BLANK PAGE FOR PRINTING PURPOSES
Railroad Retirement Board 

Performance and Accountability Report 

Fiscal Year 2006 

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)............................................................. 33

Systems and Controls ............................................................................................ 34

Summary of Actuarial Forecast .............................................................................. 38

Limitations of the Financial Statements ............................................................................. 38

Performance Section – Government Performance and Results Act (GPRA) 

Report............................................................................................................................. 41

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

Combined Statement of Budgetary Resources ............................................................ 61

I
TABLE OF CONTENTS

PAGE 

Consolidated Statement of Financing .......................................................................... 62

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

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

Required Supplementary Information ................................................................................ 79

Social Insurance........................................................................................................... 79

 Program Financing ................................................................................................. 79

 Benefits .................................................................................................................. 80

Program Finances and Sustainability..................................................................... 80

Disaggregate of Budgetary Resources ........................................................................ 88

 Auditor’s Reports................................................................................................................ 89

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

Appendices ............................................................................................................... 111

Glossary of Acronyms and Abbreviations .......................................................................... 111

RRB Board Members, Inspector General, and Executive Committee ............................... 114

RRB’s fiscal year 2006 Performance and Accountabil ty Report is available on the Internet at: i www.rrb.gov

II
MESSAGE FROM THE BOARD MEMBERS 
PAGE INTENTIONALLY LEFT BLANK 
Message from the Board Members

This fiscal year 2006 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. In 

recent years, we have achieved high levels of accuracy and timeliness in the benefit 

programs we administer. We have also recorded very high levels of customer satisfaction 

as measured by the independently administered American Customer Satisfaction Index 

(ACSI) survey. The RRB has participated in 4 surveys since 2001. The previous 3 surveys 

included: initial employee retirees (2001), unemployment / sickness insurance beneficiaries 

(2002), and initial survivor beneficiaries (2005). In those surveys, we achieved overall 

scores of 82, 75, and 90 (out of a possible 100 points), respectively. In fiscal year 2006, we 

measured the satisfaction of our disability annuitants and are pleased to report an overall 

score of 85, which is 14 points higher than the current overall Federal score. This survey 

showed exceptionally high scores, ranging from 89 to 93, in the specific areas of courtesy, 

professionalism, responsiveness, and accuracy of our customer service personnel. 

The adequacy and effectiveness of our management controls and the compliance of our 

financial management systems with government wide 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 our information technology 

security program, performance measures, and the actuarial projection process. Also, the 

performance and financial data presented in this report are complete and reliable, except for 

the performance measures further discussed in the Systems and Controls Section. 

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. 

Originally signed by: 

Michael S. Schwartz, Chairman 

V. M. Speakman, Jr., Labor Member 

Jerome F. Kever, Management Member 

October 31, 2006

- 3 - 
PAGE INTENTIONALLY LEFT BLANK 
MANAGEMENT’S DISCUSSION AND ANALYSIS 
PAGE INTENTIONALLY LEFT BLANK 
Management’s Discussion and Analysis 

Overview of the Railroad Retirement Board 

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 

- 7 -
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 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 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. 

- 8 -
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 2006, the 

RRB trust funds realized a net of $3.5 billion, representing over 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. 

- 9 -
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 N. Rush Street in Chicago, Illinois. As of 

September 30, 2006, the RRB field structure was comprised of 3 regional offices and 53 local 

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

- 10 -


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. 

The fiscal year 2005 financial statements have been restated for the inclusion of the NRRIT net 

assets and the reporting of RUIA contributions that the RRB receives from the railroad 

employers as revenue. Additional information regarding the restatements is available in the 

Financial Section, Notes to the Financial Statements. 

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 

(millions) 

RESTATED 

NET POSITION AT SEPTEMBER 30 2006 2005 

 Social Security Equivalent Benefit Account $ 321.1 $ 216.9 

 Railroad Retirement Account 1/ 29,443.8 27,850.8 

 Railroad Retirement Administration Fund 5.6 5.9 

 Railroad Unemployment Insurance Trust Fund -- 

 Benefit Payments 97.3 94.2 

Administrative Expenses 9.4 7.5 

 Limitation on the Office of Inspector General 

 Dual Benefits Payments Account 

.1 

8.4 

.2 

11.4 

 Federal Payments to the Railroad Retirement Accounts .4 .4 

Total $29,886.1 $28,187.3 

FINANCING SOURCES FOR FISCAL YEAR

 Social Security Equivalent Benefit Account $ 5,909.0 $ 5,492.2 

 Railroad Retirement Account 2/ 

 Railroad Retirement Administration Fund 

5,325.6 

108.9 

6,137.5 

110.2 

 Railroad Unemployment Insurance Trust Fund -- 

 Benefit Payments 75.7 86.3 

Administrative Expenses 

 Limitation on the Office of Inspector General 

1.9 

7.5 

(.2)

7.5 

 Dual Benefits Payments Account 

 Federal Payments to the Railroad Retirement Accounts 3/ 

96.0 

466.1 

105.2 

442.2 

Total $11,990.7 $12,380.9 

BENEFIT PAYMENTS FOR FISCAL YEAR 4/ 

 Social Security Equivalent Benefit Account $ 5,632.1 $ 5,545.2 

 Railroad Retirement Account 3,733.1 3,540.9 

 Railroad Unemployment Insurance Trust Fund -- 

 Unemployment Insurance 30.7 29.1 

 Sickness Insurance 42.5 43.5 

 Dual Benefits Payments Account 96.0 106.3 

Total $ 9,534.4 $ 9,265.0 

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. 

- 13 -
The RRB’s financial statements are comprised of: Balance Sheet and Statements of Net Cost, 

Changes in Net Position, Budgetary Resources, Financing, 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 2006 and 2005 were $9,823.0 million and 

$9,544.9 million, respectively. The details of the net cost of operations by type, amount, 

increase or decrease, and percentage change from fiscal year 2005 to fiscal year 2006 are 

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

for fiscal years 2006 and 2005 is shown on the following pages. 

NET COST OF OPERATIONS 

(In millions) 

FY 2006 

RESTATED 

FY 2005 

Amount of 

Increase 

(Decrease) 

Percent of 

Increase 

(Decrease) 

Interest expense – Treasury borrowing $ 172.7 $ 163.8 $ 8.9 5.4% 

Salaries and expenses 115.5 111.9 3.6 3.2% 

Benefit payments – RRB 9,562.0 9,297.5 264.5 2.8% 

Other expenses 9.0 9.2 (0.2) (2.2%)

 Subtotal 9,859.2 9,582.4 276.8 2.9% 

Less: Earned revenues 36.2 37.5 (1.3) (3.5%)

 Net cost of operations $9,823.0 $9,544.9 $278.1 2.9% 

- 14 -
FY2006 

NET COST OF OPERATIONS 

(In millions) Benefit 

Payments 

Interest 

Expense 

$172.7 

Salaries 

and 

Expenses 

$115.5 

Other 

Expenses 

$9.0 

0.09% 

$9,562.0 

96.99% 

1.17% 1.75% 

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

RESTATED 

FY2005 

NET COST OF OPERATIONS Benefit 

(In millions) Payments 

Interest 

Expense 

Salaries 

and 

Expenses 

Other 

Expenses 

$9.2 

0.1% 

$9,297.5 

97.03% 

$111.9 $163.8

1.17% 1.70%

Totals $9,582.4 million, excluding reimbursements and earned revenues of $37.5 million. 

- 15 -
The following table shows financing sources (excluding changes in unexpended appropriations) 

by type, amount, increase or decrease, and percentage change from fiscal year 2005 to fiscal 

year 2006. 

FINANCING SOURCES 

(In millions) 

AMOUNT PERCENT 

OF OF 

RESTATED INCREASE INCREASE 

FY 2006 FY 2005 (DECREASE) (DECREASE) 

Appropriations used $ 562.1 $ 548.4 $ 13.7 2.5 

Taxes and other non-exchange revenues: 

 Payroll taxes 4,673.5 4,538.5 135.0 3.0 

 Interest revenue and other income 58.9 49.7 9.2 18.5 

 Carriers refunds – principal 12.9 (14.1) 27.0 191.5 

RUI revenue 87.4 97.1 (9.7) (10.0)

 Subtotal $4,832.7 $ 4,671.2 $161.5 3.5 

Imputed financing (amount to be provided

 by the Office of Personnel Management to 

 pay future retirement benefits to RRB 

 employees) 8.8 8.6 0.2 2.3 

Transfers in: 

Financial Interchange, net 3,467.8 3,368.9 98.9 2.9 

NRRIT 947.0 809.0 138.0 17.1 

Subtotal $ 4,414.8 $ 4,177.9 $236.9 5.7 

Other: 

 Change in NRRIT net assets 1,706.2 2,633.6 (927.4) (35.2)

 Subtotal $11,524.6 $12,039.7 ($515.1) (4.3) 

Less: Transfers out to NRRIT 0.0 0.0 0.0 0.0 

 Loss Contingency 0.0 100.0 (100.0) (100.0) 

Total $11,524.6 $11,939.7 ($415.1) (3.5) 

- 16 -
FINANCING SOURCES 

(In millions) 

FY 2006 

Change in NRRIT 

Net Assets Appropriations 

Revenues 

$4,832.7 

41.93% 

$8.8 

Used $562.1 

4.88% 

$1,706.2 

14.80% 

Transfers In 

$4,414.8 

38.31% 

Taxes and Other 

Non-Exchange 

Imputed Financing 

0.08% 

Total Financing Sources $11,524.6 million. 

RESTATED 

FY 2005 

Change in NRRIT 

iations 

inancing 

0.07% 

Transf ers In 

$4,177.9 

34.70% 

Net Assets 

$2,633.6 

21.88% 

Appropr

Used $548.4 

4.55% 

Imputed F

$8.6 

Taxes and Other 

Non-Exchange 

Revenues 

$4,671.2 

38.80% 

Total Financing Sources $12,039.7 million, excluding $100 million loss contingency. 

- 17 -
Railroad Retirement Investments at Treasury 

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

$1,203.7 million as of September 30, 2006, from $1,265.2 million on September 30, 2005 

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

investments from September 30, 2002, through September 30, 2006. 

INVESTMENT BALANCES HELD AT TREASURY (AT BOOK VALUE) 

AT SEPTEMBER 30, 2002 - 2006 

(In millions, excluding NRRIT net assets) 

$18,996.3 

$0.0 

$5,000.0 $1,181.0 $1,304.4 $1,265.2 $1,203.7 

$10,000.0 

$15,000.0 

$20,000.0 

2002 2003 2004 2005 2006 

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

September 30, 2006. 

RAILROAD RETIREMENT INVESTMENTS HELD AT TREASURY 

AS OF SEPTEMBER 30, 2006 

(In millions, excluding NRRIT net assets) 

RR Account 

$478.1 

40% 

SSEB

Account 

$725.6

60%

AT BOOK VALUE

Total $1,203.7

- 18 -
Railroad Retirement Account 

On September 30, 2006 and 2005, the book values of the RR Account investments, excluding 

NRRIT assets, including accrued interest, totaled $478,075,635 and $571,093,294, respectively. 

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. The balance on September 30, 2005, consisted of $569,975,000 in 

3.875 percent par value specials (with market value equal to face value) maturing on October 3, 

2005, and $1,118,294 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, 2006 and 2005, the book values of the SSEB Account investments, including 

accrued interest, totaled $725,637,871 and $694,111,271, respectively. 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. The balance on September 30, 2005, 

consisted of $692,653,000 in 3.875 percent par value specials maturing on October 3, 2005, 

and $1,458,271 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 beneficiary 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. 

- 19 -
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 2006 (ended September 30, 2006), railroad retirement and survivor benefit 

payments totaled $9.5 billion, net of recoveries. Unemployment and sickness insurance benefit 

payments totaled $73.2 million in fiscal year 2006, net of recoveries. During fiscal year 2006, 

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

almost $1.2 billion to about 124,000 beneficiaries. 

In fiscal year 2006, 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 2006 included: 

• Providing payments to 619,000 retirement and survivor beneficiaries. 

• Providing payments to 9,000 unemployment insurance beneficiaries. 

• Providing payments to 20,000 sickness insurance beneficiaries. 

• Processing 27,210 (through May 2006) retirement, survivor, and disability applications 

for benefits and then determining eligibility. 

• Processing 174,071 (through May 2006) applications and claims for unemployment and 

sickness insurance benefits. 

• Issuing 271,077 (as of June 9, 2006) certificates of employee railroad service and 

compensation. 

During fiscal year 2006, 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 $101.518 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 2006 were not available at the time this report was published. 

For those objectives, we reported part-year performance information for fiscal year 2006, if 

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

performance results for fiscal year 2006 will be included in our next Performance and 

Accountability Report. 

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 2006, we expect that overall payment accuracy rates will 

exceed 98 percent and that 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 2006, 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 initial 

railroad retirement applications, those receiving 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 recent legislative changes 

to the RRB, 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, the RRB’s Strategic Plan for 2003-2008 established two strategic goals 

on which we will focus our efforts. These goals are unchanged in 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 five key areas: 

• Strategic Management of Human Capital, 

• Competitive Sourcing, 

• Improved Financial Performance, 

• Expanded Electronic Government, and 

• Budget and Performance Integration. 

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. 

The next page begins a discussion of our key performance indicators. 

- 22 -
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 

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 2006 Goal: 99.00% 

Our FY 2006 Performance: Not available 

Full-year data will be available in fiscal year 

2007. 

FY 2005 Goal: 99.00% 

Our FY 2005 Performance: 99.62% 

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 

personnel retire in the coming years. 

98% 

100% 

N/A 

Initial Retirement Payment Accuracy 

Goal 99.50% 99.80% 99.00% 99.00% 

Actual 99.91% 99.36% 99.62% 

FY 03 FY 04 FY 05 FY 06 

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 

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

accuracy rate of at least 99 percent. 

FY 2006 Goal: 98.00% 

Our FY 2006 Performance: 100% 

through the 2nd 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 second quarter of fiscal year 2006. 

Full-year data will be available in fiscal year 

2007. 

FY 2005 Goal: 98.00% 

Our FY 2005 Performance: 98.73% 

( i /06) 

98.00% 98.00% 

98.76% 98.73% 

Unemployment Insurance Payment 

Accuracy 

FY 06 actual s through 2nd qtr. - 3/31

96% 

98% 

100% 

Goal 99.60% 98.00% 

Actual 99.91% 100.00% 

FY 03 FY 04 FY 05 FY 06 

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 

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

rate of at least 99 percent. 

FY 2006 Goal: 98.00% 

Our FY 2006 Performance: 99.53% 

through the 2nd 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 second quarter of fiscal year 2006. 

Full-year data will be available in fiscal year 

2007. 

FY 2005 Goal: 98.00% 

Our FY 2005 Performance: 99.94% 

( l i /06) 

99.80% 98.00% 

99.84% 99.53% 

Sickness Insurance Payment 

Accuracy 

FY 06 actua s through 2nd qtr. - 3/31

96% 

98% 

100% 

Goal 98.00% 98.00% 

Actual 100.00% 99.94% 

FY 03 FY 04 FY 05 FY 06 

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 

(if advanced filed) 

FY 2006 Goal: 92.00% 

Our FY 2006 Performance: 92.60% 

through the 2nd quarter 

We are exceeding our goal. Automation plays a 

key role in assuring benefit payment timeliness 

for this performance indicator. 

FY 2005 Goal: 92.00% 

Our FY 2005 Performance: 93.10% 

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 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. 

i

i

l (

92.50% 93.00% 

N/A 

Railroad ret rement employee or 

spouse receives initial annuity 

payment, or a decision, w thin 35 days 

of annuity beginning date, if advanced 

fi ed FY 06 actual is through 2nd qtr. -

3/31/06) 

85% 

90% 

95% 

100% 

Goal 92.00% 92.00% 

Actual N/A 93.10% 92.60% 

FY 03 FY 04 FY 05 FY 06 

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 advance filing cases. As a result, we have 

now 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. The correction of this system 

problem is scheduled for October 2006. 

- 25 -
Key Performance Indicator 5: Timeliness of Initial Railroad Retirement Annuity Payments 

(if not advanced filed) 

FY 2006 Goal: 94.00% 

Our FY 2006 Performance: 95.30% 

through the 2nd quarter 

We are exceeding our goal. Automation plays a 

key role in assuring benefit payment timeliness 

for this performance indicator. 

FY 2005 Goal: 94.00% 

Our FY 2005 Performance: 97.30% 

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. A recent audit by our Office of Inspector General (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. 

i ial

l l 

85% 

90% 

95% 

100% 

93.00% 94.00% 

N/A 95.30% 

Railroad retirement employee or 

spouse receives initial annuity 

payment, or not ce of den , within 65 

days of the date the application was 

filed, if not advanced fi ed (FY 06 actua

is through 2nd qtr. - 3/31/06) 

Goal 95.00% 94.00% 

Actual N/A 97.30% 

FY 03 FY 04 FY 05 FY 06 

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 now excluded performance data for years prior to fiscal 

year 2005. 

- 26 -
Key Performance Indicator 6: Timeliness of New Survivor Benefit Payments 

FY 2006 Goal: 80.00% 

Our FY 2006 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 2005 Goal: 80.00% 

Our FY 2005 Performance: 92.80% 

For the last 6 months of the fiscal year 

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. 

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. 

Key Performance Indicator 7: Timeliness of Spouse to Survivor Benefit Payment 

Conversions 

/ / ) 

Survivor annuitant not already rece iving a 

benefit receives initial paym ent, a decision, 

or notice of application transfer to SSA 

w ithin 65 days of the annuity beginning date, 

or date filed (FY 05 is for last 6 m onths; FY 06 

is through 2nd qtr. - 3 31 06

60% 

70% 

80% 

90% 

100% 

Goal 75.00% 80.00% 80.00% 80.00% 

Actual 86.00% 84.50% 92.80% 92.30% 

FY 03 FY 04 FY 05 FY 06 

FY 2006 Goal: 90.00% 

Our FY 2006 Performance: 95.10% 

through the 2nd quarter 

We are exceeding our goal. Automation 

plays a key role in assuring benefit payment 

timeliness for this performance indicator. 

FY 2005 Goal: 90.00% 

Our FY 2005 Performance: 94.60% 

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 receive s paym ent as s urvivor, notice 

of denial, or notice of application transfer to 

SSA, w ithin 35 days of RRB rece ipt of the 

notice of em ployee's death FY 06 actual is 

through 2nd qtr. - 3/31/06) 

80% 

85% 

90% 

95% 

100% 

Goal 89.00% 89.00% 90.00% 90.00% 

Actual 91.80% 94.10% 94.60% 95.10% 

FY 03 FY 04 FY 05 FY 06 

- 27 -
Key Performance Indicator 8: Timeliness of Unemployment or Sickness Insurance Payments 

FY 2006 Goal: 98.00% 

Our FY 2006 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 2005 Goal: 98.00% 

Our FY 2005 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. 

ion, 

(

/

90% 

95% 

100% 

l 

Railroad employee, unemployed or 

unable to work due to temporary 

illness or injury, receives a payment 

for unemployment or sickness 

insurance benefits, or a decis

within 15 days of claim receipt FY 06 

actual is through 2nd qtr. - 3/31 06) 

Goa 95.00% 99.00% 98.00% 98.00% 

Actual 99.70% 99.70% 99.80% 99.80% 

FY 03 FY 04 FY 05 FY 06 

Key Performance Indicator 9: Timeliness of Disability Decisions 

FY 2006 Goal: 55.00% 

Our FY 2006 Performance: 62.70% 

through the 2nd quarter 

We are exceeding our goal. We have been 

able to exceed our goal due to experienced 

claims examining staff and the timely 

performance by the contractor for consultative 

medical examinations needed to make disability 

decisions. However, mid-year performance has 

declined because of staff losses. A 6-month 

disability examiner training class is scheduled to 

begin in fiscal year 2006, which will increase the 

number of staff resources dedicated to the 

disability workload. 

FY 2005 Goal: 55.00% 

Our FY 2005 Performance: 67.90% 

(

40% 

60% 

80% 

100% 

55.00% 

67.90% 

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 06 

actual is through 2nd qtr. - 3/31/06) 

Goal 55.00% 65.00% 55.00% 

Actual 56.30% 55.90% 62.70% 

FY 03 FY 04 FY 05 FY 06 

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 100 days, allowing 5 days to account 

for USPS handling. 

- 28 -
Key Performance Indicator 10: Return on Investment in Program Integrity Activities 

FY 2006 Goal: $3.80 : $1 

Our FY 2006 Performance: Not available 

FY 2006 data will be available in FY 2007. 

FY 2005 Goal: $3.80 : $1 

Our FY 2005 Performance: $5.11 : $1 

We exceeded our goal. Our fiscal year 2005 

goal was to achieve a return of $3.80 for each 

dollar spent on program integrity activities. We 

achieved a rate of return of $5.11 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. 

$0.00 

$2.00 

$4.00 

$6.00 

$3.80 

$5.11 N/A 

Achieve a return of at least $3.60 for 

each dollar spent on program integrity 

activities 

Goal $3.80 $4.50 $3.80 

Actual $5.68 $4.84 

FY 03 FY 04 FY 05 FY 06 

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

Medicare and 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. To date, we have: 

1. Prepared a one-time file for use by SSA in identifying railroad retirement beneficiaries 

potentially eligible for prescription drug subsidy assistance. The file was transmitted to 

SSA on April 28, 2005. 

2. Revised the record layout and programming for an existing daily file transmitted to 

SSA. The revised file is used by SSA to identify newly eligible Medicare beneficiaries 

potentially eligible for prescription drug subsidies. 

3. Developed programming to prepare and transmit a monthly file to SSA to report 

address changes and information about subsidy changing events. The first file was 

transmitted on November 29, 2005. 

4. Completed programming to receive and edit Daily Enrollment Files from CMS. The 

Daily Enrollment Files include records of new enrollments and changes to enrollments 

in PDP’s and Medicare Advantage plans. 

5. Developed programs to process Daily Enrollment File records for beneficiaries enrolled 

in Medicare Advantage Plans with Part B premium reductions. 

6. Developed programs to prepare and transmit Daily Premium Notification Files to CMS. 

The Daily Premium Notification Files are used to advise CMS of the disposition of the 

Daily Enrollment File records. 

7. Completed program changes necessary to generate notices to beneficiaries who enroll 

in PDP’s and elect to have premiums withheld from RRB benefits. 

8. Developed temporary programming to automatically calculate and refund excess 

premiums withheld from payments made to beneficiaries enrolled in Medicare 

Advantage Plans with Part B premium reductions. 

9. Completed programs to support the mailing of notices on November 14, 2005, to 

approximately 530,000 beneficiaries. We mailed the notices to ensure that the 

beneficiaries were aware that they were eligible to enroll in Medicare PDP’s, and to 

explain the options available for paying monthly Part D premiums. 

As of June 2006, a total of 317,500 railroad retirement beneficiaries were enrolled in 

Medicare PDP’s. The percentage of railroad retirement beneficiaries enrolled in Medicare 

PDP’s is consistent with the overall percentage of Medicare beneficiaries enrolled in Part D 

plans. 

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 

- 30 -
by direct bill arrangements with their plans.) Work on the system changes to allow Part D 

premium withholding from monthly benefit payments has been temporarily suspended 

while we focus 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. SSA will make determinations as to the amount 

of an individual’s Part B premium. RRB will process determination transactions to ensure 

that proper Part B premiums are deducted or billed each month. 

• Medicare Contracting Reform Section 911 of the Medicare Prescription Drug, 

Improvement, and Modernization Act establishes Medicare Contracting Reform (MCR) that 

will be implemented over the next several years. Under this provision, CMS is to replace 

the current Part A Medicare Fiscal Intermediaries and Part B Carriers, using competitive 

procedures with new Medicare Administrative Contractors (MAC’s) by 2011. The MAC’s 

will handle both Part A and Part B Medicare claims. 

The RRB is authorized to contract with a carrier or carriers to provide supplemental 

medical insurance benefits (Medicare Part B, only) by the Social Security Act, 

subsection 1842(g). We currently have a nationwide contract with Palmetto GBA to act as 

the carrier for the RRB’s Part B Medicare program. Consequently, the RRB will need to 

work closely with CMS to meet the new legal contract reform requirements and, at the 

same time, ensure that our railroad Medicare beneficiaries are not disadvantaged by the 

implementation of the new MAC’s. 

• RRB HelpLine Improvements We implemented several enhancements in January 2005, 

to the services available to customers who call our toll-free interactive voice response 

(IVR) system (i.e., the RRB HelpLine). Those enhancements included: 

o Revised call flows to incorporate new service options and simplify access to 

services; 

o Added an option to allow callers to request duplicate RRA tax statements; and, 

o Expanded general information about a variety of subjects, and a new “urgent” 

announcement service. 

We are in the planning stage for additional 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. In 

connection with this change, we will provide callers with options to establish passwords, 

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

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

Steps to improve the RRB HelpLine and add new services will be taken in conjunction with 

the agency’s plans to support a nationwide 800-number service that would allow callers to 

either access an IVR system or connect to a field service claims representative. 

• 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 

- 31 -
payments. In 2007, 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 now targeted for completion in late 2006, 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 We continue to add new forms and 

services to the employer site. In 2006, we are working to add the pre and post payment 

notices. These are two notices required under the RUIA related to the employer’s 

experience-rated contribution rate. One is a notice to the employer of an employee’s 

application or claim for benefits. The other is a notice to the employer of the amount of 

benefits the RRB paid to the employee. Following the addition of these two forms in fiscal 

year 2007, we will implement some security enhancements and coding standardization, 

and make some changes based on suggestions received from the system’s users, and 

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. 

In fiscal year 2008, given our requested funding level, we will continue to move forward 

with the conversion of ERS and we 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 will increase the number of internal training presentations available to RRB 

employees to over 100. In fiscal year 2008, or earlier if funding allows, we also plan on 

expanding RRBVision to be available to covered railroad employers and the general public 

on the RRB’s website (www.rrb.gov). This would allow us to provide on-line training and 

assistance to employers at their convenience and in another training format. This would 

be beneficial in improving reporting accuracy and reducing initial phone calls to the RRB. 

Presentations made available to the general public would furnish information on benefits 

and forms to allow another option in assisting the public, providing better customer service 

and reducing the number of phone inquiries. 

- 32 -
 Improper Payments Information Act (IPIA) 

The RRB’s Office of Programs calculated the amount of improper payments made in fiscal year 

2005 for each of the two programs our agency administers – as listed in the former Section 57 

of OMB Circular A-11, the Retirement and Survivor Benefits (RRA) and Railroad Unemployment 

Insurance Benefits (RUIA). That information, which is provided in an appendix to this report, 

reveals that neither of the RRB’s benefit payment programs exceeds the OMB threshold for 

improper payments. Therefore, the agency is not required to prepare and monitor a formal 

action plan for reducing or eliminating improper payments. 

Although it does not require the RRB to have a formal plan for targeting precise levels of 

improper payments, the IPIA continues to have a real impact on the agency by ensuring a 

continued high priority for ongoing activities and initiatives designed to reduce specific 

categories of improper payments. 

We have ongoing activities and projects aimed at improving the accuracy of payments and 

reducing erroneous payments which include: 

3⁄4 quality assurance programs which identify activities that are susceptible to error and 

process improvements to prevent further errors, 

3⁄4 program integrity efforts which aim to validate continued entitlement to RRA and RUIA 

benefits, and 

3⁄4 an internal control review process for all benefit payment processes, which identifies and 

addresses potential weaknesses that may create improper payments. 

In addition, we continue to improve adjudication and payment systems and procedures to 

minimize errors. We are also pursuing various initiatives which will minimize specific types of 

improper payments in the RRA program: 

• We have developed a system that expands on our process of evaluating adjustments 

received from employers to our employee service and compensation records and adjust 

annuities, if needed. This initiative identifies specific RRA improper underpayments and 

pays out additional benefits due. The initial implementation of this process (called 

RESCUE) was in fiscal year 2006 – to handle adjustments and reports posted in 

January 2006, and later. In fiscal year 2007, RESCUE will evaluate adjustments posted 

prior to January 2006, and pay out additional benefits due. This will resolve many of the 

improper payments that have been included in the estimates. 

• We are working on 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 our calculation of benefits. 

• We are developing ways to identify earnings of our auxiliary beneficiaries (spouse, 

children, and widow(er)s) when inconsistencies related to their SSN on record do not 

allow us to match to the SSA earnings database or “death match” files. 

- 33 -
• We have implemented 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 now allows the RRB to adjust ongoing payments for earnings on a much more 

timely basis, which minimizes any underpayments or overpayments that may result from 

changes in earnings. 

• We are in the process of developing better procedures to identify unreported last 

pre-retirement employment earnings after the annuity beginning date. 

• We have initiated a new monitoring program for annuitants who are over age 105. Our 

review of this category allows us to detect overpayments as a result of fraud or death, 

and gives us the opportunity to encourage the establishment of representative payees if 

we determine that annuitants are having difficulty managing their funds. 

Despite all our best efforts to prevent improper payments, some will always occur, due to lack of 

timely information, etc. In overpayment situations, the agency is diligent in its recovery efforts. 

The RRB’s account receivable balance for the RRA program at the end of fiscal year 2005 was 

$36,341,790. This balance includes $9,564,863 classified as Currently Not Collectible. We 

estimate that approximately 81.2 percent of these receivables will be collected and that the 

remaining 18.8 percent will eventually be closed as uncollectible. The RRB’s collection program 

is in full compliance with the Debt Collection Improvement Act of 1996. 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. 

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 43 assessable units. The number of 

assessable units varies 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 periodic, in-depth reviews as deemed 

necessary by the MCRC in consultation with senior management. During fiscal year 2006, 

responsible officials performed in-depth reviews of 3 assessable units, assessed all 43, and 

certified 42. 

- 34 -
The RRB reported a material weakness relating to deficiencies in the Information Technology 

Security Program in fiscal year 2002; the remaining actions needed to close out the deficiencies 

are implementation of two access control recommendations and completion of a management 

control review. 

In fiscal year 2005, the OIG identified significant deficiencies in three areas, which it reported as 

material weaknesses in the fiscal year 2005 Performance and Accountability Report. They are: 

1. Information Technology Security – previously reported deficiencies in access controls 

and training continued, and two new deficiencies in meeting FISMA requirements for risk 

assessments, and testing and evaluation; 

2. Performance Measures – the lack of procedures on data validation and retention of 

supporting documentation; and, 

3. Actuarial Projection Process – inadequate internal control over the projections and 

related reports. 

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

Head certifications for fiscal year 2006 include information about actions underway to address 

each of these. We will continue to monitor progress during fiscal year 2007. 

- 35 -
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 Federal Financial Management Improvement Act §803(a), 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, Performance Measures and the Actuarial Projection Process, as material 

weaknesses. 

Description of OIG-Identified Material Weaknesses 

1. The information technology security program is weakened by deficiencies in risk 

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

major application systems. 

The fiscal year 2007 plan is to complete the management control review using controls 

structured for certification and accreditation testing. In fiscal year 2008, the plan is to 

resolve the two remaining audit recommendations associated with logical access controls; 

23 related recommendations have been resolved to date. We will then evaluate the 

Information Technology Security material weakness to determine whether it has been 

eliminated. 

- 36 -
2. The agency performance measurement program is weakened by deficiencies in data 

validation and the retention of supporting documentation. 

 The fiscal year 2007 plan is to adopt and implement procedures on data validation and 

retention of supporting documentation processes. We expect to complete corrective action 

on this matter in fiscal year 2007. 

3. The actuarial projection process is weakened because it is not supported by formal written 

policies, procedures and model documentation, and does not provide for a periodic 

evaluation of compliance with internal requirements. 

 The fiscal year 2007 plan is to prepare formal written policy and procedures 

documentation, and provide for a periodic evaluation of compliance with internal 

requirements. We expect to complete corrective action on this matter in fiscal year 2007. 

Originally signed by: 

Michael S. Schwartz, Chairman of the Board 

V. M. Speakman, Jr., Labor Member 

Jerome F. Kever, Management Member 

- 37 - 
 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, 2006. 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 2006-2080, 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 2006-2016. The results 

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

11-year projection period except for small, short-term cash flow problems in 2008 and 2009 

under the pessimistic assumption. 

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. 

- 38 -
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 2003 – 2008. 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 labor employers. 

The RRB has developed a secure Internet-based Employer Reporting System (ERS) to accept 

reports from covered railroad and labor employers concerning employee service and 

compensation data. Through March 2006, approximately 55 percent of the total reporting 

employers were using the site. Nearly 5,900 forms were filed on ERS during fiscal year 2005 

which reduced costs to the RRB and the employers. Based on the increased usage and 

comments from employers, we will continue to increase the number of forms and applications 

available on the Internet. 

Version 3 of the System Processing Excess Earnings Data (SPEED) system was implemented 

during 2005. SPEED provides a single source for both retirement and survivor annuitant 

earnings information and will eventually automate annuity adjustments associated with work 

reports and excess earnings. With this release, SPEED automated adjustments to reinstate 

survivor cases after withholding for the appropriate number of months based on estimated 

annual earnings. In the early part of 2006, we added year-end survivor processing to automate 

survivor suspension actions, notices and call-ups for current year estimated excess earnings. 

We are now actively working on automating the retirement temporary work deduction 

adjustment process. 

We added several new beneficiary online service options on the RRB’s website resulting in 

improved service to our customers with implementation of the RUIAnet system. This system 

provides both online unemployment applications and claims for benefits effective in March and 

November 2004, respectively. So far, about 15 percent of claimants are choosing to claim 

- 41 -
unemployment insurance benefits online. In November 2005, we added a service enabling 

beneficiaries to view their unemployment and sickness insurance accounts online. The account 

statement lists recent forms filed and unemployment and sickness insurance benefit payments. 

Also, in November 2005, the RRB implemented mechanical screening of unemployment 

insurance claims filed online. 

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 personalinjury settlements. 

In November 2005, RRB’s Debt Recovery Division launched 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. 

The RRB HelpLine received 372,458 calls in fiscal year 2005, compared to 408,467 calls in 

fiscal year 2004. We released 1,310 Railroad Retirement Act rate letters, 2,263 replacement 

Medicare cards, 1,979 service and compensation statements, and 519 replacement tax 

statements as a result of customer calls. A total of 99,402 callers made requests for information 

about local field office addresses and telephone numbers. 

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 or online screens. We continued to expand RRBVision presentations to cover 

technical and non-technical training and make these presentations available to the proper staffs 

in a timely fashion. All agency staff members, particularly those in field service locations 

throughout the country, are now able to view training materials and presentations previously 

unavailable to them. The benefit of having on-demand training presentations available in a 

consistent manner has improved employee training and satisfaction with training. The agency 

has been able to reduce travel time and costs by providing RRBVision presentations ahead of 

actual classroom training. We have also been able to make training presentations available the 

next day after the implementation of procedural changes. These presentations are also 

captured and can be viewed multiple times for the benefit of current and future employees, 

which also supports our succession planning efforts. 

In another e-Government initiative, the RRB is participating in the project to create and maintain 

an online Forms Catalog at www.forms.gov. The online forms catalog provides citizens and 

businesses with a common access point to locate forms issued by the Federal government. 

Over 5,000 forms are now available online. The RRB has 45 public-use forms available in the 

catalog and will continue adding public-use forms to the catalog during fiscal year 2006. 

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 

- 42 -
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 34.7 percent in October 2004, to 57 percent in 

December 2005. 

Systems security 

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 established a comprehensive training program that utilizes the Office of 

Personnel Management sponsored USALearning’s Karta computer security curriculum. One 

hundred eighty-one employees with computer security responsibilities were enrolled in this rolebased training program completing a combined total of over 1,000 online classes. Additional 

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

engineers to maintain their skills and enhance proficiency. 

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. Every year, the RRB awareness program has experienced 

exemplary levels of participation measures by all 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 that is 

now in place, 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.). 

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

Information Systems Security Policy, Standards and Guidelines Handbook was edited to include 

revisions to Chapters on “Risk Management” and “Information Security Level Designations” to 

conform to current National Institute of Standards and Technology guidance. The policies 

promulgated in the RRB Automated Information Systems Security program apply to all RRB 

offices, bureaus, employees and contractors, and any other individuals who use RRB systems, 

data or information. These revisions describe the foundation assessments required as part of 

the certification and accreditation evaluation process mandated by Office of Management and 

Budget Circular A-130. 

In addition to expanding the privacy content in the annual computer security awareness training 

this year, a separate broadcast e-mail was sent to all employees concerning safeguarding 

of Federally-owned personally identifiable information as our 2006 privacy awareness notice. 

This was done partially in response to OMB Memorandum 06-15, Safeguarding Personally 

Identifiable Information. 

- 43 -
____________ ____________ ____________ 

Program evaluations 

Program Evaluation Results in Fiscal Year 2006 

Federal Managers’ 

Financial Integrity Act 

Reports 

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

section. 

Actuarial Valuation The 23rd Actuarial Valuation, completed in June 2006, indicated that barring a 

sudden, unanticipated large drop in railroad employment or substantial 

investment losses, the railroad retirement system will experience no cashflow problems during the next 36 years. 

Actuarial Status Report 

of Railroad 

Unemployment 

Insurance System 

The report, which was released in June 2006, was generally favorable. 

Experience-based contribution rates are expected to keep the unemployment 

system solvent, except for small, short-term cash-flow problems in 2008 and 

2009 under the most pessimistic assumption. However, projections show a 

quick repayment of any loans. 

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. 

Quality assurance 

reports 

The RRB’s program integrity report for fiscal year 2005, released in 

November 2006, showed that program integrity activities resulted in the 

establishment of about $12.8 million in recoverables, recovery of $9.1 million, 

benefit savings of $770 thousand, and referral of 215 cases to the Office of 

Inspector General. 

Client satisfaction 

surveys 

The RRB earned a score of 85 out of a possible 100 on an American 

Customer Satisfaction Index (ACSI) survey of initial disability annuitants, 

completed in August 2006. The score was 14 points higher than the current 

overall federal government score. 

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. 

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 

2006, reporting a total assessment value of 1.70 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 “Program Improvements” in the “Management’s Discussion and 

Analysis” section. 

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 2003 

through March 31, 2006 (except as noted), followed by a discussion of our unmet performance 

goals and objectives for fiscal year 2005. At the time this report was prepared, we had 

incomplete information on our fiscal year 2006 performance. The discussion of any unmet fiscal 

year 2006 performance goals and indicators will be presented in next year’s report. 

This performance report was prepared by RRB employees. 

- 44 -








Discussion of Unmet Performance Goals and Indicators for Fiscal Year 2005 

Performance Indicator I-A-16. Reduce the During fiscal year 2005, the Bureau of Hearings and 

number of days elapsed between the date the Appeals diverted resources to continue updating 

appeal is filed and a decision is rendered. the RRB’s regulations. In addition, two hearings 

(Measure: average elapsed days.) officers retired, but due to funding constraints, only 

one position was filled. With the new employee not 

Our goal for fiscal year 2005 was 200 days. We yet performing at the full performance level, as well 

achieved a level of 207 days. as reduced resources available for hearing appeals, 

meeting this objective was impeded. 

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 2005 was to provide 15 

services. We provided 14 services. 

We projected three additional services for 2005, but 

only completed two, one planned and one 

unplanned. We implemented the filing of 

unemployment insurance claims via the Internet 

(planned) and the handling of requests for a 

duplicate tax statement via the RRB Helpline 

(unplanned). Of the other two services projected 

for 2005, one, the ability to review the status of 

unemployment insurance claims was completed in 

November 2005. The second, which allows our 

Medicare contractor, Palmetto, to provide changes 

of address and notifications of death via the 

Internet, is now targeted for late 2006. 

Performance Indicator I-D-4. Enable employers We did not meet our goal to have a total of six 

to use the Internet to conduct business with the available services. The implementation of the two 

RRB, in support of the Government Paperwork new applications planned for fiscal year 2005 took 

Elimination Act. longer than anticipated because they were 

(Measures: percent of employers who use the new developed using a new system platform, which was 

online reporting process and number of services 

available through electronic media.) 

different from the one used to develop the four 

existing applications. The two new services, ID-4K, 

Prepayment Notice of Employee’s Application and 

Our goal for fiscal year 2005 was to provide 6 Claims for Benefits, and ID-4E, Notice of RUIA 

services, with 55 percent of employers using the 

online process. In fiscal year 2005, we provided 4 

Claim Determinations, should be available in 2006. 

To prevent these problems from recurring, we plan 

services and 55 percent of employers used the 

online process. 

to convert the existing services to the new platform 

prior to adding future services. 

- 53 -
Discussion of Unmet Performance Goals and Indicators for Fiscal Year 2005 

Performance Indicator II-C-1. Continue 

succession planning by ensuring there is a cadre of 

highly skilled employees available for key positions. 

(Measures for fiscal year 2005: number of position 

types for which core competencies have been 

defined, number of employees whose skills have 

been assessed, and number of employees involved 

with skills-enhancement programs.) 

Our goals for fiscal year 2005 were to define core 

competencies for 1 position, assess skills for 43 

employees and to involve 43 employees in skills 

enhancement programs. In fiscal year 2005, we 

defined core competencies for 6 employees, 

assessed skills for 73 employees, and involved 31 

employees in skills enhancement programs. 

We exceeded our goals for fiscal year 2005 in two 

of the three measures which we had established for 

the year. Although we completed skills 

assessments for many more employees than 

originally planned, we found that in many cases, the 

assessment did not reveal any particular gaps that 

needed to be filled. As a result, we enrolled fewer 

employees in skills enhancement programs than 

expected. 

- 54 -
FINANCIAL SECTION 
PAGE INTENTIONALLY LEFT BLANK 






Statement of Social Insurance (Note 15, Note 16) 

Actuarial Surplus or (Deficiency) 

75-year Projection as of January 1, 2006 

(Present values in millions of dollars) 

Unaudited Unaudited Unaudited Unaudited 

1/1/2006 1/1/2005 1/1/2004 1/1/2003 1/1/2002 

Estimated future income (excluding interest) received from or on behalf of:

 Current participants not yet having attained retirement age $64,980 $56,842 $55,778 $58,315 $60,452

 Current participants who have attained retirement age 62,480 56,859 54,882 54,491 51,137

 Those expected to become participants 44,309 31,313 30,327 32,419 30,843

 Subtotal - future income for the 75-year period 171,770 145,014 140,986 145,225 142,432 

Estimated future expenditures:

 Current participants not yet having attained retirement age 84,068 72,927 71,803 72,976 75,781

 Current participants who have attained retirement age 91,734 84,054 81,128 80,374 73,840

 Those expected to become participants 24,966 15,783 13,912 13,789 12,776

 Subtotal - future expenditures for the 75-year period 200,767 172,764 166,843 167,139 162,397 

Estimated future excess of income over expenditures: (28,997) (27,750) (25,857) (21,914) (19,965) 

- 63 -
Notes to the Financial Statements: Fiscal Years Ended September 30, 2006 and 2005 

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 2006 are to be 

submitted to the President, the Congress, and the Director of OMB by November 15, 2006. 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, Financing, 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 108-7. 

● 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 

agencies: 

● 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 2006 and 2005, net payroll taxes 

transferred to the RRB by Treasury were $4.7 billion and $4.5 billion, respectively. 

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 2006 and 2005, investments, including accrued interest, totaled $1.2 billion and 

$1.27 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 2006 due to the financial interchange advances during fiscal year 2005 included 

principal of $3.2 billion and interest of $170 million. The amount paid by the RRB to 

Treasury in fiscal year 2005 due to the financial interchange advances during fiscal year 

2004 included principal of $3.2 billion and interest of $159 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 2006, 

the RRB trust funds realized $3.8 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 2006 and 2005 were almost $1.2 billion, each year. 

● The Centers for Medicare and Medicaid Services (CMS) participates in the annual financial 

interchange in the same manner as described for SSA. The RRB transferred $471 million 

- 66 -
and $445 million to CMS in fiscal years 2006 and 2005, 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 2006 and 2005 were $7.2 million each year. 

● The General Services Administration (GSA) provides payroll processing services to the 

RRB. In addition, the RRB paid rent to GSA in the amounts of $3.6 million and $3.4 million 

for fiscal years 2006 and 2005, respectively. 

● The Department of Labor (DOL) invests Railroad Unemployment Insurance Act (RUIA) 

contributions. Accounts receivable with the DOL amounted to $101.5 million and 

$94.8 million for fiscal years 2006 and 2005, respectively. 

● The National Railroad Retirement Investment Trust (NRRIT) transfers funds to the RRB for 

payment of railroad retirement benefits. During fiscal years 2006 and 2005, the NRRIT 

transferred $947 million and $809 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: 

RESTATED 

2006 2005 

A. Fund Balances: 

(1) Trust Funds $15,554,765 $63,075,571 

(2) Appropriated Funds 8,903,887 11,802,026 

(3) Other Fund Types 11,209 10,783

 Total $24,469,861 $74,888,380 

B. Status of Fund Balance with Treasury (FBWT)

 (1) Unobligated Balance 

(a) Available $ 1,309,655 $ 1,276,942

 (b) Unavailable 10,738,818 14,046,774 

(2) Obligated Balance not yet Disbursed 12,410,179 59,553,881 

(3) Non-Budgetary FBWT 11,209 10,783

 Total $24,469,861 $74,888,380 

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, 2006 and 2005, the book values of the RRB’s investments held at the 

Treasury, including accrued interest, totaled $1,203,713,506 and $1,265,204,565, respectively. 

- 67 -
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. The balance on September 30, 2005, consisted of $1,262,628,000 in 

3.875 percent par value specials (with market value equal to face value) maturing on October 3, 

2005, and $2,576,565 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, 2006 and 2005. These figures were provided to the RRB by the NRRIT on 

November 15, 2006, for the fiscal year ended September 30, 2006. 

6. Accounts Receivable 

• Intragovernmental 

Accounts receivable - Intragovernmental at September 30 consisted of: 

2006 2005 

Financial Interchange – Principal $3,631,000,000 $3,505,500,000 

Financial Interchange – Interest 122,600,000 135,800,000 

Department of Labor 101,538,678 94,820,436 

Social Security Administration - OASI/DI Benefits 

(Old Age and Survivors Insurance/Disability Insurance) 127,973 181,458

 Total $3,855,266,651 $3,736,301,894 

- 68 -
• Accounts Receivable, Net 

Accounts receivable, net at September 30 consisted of: 

2006 2005 

Accounts receivable - Benefit overpayments $36,638,586 $32,029,588 

Accounts receivable – Past due RUI contributions and taxes 96,788 34,249 

Accounts receivable - Interest, penalty & administrative costs 254,498 356,309

 Total $36,989,872 $32,420,146 

Less: Allowances for doubtful accounts 6,638,901 4,984,898

 Net Total $30,350,971 $27,435,248 

The RRB’s September 30, 2006, accounts receivable balance (after writing-off currently not 

collectible (CNC) receivables but prior to the application of the allowance for doubtful accounts) 

of $36,989,872 includes $32,163,935 (87%) in railroad retirement program receivables and 

$4,825,937 (13%) in railroad unemployment insurance program receivables. The total 

allowance for doubtful accounts is $6,638,901. This includes $5,693,018 (85.8%) for the 

railroad retirement program and $945,883 (14.2%) 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, 2006 

Service Accumulated Net 

Classes of Fixed Assets Lives Cost Depreciation Book Value 

Structures, facilities and leasehold 

 improvements 15 years $ 2,651,787 $ 2,538,506 $ 113,281 

ADP software 5 years 19,539,768 19,431,024 108,744 

Equipment 5-10 years 5,465,009 5,175,598 289,411 

Internal-Use Software in Development 959,580 0 959,580 

$28,616,144 $27,145,128 $1,471,016 

- 69 -
RESTATED 

At September 30, 2005 

Service Accumulated Net 

Classes of Fixed Assets Lives Cost Depreciation Book Value 

Structures, facilities and leasehold 

 improvements 15 years $ 2,651,787 $ 2,475,289 $ 176,498 

ADP software 5 years 19,467,854 19,249,268 218,586 

Equipment 5-10 years 5,519,563 4,985,779 533,784 

Internal-Use Software in Development 869,271 0 869,271 

$28,508,475 $26,710,336 $1,798,139 

See Note 18 regarding restatements. 

9. Liabilities 

Liabilities at September 30 consisted of: 

RESTATED 

2006 2005 

Intragovernmental: 

 Other - Unfunded Federal Employees’ Compensation Act 

 Liability $ 391,040 $ 336,911 

Public: 

Other - Accrued Unfunded Leave $ 6,563,472 $ 6,334,350 

Total Liabilities Not Covered by Budgetary Resources $ 6,954,512 $ 6,671,261 

Total Liabilities Covered by Budgetary Resources 4,595,113,905 4,578,298,108 

Total Liabilities $4,602,068,417 $4,584,969,369 

• Debt 

Intragovernmental debt results from borrowing from Treasury to fund benefit payments from the 

SSEB Account. 

2006 2005 

Beginning Balance, Principal $2,973,100,000 $2,962,200,000

 New Borrowing 3,235,200,000 3,251,000,000

 Repayments (3,250,100,000) (3,240,100,000)

 Ending Balance, Principal 2,958,200,000 2,973,100,000

 Accrued Interest 71,801,471 68,735,141

 Total $3,030,001,471 $3,041,835,141 

• 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 $10,107,022 and $9,794,148, at 

- 70 -
September 30, 2006 and 2005, 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 

RRB determines that entitlement no longer exists or another check is issued to the beneficiary. 

• Other Liabilities 

Other liabilities at September 30 consisted of: 

RESTATED 

2006 2005 

Accrued Unfunded Liabilities $ 6,563,472 $ 6,334,350 

Accrued Payroll 2,835,839 2,758,875 

Accrued RRB Contributions – Thrift Savings Plan 54,172 51,897 

Withholdings Payable 26,020 24,876 

Contingent Liability (see Note 10 for details) 268,000,000 283,000,000 

Capital Lease Liability 112,578 221,025 

Other 427,993 71,902

 Total $278,020,074 $292,462,925 

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. Based on an August 14, 2006, judgment, the RRB’s 

legal counsel has determined that it is probable the RR and SSEB Accounts are 

contingently liable for $86 million. The amount of $90 million was recorded in fiscal year 

2003; an additional $11 million was recorded in fiscal year 2005; and a reduction of 

$15 million was recorded in fiscal year 2006 (for a total of $86 million) and is reflected on the 

2005 and 2006 Balance Sheet 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. Due to 

the decision entered by the United States Claims Court on October 31, 2003, regarding the 

above case, the RRB’s legal counsel has determined that it is probable that the RR and 

SSEB Accounts are contingently liable for an estimated amount of $82 million. This amount 

was recorded in fiscal year 2003 and is reflected on the Balance Sheet for fiscal years 2005 

and 2006 under other liabilities. 

The amount of the contingent liability recorded for the above two actions is $168 million. 

- 71 -
● 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 contingent liability recorded is $268 million. 

● 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 $1.084 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 

RESTATED 

2006 2005 

Railroad Retirement (RR) Program 

 Intragovernmental Costs $ 200,262,640 $ 191,475,166

 Public Costs 9,539,944,588 9,272,121,006

 Total RR Program Costs $9,740,207,228 $9,463,596,172

 Intragovernmental Earned Revenue 

 Public Earned Revenue 

 Total RR Program Earned Revenue 

$ 7,165,078 $ 7,245,977

532,954 612,296

$ 7,698,032 $ 7,858,273 

Railroad Unemployment and Sickness Insurance (RUIA) 

Program 

 Intragovernmental Costs $ 4,663,731 $ 4,580,665

 Public Costs 114,276,541 114,242,576

 Total RUIA Program Costs $ 118,940,272 $ 118,823,241

 Intragovernmental Earned Revenue 

 Public Earned Revenue 

 Total RUIA Program Earned Revenue 

$ 0 $ 

28,259,164 29,422,262

$ 28,259,164 $ 29,422,262 

These totals do not include $236,717 and $250,073 of earned revenues not attributable to either 

program for fiscal years 2006 and 2005, respectively. 

12. Transfers To/From NRRIT 

The RRB received a total of $947 million and $809 million from the NRRIT during fiscal years 

2006 and 2005, respectively. These funds were received into the Railroad Retirement (RR) 

Account. Transfers were to fund the payment of benefits. 

- 72 -

 0
13. Undelivered Orders at the End of the Period 

2006 2005 

Undelivered Orders $7,915,076 $7,721,210 

14. Explanation of Material Difference 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, 2005. A reconciliation was not performed for the period ended September 30, 

2006, since the RRB’s Performance and Accountability Report is published in November 2006, 

and OMB’s MAX system will not have actual budget data until mid-December 2006. 

The Budget of the United States Government and the RRB’s Statement of Budgetary 

Resources differ because of the following transaction types: 

Fiscal Year 2005 

Distributed 

Budgetary 

Resources 

(in millions) 

Obligations 

Incurred 

(in millions)

Offsetting 

Receipts 

(in millions) 

Net Outlays 

(in millions) 

1. Combined Statement of Budgetary 

 Resources $10,036 $10,022 $3,811 $6,148 

2. Unobligated Balance, brought forward 

3. 

4. 

5. 

6. 

7. 

8. 

 October 1, 2004 

Recoveries of prior year unpaid obligations 

Dual Benefit Obligations (0111) 

Sickness Insurance Benefit Recoveries 

Administrative Expense Reimbursement 

Cancelled Authority 

Interfund Transfers: Federal Payment 

 Obligations – Income Taxes Collected 

(15) 

(1) 

(107) 

(29) 

(8) 

2 

(107) 

(29) 

(8) 

 on Benefits (0113) (442) (442) (442) 

Financial Interchange 

9. Financial Interchange – Cash vs. Accrual 

 (net difference) 548 (548) 

NRRIT 

10. 

11. 

NRRIT Obligations / Outlays 

Intrafund Transfers: NRRIT Transfer to 

827 827 827 

12. 

RRA 

Proprietary Receipts: NRRIT – Gains and 

Losses 

809 

3,094 

(809) 

(3,094) 

13. Proprietary Receipts: NRRIT – Interest 

14. 

and Dividends 

Rounding 

331 (331) 

(1) 

15. Budget of the United States Government $10,263 $10,263 $8,151 $2,192 

- 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. 

• Below are the fund balances used in the Statement of Social Insurance: 

 Fund Balance 

Date Fund Balance (unaudited)

(millions) (millions)

1/1/2006 $29,976 

1/1/2005 $28,570 

1/1/2004 26,616 

1/1/2003 22,679 

1/1/2002 20,861 

• Detail may not add to totals due to rounding. Employee and beneficiary status are 

determined as of 1/1/2005, whereas present values are as of 1/1/2006. Prior to 2003, 

present value categories for “Current participants not yet having attained retirement age” 

included those employees eligible for retirement who had not yet retired. 

• Prior to 2006, certain accrual adjustments were included in the above fund balances. In 

2006, they were excluded to promote clarity and to be consistent with the account benefit 

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. 

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. 

- 74 -
The employment assumption for the Statement of Social Insurance is employment 

assumption II, the intermediate employment assumption, as used in the 23rd actuarial valuation. 

Under employment assumption II, starting with an average 2005 employment of 233,000, 

(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 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. Restatements 

Since the assets of the NRRIT are included in the RRB’s Statement of Social Insurance (a basic 

statement for the first time in fiscal year 2006), management, in conjunction with the RRB’s 

Inspector General, agreed to restate the financial statements of the RRB to include NRRIT net 

assets. For fiscal year 2005, the Balance Sheet, the Statement of Changes in Net Position, and 

the Statement of Financing were restated to include the net assets of the NRRIT. NRRIT net 

assets of $27,666.5 million were added to the Balance Sheet. The Statement of Changes in 

Net Position was restated to include a prior-period adjustment of $25,032.9 million to bring in 

the audited NRRIT net assets as of September 30, 2004, and the increase in NRRIT net assets 

for fiscal year 2005 amounting to $2,633.6 million. Other resources on the Statement of 

Financing were increased by $2,633.6 million as a result of the increase in NRRIT net assets for 

fiscal year 2005. 

After a consultation with DOL, OMB and the Financial Management Service, it has been 

determined that the RUIA contributions that the RRB receives from railroad employers should 

be reported as revenue to the RRB. As a result of this accounting change, the restatement of 

fiscal year 2005 on the Statement of Changes in Net Position shows an increase in 

non-exchange revenue and a decrease in transfers-in without reimbursement in the amount of 

$97.2 million. 

In conjunction with the material restatements described above, we made certain other 

corrections with only immaterial impact on the financial statements. 

The overall effect of the restatements was an increase in assets of $27,666,708,385 on the 

Balance Sheet; an increase in the Statement of Net Cost of $95,774; an increase in cumulative 

results of operations on the Statement of Changes in Net Position of $25,032,864,071; a 

decrease in budgetary resources and status of budgetary resources on the Statement of 

Budgetary Resources of $341,407; and an increase in total resources used to finance activities 

of $2,633,165,752 on the Statement of Financing. 

19. 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 2005 and 2006. 

This disclosure agrees with the aggregate of RRB direct and reimbursable obligations as 

reported on the RRB’s fiscal year 2006 year-end SF-133, Report on Budget Execution and 

Budgetary Resources, and lines 8A and 8B in the Statement of Budgetary Resources. 

- 77 -
20. Changes to Obligated and Unobligated Balances at the Beginning of Fiscal Year 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 $72,053 million, 

or 41.9 percent of the estimated future income of $171,770 million. 

- 79 -
 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. 

23

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

railroad retirement system as of January 1, 2006. The figures in the table are based on the 

rd actuarial valuation extended through calendar year 2080. The present values in the table 

are based on estimates of income and expenditures through the year 2080. The estimates 

include income and expenditures related to future participants as well as to former and present 

railroad employees. Future tier 2 tax rates were recomputed for the Statement of Social 

Insurance because of the difference between audited NRRIT asset values and those used for 

the 23rd actuarial valuation. 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 23rd actuarial valuation. Under employment assumption II, starting 

with an average 2005 employment of 233,000, (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. 

- 80 -
 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 23rd actuarial valuation extended 

through calendar year 2080, 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. 

- 81 -
 UNAUDITED 

Chart 1: Estimated Income and Expenditures 

(millions) $80,000 

$70,000 

$60,000 

$50,000 

$40,000 

$30,000 

$20,000 

$10,000 

$0 

i

i

Expend tures 

Income Exclud ng Interest 

Income 

2006 2011 2016 2021 2026 2031 2036 2041 2046 2051 2056 2061 2066 2071 2076 

Cashflow Projections – Chart 1 shows actuarial estimates of railroad retirement annual income, 

income excluding interest, and expenditures for 2006-2080 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 2012. This continues 

for slightly more than a decade, but by 2023 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 2018 

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. 

- 82 -
 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% 

20% 

10% 

0% 

i

i

Expend tures 

Income Exclud ng Interest 

2006 2011 2016 2021 2026 2031 2036 2041 2046 2051 2056 2061 2066 2071 2076 

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, 2006, and are based 

on estimates of income and expenditures during the projection period 2006-2080. 

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 2005 is equal to 233,000. 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. 

- 83 -
 UNAUDITED 

Table 1 

Excess of Assets and Present Value of Income over Present Value of Expenditures for 

Three Employment Assumptions, 2006-2080 

(in millions)

 Employment Assumption I II III

 Present Value $1,210 $ 979 $ 684 

Average Tier 2 tax ratea 14.2% 16.2% 18.7%

 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 

( ) 

i

l

l

$50,000 

$100,000 

$150,000 

$200,000 

$250,000 

millions

Employment Assumpt on I 

Emp oyment Assumption II 

Emp oyment Assumption III 

2006 2011 2016 2021 2026 2031 2036 2041 2046 2051 2056 2061 2066 2071 2076 

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 2039 under employment assumption I but then increases again slightly starting 

in 2075. The tax rate does not reach the minimum until 2063 under employment assumption II. 

Under employment assumption III, the tax rate reaches the maximum in 2032, remaining at that 

level through 2062, and then decreases until it reaches the minimum in 2074. 

- 84 -
 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% 

2006 2011 2016 2021 2026 2031 2036 2041 2046 2051 2056 2061 2066 2071 2076 

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. 

- 85 -
 UNAUDITED 

Table 2 

Excess of Assets and Present Value of Income over Present Value of Expenditures for 

Three Interest Rate Assumptions, 2006-2080 

(in millions)

 Interest Rate Assumption 4% 7.5% 11%

 Present Value $9,155 $ 979 $3,496 

Average Tier 2 tax rate 20.0% 16.2% 12.8% 

Chart 4a: Combined Balance of the RR Account, NRRIT and SSEB Account under Three Interest Assumptions 

(millions) $240,000

$220,000

$200,000

$180,000

$160,000

$140,000

$120,000

$100,000

$80,000

$60,000

$40,000

$20,000

$0

($20,000)

2006 2011 2016 2021 2026 2031 2036 2041 2046 2051 2056 2061 2066 2071 2076

4% Interest 

7.5% Interest 

11% Interest 

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 

2024, although it never becomes negative. After that it continues to increase. With a 

7.5 percent interest rate, the account balance increases through 2011, decreases from 2012 to 

2022, 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, 2006. 

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 2025 until 2041. With the 7.5 percent interest 

rate, the maximum tax rate will never be paid, and the minimum tax rate is paid starting in 2063. 

With an 11 percent interest rate, the maximum tax rate is never applicable, and the minimum tax 

rate is paid beginning in 2025. 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. 

- 86 -
 UNAUDITED 

Chart 4b: Tier 2 Tax Rate under Three Interest Assumptions 

30.0% 

25.0% 

20.0% 

15.0% 

10.0% 

5.0% 

0.0% 

4% Interest 

7.5% Interest 

11% Interest 

2006 2011 2016 2021 2026 2031 2036 2041 2046 2051 2056 2061 2066 2071 2076 

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 2006. For assumptions II and III, the 

ratio is highest in 2021 and 2031, 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 

0.00 

i

i

i

Employment Assumpt on I 

Employment Assumpt on II 

Employment Assumpt on III 

2006 2011 2016 2021 2026 2031 2036 2041 2046 2051 2056 2061 2066 2071 2076 

- 87 -











OTHER ACCOMPANYING INFORMATION 
PAGE INTENTIONALLY LEFT BLANK 
SERIOUS MANAGEMENT CHALLENGES 

IDENTIFIED BY THE RAILROAD RETIREMENT BOARD’S 

OFFICE OF INSPECTOR GENERAL 

The Railroad Retirement Board (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. 

Statement of Social Insurance

During FY 2006 the first-time audit of the statement of social insurance 

has put the RRB’s actuarial projection and reporting process in the 

spotlight of government accountability. 

The RRB’s FY 2006 basic financial statements must include a statement 

of social insurance. Unique to the four Federal reporting entities with 

responsibility for social insurance programs, statements of social 

insurance have never been included in the auditor’s opinion although the 

statement has been presented as supplementary information since FY 

2000. 

The OIG’s FY 2005 assessment of controls over the actuarial projection 

process that serves as the basis for the statement of social insurance 

disclosed that the agency had not implemented a comprehensive system 

of internal control for actuarial services, and that its management control 

review program had not been effective in disclosing the system’s 

deficiencies. 

- 101 -
During FY 2006, agency management began the process of addressing 

the OIG’s recommendations to strengthen internal control by preparing a 

more fully developed assessment of risk and more detailed description of 

controls. In addition, process improvements implemented this year now 

provide for the capture and retention of evidence of the operation controls. 

However, much remains to be accomplished. Corrective action to date 

has not addressed key parts of the OIG’s original finding which included 

development of formal policies and procedures, documentation to support 

the actuarial model and a quality assurance program. The RRB’s 

management control review committee expects to work with responsible 

managers to strengthen controls in this area. 

Performance Measures

As emphasis is placed on implementation of a performance based budget, 

increasing emphasis will be directed to the quality of performance 

reporting. We have noted before that the RRB needs to be proactive in 

ensuring the credibility of its performance measures. This can only be 

accomplished through a strong system of management controls within an 

agencywide framework. 

During FY 2005, the OIG recommended corrective action to strengthen 

controls over the preparation of performance data. During FY 2006, the 

most affected organizational unit took action to improve the quality of its 

performance data while the agency developed a strategy designed to 

strengthen the internal control process for performance indicators 

throughout the agency. 

If the new strategy is adopted and implemented during FY 2007, the 

previously identified control weakness could be fully addressed during the 

next reporting cycle. 

Information Technology Security

Information security remains a major challenge to the RRB. The RRB 

continues to experience difficulty in achieving an effective security 

program that complies with requirements of the Federal Information 

Security Management Act (FISMA). 

During FY 2006, the agency completed corrective action to eliminate the 

previously reported significant deficiency in training. Previously identified 

significant deficiencies in access controls, risk assessments, and periodic 

- 102 -
- 103 -
- 104 -

Management’s Comments

These are Management’s comments on the Serious Management Challenges identified by the 

Railroad Retirement Board Inspector General. The three challenges identified by the Inspector 

General are: 1) Statement of Social Insurance, specifically, management controls over the 

actuarial projection process; 2) Performance Measures; and 3) Information Technology 

Security.

Management appreciates the Inspector General’s recognition of the progress that has been 

made in addressing these areas. The Inspector General notes that deficiencies identified 

concerning the agency’s Performance Measures will likely be resolved during the next reporting 

cycle. We have worked diligently to address this area and have put into place an improved 

methodology for collecting, documenting, validating, certifying, reporting on, and retaining 

information on the agency’s performance in meeting the goals and objectives set out in the 

agency’s Annual Performance Budget and Performance and Accountability Report.

In the Information Technology Security area, the Inspector General states that the agency has 

completed corrective action to eliminate deficiencies identified in the past in providing training 

for employees. The Inspector General notes, however, that although progress has been made 

in addressing deficiencies in access controls, risk assessment, and periodic testing and 

evaluation of our systems, additional effort is needed to resolve these issues, as well as a few 

other observed weaknesses. Resolving areas of deficiency in the Information Technology 

Security area has been, and continues to be, a high priority of the agency. We have a plan in 

place to address the deficiencies identified by the Office of Inspector General and we will 

continue to emphasize resolving these issues. One issue that needs to be clarified somewhat is 

the agency’s plan to establish an Information Security and Privacy Committee. The Inspector 

General states that the three-member Board has not yet approved establishment of this 

committee. A proposal to establish an Information Security and Privacy Committee was 

submitted to the Board Members on October 13, 2006, and was approved by the Board 

Members on October 17.

Finally, the Inspector General identifies management control deficiencies in connection with the 

actuarial projection process as a serious management challenge. The identified deficiencies 

concern documentation of the projection process, including the need for formal policies and 

procedures documentation to support the actuarial model. The Chief Actuary has agreed to 

take necessary action to address this issue and has already submitted a revised set of 

management controls covering the actuarial projection process to the agency’s Management 

Control Review Committee (MCRC) for review. In addition, the Chief Actuary is currently 

drafting policies and procedures to cover the projection process. Once these policies and 

procedures are completed, the management control documentation will be updated to reflect 

that these controls are in place. We are confident that the Chief Actuary’s actions will 

completely resolve this issue. 
- 105 -

Improper Payments Information Act (IPIA) Reporting Details

I. Describe the risk assessment(s), performed subsequent to completing your 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 your risk assessments. Be sure to include the programs previously identified in 

the former Section 57 of OMB Circular A-11.

The RRB’s Office of Programs reviewed each of the two benefit payment programs our agency 

administers and calculated the amount of improper payments made in fiscal year 2005. The 

two benefit payment programs are listed in the former Section 57 of OMB Circular A-11: 

Retirement and Survivor Benefits (referred to as RRA) and Railroad Unemployment Insurance 

Benefits (referred to as RUIA). 

Results of Fiscal Year 2005 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 N/A No 

II. Describe the statistical sampling process conducted to estimate the improper 

payment rate for each program identified. 

The agency has established and documented a 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. 

We also included projections of improper payments from audits and special studies. This 

approach, although not based entirely on statistical sampling, is sufficient for making the 

determination that the improper payments in our programs do not exceed the OMB thresholds. 

The RRB’s Office of General Counsel reviewed the methodology and concluded that overall, the 

approach used had merit. Furthermore, in May 2005, the RRB’s General Counsel issued a 

legal opinion confirming that, since the levels of improper payments did not exceed the 

designated thresholds, the agency was not required to conduct statistical sampling. 

III. Describe the Corrective Action Plans for: 

 A. Reducing the estimated rate of improper payments. Include in this discussion 

what is seen as the cause(s) of errors and the corresponding steps necessary to 

prevent future occurrences. If efforts are already underway, and/or have been 

ongoing for some length of time, it is appropriate to include that information in 

this section.
- 106 -

 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.

While we do not have a formal plan for targeting precise levels of improper payments, we do 

have several ongoing activities and projects aimed at improving the accuracy of our 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, we conduct our quality 

assurance programs and validation reviews, which identify activities that are susceptible 

to error and process improvements to prevent further errors. 

3⁄4 To detect improper payments due to out-of-date information, we conduct comprehensive 

monitoring and program integrity efforts which aim to validate continued entitlement to 

our benefits. 

As outlined in the Management’s Discussion and Analysis Section of this report, the RRB 

continues to improve its adjudication and payment systems and procedures to minimize specific 

types of improper payments in the RRA program. The RRB is also diligent in collecting its debts 

and is in full compliance with the Debt Collection Improvement Act of 1996.

Furthermore, the agency maintains an internal 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 1998 through 2005, the OIG presented RRB management with 

99 recommendations for process improvement and corrective action pertaining to improper 

payments. Agency management has implemented or plans to implement 93 of the 99 

recommendations. We will continue to work with the OIG to address the issue of improper 

payments in our benefit programs. 
- 107 -

IV. The table below is required for each reporting agency:

Improper Payment (IP) Reduction Outlook FY 2004 – FY 2009

($ in millions) 

Program FY 04 $ 

Outlays 

FY 04 

IP % 

FY 04 

IP $ 

FY 05 $ 

Outlays 

(actual) 

FY 05 

IP % 

FY 05 

IP $ 

FY 06 $ 

Outlays 

(estimated) 

FY 06 

IP % 

FY 06 

IP $ 

RRA 9,008.0 1.64 147.9 9,197.9 1.65 151.8 9,513.8 1.65 157.0 

RUIA 123.3 2.1 2.6 111.2 2.3 2.6 115.7 2.3 2.7 

Program 

FY 07 $ 

Outlays 

(estimated) 

FY 07 

IP % 

FY 07 

IP $ 

FY 08 $ 

Outlays 

(estimated) 

FY 08 

IP % 

FY 08 

IP $ 

FY 09 $ 

Outlays 

(estimated) 

FY 09 

IP % 

FY 09 

IP $ 

RRA 9,803.7 1.65 161.8 10,111.3 1.65 166.8 10,399.8 1.65 171.6 

RUIA 123.4 2.3 2.9 129.3 2.3 3.0 135.7 2.3 3.2 

At the time we prepared this report, the latest actual data available was for fiscal year 2005. 

The estimates for fiscal years 2006 through 2009 are based on the December 2005 OMB 

budget review estimates. We have applied our fiscal year 2005 percentage rate to estimated 

outlays to estimate improper payment amounts for future years. 

V. Discuss recovery auditing effort, if applicable, including any contract types excluded 

from review and the justification for doing so; actions taken to recoup improper 

payments, and the business process changes and internal controls instituted and/or 

strengthened to prevent further occurrences. 

This does not apply to our 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 our two strategic goals. Agency managers have links to those goals in their 

performance plans. 
- 108 -

VII. 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 most recent budget submission to 

Congress to obtain the necessary information systems and infrastructure. 

The RRB’s enterprise architecture addresses, among other performance goals, the accuracy of 

benefit payments. 

We requested fiscal year 2007 funding for data optimization to reduce data redundancy and 

improve data efficiency. We also requested funding for: 

• Support of our network operations, 

• Replacement of a small portion of outdated information technology equipment, 

• Expansion of our electronic services to the public, and 

• Beginning OMB-mandated certification and accreditation of our major applications and 

general support systems. 

These 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. 

VIII. Describe any statutory or regulatory barriers which may limit the agencies’ 

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.

As indicated in the Management’s Discussion and Analysis Section, the RRB has made 

concerted efforts to reduce improper payments over the years. Our payment accuracy rates are 

at consistently high levels and our 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. We monitor our progress on 

implementing recommendations from the quality assurance process, and we are vigilant about 

pursuing OIG recommendations which impact the quality and timeliness of payments. We have 

also worked closely with our OIG in referring potential fraud cases for investigation and 

prosecution. We hope to be able to maintain adequate staffing so that we can continue this 

important effort. 
APPENDICES 
PAGE INTENTIONALLY LEFT BLANK 
- 111 -

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 

C

CHRIS Comprehensive Human Resources Integrated System 

CMS Centers for Medicare and 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 
- 112 -

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 

I

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 
- 113 -

R

RR Railroad Retirement 

RRA Railroad Retirement Act 

RR Account Railroad Retirement Account 

RRB Railroad Retirement Board 

RRS Account Railroad Retirement Supplemental Account 

RRSIA Railroad Retirement and Survivors’ Improvement 

Act of 2001 

RRTA Railroad Retirement Tax Act 

RUI Railroad Unemployment Insurance 

RUIA Railroad Unemployment Insurance Act 

RUSI Railroad Unemployment and Sickness Insurance 

S

SBR Statement of Budgetary Resources 

SCHIP State Children’s Health Insurance Program 

SFFAS Statement of Federal Financial Accounting Standards 

SPEED System Processing Excess Earnings Data 

SSA Social Security Administration 

SSEB Social Security Equivalent Benefit 

T

TOP Treasury Offset Program 

Treasury Department of the Treasury 

Trust National Railroad Retirement Investment Trust 

TSP Thrift Savings Plan 

U

USPS United States Postal Service 

V

VAN Virtual Area Network 
- 114 -

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 

 Executive Officer 

Henry M. Valiulis 

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