 

Less: Transfers out to NRRIT 0.0 0.0 0.0 0.0 

Total $13,838.6 $11,524.6 $2,314.0 20.1 

* Carriers refunds include the reversal of a contingent liability. 

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FINANCING SOURCES 

(In millions) 

FY 2007 

Taxes and Other
 

Non-Exchange 
 

Revenues
 

$5,030.8
 

36.35%
 

Total Financing Sources $13,838.6 million. 

FY 2006 

Change in NRRIT
 

Net Assets 
 Appropriations 

4.88% 

Change in NRRIT Appropriations 

Net Assets 

3.95%
 

23.76%
 

Used $546.6
 

$3,287.8
 

Transfers In 

$4,964.5 

35.87% 

Imputed Financing 
 

$8.9
 

0.07%
 

$1,706.2
 

14.80%
 

Transfers In 

$4,414.8 Imputed Financing 

38.31% $8.8 

Used $562.1 

Taxes and Other 

Non-Exchange 

Revenues 

$4,832.7 

41.93% 

0.08% 

Total Financing Sources $11,524.6 million. 

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Railroad Retirement Investments at Treasury 

The book value of all railroad retirement investments, including accrued interest, increased to 

$1,323.6 million as of September 30, 2007, from $1,203.7 million on September 30, 2006 

(excludes NRRIT net assets). The graph below reflects the book value of the railroad retirement 

investments from September 30, 2003, through September 30, 2007. 

INVESTMENT BALANCES HELD AT TREASURY (AT BOOK VALUE) 

AT SEPTEMBER 30, 2003 - 2007
 


(In millions, excluding NRRIT net assets)
 


$1,350.0 

$1,300.0 

$1,250.0 

$1,200.0 

$1,150.0 

$1,100.0 

$1,323.6 

$1,203.7 

$1,265.2 

$1,304.4 

$1,181.0 

2003 2004 2005 2006 2007 

The following chart shows the portfolio of the railroad retirement investments as of 

September 30, 2007. 

RAILROAD RETIREMENT INVESTMENTS HELD AT TREASURY 

AS OF SEPTEMBER 30, 2007 

(In millions, excluding NRRIT net assets) 

RR Account 

45% 

$597.4 

55% 

$726.2 

Account 

SSEB 

AT BOOK VALUE
 


Total $1,323.6
 


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Railroad Retirement Account 

On September 30, 2007 and 2006, the book values of the RR Account investments, excluding 

NRRIT assets, including accrued interest, totaled $597,361,803 and $478,075,635, respectively. 

The balance on September 30, 2007, consisted of $596,181,000 in 4.375 percent par value 

specials (with market value equal to face value) maturing on October 1, 2007, and $1,180,803 

in accrued interest. The balance on September 30, 2006, consisted of $476,712,000 in 

4.750 percent par value specials (with market value equal to face value) maturing on October 2, 

2006, and $1,363,635 in accrued interest. Par value specials mature on the first working day of 

the month following the month of issue and have a yield based on the average yield of 

marketable Treasury notes with maturity dates at least 3 years away. 

Social Security Equivalent Benefit Account 

On September 30, 2007 and 2006, the book values of the SSEB Account investments, including 

accrued interest, totaled $726,234,578 and $725,637,871, respectively. The balance on 

September 30, 2007, consisted of $724,734,000 in 4.375 percent par value specials maturing 

on October 1, 2007, and $1,500,578 in accrued interest. The balance on September 30, 2006, 

consisted of $723,754,000 in 4.750 percent par value specials maturing on October 2, 2006, 

and $1,883,871 in accrued interest. 

National Railroad Retirement Investment Trust 

The NRRIT was established by the Railroad Retirement and Survivors’ Improvement Act of 

2001 (RRSIA). The sole purpose of the NRRIT is to manage and invest railroad retirement 

assets. The NRRIT is a tax-exempt entity, independent from the Federal government and not 

subject to Title 31, United States Code. The NRRIT is domiciled in and subject to the laws of 

the District of Columbia. 

The NRRIT is comprised of a Board of seven Trustees, three selected by railroad labor unions 

and three by railroad companies. The seventh Trustee is an independent Trustee selected by 

the other six. Members of the Board of Trustees are not considered officers or employees of 

the Government of the United States. 

The RRSIA authorizes the NRRIT to invest railroad retirement assets in a diversified investment 

portfolio in the same manner as those of private sector retirement plans. Prior to the RRSIA, 

investment of railroad retirement assets was limited to U.S. Government securities. 

The NRRIT and the RRB are separate entities. The RRB remains a Federal agency and 

continues to have full responsibility for administering the railroad retirement program, including 

eligibility determinations and the calculation of benefit payments. The NRRIT has no powers or 

authority over the administration of benefits under the railroad retirement program. Under the 

RRSIA, the NRRIT is required to act solely in the interest of the RRB, and through it, the 

participants and beneficiaries of the programs funded under the Railroad Retirement Act. The 

RRSIA does not delegate any authority to the RRB with respect to day-to-day activities of the 

NRRIT, but the RRSIA provides that the RRB may bring a civil action to enjoin any act or 

practice of the NRRIT that violates the provisions of the RRSIA or to enforce any provision of 

the RRSIA. 

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Under the RRSIA, the financial statements of the NRRIT are required to be audited annually by 

an independent public accountant. In addition, the NRRIT must submit an annual management 

report to the Congress on its operations, including a Statement of Financial Position, a 

Statement of Cash Flows, a Statement on Internal Accounting and Administrative Control 

Systems, the independent auditor’s report, and any other information necessary to inform the 

Congress about the operations and financial condition of the NRRIT. A copy of the annual 

report must also be submitted to the President, the RRB, and the Director of the Office of 

Management and Budget. 

Program, Operations, and Financial Performance and Results 

During fiscal year 2007 (ended September 30, 2007), railroad retirement and survivor benefit 

payments totaled $9.8 billion, net of recoveries. Unemployment and sickness insurance benefit 

payments totaled $74.6 million in fiscal year 2007, net of recoveries. During fiscal year 2007, 

the RRB also paid benefits on behalf of SSA (for which the RRB is reimbursed) amounting to 

almost $1.2 billion to about 121,000 beneficiaries. 

In fiscal year 2007, the RRB continued to focus its efforts on providing excellent customer 

service to current and former railroad workers and their family members. Our regular workloads 

in fiscal year 2007 included: 

•	 Providing payments to 616,000 retirement and survivor beneficiaries. 

•	 Providing payments to 10,000 unemployment insurance beneficiaries. 

•	 Providing payments to 19,000 sickness insurance beneficiaries. 

•	 Processing 29,741 (through May 2007) retirement, survivor, and disability applications 

for benefits and then determining eligibility. 

•	 Processing 173,267 (through May 2007) applications and claims for unemployment and 

sickness insurance benefits. 

•	 Issuing 275,732 (as of June 8, 2007) certificates of employee railroad service and 

compensation. 

During fiscal year 2007, the RRB used 46 specific program performance objectives, including 

several with multiple indicators, to manage and track progress in meeting its long-term strategic 

plan goals. These objectives were accomplished with direct appropriations of $103.694 million 

for administration of the RRB. (A breakdown of administrative expenses by strategic goal is not 

available at the time of this report.) Agency performance with respect to the key performance 

indicators is covered in the following section. For most performance measures, actual full-year 

performance results for fiscal year 2007 were not available at the time this report was published. 

For those objectives, we reported part-year performance information for fiscal year 2007, if 

available. We also reported actual results from prior years, as applicable. 

Summary of Achievement by Strategic Goal 

Strategic Goal I: Provide Excellent Customer Service. We aim to satisfy our customers’ 

expectations for quality service both in terms of service delivery options and levels and manner 

of performance. For fiscal year 2007, we expect that benefit payment accuracy rates will 

exceed 98 percent and that nearly all timeliness goals will be met. 

- 20 -
Strategic Goal II: Serve as Responsible Stewards for Our Customers’ Trust Funds and 

Agency Resources. The RRB is committed to fulfilling its fiduciary responsibilities to the rail 

community. For fiscal year 2007, we expect to meet or exceed our performance goals. 

Strategic Goals and Objectives 

The RRB has a long and distinguished tradition of excellence in serving our customers, and we 

will strive to continue that tradition in the coming years. We have achieved high levels of 

accuracy and timeliness in the processing of retirement and survivor benefits, while embracing 

new technology, especially in areas where it can improve customer service and efficiency. We 

have also achieved very high scores for customer service in independent assessments of our 

operations related to initial railroad retirement applications, unemployment and sickness 

insurance benefits, survivor applications and disability applications. The RRB’s website 

(www.rrb.gov) has also been very well-received by the public. 

The two overriding strategic issues for the upcoming planning period relate to customer service 

and trust fund stewardship. The service issue involves our ability to continue to meet our 

customers’ expectations for personal, high quality service, and our ability to position the agency 

to meet rising customer expectations for new and improved services in the future. The 

stewardship issue has multiple aspects, some of which arise from legislative changes and 

others which relate to our ongoing ability to meet our program integrity responsibilities and to 

maintain effective, efficient and secure agency operations. To effectively address these issues, 

we have established two strategic goals on which we will focus our efforts. These goals form 

the basis of our Strategic Plan for 2006-2011. 

Provide excellent customer service 

We aim to satisfy our customers’ expectations for quality service both in terms of service 

delivery options and levels and manner of performance. We have established four strategic 

objectives that focus on the specifics of achieving this goal. 

•	 Pay benefits accurately and timely. 

•	 Provide relevant, timely, and accurate information which is easy to understand. 

•	 Provide a range of choices in service delivery methods. 

•	 Ensure efficient and effective business interactions with covered railroad employers. 

Serve as responsible stewards for our customers’ trust funds and agency resources 

The RRB is committed to fulfilling its fiduciary responsibilities to the rail community. We have 

established four objectives that direct our focus on this goal. 

•	 Ensure that trust fund assets are projected, collected, recorded and reported 
 

appropriately. 
 

•	 Ensure the integrity of benefit programs. 

•	 Ensure effectiveness, efficiency, and security of operations. 

•	 Effectively carry out the responsibilities of the RRB under the RRSIA with respect to the 

activities of the NRRIT. 

- 21 -
The RRB has committed to a number of management strategies that will guide our efforts to 

accomplish our stated strategic goals and objectives. These strategies, which will encompass 

many areas, also reflect the President’s Management Agenda, which is designed to promote 

management improvements throughout the Federal government in six key areas: 

• Expanded E-Government 

• Budget and Performance Integration 

• Financial Management Improvements 

• Strategic Management of Human Capital 

• Competitive Sourcing and Partnerships 

• Freedom of Information Act Planning, Processing and Reporting 

Additional information on the President’s Management Agenda is available on the Internet at 

www.results.gov. 

The RRB of the future will continue to be customer-focused, quality-driven, and fiscally 

responsible. Our overall mission and responsibilities as a Federal agency will remain 

unchanged, even though our organization may be smaller in terms of staff and budget 

resources. We will use creativity, automation and innovation to continue to deliver best-in-class 

service while ensuring cost-effective and efficient operations. 

Our customers will have a broad range of choices for conducting their business with the agency, 

including more Internet options that will allow for private, secure transactions from their homes 

at any time of the day. Railroad employers will be able to conduct most, if not all, of their routine 

transactions with the RRB through secure and efficient electronic systems. Direct customer 

feedback will shape our planning efforts and enhance our responsiveness. Our customer 

service levels will serve as a standard of excellence for the rest of the Federal community. 

The agency’s internal culture will reflect a strong commitment to its employees, and a drive to 

ensure continual learning at all levels. Given the large percentage of employees who will be 

eligible for retirement in the near future, senior employees will engage in knowledge transfer 

and sharing as a top priority. 

Our ultimate measures of success will be the sustained satisfaction level of our customers and 

our ability to respond to their needs and concerns. 

Validation of Performance Information. In fiscal year 2007, RRB implemented comprehensive 

new administrative procedures to ensure that reported performance information is accurate and 

valid. Administrative Circular RRB-2 establishes standards and assigns responsibility for 

collecting, documenting, validating, certifying, reporting and retaining information related to the 

actual performance data reported for objectives in RRB’s Annual Performance Budget and 

Government Performance and Results Act Report. 

The procedures require that reporting managers develop and maintain written procedures for: 

• collecting data related to each objective, 

• testing and validating performance data to ensure accuracy, 

• retaining source documents for future reference, and 

• attesting to the accuracy of performance information reported. 

- 22 -
__________ __________ __________ 

Members of RRB’s Planning Council review the certified performance data and attestations for 

completeness and to identify any problems. The Planning Council also compiles the 

performance data for agency reports, and monitors compliance with the requirements of 

Administrative Circular RRB-2. 

Members of RRB’s Executive Committee review performance issues related to their areas of 

responsibility and assign follow-up action, as necessary. The Executive Committee also 

reviews and approves performance reports before releasing the drafts for approval by the Board 

Members. 

The following begins a discussion of our key performance indicators. 

Discussion of Key Performance Indicators 

The RRB has identified the following 10 key performance indicators, which represent our most 

important responsibilities. 

Key performance indicator 1: Initial recurring retirement payment accuracy 

(Objective I-A-1a) 

Our overall strategic goal is to achieve a railroad retirement benefit payment recurring accuracy 

rate of at least 99 percent on our initial processing of applications for retirement (employee, 

spouse and widow) benefits. 

FY 2007 goal: 99.00% 

Our FY 2007 performance: Not available 

Full-year data will be available in fiscal year 

2008. 

FY 2006 goal: 99.00% 

Our FY 2006 performance: 99.91% 

We met our goal. Automation plays a key 

role in assuring initial benefit payment 

accuracy by reducing the number of 

erroneous payments. Automation will become more critical in this area as experienced 

Initial Retirement Payment Accuracy 

98% 

100% 

Goal 99.80% 99.00% 99.00% 99.00% 

Actual 99.36% 99.62% 99.91% N/A 

FY 04 FY 05 FY 06 FY 07 

personnel retire in the coming years. 

Data definition: This is the percentage of the dollar value of initial recurring retirement benefit 

payments paid correctly as a result of adjudication actions performed, based on a review of a 

sample of cases. 

- 23 -
Key performance indicator 2: Unemployment insurance payment accuracy 

(Objective I-A-2a) 

Our overall strategic goal is to achieve a railroad unemployment insurance benefit payment 

accuracy rate of at least 99 percent. 

FY 2007 goal: 98.00% 

Our FY 2007 performance: 99.53% 

through the 1st quarter 

We are exceeding our goal. Automation plays 

a key role in assuring benefit payment accuracy 

by reducing the number of erroneous 

payments. The performance data shown is 

through the first quarter of fiscal year 2007. 

Full-year data will be available in fiscal year 

2008. 

FY 2006 goal: 98.00% 

Our FY 2006 performance: 99.08% 

Unemployment Insurance Payment 

Accuracy 

(FY 07 actual is through 12/31/06.) 

96% 

98% 

100% 

Goal 99.60% 98.00% 98.00% 98.00% 

Actual 99.91% 98.73% 99.08% 99.53% 

FY 04 FY 05 FY 06 FY 07 

Data definition: This is the percentage of the dollar value of unemployment insurance benefit 

payments paid correctly as a result of adjudication actions performed, based on a review of a 

sample of cases. 

Key performance indicator 3: Sickness insurance payment accuracy (Objective I-A-2b) 

Our overall strategic goal is to achieve a railroad sickness insurance benefit payment accuracy 

rate of at least 99 percent. 

FY 2007 goal: 98.00% 

Our FY 2007 performance: 100% 

through the 1st quarter 

We are exceeding our goal. Automation plays 

a key role in assuring benefit payment accuracy 

by reducing the number of erroneous 

payments. The performance data shown is 

through the first quarter of fiscal year 2007. 

Full-year data will be available in fiscal year 

2008. 

FY 2006 goal: 98.00% 

Our FY 2006 performance: 99.78% 

Sickness Insurance Payment
 

Accuracy
 

(FY 07 actual is through 12/31/06.) 

100% 

98% 

96% 

FY 04 FY 05 FY 06 FY 07 

Goal 99.80% 98.00% 98.00% 98.00% 

Actual 99.84% 99.94% 99.78% 100.00% 

Data definition: This is the percentage of the dollar value of sickness insurance benefit 

payments paid correctly as a result of adjudication actions performed, based on a review of a 

sample of cases. 

- 24 -
Key performance indicator 4: Timeliness of initial Railroad Retirement annuity payments, 

when advanced filed (Objective I-A-5) 

Railroad retirement employee or 

spouse receives initial annuity 

payment, or a decision, within 35 days 

of annuity beginning date, if advanced 

filed. (FY 07 actual is through 3/31/07.) 

85% 

90% 

95% 

100% 

Goal 93.00% 92.00% 92.00% 92.00% 

Actual N/A 93.10% 92.90% 92.30% 

FY 04 FY 05 FY 06 FY 07 

FY 2007 goal: 92.00% 

Our FY 2007 performance: 92.30% 

through the 2nd quarter 

We are exceeding our goal. Automation plays a 

key role in assuring benefit payment timeliness 

for this performance indicator. 

FY 2006 goal: 92.00% 

Our FY 2006 performance: 92.90% 

Data definition: This goal is included in the RRB 

Customer Service Plan and is stated from the 

customer’s perspective. Nevertheless, we have 

historically reported our performance as the 

percent of retirement age and service 

applications for which all RRB processing is 

completed within 30 days, allowing 5 days to 

account for handling by the Department of the Treasury (Treasury) or U.S. Postal Service 

(USPS). An audit by the RRB’s Office of Inspector General (OIG) (05-05, dated May 17, 2005), 

however, found technical problems with the data. Beginning in fiscal year 2005, we clarified the 

description of the measure to clearly indicate that, due to system limitations, our tracking does 

not include all internal processing time, but only measures the retirement adjudicative 

processing time. There are usually several days between the end of the retirement adjudicative 

process and the point where the payment is certified to the Treasury, or the letter is released to 

the USPS. We believe that the impact of this flaw is mitigated by the fact that while we allow 5 

days for Treasury and USPS handling, within the 35-day customer service standard, in fact, the 

Treasury actually deposits funds within 2 business days of receipt of the RRB’s authorization for 

payment. Similarly, the USPS standard is to deliver first class mail within 3 business days. 

Agency review of the same sample data the OIG used in the audit found that 92.93% of the 

advanced filed cases were authorized for payment within 32 days of the annuity beginning date. 

The percentage goes up to 93.7% at 33 days. Thus, it is reasonable to assume that the 

customer would have received payment or a letter within the 35-day published standard. 

We plan to replace our retirement adjudicative system, which will allow us to track our 

performance for the entire internal processing time. Until the new system is implemented, we 

will continue to annotate our performance data to reflect that our tracking includes only 

adjudicative processing time. Overall, though, we believe that the data reported remains a fair 

representation of the basic service our customers receive. 

The OIG also found faults in the prior year reports, the most significant of which improperly 

categorized cases and understated the number of advanced filing cases. As a result, we have 

excluded performance data for years prior to fiscal year 2005. 

In addition, the RRB’s OIG found a reporting flaw in our measurement process for 3rd party 

payment cases which affected 2 out of 150 cases in the sample. We are working on the 

correction of this system problem. Until then, the performance level reported is inaccurate for 

the few cases of this type processed during the reporting period. 

- 25 -
Key performance indicator 5: Timeliness of initial Railroad Retirement annuity payments, 

if not advanced filed (Objective I-A-6) 

FY 2007 goal: 95.00% 

Our FY 2007 performance: 96.40% 

through the 2nd quarter 

We are exceeding our goal. Automation plays a 

key role in assuring benefit payment timeliness 

for this performance indicator. 

FY 2006 goal: 94.00% 

Our FY 2006 performance: 96.20% 

Data definition: This goal is included in the RRB 

Customer Service Plan and is stated from the 

customer’s perspective. However, we base our 

performance calculation on the percent of 

retirement age and service applications where 

RRB processing is completed within 60 days, 

allowing 5 days to account for Treasury or USPS 

handling. An audit by our OIG (05-05, dated May 17, 2005) found several technical problems 

with the data which are described in the discussion of the previous key indicator. For fiscal year 

2005, we clarified the description of the measure to clearly indicate that, due to system 

limitations, our tracking does not include all internal processing time but only measures the 

retirement adjudicative processing time. We believe, however, that the results remain a fair 

representation of the service our customers receive. Using sample data for July 2004, the OIG 

found that 95.19% of the non-advanced filed applications were processed within the stated 60-

day measure. The agency would have reported that 98.65% for the same sample period. Thus, 

actual performance still exceeded the targeted level. Note that, while the issues described in 

detail for Key Indicator 4 above apply to these non-advanced filed cases as well, the net impact 

on actual performance levels was not as significant. 

Railroad retirement employee or 

spouse receives initial annuity 

payment, or notice of denial, within 65 

days of the date the application was 

filed, if not advanced filed. (FY 07 

actual is through 3/31/07.) 

90% 

95% 

100% 

Goal 95.00% 94.00% 94.00% 95.00% 

Actual N/A 97.30% 96.20% 96.40% 

FY 04 FY 05 FY 06 FY 07 

We plan to replace our retirement adjudicative system, which will allow us to track our 

performance for the entire internal processing time. Until the new system is implemented, we 

will continue to annotate our performance data to reflect that our tracking includes only 

adjudicative processing time. 

The OIG also found faults in the prior year reports, the most significant of which improperly 

categorized cases. As a result, we have excluded performance data for years prior to fiscal 

year 2005. 

- 26 -
Key performance indicator 6: Timeliness of new survivor benefit payments 

(Objective I-A-7) 

FY 2007 goal: 90.00% 

Our FY 2007 performance: 94.10% 

through the 2nd quarter 

We are exceeding our goal. Automation 

plays a key role in assuring benefit payment 

timeliness for this performance indicator. 

FY 2006 goal: 80.00% 

Our FY 2006 performance: 93.20% 

Data definition: This goal is included in the 

RRB Customer Service Plan and is stated 

from the customer’s perspective. However, 

we base our performance calculation on the 

percent of applications where all RRB 

processing is completed within 60 days, 

allowing 5 days to account for Treasury or 

USPS handling. 

In fiscal year 2005, measurement and reporting inconsistencies, which resulted in a net 

understatement of actual performance, were identified by the RRB’s OIG. These 

inconsistencies were corrected effective with April 2005 data. Results reported for fiscal year 

2005 represent the last 6 months of the year only. 

Key performance indicator 7: Timeliness of spouse to survivor benefit payment 

conversions (Objective I-A-8) 

Survivor annuitant not already receiving a 

benefit receives initial payment, a decision, 

or notice of application transfer to SSA 

within 65 days of the annuity beginning 

date, or date filed. (FY 05 is for 4/05 through 

9/05 only. FY07 is through 3/31/07.) 

60% 

70% 

80% 

90% 

100% 

Goal 80.00% 80.00% 80.00% 90.00% 

Actual 84.50% 92.80% 93.20% 94.10% 

FY 04 FY 05 FY 06 FY 07 

FY 2007 goal: 93.00% 

Our FY 2007 performance: 94.20% 

through the 2nd quarter 

We are exceeding our goal. Automation 

plays a key role in assuring benefit payment 

timeliness for this performance indicator. 

FY 2006 goal: 90.00% 

Our FY 2006 performance: 95.70% 

Data definition: This goal is included in the 

RRB Customer Service Plan and is stated 

from the customer’s perspective. However, 

we base our performance calculation on the 

percent of applications where all RRB 

processing is completed within 30 days, 

allowing 5 days to account for Treasury or 

USPS handling. 

Survivor annuitant receiving benefits as 

spouse receives payment as survivor, notice 

of denial, or notice of application transfer to 

SSA, within 35 days of RRB receipt of the 

notice of employee's death. (FY 07 actual is 

through 3/31/07.) 

80% 

90% 

100% 

Goal 89.00% 90.00% 90.00% 93.00% 

Actual 94.10% 94.60% 95.70% 94.20% 

FY 04 FY 05 FY 06 FY 07 

- 27 -
Key performance indicator 8: Timeliness of unemployment or sickness insurance 

payments (Objective I-A-12) 

FY 2007 goal: 99.00% 

Our FY 2007 performance: 99.80% 

through the 2nd quarter 

We are exceeding our goal. Automation plays a 

key role in assuring benefit payment timeliness for 

this performance indicator. 

FY 2006 goal: 98.00% 

Our FY 2006 performance: 99.80% 

Data definition: This goal is included in the RRB 

Customer Service Plan and is stated from the 

customer’s perspective. However, we base our 

performance calculation on the percent of claims 

where all RRB processing is completed within 

10 days, allowing 5 days to account for Treasury or 

USPS handling. 

Railroad employee, unemployed or 

unable to work due to temporary 

illness or injury, receives a payment 

for unemployment or sickness 

insurance benefits, or a decision, 

within 15 days of claim receipt. 

(FY 07 actual is through 3/31/07.) 

96% 

98% 

100% 

Goal 99.00% 98.00% 98.00% 99.00% 

Actual 99.70% 99.80% 99.80% 99.80% 

FY 04 FY 05 FY 06 FY 07 

Key performance indicator 9: Timeliness of disability decisions (Objective I-A-13) 

FY 2007 goal: 63.00% 

Our FY 2007 performance: 68.30% 

through the 2nd quarter 

We are exceeding our goal. We have been 

able to exceed our goal due to an increase in the 

number of staff resources dedicated to the 

disability workload and the timely performance by 

the contractor for consultative medical 

examinations needed to make disability 

decisions. 

FY 2006 goal: 55.00% 

Our FY 2006 performance: 65.90% 

Data Definition: This goal is included in the 

RRB Customer Service Plan and is stated from 

the customer’s perspective. However, we base 

Disabled applicant or family member 

receives notice of decision to pay or 

deny within 105 days of the date 

application for disability is filed. 

(FY 07 actual is through 3/31/07.) 

40% 

60% 

80% 

100% 

Goal 65.00% 55.00% 55.00% 63.00% 

Actual 55.90% 67.90% 65.90% 68.30% 

FY 04 FY 05 FY 06 FY 07 

our performance calculation on the percent of applications where all RRB processing is 

completed within 100 days, allowing 5 days to account for USPS handling. 

- 28 -
Key performance indicator 10: Return on investment in program integrity activities 

(Objective II-B-1) 

FY 2007 goal: $3.80 : $1 

Our FY 2007 performance: Not available 

FY 2007 data will be available in FY 2008. 

FY 2006 goal: $3.80 : $1 

Our FY 2006 performance: $5.36 : $1 

We exceeded our goal. Our fiscal year 2006 

goal was to achieve a return of $3.80 for each 

dollar spent on program integrity activities. We 

achieved a rate of return of $5.36 for each dollar 

spent. 

As part of our fiduciary responsibilities to the rail 

community, we must ensure that the correct amount of benefits is being paid to the right people. 

Achieve a return of at least $3.60 for 

each dollar spent on program integrity 

activities. 

$0.00 

$2.00 

$4.00 

$6.00 

Goal $4.50 $3.80 $3.80 $3.80 

Actual $4.84 $5.11 $5.36 N/A 

FY 04 FY 05 FY 06 FY 07 

We match our benefit payments against SSA’s earnings and benefits database, the Centers for 

Medicare & Medicaid Services’ utilization and death records, the Office of Personnel 

Management’s benefit records, and State wage reports, usually via computer tapes, and 

administer other benefit monitoring programs to identify and prevent erroneous payments. We 

also refer some cases to the RRB’s OIG for investigation. After investigation, the OIG may 

pursue more aggressive collection methods, which include civil and criminal prosecution. 

Data definition: This is the ratio of the sum of the dollar recoveries and savings to the labor 

dollars spent. 

- 29 -
Future Plans/Objectives 

Program Improvements 

•	 Medicare Modernization Act (MMA) Beginning in November 2005, qualified railroad 

retirement beneficiaries (QRRB’s) were able to enroll in prescription drug plans (PDP) 

under Medicare Part D. Benefits under Part D were available beginning January 1, 2006. 

Low income beneficiaries are eligible for extra help in paying for monthly premiums, 

deductibles and co-payments under Part D. SSA is responsible for determining eligibility 

for low-income Part D subsidies. 

The RRB is working with the Centers for Medicare & Medicaid Services (CMS) and SSA to 

implement Medicare Part D and other provisions of the Medicare Prescription Drug, 

Improvement, and Modernization Act of 2003, also known as the Medicare Modernization 

Act. However, we have not yet completed work on automated systems changes that will 

allow beneficiaries to have Part D premiums withheld from the monthly benefits paid by the 

RRB. (Railroad retirement beneficiaries who have monthly Part D premiums pay their 

premiums by direct bill arrangements with their plans.) Work on the system changes to 

allow Part D premium withholding was temporarily suspended while we focused available 

resources on implementing the provision of MMA that requires beneficiaries with annual 

incomes over $80,000 ($160,000 for couples) to pay higher Part B premiums beginning 

January 2007. 

We advised CMS in January 2007 that we were ready to resume work with them on the 

data exchange needed to support Part D premium withholding from RRB benefits. In June 

2007, we provided CMS proposed processing rules and record layouts for the data 

exchange. We expect to work with CMS through fiscal year 2008 on this project, with 

possible implementation coming in January 2009. 

•	 Nationwide Toll-Free Service and RRB HelpLine Improvements The agency awarded 

a contract in fiscal year 2007 for a managed nationwide toll-free telephone service to 

provide a single toll-free number, automatic call distribution, and interactive voice response 

(IVR) functionality. The toll-free number will provide a single access point to claims 

representatives in the agency’s field service offices and to IVR services. 

The design of the national toll-free service will support all of the existing self-service 

options and features of the current RRB HelpLine, and facilitate a number of 

enhancements, including changes to the process for verifying the identity of callers by 

either using the same PIN/password system developed for the RRB’s Internet MainLine 

services or a similar PIN/password system. Callers will also have the option to establish, 

change, and request new passwords. These enhancements will provide a higher level of 

system security, and allow for expansion of services into other areas. 

•	 Internet Unemployment and Sickness Insurance Benefit Services In 2004, the RRB 

made applications and claims for unemployment insurance benefits available on-line at 

www.rrb.gov. In calendar year 2005, the RRB completed a project to automate the 

processing of unemployment insurance benefit claims that pass mechanical screening for 

eligibility. In 2005, the RRB also implemented a service enabling unemployment and 

sickness insurance beneficiaries to view their account statement on-line. The account 

statement lists recent forms filed and unemployment and sickness insurance benefit 

- 30 -
payments. In 2008, the RRB plans to implement on-line biweekly claims for sickness 

insurance benefits. 

•	 Palmetto GBA Secure Change of Addresses and Death Notifications Palmetto GBA, 

the RRB’s Part B Medicare carrier, receives several thousand calls each month from 

railroad retirement beneficiaries who are either reporting an address change or death of 

another beneficiary, or requesting a replacement Medicare card. Palmetto receives these 

calls because of their regular communication with beneficiaries who file claims for payment 

of Part B medical services. Under current procedure, Palmetto must refer many of these 

callers to the RRB. The referral is an extra call for the beneficiary, and is a step that many 

beneficiaries fail to take. 

We are now working with Palmetto to develop a secure web-based application that will 

enable authorized Palmetto customer service representatives to report address changes, 

deaths and requests for replacement Medicare cards directly to the RRB over the Internet. 

The application, which is targeted for completion in late 2007, will also allow RRB 

personnel to view the transactions in order to process the reports through existing RRB 

systems. 

•	 Employer Reporting System (ERS) – Internet Site In fiscal year 2007, the current ERS 

Forms BA-4, BA-6a and GL-129a were revised to access the DB-2 database. In fiscal 

year 2008, they will also be modified to accommodate earnings above $100,000. These 

expanded fields are part of the mandatory database expansion that will become effective in 

January 2008. 

In fiscal year 2008, using a staff augmentation contract, we plan to begin the process of 

converting the software from SAS-based technologies to .Net and DB2-Connect, using 

internal resources. This will allow for reduced costs of future application development in a 

more user friendly environment. Following that conversion, we will resume our efforts to 

add the pre and post-payment notices. The ID-4K, pre-payment notice informs the 

employer of an employee’s application or claim for benefits; and the ID-4E post-payment 

notice informs the employer of the amount of benefits the RRB paid to the employee. 

During fiscal year 2008, we will also continue to move forward with the plan to add a major 

application which consolidates and integrates 13 forms. The application includes the three 

annual reports – creditable compensation, gross earnings, and sick pay – as well as 

several related forms. This project will also incorporate changes the RRB is making to 

expand money amount fields on the service and compensation reports. 

•	 RRBVision The RRB has a Windows-based web communications system called 

MediaSite Live that allows users to view video (RRBVision) presentations with 

accompanying training materials, such as PowerPoint presentations or on-line screens. 

Presentations can be viewed in real-time or saved to the server for later viewing. In fiscal 

year 2007, we awarded a contract to host RRBVision on the Internet. This will allow the 

agency to make presentations and training available to covered railroad employers and the 

general public via a link from the RRB’s website (www.rrb.gov). The agency will implement 

the new service in fiscal year 2008. 

- 31 -
Improper Payments Information Act (IPIA) 

During fiscal year 2007, the RRB calculated the amount of improper payments made in fiscal 

year 2006 for each of the two programs it administers: Retirement and Survivor Benefits and 

Railroad Unemployment Insurance Benefits. This review determined that neither of the RRB’s 

benefit payment programs exceeds the OMB threshold for improper payments and, therefore, 

the agency is not required to prepare and monitor a formal action plan for reducing or 

eliminating improper payments. The IPIA has, however, continued to have a significant impact 

on the agency by ensuring a continued high priority for ongoing activities and initiatives 

designed to improve overall payment accuracy and to reduce specific categories of improper 

payments. See the IPIA Reporting Details, located in the Other Accompanying Information 

section, for additional information on these efforts. 

Systems and Controls 

The RRB continually evaluates the effectiveness and efficiency of its operations using ongoing 

assessments and reviews of management controls, internal and external audits, quality control 

and assurance reviews, program integrity activities, and customer satisfaction surveys. 

Under the direction of a Management Control Review Committee (MCRC) composed of senior 

managers from its program, information services, administrative, and financial operations, the 

RRB has divided these operations functionally into 42 assessable units. The number of 

assessable units can vary from year to year as operations are restructured to accommodate 

changes precipitated by such factors as new and revised missions, reduced resources, and 

increased automation. 

The mission, key performance indicators, workflow, control objectives and techniques, 

guidance, automated systems support, impact, and vulnerability of each assessable unit are 

documented. The RRB maintains and annually updates a 5-year plan for review of the 

assessable units. The official responsible for each assessable unit prepares an annual 

assessment of key indicators and open or new issues requiring management’s attention. High 

impact and vulnerable assessable units are scheduled for more frequent, in-depth reviews as 

deemed necessary by the MCRC in consultation with senior management. During fiscal year 

2007, responsible officials performed in-depth reviews of 10 assessable units, assessed all 42, 

and certified 41. 

In fiscal year 2007, two control weaknesses regarding performance measurement and the 

actuarial projection process–formal policies were corrected and are no longer classified as 

material weaknesses. 

The RRB reported a material weakness relating to deficiencies in Information Technology 

Security in fiscal year 2002; the remaining action needed to close out the deficiencies is 

implementation of access control recommendations. 

In fiscal year 2005, the OIG identified Information Technology Security as a significant 

deficiency, which it reported as a material weakness in the fiscal year 2005 Performance and 

Accountability Report. This included two new deficiencies in meeting FISMA requirements for 

risk assessments, and testing and evaluation. 

- 32 -
In fiscal year 2007, the OIG identified a significant deficiency in the actuarial projection process 

for lack of a consistent theory for preparing the fund balance and lack of complete reliable 

information about the NRRIT’s financial position as of the social insurance valuation date. 

The agency is committed to resolving these deficiencies. Responsible Official and Organization 

Head certifications for fiscal year 2007 include information about actions underway to address 

each of these. We will continue to monitor progress during fiscal year 2008. 

- 33 -
Management Assurances 

The Railroad Retirement Board states and assures that to the best of our knowledge: 

1.	 In accordance with Office of Management and Budget Circular No. A-123, 

Section VI (B), we are issuing a qualified statement of assurance considering the 

OIG-identified material weaknesses indicated under paragraph (4). Except as indicated 

under (4), the system of internal control of this agency is functioning and provides 

reasonable assurance as to the: efficiency and effectiveness of programs and 

operations; reliability of financial and performance information; and compliance with laws 

and regulations. These controls satisfy the requirements of the Federal Managers’ 

Financial Integrity Act §2. 

2.	 The financial management systems of this agency maintain accountability for assets and 

provide reasonable assurance that obligations and costs are in compliance with 

applicable law, and that performance data and proprietary and budgetary accounting 

transactions applicable to the agency are properly recorded and accounted for to permit 

the timely preparation of accounts and reliable performance information. The financial 

management systems at this agency satisfy the requirements of the Federal Managers’ 

Financial Integrity Act §4. 

3.	 The financial management systems of this agency provide the agency with reliable, 

timely, complete, and consistent performance and other financial information to make 

decisions and efficiently operate and evaluate programs and substantially satisfy the 

requirements of the Government Performance and Results Act and OMB Circular 

No. A-11. 

4.	 The RRB’s Inspector General, in his auditor’s report, identifies Information Technology 

Security and Actuarial Projection Process–Fund Balance, as material weaknesses. 

Previously reported material weaknesses in Performance Reporting and in Actuarial 

Projection Process–Formal Policies have been addressed and closed out in fiscal year 

2007. 

Description of OIG-Identified Material Weaknesses 

1.	 Information technology security at the RRB is weakened by deficiencies in risk 

assessment, testing and evaluation, and access controls in both the general support and 

major application systems. 

In fiscal year 2008, the plan is to resolve the remaining audit recommendations. We will 

then evaluate the Information Technology Security material weakness to determine 

whether it has been eliminated. 

- 34 -
2. The actuarial projection process is weakened by the lack of a consistent theory for 

preparing the fund balance and the lack of complete, reliable information about the 

NRRIT’s financial position as of the social insurance valuation date. 

The Bureau of the Actuary will work with the Bureau of Fiscal Operations and the NRRIT to 

obtain more complete, reliable information about the NRRIT’s financial position in order to 

have a consistent theory for preparing the fund balance. 

Original signed by: 

Michael S. Schwartz, Chairman 

V. M. Speakman, Jr., Labor Member 

Jerome F. Kever, Management Member 

- 35 -
Summary of Actuarial Forecast 

The Statement of Social Insurance presents an actuarial analysis of the financial position of the 

railroad retirement system as of January 1, 2007. Our intermediate employment assumption is 

used for the Statement of Social Insurance. The Required Supplementary Information presents 

sensitivity analyses showing the impact of changes in employment and investment return 

assumptions. Although under our intermediate assumption no cash flow problems arise over 

the period 2007-2081, the sensitivity analyses show that, under the current financing structure, 

actual levels of railroad employment and investment return over the coming years will determine 

whether additional corrective action is necessary. 

Section 7105 of the Technical and Miscellaneous Revenue Act of 1988 requires the RRB to 

submit an annual report to the Congress on the financial status of the railroad unemployment 

insurance system. Projections were made for the various components of income and outgo 

under each of 3 employment assumptions for the 11 fiscal years 2007-2017. The results 

indicate that the Railroad Unemployment Insurance (RUI) Account will be solvent during the 

11-year projection period. 

Limitations of the Financial Statements 

The limitations of the principal financial statements are as follows: 

1. The principal financial statements have been prepared to report the financial position and 

results of operations of the entity, pursuant to the requirements of 31 U.S.C. 3515(b). 

2. While the statements have been prepared from the books and records of the entity in 

accordance with U.S. generally accepted accounting principles for Federal entities and 

the formats prescribed by OMB, the statements are in addition to the financial reports 

used to monitor and control budgetary resources which are prepared from the same 

books and records. 

3. The statements should be read with the realization that they are for a component of the 

U.S. Government, a sovereign entity. 

- 36 -
PERFORMANCE SECTION – 

GOVERNMENT PERFORMANCE AND RESULTS ACT (GPRA) 

REPORT 
PAGE INTENTIONALLY LEFT BLANK 
 
Performance Section - Government Performance and Results Act (GPRA) Report 

The following performance report is based on the major goals and objectives from the RRB's 

Strategic Plan for 2006 – 2011. The indicators we developed support our mission and 

communicate our intentions to meet challenges and seek opportunities for greater efficiency, 

effectiveness, and economy. 

To achieve our performance goals, the RRB holds managers accountable for achieving program 

results and improving program effectiveness by focusing on results, service quality, and 

customer satisfaction. In addition, the annual performance budget is used to help managers 

improve service delivery by requiring that they plan for meeting program objectives and by 

providing them with information about program results and service quality. To provide 

reasonable assurance that the reported performance information is relevant and reliable, 

performance goals are incorporated into performance standards for managers and supervisors, 

and monitored on an agency-wide basis. We have also implemented an initiative to conduct 

validation studies on selected indicators, and developed an administrative circular regarding 

documentation, validation and retention of performance data. 

e-Government initiatives 

Over the last several years, the RRB has implemented significant automation initiatives and 

other improvements. Because of these accomplishments, the RRB is able to operate with 

reduced resources and is continuing to streamline its operations with the assistance of 

information technology. We believe that significant new investments in information technology 

and further management improvements will help us to meet or exceed our customer service 

goals efficiently. 

We are continuing to make services available over the Internet to railroad and rail labor 

employers. The RRB has developed a secure Internet-based Employer Reporting System 

(ERS) to accept reports from covered railroad and rail labor employers concerning employee 

service and compensation data. 

In February 2006, the RRB added a secure e-mail service enabling railroad employers to 

communicate with the RRB about reimbursements due the RRB under sections 2(f) and 12(o) of 

the RUIA. The service provides secure messaging to protect beneficiary privacy and expedites 

information employers need to complete actions on pay-for-time lost and personal-injury 

settlements. As of May 2007, approximately 20 employer claims agents have initiated the 

service and about 60 additional agents are scheduled to do so later this year. 

In November 2005, RRB’s Debt Recovery Division began using Treasury’s Pay.gov for 

collection of debts incurred under the Railroad Retirement Act and Railroad Unemployment 

Insurance Act. Pay.gov uses Internet technologies to provide railroad employers, employees, 

retirees and the general public with the ability to electronically make payments to the RRB 24 

hours a day. Pay.gov is accessible from any computer with Internet access by going through a 

link on RRB.gov or directly to the Pay.gov site. 

On March 5, 2007, the RRB’s Debt Recovery Division launched the Rail Employer Settlement 

Bill. This bill is available to registered users for payment of section 12(o) and 2(f) bills through 

Pay.gov. In addition, for those employers who register, there is an on-line report generated. 

- 39 -
This report provides detailed information on all payments made through Pay.gov in the previous 

3 months. 

The RRB HelpLine received 372,450 calls in fiscal year 2006. We released 797 Railroad 

Retirement Act rate letters, 2,389 replacement Medicare cards, 1,505 service and compensation 

statements, and 492 replacement tax statements as a result of customer calls. A total of 

108,394 callers made requests for information about local field office addresses and telephone 

numbers. 

In 2006, we created an on-line beneficiary name lookup system for use by agency staff. The 

purpose of the lookup is to assist staff in associating claims material with beneficiary records 

when the RRB claim number is not available. This not only streamlines our process, but 

supports current initiatives to eliminate or reduce the non-essential use of social security 

numbers. 

Service and administrative improvements 

The implementation of the Health Insurance Portability and Accountability Act (HIPAA) required 

that all claims for reimbursement, except for small providers under the Medicare programs, be 

submitted electronically beginning on October 16, 2003. Since that time, the electronic media 

claims submitted to Palmetto GBA, our Part B Medicare carrier, in HIPAA-compliant format has 

grown steadily from less than 10 percent at its inception to approximately 100 percent at the end 

of December 2005. In addition, the percentage of claims that are submitted electronically to 

Palmetto GBA has also increased from 49.9 percent in October 2005, to 71.3 percent in 

December 2006. 

In 2007, the Bureau of Hearings and Appeals started using video conferencing to hold in-person 

disability hearings. In accordance with the RRB’s regulations, hearings officers are now 

permitted to use video conferencing in lieu of traveling to a city near the appellant’s place of 

residence. This should increase the productivity of the hearings officers by reducing travel time. 

In addition, the capability to hold hearings as soon as cases are ready, rather than batching 

them to reduce travel costs, will improve the time in which a decision is issued. 

Systems security 

Information security is a critical consideration for government agencies where maintaining the 

public’s trust is essential. The RRB relies extensively on computerized systems to support its 

mission operations and store the sensitive information that it collects. The RRB's information 

security program is established and maintained to reasonably protect systems data and 

resources against internal failures, human errors, attacks and natural catastrophes that might 

cause improper disclosure, modification, destruction, or denial of services. To ensure mission 

continuity and connect with the agency's overall business processes, we have a comprehensive 

training program that utilizes the Office of Personnel Management sponsored USALearning’s 

Karta computer security curriculum. For the third consecutive year, all employees with 

computer security responsibilities are enrolled in this role-based training program that is based 

on Federal guidelines and mapped to National Institute of Standards and Technology (NIST) 

SP800-16 “Information Technology Security Training Requirements.” Additional specialized 

technical education is also provided as necessary for the computer analysts and engineers to 

maintain their skills and enhance proficiency. 

- 40 -
Federal agencies are required to provide annual computer security awareness training for 

employees and contractors. Security awareness efforts are designed to change behavior or 

reinforce good security practices by simply focusing attention on security. We continue to 

develop new approaches for refreshing the awareness initiative by providing new and innovative 

presentations for the agency staff. This year the new “Rules of Behavior for General Support 

Systems” pamphlet was used as part of the awareness program. Supplementing the computer 

security awareness training, the Security News feature story on the Intranet home page is 

refreshed weekly, and in April, a separate broadcast e-mail “Reminder about the Board's policy 

on Peer-To Peer applications” was sent to all employees. The pamphlet entitled “Information 

Systems Security Awareness Training for the Railroad Retirement Board,” a key document in 

the computer security program, has been updated and expanded with additional information. 

Every year, the RRB awareness program has experienced exemplary levels of participation 

measures by employees and contractors. 

Faced with an increasingly dangerous threat environment, the RRB relies on a sophisticated 

hardware and software defense that utilizes carefully monitored and maintained firewall 

technology, anti-virus software and intrusion detection systems to prevent viruses, worms, spam 

and malicious content from infiltrating the network, as well as to ensure that critical data and 

sensitive information are not compromised. To buttress these proactive threat management 

resources in the event of a successful malware attack, the agency has implemented a robust 

incident response capability. With the fully operational forensic analysis workstation, the RRB 

Computer Emergency Response Team has the ability to conduct forensic collection and 

analysis of electronic evidence from almost any type of digital media in use today (USB drives, 

desktop, notebook and server hard drives, flash media cards, etc.). The recent addition of the 

network access control intrusion prevention system further strengthens the agency’s systems 

defenses by early detection of malicious activity, keeping the RRB internal network free of 

network based threats such as worms and peer-to-peer file sharing programs. 

Standards and policy are key components to the security management strategy. The “RRB 

Information Systems Security Policy, Standards and Guidelines Handbook” has been drafted to 

support the mission of the agency. In response to OMB requirements to implement 

e-authentication within e-Government business applications, Chapter 21 – Online Transactions 

e-Authentication was recently added to the draft handbook. The new Chapter 22 – Protecting 

Sensitive Information emphasizes the agency’s responsibility to protect personally identifiable 

information, and the latest addition to the draft handbook, Chapter 23 –Service Provider 

Oversight describes how to perform and document information security site assessments of 

information technology service providers. 

A training test and exercise of the Continuity of Operations Plan (COOP) was performed during 

March 2007. A training pamphlet describing the scheduling phases of the Business Continuity 

Plan, and the various teams with their composition and duties, was published on the Intranet 

and used as a training component for all COOP emergency, recovery and reconstitution teams. 

Evaluation forms were completed and returned to the Information Resources Management 

Center for evaluation and assessment, and they will be retained as documentation of 

completion of the actions accomplished. 

- 41 -
Program Evaluations 

Program Evaluation Results in Fiscal Year 2007 

Federal Managers’ 

Financial Integrity Act 

Reports 

See “Systems and Controls” in the “Management’s Discussion and 

Analysis” section. 

Annual actuarial report 

required by the Railroad 

Retirement Act of 1974 and 

the Railroad Retirement 

Solvency Act of 1983 

The report, which was completed in June 2007, addresses the 25-year 

period 2007-2031, and contains generally favorable information 

concerning railroad retirement financing. It indicates that no cash flow 

problems arise over the 25-year projection period. The report 

recommends no change in the rate of tax imposed on employers and 

employees. 

Railroad Unemployment 

Insurance System, annual 

report required by section 

7105 of the Technical and 

Miscellaneous Revenue Act 

of 1988 

The report, which was released in June 2007, contains generally 

favorable information. Experience-based contribution rates are 

expected to maintain solvency, and no new loans are expected even 

under our most pessimistic assumption. The report did not include any 

recommendations for financing changes. 

Program Assessment and 

Rating Tool (PART) Review 

In fiscal year 2007, the Office of Management and Budget conducted a 

comprehensive assessment of RRB programs and operations through 

the PART review. The PART review resulted in a rating of “effective” for 

both the railroad retirement/survivor program and the unemployment/ 

sickness insurance program. 

Customer service 

performance reports 

The RRB continuously monitors the timeliness and accuracy of our 

performance in managing program workloads. These results are 

reflected in the performance objectives shown in the chart on the 

following pages. 

Program integrity report 

The RRB’s program integrity report for fiscal year 2006, released in 

October 2006, showed that program integrity activities resulted in the 

establishment of about $14.4 million in recoverables, recovery of 

$9.7 million, benefit savings of $810,000, and referral of 175 cases to 

the Office of Inspector General. 

Quality assurance reviews 

and special studies 

RRA adjudicative and payment accuracy is measured in regular reviews 

conducted by quality assurance staff within the RRB’s Assessment and 

Training (A&T) component. A&T also evaluates policies and processes 

through special studies, as needed. A&T reports directly to the Director 

of Programs. 

Occupational disability 

reviews 

Advisory doctors, representing the rail industry (labor and management), 

are authorized by law to review agency medical decisions. An audit was 

done in 2000; another audit is underway during 2007. In addition, 

consulting physicians from Consultative Examinations, Ltd. perform a 

quarterly quality review of disability documentation to ensure it is 

adequate to support medical decisions. 

RRB Office of Inspector 

General audits 

See “Inspector General’s Statement on Management and Performance 

Challenges” and “Management’s Comments” in the “Other 

Accompanying Information” section. 

- 42 -
Program Evaluation Results in Fiscal Year 2007 

Performance budget 

monitoring 

Results of performance budget monitoring are shown in the chart of 

performance objectives on the following pages. 

Enterprise architecture 

assessment 

The RRB completed an enterprise architecture assessment in February 

2007, reporting a total assessment value of 2.00 out of a possible 5.00. 

Computer security and 

privacy assessment 

See performance goals II-C-2, II-C-3 and II-C-4 in the chart of 

performance objectives on the following pages. 

Electronic government 

(E-Gov) activities 

See “e-Government initiatives” in the Performance Section – GPRA 

Report. 

Improper payment 

evaluation 

See “Improper Payments Information Act (IPIA)” in the “Management’s 

Discussion and Analysis” section. 

The next page begins a consolidated presentation of our actual performance in fiscal year 2004 

through March 31, 2007 (except as noted), followed by a discussion of our unmet performance 

goals and objectives for fiscal year 2006. At the time this report was prepared, we had 

incomplete information on our fiscal year 2007 performance. The discussion of any unmet fiscal 

year 2007 performance goals and indicators will be presented in next year’s report. This 

performance report was prepared by RRB employees. 

- 43 -
- 44 -

RAILROAD RETIREMENT BOARD FY 2007 ANNUAL PERFORMANCE REPORT 

2004 Actual 

(At $100.7m) 1/ 

2005 Actual 

(At $102.5m) 1/ 

2006 Actual 

(At $101.5m) 1/ 

2007 Projected 

(At $101.5m) 1

Strategic Goal I: Provide Excellent Customer Service Performance Goal I-A: Pay benefits accurately and timely. I-A-1. Achieve a railroad a) Initial recurring retirement benefit payments: payment accuracy rate 2/ of at least 99%. (Measure: % accuracy

 b) Sample post 

rate) recurring payments: 

99.36% 99.62% 99.91% 99.00% 99.92% 99.89% 99.94% 99.00% 

I-A-2. Achieve a railroad unemployment/sickness a) Unemployment: insurance benefit payment accuracy rate 2/ of at 

least 99%. (Measure: % accuracy rate) b) Sickness: 

99.91% 98.73% 99.08% 98.00% 99.84% 99.94% 99.78% 98.00% 

I-A-3. Achieve a railroad a) Initial retirement case accuracy

 cases: 

rate 2/ of at least 94%. 

(Measure: % of case accuracy) b) Post 

cases: 

94.7% 95.5% 94.5% 91.0% 

97.8% 95.8% 96.3% 94.0% 

I-A-4. Achieve a railroad a) Unemployment: unemployment/sickness insurance case accuracy rate 2/ of at least 97%. b) Sickness: 

(Measure: % of case accuracy) 

99.75% 98.01% 97.5% 97.0% 99.25% 99.51% 99.03% 97.0% 

I-A-5. Railroad retirement employee or spouse receives initial annuity payment, or a decision, within 35 days of annuity beginning date, if advanced filed. (Measure: % ≤ 30 adjudicative processing days 3/ 4/) 

N/A 93.1% 92.9% 92.0% 

I-A-6. Railroad retirement employee or spouse receives initial annuity payment, or notice of denial, within 65 days of the date the application was filed, if not advanced filed. (Measure: % ≤ 60 adjudicative processing days 3/ 4/) 

N/A 97.3% 96.2% 95.0% 
- 45 -

RAILROAD RETIREMENT BOARD FY 2007 ANNUAL PERFORMANCE REPORT 

2004 Actual 

(At $100.7m) 1/ 

2005 Actual 

(At $102.5m) 1/ 

2006 Actual 

(At $101.5m) 1/ 

2007 Projected 

(At $101.5m) 1

I-A-7. Survivor annuitant not already receiving a benefit receives initial payment, a decision, or notice of transfer to SSA within 65 days of the annuity beginning date, or date filed (whichever is later). (Measure: % ≤ 60 processing days 4/) 

84.5% 92.8% 5/ 93.2% 90.0% 

I-A-8. Survivor annuitant receiving benefits as spouse receives payment as survivor, notice of denial, or notice of application transfer to SSA, within 35 days of RRB receipt of the notice of employee's death. (Measure: % ≤ 30 processing days 4/) 

94.1% 94.6% 95.7% 93.0% 

I-A-9. Applicant for any railroad retirement death benefit receives payment, or notice of denial, within 65 days of date filed. (Measure: % ≤ 60 processing days 4/) 

95.4% 96.9% 97.5% 95.0% 

I-A-10. Unemployed railroad worker receives UI claim form, or notice of denial, within 15 days of the date application filed. (Measure: % ≤ 10 processing days 4/) 

99.25% 

of cases sampled 99.8% 99.5% 99.0% 

I-A-11. Railroad employee unable to work due to temporary illness or injury receives SI claim form, or notice of denial, within 15 days of the date application filed. (Measure: % ≤ 10 processing days 4/) 

99.4% 99.6% 99.5% 99.0% 

I-A-12. Railroad employee, unemployed or unable to work due to temporary illness or injury, receives a payment for unemployment or sickness insurance benefits, or a decision, within 15 days of claim receipt. (Measure: % ≤ 10 processing days 4/) 

99.7% 99.8% 99.8% 99. 0% 

I-A-13. Disabled applicant or family member receives notice of decision to pay or deny within 105 days of the date application for disability is filed. (Measure: % ≤ 100 processing days 4/) 

55.9% 67.9% 65.9% 63.0% 

I-A-14. Disabled applicant receives payment within 25 days of decision or earliest payment date (whichever is later). (Measure: % ≤ 20 processing 

days 4/ 6/) 

94.8% 94.4% 95.2% 92.0% 
RAILROAD RETIREMENT BOARD 

FY 2007 ANNUAL PERFORMANCE REPORT 

2004 Actual 

(At $100.7m) 1/ 

2005 Actual 

(At $102.5m) 1/ 

2006 Actual 

(At $101.5m) 1/ 

2007 Projected 

(At $101.5m) 1

I-A-15. Reduce the number of days elapsed between the date the appeal is filed and a decision is rendered. (Measure: average elapsed days) 

194 207 206 190 

Performance Goal I-B: Provide relevant, timely, and accurate information which is easy to understand. 

ACSI survey 

deferred 

The final report on the 

widow(er)s survey was 

completed in August 

2005. RRB’s score of 90 

was highest of Federal 

agencies. 

Completed a survey of 

initial disability decisions. 

 RRB’s score was 85. 

ACSI survey deferre

I-B-1. Achieve quality and accuracy of correspondence, publications, and voice communications. (Measure: surveys and reviews; number of valid challenges to published data) 

No valid challenges 

to published data 

No valid challenges to 

published data 

No valid challenges to 

published data 

No more than two va

challenges to publish

data 

Performance Goal I-C: Provide a range of choices in service delivery methods. I-C-1. Offer electronic options to our customers, allowing them alternative ways to perform primary services via the Internet or interactive voice response systems. (Measure: # of services available through electronic media) 

12 services 

available 14 services available 16 services available 17 services availab

Performance Goal I-D: Ensure efficient and effective business interactions with covered railroad employers. I-D-1. Improve timeliness and efficiency in posting service and compensation data to agency records. (Measure: % of service and compensation records posted by April 15) 

New indicator 

for FY 2005 99.7% 99.6% 99.0% 

I-D-2. Improve accuracy in posting service and compensation data to agency records. (Measure: % of service and compensation records posted accurately) 

New indicator 

for FY 2005 99.0% 99.9% 99.0% 

I-D-3. Covered employer annual reports of employees filed electronically, or on magnetic media. (Measure: % of employee records filed electronically, or on magnetic media) 

97.0% 98.0% 97.8% 97.0% 

- 46 -
- 47 -

RAILROAD RETIREMENT BOARD FY 2007 ANNUAL PERFORMANCE REPORT 

2004 Actual 

(At $100.7m) 1/ 

2005 Actual 

(At $102.5m) 1/ 

2006 Actual 

(At $101.5m) 1/ 

2007 Projected 

(At $101.5m) 1

I-D-4. Enable employers to use the Internet to conduct business with the RRB, in support of the Government Paperwork Elimination Act. (Measure:  % of employers who use the new online reporting process; # of services available through electronic media) 

52.0% 

4 Internet services 

available 

55.0% 

4 Internet services 

available 

58.0% 

6 Internet services 

available 

60.0% 

6 Internet services 

available 

Strategic Goal II: Serve as Responsible Stewards for Our Customers’ Trust Funds and Agency Resources Performance Goal II-A: Ensure that trust fund assets are projected, collected, recorded and reported appropriately. II-A-1. Debts will be collected through billing, offset, reclamation, referral to outside collection programs and a variety of other collection efforts. (Measure: funds collected vs. total debts outstanding) 

69% 66% 62% 55% 

II-A-2. Release quarterly and annual notices accurately and timely to employers regarding their experience rating-based contributions. (Measure: Yes/No) 

New indicator 

for FY 2005 Yes Yes Yes 

II-A-3. Complete compensation reconciliations at least 1 year before the statute of limitations expires. (Compensation reconciliations involve a comparison of compensation reported by railroad employers to the RRB for benefit calculation purposes with compensation reported to the IRS for tax purposes.) (Measure: % completed) 

100% of the 2001 

reconciliations by 

2/20/04 

100% of the 2002 

reconciliations by 

12/17/04 

100% of the 2003 

reconciliations by 

2/15/05 

100% of the 2004 

reconciliations by

 2/28/07 

II-A-4. Perform monthly reasonableness tests comparing railroad retirement taxes deposited electronically, which represent over 99 percent of all railroad retirement taxes, against tax receipts transferred to the RRB trust funds by the Department of the Treasury (Treasury) to provide reasonable assurance the RRB trust funds are receiving appropriate tax funds. (Measure: reasonableness test performed and anomalies reconciled with Treasury (Yes/No)) 

Yes Yes Yes Yes 

II-A-5. Prepare annual Performance and Accountability Report (including audited financial statements and other financial and performance reports) by the required due dates. (Measure: Yes/No) 

The FY 2003 

Performance and 

Accountability 

Report was released 

in January 2004. 

The FY 2004 

Performance and 

Accountability Report 

was released on 

11/10/04. 

The FY 2005 

Performance and 

Accountability Report 

was released on 

11/10/05. 

Yes 
- 48 -

RAILROAD RETIREMENT BOARD FY 2007 ANNUAL PERFORMANCE REPORT 

2004 Actual 

(At $100.7m) 1/ 

2005 Actual 

(At $102.5m) 1/ 

2006 Actual 

(At $101.5m) 1/ 

2007 Projected 

(At $101.5m) 1

II-A-6. Take prompt corrective action on audit recommendations. (Measure: % of audit recommendations implemented by target date) 

95.7% 90.3% 7/ 97.2% 95.0% 

Performance Goal II-B: Ensure the integrity of benefit programs. II-B-1. Achieve a return of at least $3.60 for each dollar spent on program integrity activities. (Measure: $ recoveries & savings per $ spent) 

$4.84 : $1.00 $5.11 : $1.00 $5.36 : $1.00 $3.80 : $1.00 

Performance Goal II-C: Ensure effectiveness, efficiency, and security of operations. II-C-1. Continue succession planning by ensuring there is a cadre of highly skilled employees available for key positions. (Measure: Number of position types (descriptions) for which core competencies have been defined. Number of employees whose skills have been assessed. Number of employees involved with skillsenhancement programs.) (Measure for FY 2006 and later: Structured succession planning activities are continuing. (Yes/No)) 

1 position 

39 employees 18 employees 

6 positions 

73 employees 31 employees 

Yes Yes 
- 49 -

RAILROAD RETIREMENT BOARD FY 2007 ANNUAL PERFORMANCE REPORT 

2004 Actual 

(At $100.7m) 1/ 

2005 Actual 

(At $102.5m) 1/ 

2006 Actual 

(At $101.5m) 1/ 

2007 Projected 

(At $101.5m) 1

II-C-2. Annually assess/update all computer security, disaster recovery, and business resumption plans for the agency. (Measure: Yes/No) 

Assessment and updates of all scheduled plans completed. 

Yes. The agency completed a Business Impact Analysis and a Business Continuity Plan (BCP). 

No. The BCP was updated with alternate non-IT site information in January 2006, and Appendix H of the BCP, the Emergency Management Organization, was updated in February 2006. An IT Disaster Recovery Plan was in draft status at the end of the fiscal year. 

The agency will contrawith a third party for assistance in performinthe certification and accreditation of at leasone general support system. The other gensupport system and maapplications will proceeas budgetary considerations allow. Tagency will also fill an Information Availability Analyst position whose primary responsibility wbe in the area of contingency planning, assessment and trainin

II-C-3. Develop and implement new procedures for Procedures have The IDS was installed on The Department of The intrusion detection responding to and reporting computer security been developed, 11/19/04, and was Energy’s Computer system (IDS) is in full incidents. (Measure: Yes/No) and reports of placed in operation on Incident Advisory Center operation. A Compute

identified incidents 02/12/05. The IDS began vulnerability Security Incident are documented. tuning phase was assessment testing in Response Team is The RRB also completed by 06/30/05. January 2006, and established. Procedurpurchased an Computer security completed testing of the are in place and will be Intrusion Detection incident procedures are RRB’s LAN general updated as necessary. System (IDS). in place and reports of support system. Reports of incidents w

incidents are continue to be documented. documented. 
- 50 -

RAILROAD RETIREMENT BOARD FY 2007 ANNUAL PERFORMANCE REPORT 

2004 Actual 

(At $100.7m) 1/ 

2005 Actual 

(At $102.5m) 1/ 

2006 Actual 

(At $101.5m) 1/ 

2007 Projected 

(At $101.5m) 1

II-C-4. Assess computer security training Yes. Training needs Yes. The agency has Yes. A total of 181 RRB The agency will continurequirements and implement an ongoing training were assessed and established two training employees with with two training tracksprogram for agency staff. (Measure: Yes/No) a security curriculum tracks. Track one computer security agency staff will also 

was developed based on audit 

provides technical expertise and functional 

responsibilities received Web-based training at 

complete a computer security awareness 

findings. An ongoing awareness training program for computer users at the agency was completed with 100% participation 

skills for IT technical staff, and track two focuses on knowledge of security assessments, planning, policy development and safeguard controls. All 

the OPM USALearning site, with a second training track for specialized technical education. All RRB staff annually complete a computer security 

program. 

by agency personnel. 

employees requiring IT security education participate in track two; however, technical 

awareness program. 

employees use both tracks. 

II-C-5. Implement a methodology to successfully estimate, track and monitor total costs and time schedules for information technology investments through the project life cycle, incorporating both web and mainframe investments. (Measure: Yes/No) 

New indicator 

for FY 2005 

The pilot portion of this multi-phase project was completed at the end of FY 2005. All projects are now being entered and tracked in MS Project. 

A post-implementation review was completed in FY 2006 to tune the system to ensure that project measures were working in the IT environment. Some best practices were 

We will evaluate expanthe use of the project management system to track non-IT related projects. 

developed. 

II-C-6. Assemble and publicize an annual inventory of RRB commercial activities on the RRB Website. Yes Yes Yes Yes 

(Measure: Yes/No) II-C-7. Complete public-private competitions on the required activities listed on the Federal Activities Inventory Reform (FAIR) Act inventory. (Measure: % of the FTE’s listed on the FAIR Act inventory for 

5% 

(cumulative) 

5% 

(cumulative) 

5% 

(cumulative) 

Meet target level 

established by OM

which competitions completed) 
- 51 -

RAILROAD RETIREMENT BOARD FY 2007 ANNUAL PERFORMANCE REPORT 

2004 Actual 

(At $100.7m) 1/ 

2005 Actual 

(At $102.5m) 1/ 

2006 Actual 

(At $101.5m) 1/ 

2007 Projected 

(At $101.5m) 1

II-C-8. Meet government percentage goal for use of performance-based contracting techniques for eligible service contract funds. (Measure: Yes/No) 

New indicator 

for FY 2005 Yes Yes Yes 

II-C-9. Support government-wide procurement of e-Government initiatives using the point of entry vehicle of www.FedBizOpps.gov for all eligible 

actions. (Measure: Yes/No) 

New indicator 

for FY 2005 Yes Yes Yes 

II-C-10. Complete migration from the agency’s current mainframe database management system (IDMS) to DB2, and initiate efforts to optimize the performance of those databases and further reduce data redundancy. (Measure: Meet target dates for the migration. Yes/No) 

New indicator for 

FY 2007 

New indicator for 

FY 2007 

New indicator for 

FY 2007 Yes 

Performance Goal II-D: Effectively carry out the responsibilities of the Railroad Retirement Board under the Railroad Retirement and of 2001 with respect to the activities of the National Railroad Retirement Investment Trust. II-D-1. Review monthly reports submitted by the Trust. (Measure: Yes/No) 

Yes Yes Yes Yes 

II-D-2. Review annual management reports submitted by the Trust. (Measure: Yes/No) 

Yes Yes Yes Yes 

II-D-3. Review annual audit reports of the Trust’s financial statements. (Measure: Yes/No) 

Yes Yes Yes Yes 
1/ Dollar amounts shown are funds obligated or appropriated for the fiscal year. Actual results for fiscal year 2007 represent status as of 3/31/07 

2/ Payment Accuracy Rate – the percentage of dollars paid correctly as a result of adjudication actions performed. Case Accuracy Rate – the pe

not contain a material payment error. Case accuracy rates reflect only those errors that are detected as a result of reviewing award actions per

year being studied. (A material error is (1) an incorrect payment of $5.00 or more at the point the error is identified, (2) an incorrect payment of 

percent or more of the monthly rate, or (3) any situation in which a non-entitled benefit is paid.) 

3/ In audit report 05-05, dated May 17, 2005, the OIG found problems with the performance data for these indicators. One significant problem ha

us to report performance for fiscal year 2005, and later. However, there are still some system limitations that prevent inclusion of all internal prperformance data. We are addressing them. Until the system changes are in place, performance will be calculated as the percent of cases ad

specified in the measure. Another program error causes a small number (less than 1 percent) of spouse applications to be calculated incorrectincludes these cases. 

4/ Measure does not include the time for customer receipt (from U.S. Treasury or Postal Service). 5/6/

	 	 Measurement and reporting inconsistencies, which resulted in a net understatement of actual performance, were identified during this reporting 

These inconsistencies have been corrected effective with April 2005 data. Therefore, the fiscal year 2005 performance is for the last 6 months This indicator includes both retirement and survivor disability payments. The retirement payments are impacted by the system limitations ident

When the system limitations for retirement cases are corrected, this inconsistency will be eliminated. 

7/ The percentage has been adjusted from 88.4% to reflect two audit recommendations implemented at the end of the fiscal year. 

- 52 -
Discussion of Unmet Performance Goals and Indicators for Fiscal Year 2006 

Performance Indicator I-A-15. Reduce the 

number of days elapsed between the date the 

appeal is filed and a decision is rendered. 

(Measure: average elapsed days.) 

Our goal for fiscal year 2006 was 200 days. We 

achieved a level of 206 days. 

During fiscal year 2006, the Bureau of Hearings and 

Appeals diverted resources to continue updating 

the RRB’s regulations. In addition, two hearings 

officers retired, but due to funding constraints, only 

one position was filled. Effective May 2007, the 

Bureau of Hearings and Appeals has started using 

video conferencing to hold disability hearings. This 

should reduce the timeframe for decisions to be 

issued. 

Performance indicator I-C-1. Offer electronic 

options to our customers, allowing them alternative 

ways to perform primary services via the Internet or 

interactive voice response systems. 

(Measure: number of services available through 

electronic media.) 

Our goal for fiscal year 2006 was to provide 17 

services. We provided 16 services. 

This goal was not met because of limited and 

competing resources in the information technology 

area. The RRB implemented only two of three 

additional electronic services by the end of fiscal 

year 2006. The third new service is the Palmetto 

project, which will allow authorized Palmetto GBA 

customer service representatives to report address 

changes, deaths and requests for replacement 

Medicare cards directly to the RRB over the 

Internet. The Palmetto project is now scheduled to 

be finished in late fiscal year 2007. 

Performance Indicator I-D-4. Enable employers The RRB did not achieve its objective for the 

to use the Internet to conduct business with the Employer Reporting System to increase the 

RRB, in support of the Government Paperwork percentage of users by 2 percent during fiscal year 

Elimination Act. 2006, because plans for additional functionality 

(Measures: percent of employers who use the new were not implemented. Implementation is now 

online reporting process and number of services expected in fiscal year 2008. This delay is the result 

available through electronic media.) of limited and competing resources in the 

information technology area. 

Our goal for fiscal year 2006 was to provide 6 

services, with 60 percent of employers using the 

online process. In fiscal year 2006, we provided 6 

services to rail employers, but only 58 percent of 

employers used the online process. 

- 53 -
PAGE INTENTIONALLY LEFT BLANK 
 
FINANCIAL SECTION 
PAGE INTENTIONALLY LEFT BLANK 
 
Financial Section 

Message from the Chief Financial Officer 

I am pleased to present the RRB’s Performance and Accountability Report for fiscal year 2007. This 

report incorporates the annual performance report under the Government Performance and Results 

Act of 1993, the internal control report under the Federal Managers’ Financial Integrity Act, and 

audited consolidated financial statements under OMB guidance. 

The RRB is committed to integrated and automated financial management systems that focus on the 

agency’s mission and accountability. RRB strives to maintain an environment in which program and 

financial managers work in partnership to ensure the integrity of financial information and use that 

information to make decisions, measure performance, and monitor outcomes. In this environment, 

we envision integrated financial management systems with appropriate internal review and controls 

that provide agency managers with timely, accurate, and easily accessible information. We expect 

managers throughout the agency to use that information to achieve program objectives in a 

cost-effective manner and to ensure accountability. 

The RRB has continued high quality financial management and financial reporting during fiscal year 

2007. During the year, the RRB: 

•	 Achieved an unqualified, or clean, audit opinion on its consolidated financial statements for 

fiscal year 2007. We also continued to prepare unaudited quarterly financial statements and 

met the accelerated schedule of releasing these statements to OMB within 21 days of the 

end of the quarter. 

•	 Continued our planning for the transition to a new financial management system. Initial 

efforts have focused on evaluating the potential costs and monitoring the progress of other 

Federal agencies that are migrating to a Financial Management Line of Business Shared 

Service Provider. During fiscal year 2008, we intend to evaluate various migration options. 

•	 Implemented audit recommendations as follows: 

At the beginning of fiscal year 2007, there were 136 open audit recommendations in the 

agency’s audit follow-up tracking system. In addition, during the fiscal year, audit reports 

containing another 104 recommendations were issued. As a result, the total number of open 

recommendations during the year was 240. At the same time, final action was completed on 

51 audit recommendations, resulting in a balance at the end of the year of 189 open 

recommendations. Many of the open recommendations deal with information technology, 

including several security-related recommendations, and require ongoing, long-term 

corrective actions to bring them to closure. Additionally, the status of the OIG-identified 

material weaknesses and planned corrective action are presented in the Management’s 

Discussion and Analysis’ Management Assurance section. 

The RRB will continue to provide financial information that is timely, accurate and useful in the 

coming years. We are committed to continuing our tradition of providing high quality financial 

services to agency management, the Congress, OMB, and the constituents we serve. 

 Original signed by: 

 Kenneth P. Boehne 

 Chief Financial Officer 

- 57 -


RAILROA D RETIREMENT BOARD 

CONSOLIDATED STATEMENT OF CHANGES IN NET POSITION 

FOR THE YEAR ENDED SEPTEMBER 30, 2007 

(in doll ars) 

Cumulative Results of Ope rat ions 

Beginning Balances 

Budgetary Financing Sources 

Appropriations Used 

Non-exchange Revenue 

Transfers In From NRRIT (Note 12) 

Transfers In/Out Without Reimbursement 

Other Financing Sources (Non-Exchange) 

Imputed Financing 

Change in NRRIT Assets 

Other 

Total Financing Sources
 
 

Net Cost of Operations
 
 

Net Change
 
 

Cumulative Results of Operations 

Unexpended Appropriations 

Beginning Balan ces 

Budgetary Financing Sources 

Appropriations Received 

Other Adjustments 

Appropriations Used 

Total Budgetary Financin g Sources 

Total Unexpended Appropriations 

Net Position 

Earmarked
 
 

Funds
 
 

$29,877,180,462 

460 ,089,400 

5,490 ,878,777 

1,391,000,000 

3,573,541 ,000 

8,904,879 

3,287 ,842,000 

(1,128) 

14,212 ,254,928 

10,568,661,208 

3,643,593,720 

33,520,774,182 

434,877 

460 ,150,000 

(460,089,400) 

60,600 

495,477 

$33,521,269,659 

FY 2007 

All Other Consolidated 

Funds Eliminations Total 

$29,877,180,462 

86,486,517 546,575,917 

2,460 (460 ,089,400) 5,030,791,837 

1,391,000,000 

3,573,541,000 

8,904,879 

3,287,842,000 

(1,128) 

86,488,977 (460,089,400) 13,838,654,505 

86,488,977 (460 ,089,400) 10,195,060,785 

3,643,593,720 

33,520,774,182 

8,469,010 8,903 ,887 

88,000,000 548,150,000 

(3,850,011 ) (3,850 ,011) 

(86,486 ,517) (546 ,575,917) 

(2,336,528) (2,275,928) 

6,132,482 6,627,959 

$6,132,482 $33,527,402,141 

The accompanying notes are an integral part of these financial statements. 

- 60 ­
 



 

Statement of Social Insurance (Note 15, Note 16) 

Actuarial Surplus or (Deficiency) 

75-year Projection as of January 1, 2007 

(Present values in millions of dollars) 

Unaudited Unaudited Unaudited 

1/1/2007 1/1/2006 1/1/2005 1/1/2004 1/1/2003 

Estimated future income (excluding interest) received from or on behalf of:

 Current participants not yet having attained retirement age $66,714 $64,980 $56,842 $55,778 $58,315

 Current participants who have attained retirement age 63,356 62,480 56,859 54,882 54,491

 Those expected to become participants 43,077 44,309 31,313 30,327 32,419

 Subtotal - future income for the 75-year period 173,147 171,770 145,014 140,986 145,225 

Estimated future expenditures:

 Current participants not yet having attained retirement age 85,958 84,068 72,927 71,803 72,976

 Current participants who have attained retirement age 92,755 91,734 84,054 81,128 80,374

 Those expected to become participants 25,518 24,966 15,783 13,912 13,789

 Subtotal - future expenditures for the 75-year period 204,231 200,767 172,764 166,843 167,139 

Estimated future excess of income over expenditures: (31,084) (28,997) (27,750) (25,857) (21,914) 

Fund balance: 31,991 29,976 28,570 26,616 22,679
 

Fund balance plus estimated future excess of income over expenditures: 907 979 820 759 765
 

- 63 -
Notes to the Financial Statements: Fiscal Years Ended September 30, 2007 and 2006 

1. Summary of Significant Accounting Policies 

A. Basis of Presentation 

Public Law 107-289, the Accountability of Tax Dollars Act of 2002, added the Railroad 

Retirement Board (RRB) as an agency required to prepare audited financial statements for 

fiscal year 2003 and subsequent years. Office of Management and Budget (OMB) guidance 

requires that Performance and Accountability Reports (P&AR) for fiscal year 2007 are to be 

submitted to the President, the Congress, and the Director of OMB by November 15, 2007. As 

required by law, OMB has also prescribed the form and content of financial statements under 

OMB Circular A-136. The RRB’s financial statements were prepared in accordance with the 

form and content prescribed by OMB and with generally accepted accounting principles and 

standards prescribed by the Federal Accounting Standards Advisory Board (FASAB). 

The principal statements (prepared on a consolidated basis, except for the Statement of 

Budgetary Resources which was prepared on a combined basis, and eliminating all significant 

interfund balances and transactions) are comprised of the Balance Sheet and Statements of Net 

Cost, Changes in Net Position, Budgetary Resources, and Social Insurance. These statements 

are different from the financial reports, also prepared by the RRB pursuant to OMB directives, 

used to monitor and control the RRB's use of budgetary resources. 

B. Reporting Entity 

The railroad retirement and the railroad unemployment and sickness insurance programs are 

financed through the following accounts: 

●	 Railroad Retirement (RR) Account (8011) funds retirement, survivor, and disability benefits 

in excess of social security equivalent benefits from payroll taxes on employers and 

employees and other income sources. Account 8011 is considered an earmarked fund. 

Our authority to use these collections is 45 United States Code (USC) §231(F)(c)(1). 

●	 Social Security Equivalent Benefit (SSEB) Account (8010) funds the portion of railroad 

retirement benefits equivalent to a social security benefit from various income sources 

related to these benefits. Account 8010 is considered an earmarked fund. Our authority to 

use these collections is 45 USC §231N-1(c)(1). 

●	 Dual Benefits Payments (DBP) Account (0111) funds the phase-out costs of certain vested 

dual benefits from general appropriations. Account 0111 is considered a general fund. Our 

authority to use these collections is 45 USC §231(N)(d). 

●	 Federal Payments to the Railroad Retirement Accounts (0113) was established by OMB, not 

by legislation, and is used as a conduit for transferring certain income taxes on benefits and 

receiving credit for the interest portion of uncashed check transfers. Account 0113 is 

considered an earmarked fund. This account has no basis in law. 

●	 Limitation on Administration Account (8237) pays salaries and expenses to administer the 

railroad retirement program and the railroad unemployment and sickness insurance 

program. This account is financed by the RR Account, the SSEB Account, and the Railroad 

- 64 -
Unemployment Insurance Trust Fund, Administrative Expenses. Account 8237 is 

considered an earmarked fund. Our authority to use these collections is 

45 USC §231N-1(c) and 45 USC §231N-(H). 

●	 Railroad Unemployment Insurance Trust Fund, Benefit Payments (8051.001) funds railroad 

unemployment and sickness insurance benefits from contributions by railroad employers. 

Account 8051.001 is considered an earmarked fund. Our authority to use these collections 

is 45 USC §360. 

●	 Railroad Unemployment Insurance Trust Fund, Administrative Expenses (8051.002) was 

established to pay salaries and expenses to administer the program. Account 8051.002 is 

considered an earmarked fund. This fund is financed by contributions from railroad 

employers. Monies are transferred from this fund, based on cost accounting estimates and 

records, to the Limitation on Administration Account (8237) from which salaries and 

expenses are paid for both the railroad retirement program and the railroad unemployment 

and sickness insurance program. Our authority to use these collections is 45 USC §361. 

●	 Limitation on the Office of Inspector General (8018) was established to fund the 

administration of the Inspector General's Office. Account 8018 is considered an earmarked 

fund. Our authority to use these collections is Public Law 110-5. 

●	 Savings Bonds Allotment (6050), and City and State Taxes (6275) were established as 

holding accounts for amounts withheld from employees' salaries but not yet paid to the 

appropriate institutions. 

C. Budgets and Budgetary Accounting 

Budget requests are prepared and submitted by the RRB in accordance with OMB Circular A-11 

and other specific guidance issued by OMB. The RRB prepares and submits to OMB 

Apportionment and Reapportionment Requests (SF-132) in accordance with OMB Circular A-11 

for all funds appropriated by the Congress or permanently appropriated. Although OMB may 

apportion funds by category, time period, or object class of expense, the RRB controls and 

allocates all apportioned funds by three-digit object class codes of expense. For budgetary 

accounting, all receipts are recorded on a cash basis of accounting and obligations are recorded 

against the object class codes when they are incurred, regardless of when the resources 

acquired are to be consumed. Obligations are amounts of orders placed, contracts awarded, 

services received, and similar transactions during a given period that will require payments 

during the same or a future period. Quarterly, the RRB prepares and submits Reports on 

Budget Execution (SF-133) to OMB, reporting all obligations incurred against the amounts 

apportioned. 

D. Basis of Accounting 

As required by law, the DBP Account is on a cash basis of accounting. Payroll taxes and 

unemployment contributions are recorded on a modified cash basis in accordance with 

Statement of Federal Financial Accounting Standards (SFFAS) No. 7. All other transactions are 

recorded on an accrual basis of accounting and a budgetary basis. Under the accrual method, 

revenues (except payroll taxes and unemployment contributions which are on a modified cash 

basis) are recognized when earned and expenses are recognized when a liability is incurred. 

For budgetary accounting, financial transactions are recorded when obligations are incurred, 

regardless of when the resources acquired are to be consumed. 

- 65 -
The accompanying consolidated financial statements of the RRB include all funds maintained 

by the RRB, after elimination of all significant interfund balances and transactions. 

E. Concepts 

The Fund Balance with Treasury (FBWT) is the aggregate amount of funds on deposit with the 

Treasury, excluding seized cash deposited. The FBWT is increased by (1) receiving 

appropriations, reappropriations, continuing resolutions, appropriation restorations, and 

allocations; and (2) receiving transfers and reimbursements from other agencies. It also is 

increased by amounts borrowed from the Bureau of the Public Debt (BPD), the Federal 

Financing Bank, or other entities, and amounts collected and credited to appropriation or fund 

accounts. The FBWT is reduced by (1) disbursements made to pay liabilities or to purchase 

assets, goods, and services; (2) investments in U.S. securities (securities issued by BPD or 

other Federal Government agencies); (3) cancellation of expired appropriations; (4) transfers 

and reimbursements to other entities or to the General Fund of the Treasury; and, 

(5) sequestration or rescission of appropriations. 

2. Related Parties 

The RRB has significant transactions with the following governmental and nongovernmental 

entities: 

●	 The Department of the Treasury (Treasury) collects payroll taxes from the railroads on 

behalf of the RRB. The taxes collected are credited by Treasury to the RRB’s trust fund 

account via an appropriation warrant. In fiscal years 2007 and 2006, net payroll taxes 

transferred to the RRB by Treasury were $4.7 billion each year. 

Treasury provides payment services to Federal agencies and operates collections and 

deposit systems. The RRB invests in government account securities through BPD. In fiscal 

years 2007 and 2006, investments, including accrued interest, totaled $1.3 billion and 

$1.2 billion, respectively. In addition, Treasury advances funds to the RRB for the financial 

interchange which are repaid annually. The amount paid by the RRB to Treasury in fiscal 

year 2007 due to the financial interchange advances during fiscal year 2006 included 

principal of $3.2 billion and interest of $178.7 million. The amount paid by the RRB to 

Treasury in fiscal year 2006 due to the financial interchange advances during fiscal year 

2005 included principal of $3.2 billion and interest of $170 million. 

●	 The Social Security Administration (SSA) and RRB participate in an annual financial 

interchange. The financial interchange is intended to place the social security trust funds in 

the same position in which they would have been had railroad employment been covered by 

the Social Security Act and Federal Insurance Contributions Act (FICA). In fiscal year 2007, 

the RRB trust funds realized $4.0 billion through the financial interchange. 

Under Section 7(b)(2) of the Railroad Retirement Act of 1974, the RRB is required to pay 

certain individuals, described in this section, monthly social security benefits on behalf of 

SSA. SSA reimburses the RRB for benefits paid on behalf of SSA. The amounts 

reimbursed in fiscal years 2007 and 2006 were almost $1.2 billion, each year. 

●	 The Centers for Medicare & Medicaid Services (CMS) participates in the annual financial 

interchange in the same manner as described for SSA. The RRB transferred $483 million 

- 66 -
and $471 million to CMS in fiscal years 2007 and 2006, respectively. In addition to the 

financial interchange transactions, CMS reimburses the RRB for certain expenses it incurs 

associated with administering the Medicare program. The amounts reimbursed in fiscal 

years 2007 and 2006 were $8.0 million and $7.2 million, respectively. 

●	 The General Services Administration (GSA) provides payroll processing and human 

resources services to the RRB. In addition, the RRB paid rent to GSA in the amounts of 

$3.4 million and $3.6 million for fiscal years 2007 and 2006, respectively. 

●	 The Department of Labor (DOL) invests Railroad Unemployment Insurance Act (RUIA) 

contributions. Accounts receivable with the DOL amounted to $109 million and 

$101.5 million for fiscal years 2007 and 2006, respectively. 

●	 The National Railroad Retirement Investment Trust (NRRIT) transfers funds to the RRB for 

payment of railroad retirement benefits. During fiscal years 2007 and 2006, the NRRIT 

transferred $1,391 million and $947 million, respectively, to the RR Account. The NRRIT 

holds and invests funds not immediately needed to pay benefits under the RRA. The net 

assets of the NRRIT are reported on the RRB’s balance sheet as a non-governmental 

investment. The RRB reports this information based on information provided by the NRRIT 

for that purpose. 

3. Fund Balances with Treasury 

Fund balances with Treasury at September 30 consisted of: 

2007 2006 

A. Fund Balances: 

(1) Trust Funds 	 $54,540,225 $15,554,765 

(2) General Funds 	 6,627,959 8,903,887 

(3) Other Fund Types 	 10,305 11,209

 Total 	 $61,178,489 $24,469,861 

B. Status of Fund Balance with Treasury (FBWT)

 (1) Unobligated Balance 

(a) Available 	 $ 1,959,099 $ 1,309,655

 (b) Unavailable 	 8,734,490 10,738,818 

(2) Obligated Balance not yet Disbursed	 50,474,595 12,410,179 

(3) Non-Budgetary FBWT 	 10,305 11,209

 Total 	 $61,178,489 $24,469,861 

C. Other Information: The above represents cash held in Treasury. Unobligated and obligated

 funds not held in cash are invested in Treasury securities. 

4. 	 Investments 

On September 30, 2007 and 2006, the book values of the RRB’s investments held at the 

Treasury, including accrued interest, totaled $1,323,596,381 and $1,203,713,506, respectively. 

The balance on September 30, 2007, consisted of $1,320,915,000 in 4.375 percent par value 

- 67 -
specials (with market value equal to face value) maturing on October 1, 2007, and $2,681,381 

in accrued interest. The balance on September 30, 2006, consisted of $1,200,466,000 in 

4.750 percent par value specials (with market value equal to face value) maturing on October 2, 

2006, and $3,247,506 in accrued interest. Par value specials mature on the first working day of 

the month following the month of issue and have a yield based on the average yield of 

marketable Treasury notes with maturity dates at least 3 years away. 

The investments in Treasury securities represent the investments of two of the RRB’s 

earmarked funds, the RR and the SSEB Accounts. 

The Federal Government does not set aside assets to pay future benefits or other expenditures 

associated with the RR and SSEB Accounts. The cash receipts from the railroads for the RR 

and SSEB Accounts are deposited in the Treasury, which uses the cash for general government 

purposes. Treasury securities are issued to the RRB as evidence of its receipts. Treasury 

securities are an asset to the RRB and a liability to the Treasury. Because the RRB and the 

Treasury are both parts of the government, these assets and liabilities offset each other from 

the standpoint of the government as a whole. For this reason, they do not represent an asset or 

a liability in the U.S. government-wide financial statements. 

Treasury securities provide the RRB with authority to draw upon the Treasury to make future 

benefit payments or other expenditures. When the RRB requires redemption of these securities 

to make expenditures, the government finances those expenditures out of accumulated cash 

balances, by raising taxes or other receipts, by borrowing from the public or repaying less debt, 

or by curtailing other expenditures. This is the same way that the government finances all other 

expenditures. 

5. NRRIT Net Assets 

The balance sheet amounts represent the net asset value of NRRIT assets, at market value, as 

of September 30, 2007 and 2006. These figures were provided to the RRB by the NRRIT for 

the fiscal year ended September 30, 2007. 

6. Accounts Receivable 

• Intragovernmental 

Accounts receivable - Intragovernmental at September 30 consisted of: 

2007 2006 

Financial Interchange – Principal $3,688,700,000 $3,631,000,000 

Financial Interchange – Interest 113,100,000 122,600,000 

Department of Labor 108,973,750 101,538,678 

Social Security Administration - OASI/DI Benefits 

(Old Age and Survivors Insurance/Disability Insurance) 227,158 127,973

 Total $3,911,000,908 $3,855,266,651 

- 68 -
• Accounts Receivable, Net 

Accounts receivable, net at September 30 consisted of: 

2007 2006 

Accounts receivable - Benefit overpayments $39,509,459 $36,638,586 

Accounts receivable – Past due RUI contributions and taxes 68,352 96,788 

Accounts receivable - Interest, penalty & administrative costs 252,460 254,498

 Total $39,830,271 $36,989,872 

Less: Allowances for doubtful accounts 7,308,755 6,638,901

 Net Total $32,521,516 $30,350,971 

The RRB’s September 30, 2007, accounts receivable balance (after writing-off currently not 

collectible (CNC) receivables but prior to the application of the allowance for doubtful accounts) 

of $39,830,271 includes $35,707,135 (90%) in railroad retirement program receivables and 

$4,123,136 (10%) in railroad unemployment insurance program receivables. The total 

allowance for doubtful accounts is $7,308,755. This includes $6,502,269 (89%) for the railroad 

retirement program and $806,486 (11%) for the unemployment insurance program receivables. 

The allowance for doubtful accounts for the railroad retirement program was calculated, 

excluding debts classified as CNC, as follows: (1) categorizing the accounts receivable by 

cause and age, (2) analyzing each category using historical data, (3) determining the 

percentage of amounts due the RRB that would probably not be collected, and (4) applying the 

determined percentages against accounts receivable. 

7. Inventory and Related Property 

Operating materials and supplies are valued on the cost basis. The recorded values are 

adjusted for the results of physical inventories taken periodically. Expenditures are recorded 

when inventories are consumed. 

8. General Property, Plant and Equipment 

These assets are stated at cost less accumulated depreciation/amortization. Acquisitions are 

capitalized if the cost is $5,000 or more and the service life is 2 years or greater. 

Depreciation/amortization is computed on the straight-line method. These assets consisted of: 

At September 30, 2007 

Service Accumulated Net 

Classes of Fixed Assets Lives Cost Depreciation Book Value 

Structures, facilities and leasehold 

 improvements 15 years $ 2,651,787 $ 2,580,470 $ 71,317 

ADP software 5 years 19,578,768 19,484,356 94,412 

Equipment 5-10 years 5,538,068 5,292,068 246,000 

Internal-Use Software in Development 959,580 0 959,580 

$28,728,203 $27,356,894 $1,371,309 

- 69 -
Classes of Fixed Assets 

Structures, facilities and leasehold 

 improvements 

ADP software 

Equipment 

Internal-Use Software in Development 

Service 

Lives 

15 years 

5 years 

5-10 years 

Cost 

$ 2,651,787 

19,539,768 

5,465,009 

959,580 

At September 30, 2006 

Accumulated 

Depreciation 

$ 2,538,506 

19,431,024 

5,175,598 

0 

Net 

Book Value 

$ 113,281 

108,744 

289,411 

959,580 

$28,616,144 $27,145,128 $1,471,016 

9. Liabilities 

Liabilities at September 30 consisted of: 

2007 2006 

Intragovernmental: 

 Other - Unfunded Federal Employees’ Compensation Act 

 Liability $ 385,281 $ 391,040 

Public: 

Other - Accrued Unfunded Leave $ 6,756,781 $ 6,563,472 

Total Liabilities Not Covered by Budgetary Resources $ 7,142,062 $ 6,954,512 

Total Liabilities Covered by Budgetary Resources 4,455,849,577 4,595,113,905 

Total Liabilities $4,462,991,639 $4,602,068,417 

• Debt 

Intragovernmental debt results from borrowing from Treasury to fund benefit payments from the 

SSEB Account. 

2007 2006 

Beginning Balance, Principal $2,958,200,000 $2,973,100,000

 New Borrowing 3,226,400,000 3,235,200,000

 Repayments (3,240,000,000) (3,250,100,000)

 Ending Balance, Principal 2,944,600,000 2,958,200,000

 Accrued Interest 72,872,732 71,801,471

 Total $3,017,472,732 $3,030,001,471 

• Benefits Due and Payable 

Benefits due and payable are accrued for all benefits to which recipients are entitled for the 

month of September, which, by statute, are not paid until October. Also, liabilities are accrued 

on benefits for past periods that have not completed processing, such as benefit payments due 

but not paid. The amounts include uncashed checks of $10,557,048 and $10,107,022, at 

September 30, 2007 and 2006, respectively. Under Public Law 100-86, the amount of RRB 

benefits represented by checks which remain uncashed for 12 months after the check issue 

date are credited (including interest thereon) to the accounts from which the checks were 

drawn. The principal amount of uncashed checks must remain in a liability account until the 

- 70 -
RRB determines that entitlement no longer exists or another check is issued to the beneficiary. 

Finally, a special workload of approximately 17,000 benefit cases, estimated at $7 to 

$11 million, has been identified and will be processed over the next few years. 

• Other Liabilities 

Other liabilities at September 30 consisted of: 

2007 2006 

Accrued Unfunded Liabilities $ 6,756,782 $ 6,563,472 

Accrued Payroll 2,867,018 2,835,839 

Accrued RRB Contributions – Thrift Savings Plan 55,148 54,172 

Withholdings Payable 29,719 26,020 

Contingent Liability (see Note 10 for details) 100,000,000 268,000,000 

Capital Lease Liability 4,132 112,578 

Other 445,647 427,993

 Total 	 $110,158,446 $278,020,074 

10. Commitments and Contingencies 

The RRB is involved in the following actions: 

●	 A transportation company filed a claim for refund of Railroad Retirement Tax Act (RRTA) or 

FICA taxes paid on lump-sum separation payments on the theory that such payments were 

supplemental unemployment benefits. The RRB’s legal counsel has determined that it is no 

longer probable but reasonably possible that the RR and SSEB Accounts are contingently 

liable for $86 million. Therefore the RRB fiscal year 2007 Balance Sheet no longer reflects 

the $86 million under other liabilities. 

●	 Several Class 1 railroads are party to a suit claiming a refund of RRTA or FICA taxes paid 

on lump-sum separation payments on the theory that such payments are supplemental 

unemployment benefits. The suit has been pending the outcome of the above case and the 

RRB’s legal counsel has determined that it is no longer probable but reasonably possible 

that the RR and SSEB Accounts are contingently liable for an estimated amount of 

$82 million. Therefore the RRB fiscal year 2007 Balance Sheet no longer reflects the 

$82 million under other liabilities. 

●	 A transportation company has appealed a U.S. District Court judgment in the amount of 

$3.2 million and the RRB’s legal counsel has determined that it is reasonably possible that 

the RR and SSEB Accounts are contingently liable for $3.2 million. No provision has been 

made in the accompanying financial statements regarding this judgment other than this 

disclosure. 

●	 In fiscal year 2005, we recorded a contingent liability in the amount of $100,000,000, for an 

estimated forthcoming adjustment to the financial interchange for military service credits due 

SSA. 

The total fiscal year 2007 contingent liability recorded is $100 million. 

- 71 -
●	 Several Class 1 railroads have filed claims for refund of taxes with the Internal Revenue 

Service (IRS). Based on prior experience, it is remote that the RR Account and the 

SSEB Account are contingently liable for an estimated amount of $1.2 billion. Under the 

anti-disclosure provision of the IRS code, we are not permitted to disclose any details 

related to these claims. No provision has been made in the accompanying financial 

statements regarding these claims other than this disclosure. 

11. Intragovernmental Costs and Exchange Revenue 

2007 2006 

Railroad Retirement (RR) Program 

 Intragovernmental Costs $ 207,049,278 $ 200,262,640 

 Public Costs 9,904,293,397 9,539,944,588 

 Total RR Program Costs $10,111,342,675 $9,740,207,228

 Intragovernmental Earned Revenue $ 8,015,913 $ 7,165,078 

 Public Earned Revenue 520,578 532,954

 Total RR Program Earned Revenue $ 8,536,491 $ 7,698,032 

Railroad Unemployment and Sickness Insurance ( RUIA) 

Program 

 Intragovernmental Costs $ 4,495,995 $ 4,663,731 

 Public Costs 112,855,274 114,276,541 

 Total RUIA Program Costs $ 117,351,269 $ 118,940,272

 Intragovernmental Earned Revenue $ 0 $ 0 

 Public Earned Revenue 24,854,898 28,259,164 

 Total RUIA Program Earned Revenue $ 24,854,898 $ 28,259,164 

These totals do not include $241,770 and $236,717 of earned revenues not attributable to either 

program for fiscal years 2007 and 2006, respectively. 

Intragovernmental costs (exchange transactions made between two reporting entities within the 

Federal government) are being reported separately from costs with the public (exchange 

transactions made between the reporting entity and a non-Federal entity). Intragovernmental 

exchange revenues (exchange transactions made between two reporting entities within the 

Federal government) are reported separately from exchange revenues with the public 

(exchange transactions made between the reporting entity and a non-Federal entity). 

Intragovernmental expenses relate to the source of goods and services purchased by the 

reporting entity, not to the classification of related revenue. 

12. Transfers To/From NRRIT 

The RRB received a total of $1,391 million and $947 million from the NRRIT during fiscal years 

2007 and 2006, respectively. These funds were received into the Railroad Retirement (RR) 

Account. Transfers were to fund the payment of benefits. 

- 72 -
13. Undelivered Orders at the End of the Period 

2007 2006 

Undelivered Orders 	 $7,988,215 $7,915,076 

14. Explanation of Material Differences Between the Combined Statement of Budgetary 

Resources and the Budget of the United States Government 

A reconciliation was completed of budgetary resources, obligations incurred, distributed 

offsetting receipts, and outlays, as presented in the Statement of Budgetary Resources, to 

amounts included in the Budget of the United States Government for the year ended 

September 30, 2006. A reconciliation was not performed for the period ended September 30, 

2007, since the RRB’s Performance and Accountability Report is published in November 2007, 

and OMB’s MAX system will not have actual budget data available until mid-December 2007. 

The Budget of the United States Government and the RRB’s Statement of Budgetary 

Resources differ because of the following transaction types: 

Fiscal Year 2006 

1. Combined Statement of Budgetary 

 Resources – September 30, 2006 

2. Unobligated Balance, Brought Forward 

 October 1, 2005 

3. Recoveries of Prior Year Unpaid Obligations 

4. Sickness Insurance Benefit Recoveries 

5. Administrative Expense Reimbursement 

6. Cancelled Authority 

7. Interfund Transfers: Federal Payment 

 Obligations – Income Taxes Collected 

 on Benefits (0113) 

8. Intrafund Transfers: Receipts from the 

Old-Age and Survivors Insurance (OASI) 

Trust Fund 

9. Intrafund Transfers: Receipts from the 

Disability Insurance (DI) Trust Fund 

Financial Interchange 

10. Financial Interchange – Cash vs. Accrual 

Adjustment 

11. Financial Interchange Settlement 

NRRIT 

12. NRRIT Obligations / Outlays 

13. Intrafund Transfers: NRRIT Transfer to 

RRA 

14. Proprietary Receipts: NRRIT – Gains and 

Losses 

15. Proprietary Receipts: NRRIT – Interest 

and Dividends 

16. Rounding 

17. Budget of the United States Government 

FY 2006 Actuals 

Budgetary 

Resources 

(in millions) 

$10,330 

(15) 

(1) 

(29) 

(8) 

4 

(466) 

(3,458) 

(388) 

987 

(947) 

(2,176) 

(485) 

$3,348 

Obligations 

Incurred 

(in millions) 

$10,318 

987 

(1) 

$11,304 

Distributed 

Offsetting 

Receipts 

(in millions) 

$3,934 

466 

(559) 

471 

947 

2,176 

485 

$7,920 

Net Outlays 

(in millions) 

$6,321 

(466) 

559 

(471) 

987 

(947) 

(2,176) 

(485) 

$3,322 

- 73 -
15. Social Insurance 

•	 Actuarial Surplus or (Deficiency) represents combined values for the RR Account, 

SSEB Account, and NRRIT. 

•	 Estimated future income (excluding interest) includes tier 1 taxes, tier 2 taxes, income taxes 

on benefits, financial interchange income, advances from general revenues, and 

repayments of advances from general revenues. 

•	 Estimated future expenditures include benefit and administrative costs. 

•	 A closed group estimate of the future excess of income over expenditures using the 

projected tax rates under employment assumption II may be obtained by subtracting future 

expenditures for current participants from future income for current participants. 

•	 Detail may not add to totals due to rounding. Employee and beneficiary status are 

determined as of 1/1/2006, whereas present values are as of 1/1/2007. 

Fund Balance 

The fund balance appears on the face of the statement because the size of the balance 

directly affects projected future cash flows. Lower fund balances lead to higher future tier 2 

tax rates and consequently higher tax income, while higher fund balances lead to lower 

tier 2 tax rates and lower tax income. 

The tier 2 tax rate is based on the Average Account Benefits Ratio (AABR). At the end of 

each fiscal year (September 30), an Account Benefits Ratio (ABR) is calculated by dividing 

the fair market value of the assets in the RR Account and the NRRIT (and for years before 

2002, the SSEB Account) as of the close of such fiscal year by the total benefits and 

administrative expenses paid from the RR Account and the NRRIT during such fiscal year. 

The AABR, with respect to any calendar year, is then calculated as the average of the 

account benefits ratios for the 10 most recent fiscal years ending before such calendar year. 

The January 1, 2007, fund balance does not include approximately $50 million of accrued 

interest and dividends and $15 million in miscellaneous adjustments related primarily to 

operating expenses of the NRRIT. The January 1, 2006, fund balance was not reduced for 

certain payables of the NRRIT, which were estimated to be less than $1 billion. 

Prior to 2006, certain accrual adjustments were included in the fund balances. In 2006, they 

were excluded to promote clarity and to be consistent with the account benefits ratio 

calculation, wherein the asset values do not include these accrual adjustments. If the 

accrual adjustments had been made as in prior years, the 1/1/2006 fund balance would 

have been $400 million higher. 

As stated earlier, a higher fund balance results in lower tax rates and consequently lower 

future tax income and a lower balance results in higher rates and income. This 

self-adjusting tax rate mechanism mitigates the effects of changes in the fund balance on 

the program’s net actuarial position. 

- 74 -
16. Significant Assumptions 

The estimates used in the Statement of Social Insurance and Required Supplementary 

Information are based on the assumption that the program will continue as presently 

constructed. The calculations assume that all future transfers required by current law under the 

financial interchange will be made. 

The estimates are also based on various economic, employment, and other actuarial 

assumptions. The ultimate economic assumptions are a 7.5 percent interest rate, a 3 percent 

annual increase in the cost of living, and a 4 percent annual wage increase. 

The employment assumption for the Statement of Social Insurance is employment 

assumption II, the intermediate employment assumption, as used in the 2007 Section 502 

Report. Under employment assumption II, starting with an average 2006 employment of 

237,000, (1) railroad passenger employment is assumed to remain level at 43,000, and (2) the 

employment base, excluding passenger employment, is assumed to decline at a constant 

annual rate of 2.5 percent for 25 years, at a reducing rate over the next 25 years, and remain 

level thereafter. 

Other actuarial assumptions are those published in the Technical Supplement to the 

“Twenty-Third Actuarial Valuation of the Assets and Liabilities Under the Railroad Retirement 

Acts as of December 31, 2004.” This may be found on the RRB’s website, www.rrb.gov. 

Actuarial assumptions published in the Twenty-Third Actuarial Valuation include: 

Table S-1. 2004 RRB Annuitants Mortality Table 

Table S-2. 2004 RRB Disabled Mortality Table for Annuitants with Disability Freeze 

Table S-3. 2004 RRB Disabled Mortality Table for Annuitants without Disability Freeze 

Table S-4. 1994 RRB Active Service Mortality Table 

Table S-5. 2004 RRB Spouse Total Termination Table 

Table S-6. Probability of a retired employee having a spouse eligible for railroad retirement 

benefits 

Table S-7. 1995 RRB Mortality Table for Widows 

Table S-8. 1997 RRB Remarriage Table 

Table S-9. 2004 RRB Total Termination Table for Disabled Children 

Table S-10. Calendar year rates of immediate age retirement 

Table S-11. Rates of immediate disability retirement and of eligibility for disability freeze 

Table S-12. Calendar year rates of final withdrawal 

Table S-13. Service months and salary scales 

Table S-14. Family characteristics of railroad employees assumed for the valuation of 

survivor benefits 

- 75 -


18. Apportionment Categories of Obligations Incurred: Direct vs. Reimbursable Obligations 

All RRB direct and reimbursable obligations are incurred against Category B apportionments. 

There are no RRB direct or reimbursable obligations incurred against Categories A or Exempt 

apportionments. 

The amounts of Category B direct and reimbursable obligations are reported on the face of the 

Statement of Budgetary Resources for fiscal years 2006 and 2007. 

This disclosure agrees with the aggregate of RRB direct and reimbursable obligations as 

reported on the RRB’s fiscal year 2007 year-end SF-133, Report on Budget Execution and 

Budgetary Resources, and lines 8A and 8B in the Statement of Budgetary Resources. 

19. Changes to Obligated and Unobligated Balances at the Beginning of the Fiscal Year 

There is no material change to either the unobligated or unpaid obligation balances at the 

beginning of fiscal year 2007 from the respective ending balances in these RRB accounts at 

September 30, 2006. The change to the unobligated balance and the balance of unpaid 

obligations at the beginning of fiscal year 2006 relate to the restatement of prior year balances 

associated with the capitalization of two operating leases. 

- 78 -

 UNAUDITED 
 

Required Supplementary Information 

Social Insurance 

Program Financing 

Payroll taxes paid by railroad employers and their employees are the primary source of funding 

for the railroad retirement-survivor benefit programs. Railroad retirement taxes, which have 

historically been higher than social security taxes, are calculated, like benefit payments, on a 

two-tier basis. Railroad retirement tier 1 payroll taxes are coordinated with social security taxes 

so that employees and employers pay tier 1 taxes at the same rate as social security taxes. In 

addition, both employees and employers pay tier 2 taxes that are used to finance railroad 

retirement benefit payments over and above social security levels. The tier 2 tax rate is based 

on the ratio of certain asset balances to the sum of benefit payments and administrative 

expenses. 

Revenues in excess of benefit payments are invested to provide additional trust fund income. 

The NRRIT oversees most investments, including all investments in non-governmental assets. 

Additional trust fund income is derived from the financial interchange (FI) with the social security 

trust funds, revenues from Federal income taxes on railroad retirement benefits, and 

appropriations from general treasury revenues provided after 1974 as part of a phase-out of 

certain vested dual benefits. 

The financial interchange between the railroad retirement and social security systems is 

intended to put the Social Security Administration (SSA) Federal Old-Age, Survivors, and 

Disability Insurance (FOASI/DI) trust funds and the Centers for Medicare and Medicaid Services 

(CMS) Federal Hospital Insurance (FHI) trust fund in the same position they would have been 

had railroad employment been covered under the Social Security and Federal Insurance 

Contributions Acts. It follows that all computations under the FI are performed according to 

social security law. The amount of benefits payable under the RRA has no effect on the results. 

Placing the social security trust funds in the same position they would have been had railroad 

employment been covered under social security since its inception involves computing the 

amount of social security payroll and income taxes relating to railroad employment and 

computing the amount of additional benefits which social security would have paid to railroad 

retirement beneficiaries during the same fiscal year. In the computation of the latter amount, 

credit is given for any social security benefits actually paid to railroad retirement beneficiaries. 

When benefit reimbursements exceed payroll and income taxes, the difference, with an 

allowance for interest and administrative expenses, is transferred from the social security trust 

funds to the SSEB Account. If taxes exceed benefit reimbursements, a transfer would be made 

in favor of the social security trust funds. 

On a present value basis, funds provided through the FI are expected to equal $73,405 million, 

or 42.4 percent of the estimated future income of $173,147 million. 

- 80 -
 UNAUDITED 
 

Benefits 

Full age annuities are payable at age 60 to workers with 30 years of service. For those with 

less than 30 years of service, reduced annuities are payable at age 62 and unreduced annuities 

are payable at full retirement age, which is gradually rising from 65 to 67, depending on year of 

birth. Disability annuities can be paid on the basis of total or occupational disability. Annuities 

are also payable to spouses and divorced spouses of retired workers and to widow(er)s, 

surviving divorced spouses, remarried widow(er)s, children, and parents of deceased railroad 

workers. Qualified railroad retirement beneficiaries are covered by Medicare in the same way 

as social security beneficiaries. 

Jurisdiction over the payment of retirement and survivor benefits is shared by the RRB and 

SSA. The RRB has jurisdiction over the payment of retirement benefits if the employee had at 

least 10 years of railroad service, or 5 years if performed after 1995; for survivor benefits, there 

is an additional requirement that the employee’s last regular employment before retirement or 

death was in the railroad industry. If a railroad employee or his or her survivors do not qualify 

for railroad retirement benefits, the RRB transfers the employee’s railroad retirement credits to 

SSA, where they are treated as social security credits. 

Program Finances and Sustainability 

The RRB must submit to the President and the Congress a report on the actuarial status of the 

railroad retirement system. Projections are made of the various components of income and 

outgo under three employment assumptions. 

The Statement of Social Insurance presents an actuarial analysis of the financial position of the 

railroad retirement system as of January 1, 2007. The figures in the table are based on the 

2007 Section 502 Report extended through calendar year 2081. The present values in the table 

are based on estimates of income and expenditures through the year 2081. The estimates 

include income and expenditures related to future participants as well as to former and present 

railroad employees. The present values are computed on the basis of economic and 

demographic assumptions and employment assumption II, the intermediate employment 

assumption, as used in the 2007 Section 502 Report. Under employment assumption II, 

starting with an average 2006 employment of 237,000, (1) railroad passenger employment is 

assumed to remain level at 43,000, and (2) the employment base, excluding passenger 

employment, is assumed to decline at a constant annual rate of 2.5 percent for 25 years, at a 

reducing rate over the next 25 years, and remain level thereafter. 

Actuarial Estimates: Actuarial estimates of the long-range financial condition of the railroad 

retirement program are presented here. Throughout this section, the following terms will 

generally be used as indicated: 

•	 Income: sources of income are payroll taxes, income taxes, interest income, and 
 

financial interchange transfers. 
 

- 81 -
 UNAUDITED 
 

•	 Income excluding interesta: income, as defined above, excluding the interest income 

from assets of the trust fund. 

•	 Expenditures: benefit payments and administrative expenses. 

•	 Cashflow: either (1) income excluding interest or (2) expenditures, depending on the 

context, expressed in nominal dollars. 

•	 Net Cashflow: income excluding interest less expenditures, expressed in nominal 

dollars. 

The Statement of Social Insurance and the required supplementary information below are 

based on actuarial and economic assumptions used in the 2007 Section 502 Report extended 

through calendar year 2081, the RRA, and the Railroad Retirement Tax Act. This information 

includes: 

(1) actuarial present values of future estimated expenditures for and estimated income from, 

or on behalf of, current and future program participants; 

(2) estimated annual income excluding interest and expenditures in nominal dollars and as 

a percentage of taxable payroll; 

(3) the ratio of estimated annuitants to estimated full time employees, showing the 
 

relationship between the program’s benefit recipients and taxpayers; and 
 

(4) an analysis of the sensitivity of the projections to changes in selected assumptions, 

which is included in recognition of the inherent uncertainty of those assumptions. 

Estimates are generally based on a 75-year projection period. Estimates extending far into the 

future are inherently uncertain, with uncertainty greater for the more distant years. 

a References to interest income in this section may be considered as referring to total investment income including 

dividends and capital gains. 

- 82 -
 UNAUDITED 

Chart 1: Estimated Income and Expenditures 

$0 

$10,000 

$20,000 

$30,000 

$40,000 

$50,000 

$60,000 

$70,000 

$80,000 

(millions) 

Expenditures 

Income Excluding Interest 

Income 

2007 2012 2017 2022 2027 2032 2037 2042 2047 2052 2057 2062 2067 2072 2077 

Cashflow Projections – Chart 1 shows actuarial estimates of railroad retirement annual income, 

income excluding interest, and expenditures for 2007-2081 in nominal dollars. The estimates 

are for the open-group population, which includes all persons projected to participate in the 

railroad retirement program as railroad workers or beneficiaries during the period. Thus, the 

estimates include payments from, and on behalf of, those who will be employed by the railroads 

during the period as well as those already employed at the beginning of the period. They also 

include expenditures made to, and on behalf of, such workers during that period. 

As Chart 1 shows, annual expenditures begin to exceed annual income in 2015. This continues 

for a few years, but by 2021 income is once again greater than expenditures. This remains true 

throughout the remainder of the projection period. Without investment income, however, annual 

expenditures are always greater than annual income. Reasons for this pattern include 

participant demographics, the assumed drop in railroad employment, and the automatic tier 2 

tax rate adjustment mechanism. The combined balance of the NRRIT, RR Account, and 

SSEB Account never becomes negative largely because (i) a sufficient balance exists at the 

beginning of the projection period and (ii) tier 2 tax rates respond automatically to changing 

account balances. 

Percentage of Taxable Payroll – Chart 2 shows estimated annual income excluding interest and 

expenditures for the railroad retirement program expressed as percentages of taxable payroll. 

Benefits and administrative expenses as a percentage of payroll increase through 2019 

primarily due to the anticipated retirement of a large percentage of the current workforce 

combined with the projected decline in railroad employment. Except for the income from tier 1 

payroll taxes, the sources of income vary as a percentage of payroll. 

- 83 -
 UNAUDITED 

Chart 2: Estimated Railroad Retirement Income Excluding Interest and Expenditures as a Percent of Taxable Tier 2 
 

Payroll
 


90% 

80% 

70% 

60% 

50% 

40% 

30% 

0% 

10% 

20% 

2007 2012 2017 2022 2027 

Expenditures 

Income Excluding Interest 

2032 2037 2042 2047 2052 2057 2062 2067 2072 2077 

Sensitivity Analysis – The projections of the future financial status of the railroad retirement 

program depend on many economic and demographic assumptions including rail employment, 

inflation, wage increase, investment return, age retirement, disability retirement, withdrawal, 

active service mortality, beneficiary mortality, total termination, probability of spouse, 

remarriage, family composition, disability freeze, service patterns, and salary scales. Because 

perfect long-range projections are impossible, this section is included to illustrate the sensitivity 

of the long-range projections to changes in certain key assumptions that have the greatest 

impact on the results. All present values are calculated as of January 1, 2007, and are based 

on estimates of income and expenditures during the projection period 2007-2081. 

Employment: Average employment in the railroad industry has generally been in decline for 

some years. This decline is expected to continue. Since employment is a key consideration, 

projections of income and expenditures using three different employment assumptions have 

been made. The Statement of Social Insurance uses employment assumption II, the 

intermediate assumption, but this section compares results under the three assumptions. For 

all three cases, the average employment for the year 2006 is equal to 237,000. Employment 

assumptions I and II, based on a model developed by the Association of American Railroads, 

assume that (1) passenger employment will remain at the level of 43,000, and (2) the 

employment base, excluding passenger employment, will decline at a constant annual rate 

(1.0 percent for assumption I and 2.5 percent for assumption II) for 25 years, at a reducing rate 

over the next 25 years, and remain level thereafter. Employment assumption III differs from 

employment assumptions I and II by assuming that (1) passenger employment will decline by 

500 per year until a level of 35,000 is reached and then remain level, and (2) the employment 

base, excluding passenger employment, will decline at a constant annual rate of 4.0 percent for 

25 years, at a reducing rate over the next 25 years, and remain level thereafter. Employment 

assumptions I, II, and III are intended to provide an optimistic, moderate, and pessimistic 

outlook, respectively. 

Under all three employment assumptions, no cashflow problems occur throughout the entire 

period. Table 1 shows the excess of assets and the present value of income over the present 

value of expenditures for the three employment assumptions. 

- 84 -
 UNAUDITED 
 

Table 1 

Excess of Assets and Present Value of Income over Present Value of Expenditures for 

Three Employment Assumptions, 2007-2081 

(in millions)

 Employment Assumption I II III

 Present Value $1,235 $ 907 $ 710 

Average Tier 2 tax ratea 13.5% 15.3% 17.6%

 aAverage combined employer/employee tier 2 tax rate is calculated by dividing the

 present value of tier 2 taxes by the present value of tier 2 payroll. 

Chart 3a: Combined Balance of the RR Account, NRRIT and SSEB Account under Three Employment Assumptions 

$0 

$50,000 

$100,000 

$150,000 

$200,000 

$250,000 

(millions) 

Employment Assumption I 

Employment Assumption II 

Employment Assumption III 

2007 2012 2017 2022 2027 2032 2037 2042 2047 2052 2057 2062 2067 2072 2077 

Chart 3a shows the combined balance of the accounts under each of the three employment 

assumptions. Note that the combined account balance is positive throughout the entire period 

for all three assumptions. 

Chart 3b shows the tier 2 tax rate under these employment assumptions. The tax rate reaches 

the minimum in 2038 under employment assumption I but then increases again slightly starting 

in 2061 through 2071 before dropping back down to the minimum again in 2072. The tax rate 

does not reach the minimum until 2062 under employment assumption II. Under employment 

assumption III, the tax rate reaches the maximum in 2039, remaining at that level through 2058, 

and then decreases until it reaches the minimum in 2074. 

- 85 -
 UNAUDITED 

Chart 3b: Tier 2 Tax Rate under Three Employment Assumptions 

30.0% 

25.0% 

20.0% 

15.0% 

10.0% 

Employment Assumption I 

Employment Assumption II 

5.0% Employment Assumption III 

0.0% 

2007 2012 2017 2022 2027 2032 2037 2042 2047 2052 2057 2062 2067 2072 2077 

The tier 2 tax rate for each year is determined by the average account benefits ratio, which is 

the average for the ten most recent fiscal years of the ratio of fair market value of assets in the 

RR Account and NRRIT (and for years before 2002, the SSEB Account) to the total benefits and 

administrative expenses paid from the RR Account and the NRRIT. Therefore, the tier 2 tax 

rate will be affected by employment assumption. The tier 2 tax rate adjustment mechanism 

promotes but does not guarantee solvency. The tier 1 tax rate does not vary by employment 

assumption. 

Interest rates: Since investments may include non-governmental assets such as equity and 

debt securities as well as governmental securities, it is worthwhile to examine the effects of 

future rates of investment return. In addition to the interest rate of 7.5 percent used for our 

projections, we show the effect on the combined accounts of an interest rate of 4 percent and 

an interest rate of 11 percent. Table 2 shows the excess of assets and the present value of 

income over the present value of expenditures for the three interest rate assumptions. If the 

tier 2 tax rate were fixed, the actuarial surplus would increase with increasing investment return. 

However, the tier 2 tax rate adjusts to changing account balances, resulting in the highest 

average tax rate under the 4 percent scenario and the lowest average tax rate under the 

11 percent scenario. Under the 7.5 percent scenario, the tax rate adjustment mechanism keeps 

the system in close actuarial balance. Under the 11 percent scenario, the tax rate is limited to a 

minimum value, resulting in a higher surplus. Under the 4 percent scenario, the tax rate 

reaches a maximum value and then remains at that value longer than is needed, resulting in the 

highest actuarial surplus. 

The tier 2 tax rate remains at the maximum longer than is needed largely because of the 

10-year average in the Average Account Benefits Ratio, as required by law. Use of the 10-year 

averaging effectively sacrifices some responsiveness for the sake of stability and smoothness. 

- 86 -
 UNAUDITED 
 

Table 2 
 

Excess of Assets and Present Value of Income over Present Value of Expenditures for 
 

Three Interest Rate Assumptions, 2007-2081
 


(in millions)

 Interest Rate Assumption 4% 7.5% 11%

 Present Value $9,336 $ 907 $4,142 

Average Tier 2 tax rate 19.6% 15.3% 11.9% 

Chart 4a: Combined Balance of the RR Account, NRRIT and SSEB Account under Three Interest Assumptions 

($20,000) 

$0 

$20,000 

$40,000 

$60,000 

$80,000 

$100,000 

$120,000 

$140,000 

$160,000 

$180,000 

$200,000 

$220,000 

$240,000 

(millions) 

4% Interest 

7.5% Interest 

11% Interest 

2007 2012 2017 2022 2027 2032 2037 2042 2047 2052 2057 2062 2067 2072 2077 

Chart 4a shows the combined account balance under the three interest rate assumptions for the 

projection period. At a 4 percent interest rate, the account balance reaches its lowest value in 

2026, although it never becomes negative. After that it continues to increase. With a 

7.5 percent interest rate, the account balance increases through 2014, decreases from 2015 to 

2020, and increases thereafter. An 11 percent interest rate results in a combined balance that 

increases throughout the projection period. Although the 4 percent scenario shows the lowest 

account balance at the end of the projection period, the concurrent use of a 4 percent discount 

rate results in the highest surplus on January 1, 2007. 

Chart 4b shows the tier 2 tax rate under the same three interest assumptions. With a 4 percent 

interest rate, the maximum tier 2 tax rate applies from 2027 until 2039. With the 7.5 percent interest 

rate, the maximum tax rate will never be paid, and the minimum tax rate is paid starting in 2062. 

With an 11 percent interest rate, the maximum tax rate is never applicable, and the minimum tax 

rate is paid beginning in 2022. As mentioned above, the tier 2 tax rate is determined based on the 

ratios of asset values to benefits and administrative expenses, so it will be affected by investment 

return, but tier 1 tax rates will not. 

- 87 -
 UNAUDITED 

Chart 4b: Tier 2 Tax Rate under Three Interest Assumptions 

0.0% 

5.0% 

10.0% 

15.0% 

20.0% 

25.0% 

30.0% 

4% Interest 

7.5% Interest 

11% Interest 

2007 2012 2017 2022 2027 2032 2037 2042 2047 2052 2057 2062 2067 2072 2077 

Ratio of Beneficiaries to Workers: Chart 5 shows the estimated number of annuitants per 

full-time employee under all three employment assumptions. The average number of annuitants 

per employee for employment assumption I is highest in 2007. For assumptions II and III, the 

ratio is highest in 2022 and 2033, respectively. For all three employment assumptions, the 

average number of annuitants per employee declines to around 1.7 by the end of the projection 

period. The convergence in number of annuitants per employee at the end of the projection 

period results primarily from level employment projected in the latter years under all three 

employment assumptions. 

Chart 5: Average Number of Annuitants per Full-Time Employee 

4.50 

4.00 

3.50 

3.00 

2.50 

2.00 

1.50 

1.00 

0.50 

Employment Assumption I 

Employment Assumption II 

Employment Assumption III 

0.00 

2007 2012 2017 2022 2027 2032 2037 2042 2047 2052 2057 2062 2067 2072 2077 

- 88 -

UNITED STATES RAILROAD RETIREMENT BOARD 
 

OFFICE OF INSPECTOR GENERAL 
 

To the Board Members: 

The following report presents the results of the Office of Inspector General’s (OIG) 

audits of the financial statements of the Railroad Retirement Board (RRB) as of and for 

the fiscal years ended September 30, 2007 and 2006. 

OPINION ON THE FINANCIAL STATEMENTS 

We have audited the accompanying balance sheet of the RRB as of 

September 30, 2007 and 2006; the related statements of net cost, changes in net 

position, and budgetary resources for the years then ended; and the statements of 

social insurance as of January 1, 2007 and 2006. 

We did not audit the financial statements of the National Railroad Retirement 

Investment Trust (NRRIT). The net assets of the NRRIT represent approximately 86% 

and 85% of the total assets reported by the RRB for fiscal years 2007 and 2006, 

respectively. NRRIT assets represent approximately 97% and 96% of the reported 

Railroad Retirement program’s social insurance fund balance as of January 1, 2007 

and 2006, respectively. Related changes in the net value of investments held by the 

NRRIT represent approximately 24% and 15% of the financing sources reported by the 

RRB for fiscal years 2007 and 2006, respectively. 

Pursuant to the Railroad Retirement and Survivors’ Improvement Act of 2001, the 

NRRIT retains the services of an independent auditor to opine on its financial 

statements. With respect to the assets of the NRRIT as of September 30, 2007, 

September 30, 2006, January 1, 2007 and January 1, 2006, the financial data of the 

NRRIT were audited by other auditors whose reports have been furnished to us, and 

our opinion, insofar as it relates to the amounts included for the NRRIT, is based solely 

on the report of the other auditors. 

In our opinion, the financial statements of the RRB referred to above, including the 

accompanying notes, present fairly, in all material respects, in conformity with U.S. 

generally accepted accounting principles, the financial position of the RRB, its 

consolidated net cost of operations and changes in net position, and combined 

budgetary resources as of and for the fiscal years ended September 30, 2007, and 2006; 

and the financial condition of the Railroad Retirement program as of January 1, 2007 and 

2006. 

As described in the statement and related notes, the statement of social insurance 

presents the actuarial present value of the future income to be received, and 

expenditures to be paid to or on behalf of participants in the Railroad Retirement program 

during a period sufficient to illustrate the program’s long-term sustainability. In preparing 

the statement of social insurance, management considers and selects assumptions and 

844 N RUSH STREET CHICAGO IL 60611-2092 Printed on recycled paper with soy ink 

- 90 -
Auditor’s Report Page 2 

data that it believes provide a reasonable basis for the assertions in the statement. 

However, because of the large number of factors that affect the statement of social 

insurance and the fact that future events and circumstances cannot be known with 

certainty, there will be differences between the estimates in the statement of social 

insurance and the actual results, and those differences may be material. 

The RRB’s statement of social insurance presents the fund balance of the Railroad 

Retirement program and the related estimate of actuarial surplus which is computed 

by adding the fund balance to the estimated excess (or shortfall) of the present value 

of future income over the present value of future revenue for the 75 year projection 

period. These additional line items are presented to ensure that a reader would not 

be misled about the financial condition of the program. The program’s current 

financing structure creates an inverse relationship between income and program 

assets; thus, the financial condition of the program cannot be understood without 

direct reference to the fund balance and the related actuarial surplus or deficiency. 

This relationship is disclosed in Note 15 to the financial statements. 

Emphasis of Matters 

The RRB discloses transactions with related parties in Note 2 to the financial 

statements. The RRB, Social Security Administration and Centers for Medicare and 

Medicaid Services are parties to a financing arrangement described as a financial 

interchange. Under this arrangement, transfers-in from the Social Security 

Administration’s Old-Age and Survivors Insurance and Disability Insurance trust funds 

and transfers-out to the Federal Health Insurance trust fund represent approximately 

$3.6 billion (net), or approximately 26% of the approximately $13.8 billion in total 

financing sources reported on the RRB’s statement of changes in net position for 

FY 2007. 

REPORT ON INTERNAL CONTROL 

In planning and performing our audit, we considered the RRB’s internal control over 

financial reporting and compliance.1 We did this to determine our procedures for 

auditing the financial statements and to comply with OMB audit guidance, not to 

express an opinion on internal control. Accordingly, we do not express an opinion on 

internal control over financial reporting and compliance or on management’s assertion 

on internal control included in Management’s Discussion and Analysis. 

With respect to previously reported control deficiencies, our current-year evaluation 

disclosed that RRB management has completed action to strengthen controls over 

performance measurement, the actuarial projection process and compliance with the 

Prompt Payment Act. Agency efforts to correct weaknesses in its information 

security program are not yet complete and the previously reported material 

weakness continues to exist. We will also continue to identify financial reporting as 

an area of significant deficiency until recently implemented controls have been in 

place and operating for a period sufficient to permit evaluation. 

1

 The definition of internal control as it relates to the basic financial statements is presented in the 

footnotes on page 5. 

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Auditor’s Report Page 3 

Our evaluation of internal control during FY 2007 disclosed a material weakness, not 

previously reported, in the method used to develop the social insurance fund 

balance for the Railroad Retirement program.2 

Although not considered to be material weaknesses or significant deficiencies, we 

will report other matters involving internal control and its operation to RRB 

management in a separate letter. 

Material Weaknesses 

Information Security 

During FY 2007, the OIG evaluated information security pursuant to the provisions of the 

Federal Information Security Management Act.3

 Our review disclosed continued 

weaknesses in many areas of the RRB’s information security program. Significant 

deficiencies in program management and access controls make the agency’s information 

security program a source of material weakness in internal control. 

RRB efforts to strengthen information security continue and progress is being made; 

however, previously identified significant deficiencies in access controls, risk 

assessments, and periodic testing and evaluation continue to exist. In addition, the 

agency’s information security program is not yet fully compliant with current 

requirements for risk based policies and procedures, a certification and accreditation 

program, a comprehensive remedial action process, continuity of operations planning, 

and inventory of systems. 

Agency management is working to address the weaknesses in its information security 

program. Although some progress has been made, much work remains to be 

completed. 

Social Insurance Fund Balance 

The RRB does not have a consistent theory under which it computes the Railroad 

Retirement program’s fund balance for social insurance reporting. 

The actuarial assumptions and methods used to measure amounts in the statement of 

social insurance for financial accounting and disclosure purposes should represent the 

2

A material weakness is a significant deficiency, or combination of significant deficiencies, that results 

in more than a remote likelihood that a material misstatement of the financial statements will not be 

prevented or detected. A significant deficiency is a control deficiency, or combination of control 

deficiencies, that adversely affects the entity’s ability to initiate, authorize, record, process or report 

financial data reliably in accordance with generally accepted accounting principles (GAAP) such that 

there is more than a remote likelihood that a misstatement of the entity’s financial statements that is 

more than inconsequential will not be prevented or detected. A control deficiency exists when the 

design or operation of a control does not allow management or employees, in the normal course of 

performing their assigned functions, to prevent or detect misstatements on a timely basis. 

3

 “Fiscal Year 2007 Evaluation of Information Security at the Railroad Retirement Board,” OIG Report 

#07-08, September 27, 2007. 

- 92 -
Auditor’s Report Page 4 

agency’s best estimates. The program fund balance at the beginning of the period is 

important because it impacts estimated future tax rates on which estimates of future 

income are based. In addition, the availability of the fund balance to offset any long 

term estimated actuarial liability created by a shortfall of income over expense is 

important to understanding the financial condition of the Railroad Retirement program. 

During our audit, we observed that the RRB had used different methods to compute its 

social insurance fund balance as of January 1, 2006, compared with January 1, 2007, 

including some amounts previously excluded and excluding other amounts that had 

been previously included. The impact of the social insurance fund balance on actuarial 

projections of income and expense for the Railroad Retirement program is described in 

Note 15 to the financial statements. 

The RRB’s actuarial projections also include estimates of future tax rates. Inquiries of 

management disclosed that neither the 2006 nor the 2007 fund balance had been 

computed on the same basis used to compute tax rates under the account benefit ratio 

method for which purpose the agency includes the net assets of the NRRIT as 

computed under generally accepted accounting principles (GAAP) for private 

investment companies, the same method used to report on NRRIT-held assets in the 

RRB’s balance sheet. 

Inconsistencies in fund balance methodology undermine management’s assertion of 

best estimate and make comparative presentation less meaningful. We are in the 

process of discussing this finding with responsible agency management and expect to 

make a formal recommendation for corrective action at a later date. 

Significant Deficiencies 

Financial Reporting 

Over the years agency responsibility for financial reporting has grown from preparation 

of financial statements within six months of fiscal year-end, to publication of an annual 

performance and accountability report within 45 days of fiscal year-end. Publication of 

that report is an exercise in public accountability of which preparation of accurate, 

reliable financial statements is but a single part. 

The Bureau of Fiscal Operations (BFO) is responsible for preparing agency financial 

statements and publishing the RRB’s annual performance and accountability report. 

During our FY 2006 audit, we observed that existing procedures and controls over its 

financial reporting process needed to be updated to fully ensure the quality of the 

RRB’s response to the expanding responsibilities and short timeframes inherent to the 

Federal financial reporting process. We also observed that the existing control 

framework was overly reliant on the OIG’s annual audit of the financial statements to 

ensure the completeness and accuracy of the performance and accountability 

report. 

- 93 -
Auditor’s Report Page 5 

During FY 2007, we found the agency-reporting process much improved by the 

efforts of BFO management and staff. BFO responded to the OIG’s prior year 

finding by implementing OIG-recommended corrective actions and by implementing 

an enhanced year-end financial statement review process of their own design. 

Although the process has been strengthened, the corrective action has not yet been 

in operation for a full fiscal year. Accordingly, the OIG continues to cite financial 

reporting as an area of significant deficiency in internal control pending a full year of 

experience demonstrating the effectiveness of controls over time. 

COMPLIANCE WITH LAWS AND REGULATIONS 

Our tests of compliance with selected provisions of laws and regulations disclosed 

no instances of non-compliance that are reportable under U.S. generally accepted 

government auditing standards or OMB guidance. However, the objective of our 

audit was not to provide an opinion on overall compliance with laws and regulations. 

Accordingly, we do not express such an opinion. 

CONSISTENCY OF OTHER INFORMATION 

Management’s Discussion and Analysis, required supplementary information, and other 

accompanying information contain a wide range of data, some of which are not directly 

related to the financial statements. We did not audit and do not express an opinion on 

this information. However, we compared this information for consistency with the 

financial statements and discussed the methods of measurement and presentation with 

RRB officials. Based on this limited work, we found no material inconsistencies with the 

financial statements or nonconformance with OMB guidance. 

OBJECTIVES, SCOPE, AND METHODOLOGY 

RRB management is responsible for (1) preparing the annual financial statements in 

conformity with U.S. generally accepted accounting principles, (2) establishing, 

maintaining, and assessing internal control to provide reasonable assurance that the 

broad control objectives of the Federal Managers’ Financial Integrity Act (FMFIA) are 

met, and (3) complying with applicable laws and regulations.4 

We are responsible for obtaining reasonable assurance about whether the financial 

statements are presented fairly, in all material respects, in conformity with U.S. 

generally accepted accounting principles. We are also responsible for (1) obtaining 

4

Internal Control as it relates to the financial statements is a process, affected by the agency's 

management and other personnel, designed to provide reasonable assurance that the following 

objectives are met: (1) Reliability of financial reporting - transactions are properly recorded, 

processed, and summarized to permit the preparation of the Basic Statements in accordance 

with generally accepted accounting principles, and assets are safeguarded against loss from 

unauthorized acquisition, use, or disposition; and (2) Compliance with applicable laws, 

regulations, and government-wide policies - transactions are executed in accordance with laws 

governing the use of budget authority, government-wide policies, and laws identified by OMB, 

and other laws and regulations that could have a direct and material effect on the Basic 

Statements. 

- 94 -
Auditor’s Report 	 Page 6 

a sufficient understanding of internal control over financial reporting and compliance 

to plan the audit, (2) testing compliance with selected provisions of laws and 

regulations that have a direct and material effect on the financial statements, and 

any other laws for which OMB audit guidance requires testing; and (3) performing 

limited procedures with respect to certain other information appearing in these 

annual financial statements. In order to fulfill these responsibilities, we: 

	 	 examined, on a test basis, evidence supporting the amounts and disclosures 

in the proprietary and budgetary financial statements; 

•	 assessed the accounting principles used and significant estimates made by 

management in preparing the proprietary and budgetary financial statements; 

•	 assessed the factors, data, assumptions and model used to prepare the longterm actuarial projections presented in the statement of social insurance; 

•	 	 evaluated the overall presentation of the financial statements; 

•	 obtained an understanding of the entity and its operations, including its 

internal control related to financial reporting, compliance with laws and 

regulations (including execution of transactions in accordance with budget 

authority); 

•	 obtained an understanding of the recording, processing, and summarizing of 

performance measures as reported in Management’s Discussion and 

Analysis; 

•	 tested relevant internal controls over financial reporting and compliance, and 

evaluated the design and operating effectiveness of internal control; 

•	 considered the process for evaluating and reporting on internal control and 

financial management systems under the FMFIA; and 

•	 performed tests of compliance with selected provisions of laws and 

regulations, including laws governing the use of budget authority, and other 

laws and regulations that could have a direct and material effect on the 

RRB’s basic financial statements: 

o	 	 Anti-Deficiency Act, as amended; 

o	 	 provisions of the Railroad Retirement Act governing financing and the 

payment of benefits; 

o	 	 provisions of the Railroad Unemployment Insurance Act governing 

financing and the payment of benefits; and 

o	 	 provisions of the Social Security Act that provide for certification of 

benefits to the RRB for payment (42 U.S.C. § 405(i)). 

We did not evaluate all internal controls relevant to operating objectives as broadly 

defined by the FMFIA, such as controls relevant to preparing statistical reports and 

ensuring efficient operations. We limited our internal control testing to controls over 

financial reporting and compliance. Because of inherent limitations in internal 

control, misstatements due to error or fraud, losses, or noncompliance may 

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Auditor’s Report Page 7 

nevertheless occur and not be detected by our audit. We also caution that 

projecting our evaluation to future periods is subject to the risk that controls may 

become inadequate because of changes in conditions or that the degree of 

compliance with controls may deteriorate. We also caution that our internal control 

testing may not be sufficient for other purposes. 

We did not test compliance with all laws and regulations applicable to the RRB. We 

limited our tests of compliance to those laws and regulations that had a direct and 

material impact on the RRB’s financial statements or that we deemed otherwise 

applicable to the financial statements for the fiscal year ended September 30, 2007. 

We caution that noncompliance may occur and not be detected by these tests and 

that such testing may not be sufficient for other purposes. 

The NRRIT was established pursuant to the Railroad Retirement and Survivors’ 

Improvement Act of 2001 (Public Law 107-90). Under that law, the NRRIT is not a 

department, agency or instrumentality of the Government of the United States. In 

addition, the law specifically exempts the NRRIT from compliance with Title 31, 

United States Code which governs the monetary and financial operations of the 

Federal government. The law also provides that the NRRIT annually engage an 

independent, qualified public accountant to audit the financial statements of the 

NRRIT. Accordingly, the OIG has not audited the books and records of the NRRIT, 

nor had any input into the selection of the independent accountant retained by the 

NRRIT, nor provided oversight to that firm in the execution of their responsibilities. 

Our opinion on the RRB’s financial statements, insofar as it relates to the amounts 

included for the NRRIT, is based solely on the report of the auditor retained by the 

NRRIT, and our assessments of internal control and compliance do not extend to the 

operations of the NRRIT. 

Except to the extent that the foregoing arrangement may have affected the planning 

and execution of our audit, we performed our work in accordance with U.S. generally 

accepted government auditing standards and OMB audit guidance. 

RRB MANAGEMENT’S COMMENTS 

The offices of the Chief Financial Officer and the Board Members have reviewed our 

report and offered comments expressing management’s intention to address the 

material weaknesses described in our report. 

With respect to information security, management notes that information security is a 

significant challenge to which they have devoted substantial effort and resources in 

recent years and that they will continue to do so. In FY 2008, the agency plans to 

resolve the remaining audit recommendations related to this material weakness and 

then evaluate whether the material weakness has been eliminated. 

Regarding the computation of the social insurance fund balance, responsible agency 

managers will work with the NRRIT to obtain more complete, reliable information 

about the NRRIT's financial position in order to have a consistent basis for preparing 

the fund balance. 

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OTHER ACCOMPANYING INFORMATION 
PAGE INTENTIONALLY LEFT BLANK 
 
UNITED STATES RAILROAD RETIREMENT BOARD 

OFFICE OF INSPECTOR GENERAL 

MANAGEMENT AND PERFORMANCE CHALLENGES FACING THE 
 

RAILROAD RETIREMENT BOARD 
 

This statement has been prepared pursuant to the Reports Consolidation Act of 

2000 and the requirements of Office of Management and Budget Circular A-136 

which require that the Inspectors General identify what they consider to be the 

most serious management challenges facing the agency and briefly assess the 

agency’s progress in addressing those challenges. Our identification of 

challenges facing Railroad Retirement Board (RRB) management is based on 

recent audits, evaluations and our general knowledge of the RRB’s programs 

and operations. 

The RRB, as a Federal agency in the 21st century, faces many challenges. 

These challenges may arise through internal management processes or be the 

result of external influences. The most readily identifiable challenges are those 

that management has set for themselves through internal processes. The RRB 

has identified its organizational objectives in its annual performance report. 

Meeting and sustaining these goals is a challenge that management has set for 

itself. Less obvious, are the challenges posed by changes in the environment in 

which management must operate to meet its organizational objectives. These 

challenges may arise from legislative and regulatory mandates as well as 

advances in technology and the economic environment. 

The RRB faces the greatest challenge from this latter category. The U.S. 

Government, through the standards and guidance of the Office of Management 

and Budget (OMB), Government Accountability Office (GAO) and the National 

Institute of Standards and Technology (NIST) have set high goals for Federal 

managers in performance reporting, financial accountability and in the way that 

we use information technology to accomplish organizational goals. The OIG has 

identified areas in which the RRB’s control structure needs to be strengthened in 

order to respond to these external challenges. 

Information Technology Security 

Information security means protecting information and information systems from 

unauthorized access, use, disclosure, disruption, modification or destruction in 

order to provide confidentiality, integrity, and availability. 

The RRB is still in the process of developing an information security 

management program that complies with the requirements of the Federal 

Information Security Management Act (FISMA) and the National Institute of 

Standards and Technology. Although the agency is making progress, this is a 

significant undertaking and can be expected to present a challenge during the 

coming years. 

 - 101 -
Inspector General Statement Page 2 of 3 

Management Challenges 

During fiscal year (FY) 2006, the RRB completed corrective action to eliminate a 

previously reported significant deficiency in training. However, much work 

remains to be completed to address previously identified significant deficiencies 

in access controls, risk assessment and periodic testing and evaluation. 

During FY 2007, the RRB contracted with technical specialists to support the 

certification and accreditation of the agency’s end-user computing general 

support system. Contracted work included preparation of a risk assessment, an 

updated security plan, security testing and evaluation, as well as a plan of action 

and milestones to address control deficiencies. The agency anticipates using a 

similar contractor-assisted process to support certification and accreditation of 

the mainframe general support and major application systems in the future. 

Safeguarding Privacy 

The RRB collects and retains sensitive personally identifiable information about 

its beneficiaries and employees which needs to be safeguarded from 

unauthorized disclosure. 

The Privacy Act of 1974 requires Federal agencies to establish appropriate 

administrative, technical and physical safeguards to insure the security and 

confidentiality of records and to protect against any anticipated threats or 

hazards to their security or integrity which could result in substantial harm, 

embarrassment, inconvenience, or unfairness to any individual on whom 

information is maintained. The RRB has implemented a privacy program and 

appointed a Chief Privacy Officer to oversee its operation. 

During FY 2007, OIG audits identified weaknesses in the physical security of 

sensitive information stored on paper, in computers and other electronic and nonelectronic media. The OIG has recommended that the RRB develop a more 

comprehensive security program and offered additional, more specific 

recommendations to strengthen the agency’s privacy program. RRB 

management responded positively to OIG recommendations to strengthen that 

program, agreeing to take corrective action in all areas. 

Also in FY 2007, the RRB established two committees charged with responding 

to losses of personal information in the event of a data breach and to provide 

oversight to the agency’s privacy program. 

Information technology security is a critical part of an effective privacy program. 

We have summarized the challenges facing the agency in that arena in the 

preceding section of this statement. 

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Management’s Comments 

These are Management’s comments on the Management and Performance Challenges 

identified by the Railroad Retirement Board Inspector General. The three challenges identified 

by the Inspector General are: 1) Information Technology Security, 2) Safeguarding Privacy, and 

3) Performance Measurement. Management appreciates the Inspector General’s recognition of 

the progress that has been made in addressing these areas. 

The Railroad Retirement Board realizes that information technology security is a significant 

challenge. We have devoted substantial effort and resources to this area in recent years and 

will continue to do so over the next several years. We have replaced our operating system and 

we are now in the process of modernizing our automated systems. At the same time, we are 

working to address access issues and certify and accredit our automated systems. We have 

made substantial progress, but much work remains. The viability and security of our automated 

systems are critical to our ability to accomplish our mission. 

We are also working to improve our privacy controls both in our automated systems and in our 

paper records systems. As the Inspector General states, the agency has established two new 

committees with oversight of privacy issues. We are currently reviewing all of our systems to 

make sure that our records systems are accurate and that personally identifiable information 

that is not necessary is eliminated. Like other Federal agencies, we are studying means by 

which we can reduce the need for personally identifiable information with particular emphasis on 

reducing the use of social security numbers. We are also strengthening our physical security 

controls to reduce vulnerability to theft or misuse of personal information. 

Finally, in fiscal year 2007, we implemented comprehensive new administrative procedures to 

ensure that the RRB’s performance measurements are accurate and valid. The procedures 

establish standards and assign responsibility for collecting, documenting, validating, certifying, 

reporting and retaining information related to the actual performance data reported for 

objectives in the RRB’s Annual Performance Budget and Government Performance and Results 

Act Report. In fiscal year 2008, we will expand management control documentation to include 

performance planning and reporting functions. We are confident that these administrative 

changes will ensure a high level of accuracy in the RRB’s performance measurement and 

reporting activities. We will continue to monitor controls in this area to ensure their ongoing 

effectiveness. 

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Improper Payments Information Act (IPIA) Reporting Details 

I. Describe the risk assessment(s), performed subsequent to completing the full program 

inventory. List the risk-susceptible programs (i.e., programs that have a significant risk 

of improper payments based on OMB guidance thresholds) identified through risk 

assessments. Be sure to include the programs previously identified in the former 

Section 57 of Circular A-11 (now located in Circular A-123, Appendix C). 

The RRB’s Office of Programs reviewed each of the two benefit payment programs the agency 

administers which are both listed in the former Section 57 of OMB A-11: Retirement and 

Survivor Benefits (referred to as RRA) and Railroad Unemployment Insurance Benefits (referred 

to as RUIA). The agency used the process described below to calculate the amount of 

improper payments made in fiscal year 2006. 

Results of Fiscal Year 2006 Improper Payment Review (OMB Guidance M-03-13) 

Program Improper Payment Amt. 

>$10 million 

Improper Payment Rate 

>2.5% 

Action Plan or 

Targets 

Needed? 

RRA Yes No No 

RUIA No Yes No 

II. Describe the statistical sampling process conducted to estimate the improper 

payment rate for each program identified. 

The agency has an established methodology for identifying improper payments in the RRA and 

RUIA benefit payment programs. It is based on determining both the known overpayments and 

underpayments, which have since been recovered or paid out, and estimating those which 

result from adjudicative error, but have not been identified or corrected. It also uses information 

from quality assurance reviews. These reviews employ statistical sampling to study railroad 

retirement awards and unemployment and sickness insurance claims. Also included are 

projections of improper payments from audits and special studies. 

III. Describe the Corrective Action Plans for: 

a. Reducing the estimate rate and amount of improper payments for each type of 

category of error. This discussion must include the corrective action(s) for each 

different type or cause of error, and the corresponding steps necessary to prevent 

future recurrence. If efforts are ongoing, it is appropriate to include that 

information in this section. 

b. Grant-making agencies with risk susceptible grant programs, discuss what the 

agency has accomplished in the area of funds stewardship past the primary 

recipient. Include the status on projects and results of any reviews. 

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No corrective action plans are required for either the RRA or the RUIA programs. Nevertheless, 

there are several ongoing activities and projects aimed at improving the accuracy of the 

payments and reducing erroneous payments. 

Improper payments in the RRA and RUIA programs typically fall into two categories: 

adjudicative error (i.e., benefit payment decisions that are inconsistent with the law or 

regulations) and out-of-date information that impacts benefit entitlement. 

3⁄4	 	To detect improper payments due to adjudicative error, the agency conducts quality 

assurance programs and validation reviews, which identify activities that are susceptible 

to error and suggest process improvements and procedures to prevent further errors. 

The initiatives to minimize specific types of improper payments in the RRA program 

include: 

•	 A system which evaluates employer-reported changes to the employee service and 

compensation records and adjusts annuities, if needed. The initial implementation of 

this process in FY 2006 handled the evaluation of record changes posted in January 

2006. In FY 2007, the system evaluated adjustments posted prior to January 2006. 

This initiative identified specific RRA improper underpayments and paid out 

additional benefits due. Therefore, this resolved many of the improper payments that 

have been included in previous years’ estimates. As a result of this, the estimate of 

improper underpayments is reduced starting in FY 2008. This system is being run 

quarterly so that annuity adjustments are made timely and properly. 

•	 A special project to resolve unverified SSN’s of railroad employees. This will ensure 

that the correct earnings are recorded to the correct SSN which serves as a basis of 

the calculation of benefits. 

•	 A project to resolve inconsistencies related to the SSN on records of auxiliary 

beneficiaries (spouse, children, and widow(er)s). This will allow the agency to match 

to the SSA earnings database to identify earnings and to match to files containing 

death information. 

•	 A multi-phase process which allows users to enter any annuitant’s earnings 

information on-line, and store the information in a database. This system allows the 

RRB to adjust annuity payments for earnings on a timely basis, which minimizes any 

underpayments or overpayments that may result from changes in earnings. 

•	 Better procedures to identify unreported last pre-retirement employment earnings 

after the annuity beginning date. 

3⁄4	 	To detect improper payments due to out-of-date information, the agency conducts 

comprehensive monitoring and program integrity efforts which aim to validate continued 

entitlement to benefits. In FY 2006, the agency achieved a return of $5.36 for every 

dollar in staff time invested in program integrity activities. 

Furthermore, the agency maintains a management control review process for all benefit 

payment programs. Responsible officials identify and report weaknesses in annual certifications 

required under the Federal Managers’ Financial Integrity Act. 

Additionally, during fiscal years 1999 through 2007, the OIG presented RRB management with 

117 recommendations for process improvement and corrective action pertaining to improper 

payments. Agency management has implemented or plans to implement 111 of the 117 

recommendations. The agency will continue to work with the OIG to address the issue of 

improper payments in its benefit programs. 

- 106 -
IV. Program improper payment reporting. 

a. The table below is required for each reporting agency. 

Improper Payment (IP) Reduction Outlook FY 2005 – FY 2010 

($ in millions) 

Program FY 05 $ 

Outlays 

FY 05 

IP % 

FY 05 

IP $ 

FY 06 $ 

Outlays 

(actual) 

FY 06 

IP % 

FY 06 

IP $ 

FY 07 $ 

Outlays 

(estimated) 

FY 07 

IP % 

FY 07 

IP $ 

RRA 9,197.9 1.65% 151.8 9,457.4 1.36% 128.6 9,803.4 1.36% 133.3 

RUIA 111.2 2.3% 2.6 105.6 2.6% 2.7 111.0 2.6% 2.9 

Program 

FY 08 $ 

Outlays 

(estimated) 

FY 08 

IP % 

FY 08 

IP $ 

FY 09 $ 

Outlays 

(estimated) 

FY 09 

IP % 

FY 09 

IP $ 

FY 10 $ 

Outlays 

(estimated) 

FY10 

IP % 

FY 10 

IP $ 

RRA 10,174.5 1.00% 101.7 10,453.3 1.00% 104.5 10,824.6 1.00% 108.2 

RUIA 120.9 2.6% 3.1 129.2 2.6% 3.4 136.5 2.6% 3.5 

At the time this report was prepared, the latest actual data available was for fiscal year 

2006. The estimates for fiscal years 2007 through 2010 are based on the December 2006 

OMB budget review estimates. For the RRA program, the estimated improper payment rate 

for FY 2008 and beyond has been adjusted downward due to the implementation in 

FY 2007 of the processing improvements discussed above. For the RUIA program, the 

agency has applied the FY 06 percentage rate to estimated outlays to estimate improper 

payment amounts for future years. 

b.	 Discuss your agency’s recovery of improper payments, if applicable. Include in your 

discussion the dollar amount of cumulative recoveries collected beginning with 

FY 2004. 

Despite the agency’s best efforts to prevent improper payments, some will always occur, 

due, for instance, to lack of timely information. In overpayment situations, the agency is 

diligent in its recovery efforts. The RRB’s accounts receivable balance for the RRA program 

at the end of FY 2006 was $40,380,734. This balance includes $8,216,797 classified as 

currently not collectible. We estimate that approximately 79.8% of these receivables will be 

collected and that the remaining 20.2% will eventually be closed as uncollectible. The 

RRB’s collection program is in full compliance with the Debt Collection Improvement Act of 

1996. For the period of fiscal years 2003 through 2006, the RRB recovered $104,500,978 in 

RRA program receivables. Recoveries are made through offset of future benefits, 

reclamation from the financial institution of benefits erroneously paid after the death of a 

beneficiary, and direct payment from debtors. Fraudulent payments are referred to the 

Office of Inspector General for prosecution through the Department of Justice. Delinquent 

accounts are referred to the Department of the Treasury for cross-servicing and offset of 

Federal payments. 

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The RRB’s accounts receivable balance for the RUIA program at the end of FY 2006 was 

$11,376,939. This balance includes $6,647,790 classified as currently not collectible. We 

estimate that approximately 73.4% of these receivables will be collected and that the 

remaining 26.6% will eventually be closed as uncollectible. The RRB’s RUIA collection 

program is in full compliance with the Debt Collection Improvement Act of 1996. For the 

period of fiscal years 2003 through 2006, the RRB recovered $153,556,011 in RUIA 

program receivables. Recoveries were received from settlements by railroads for injury and 

time lost claims filed by rail employees, through offset of future benefits, and direct payment 

from debtors. Fraudulent payments are referred to the Office of Inspector General for 

prosecution through the Department of Justice. Delinquent accounts are referred to the 

Department of the Treasury for cross-servicing and offset of Federal payments. 

V. Recovery auditing reporting. 

This does not apply to RRB’s benefit programs. 

VI. Describe the steps the agency has taken and plans to take (including time line) to 

ensure that agency managers (including the agency head) are held accountable for 

reducing and recovering improper payments. 

Paying benefits accurately and timely, and providing prudent stewardship over agency trust 

funds are the agency’s two strategic goals. Agency managers have links to those goals in 

their performance appraisal plans. 

VII. Agency information systems and other infrastructure. 

a. Describe whether the agency has the information systems and other infrastructure 

it needs to reduce improper payments to the levels the agency has targeted. 

b. If the agency does not have such systems and infrastructure, describe the 

resources the agency requested in its FY 2008 budget submission to Congress to 

obtain the necessary information systems and infrastructure. 

The following initiatives will contribute to the achievement of the agency’s target architecture in 

order to meet its performance goals, including accuracy of benefit payments, and stewardship of 

the trust funds. 

The agency requested fiscal year 2008 funding for System Modernization. The modernization 

process will help reduce redundancy, improve accuracy and speed, and move to more 

modern/less costly technology. 

The RRB also requested funding for: 

• Support of network operations, 

• Replacement of a small portion of outdated information technology equipment, 

• Expansion of the electronic services to the public. 

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VIII. Describe any statutory or regulatory barriers which may limit the agency’s corrective 

actions in reducing improper payments and actions taken by the agency to mitigate the 

barriers’ effects. 

None have been identified. 

IX. Additional comments, if any, on overall agency efforts, specific programs, best 

practices, or common challenges identified, as a result of IPIA implementation. 

The RRB has made concerted efforts to reduce improper payments over the years. Payment 

accuracy rates are at consistently high levels and the return on investment for program integrity 

activities has been high as well. Both have been set as annual performance goals and reported 

each year since the Government Performance and Results Act has been in effect. The agency 

monitors progress on implementing recommendations from the quality assurance process, and 

is vigilant about pursuing OIG recommendations which impact the quality and timeliness of 

payments. The agency has also worked closely with the OIG in referring potential fraud cases 

for investigation and prosecution. The agency hopes to be able to maintain adequate staffing 

so that it can continue this important effort. 

- 109 -
Summaries of Financial Statement Audit and Management Assurances 

Summary of Financial Statement Audit 

Audit Opinion Unqualified 

Restatement No 

Material Weaknesses Beginning 

Balance 

New Resolved Consolidated Ending 

Balance 

Information Technology Security 1 1 

Performance Measurement 1 1 0 

Actuarial Projection Process – 

Formal Policies 1 1 0 

Actuarial Projection Process – 

Fund Balance 1 1 

Total Material Weaknesses 3 1 2 2 

Summary of Management Assurances 

Effectiveness of Internal Control over Operations (FMFIA § 2) 

Statement of Assurance Qualified 

Material Weaknesses Beginning 

Balance 

New Resolved Consolidated Reassessed Ending 

Balance 

Information Technology Security 1 1 

Performance Measurement 1 1 0 

Actuarial Projection Process – 

Formal Policies 1 1 0 

Actuarial Projection Process – 

Fund Balance 1 1 

Total Material Weaknesses 3 1 2 2 

Conformance with Financial Management System Requirements (FMFIA § 4) 

Statement of Assurance Systems conform 

- 110 -
APPENDICES 
PAGE INTENTIONALLY LEFT BLANK 
 
C 

Appendices 

Glossary of Acronyms and Abbreviations 

A 

ACSI American Customer Satisfaction Index 

AMS American Management Systems, Inc. 

B 

BCP Business Continuity Plan 

BIA Business Impact Analysis 

BIPA Benefits Improvement and Protection Act of 2000 

BIS Bureau of Information Services 

BPD Bureau of the Public Debt 

BRM Business Reference Model 

CHRIS 	 Comprehensive Human Resources Integrated System 

CMS 	 Centers for Medicare & Medicaid Services 

CNC	 	 Currently Not Collectible 

COA 	 Change of Address

COOP 	 Continuity of Operations Plan

CPI-W	 	 Consumer Price Index for Urban Wage Earners and Clerical

Workers 

D 

DCIA Debt Collection Improvement Act of 1996 

DOJ Department of Justice 

DOL Department of Labor 

E 

ERS Employer Reporting System 

F 

FAIR Act Federal Activities Inventory Reform Act 

FASAB Federal Accounting Standards Advisory Board

FBWT Fund Balance With Treasury 

FECA Federal Employees’ Compensation Act

FFS Federal Financial System 

FHI Federal Hospital Insurance 

FI Financial Interchange 

FICA Federal Insurance Contributions Act 

FMFIA Federal Managers’ Financial Integrity Act 

FMS Financial Management Service 

FY Fiscal Year 

FOASI/DI Federal Old-Age and Survivors Insurance/Disability Insurance 

FTE Full-time Equivalent 

- 113 -
I 

G 

GAO Government Accountability Office 

GISRA Government Information Security Reform Act 

GPRA Government Performance and Results Act 

GSA General Services Administration 

H 

HIPAA Health Insurance Portability and Accountability Act 

IAE Integrated Acquisition Environment 

IPIA Improper Payments Information Act 

IRM Information Resources Management 

IRS Internal Revenue Service 

ISSO Information System Security Officer 

IT Information Technology 

M 

MAC Medicare Administrative Contractor 

MCR Medicare Contracting Reform 

MCRC Management Control Review Committee 

MEDCOR Medicare Correction System

MMA Medicare Prescription Drug, Improvement and Modernization 

Act of 2003 

MOU Memorandum of Understanding 

N 

N/A Not Applicable 

NRRIT National Railroad Retirement Investment Trust 

O 

OIG Office of Inspector General

OMB Office of Management and Budget

OPM Office of Personnel Management 

P 

P&AR Performance and Accountability Report 

PBSC Performance-based Service Contracting 

PDP Prescription Drug Plan 

P&F Program and Financing 

PIN Personal Identification Number 

Q 

QRRB Qualified Railroad Retirement Beneficiary 

- 114 -
R 

RR Railroad Retirement 

RRA 	 Railroad Retirement Act 

RR Account 	 Railroad Retirement Account 

RRB 	 Railroad Retirement Board 

RRS Account 	 

RRSIA 	 

Railroad Retirement Supplemental Account

Railroad Retirement and Survivors’ Improvement

Act of 2001 

RRTA 	 Railroad Retirement Tax Act 

RUI	 

RUIA 	 

RUSI	 

Railroad Unemployment Insurance 

Railroad Unemployment Insurance Act 

Railroad Unemployment and Sickness Insurance 

S 

SBR 

SCHIP 

SFFAS 

SPEED 

SSA 

SSEB 

Statement of Budgetary Resources 

State Children’s Health Insurance Program 

Statement of Federal Financial Accounting Standards 

System Processing Excess Earnings Data 

Social Security Administration

Social Security Equivalent Benefit 

T 

TOP 

Treasury

Trust 

Treasury Offset Program 

Department of the Treasury 

National Railroad Retirement Investment Trust 

TSP Thrift Savings Plan 

U 

USPS 	 United States Postal Service 

V 

VAN 	 Virtual Area Network 

- 115 -
Railroad Retirement Board 

Board Members, Inspector General, and Executive Committee 

Board Members 

Chairman Michael S. Schwartz 

Labor Member V. M Speakman, Jr. 

Management Member Jerome F. Kever 

Office of Inspector General 

Inspector General Martin J. Dickman 

Executive Committee 

Director of Administration/Senior Henry M. Valiulis 

Executive Officer 

General Counsel Steven A. Bartholow 

Chief Financial Officer Kenneth P. Boehne 

Director of Programs Dorothy A. Isherwood 

Chief Information Officer Terri S. Morgan 

Chief Actuary Frank J. Buzzi 

- 116 -
For additional copies of this report, please contact: 

Railroad Retirem ent Board 

Bureau of Fiscal Operations 

844 North Rush Street, 5th Floor 

Chicago, Illinois 60611-2092 

Tele phone: (312) 751-4590 

Fax : 312-751-7171 

Available on the Internet at: www.rrb.gov