Railroad Unemployment

Insurance System

Annual Report Required by Section 7105

of the Technical and Miscellaneous

Revenue Act of 1988

U.S. Railroad Retirement Board

Bureau of the Actuary

June 2012
ANNUAL REPORT REQUIRED BY THE TECHNICAL

AND MISCELLANEOUS REVENUE ACT OF 1988

 I. Introduction

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

Railroad Retirement Board to submit an annual report to the Congress on the financial 

status of the railroad unemployment insurance system. The report must contain 

recommendations for financing changes that might be advisable, specifically with regard 

to rates of employer contributions. This report meets the requirements of Section 7105 

for 2012.

II. Recent Developments

The maximum daily benefit was $66 for the benefit year beginning July 1, 2011, and will 

remain the same for the benefit year beginning July 1, 2012. It will increase to $68 for 

the benefit year beginning July 1, 2013. The monthly tax base was $1,330 in 2010 and

2011, and increased to $1,365 in 2012 based on increases in the railroad retirement tier I 

creditable base.

Average employment in calendar year 2011 was 230,000 (subject to later revision), 

which is above the optimistic assumption in last year's report. Actual net unemployment 

and sickness benefits in fiscal year 2011 were $5.6 million (5.7 percent) less than last 

year’s projection. This year’s report predicts that the 1.5 percent surcharge in calendar 

year 2012 will be followed by no surcharge in calendar years 2013 and 2014. A 

surcharge of 1.5 percent is likely for calendar year 2015.

III. Economic and Employment Assumptions

The economic and employment assumptions used in this report correspond to those used 

in the report required by Section 502 of the Railroad Retirement Solvency Act of 1983. 

Unemployment levels are the single most significant factor affecting the financial status 

of the railroad unemployment insurance system. Rapidly declining employment coupled 

with high unemployment levels, as occurred in the early 1980s and more recently in the 

late 2000s, can put the system into debt. Conversely, cash balances can accumulate if 

employment declines are moderate and unemployment levels remain low. The 

experience-rating system is designed to tie individual employer contribution rates to their 

level of benefit claims, thereby adjusting the overall account balance to an appropriate 

level.

The three employment assumptions used, denoted A, B, and C, are shown in Table 1 at 

the end of the report. The projected tier I creditable limits, which determine both the 

railroad unemployment monthly wage base and the maximum daily benefit rate, are from 
-2-

the Social Security Administration's April 2012 Trustees Report, intermediate set of 

assumptions. Table 2 shows the tier I creditable limit, unemployment monthly earnings 

base and daily benefit rate assumptions.

IV. Results

Projections were made for the various components of income and outgo under each 

employment assumption for the 11 fiscal years 2012-2022. The results are summarized 

in Table 3. Average employer contribution rates under the experience-rated contribution 

system are weighted averages based on the relative size of each railroad's payroll.

Table 3 consists of three tables, one for each employment projection A, B, and C. The 

tables show (1) contributions, excluding the portion allocated to the Administration Fund, 

(2) net benefit payments, (3) other income and outgo, (4) the cash balance in the Railroad 

Unemployment Insurance Account (Account) at the end of each fiscal year, (5) the loan 

balance, if any, including accrued interest, (6) the Account balance at the end of each 

fiscal year, less loans due and (7) the average employer contribution rate for each 

calendar year.

The experience-rating formula is designed to keep the accrual balance of the Account, as 

of June 30, between $100 million and $250 million, indexed for changes in the taxable 

base. If the balance exceeds an indexed $250 million, contributions are reduced by a 

pooled credit. If the balance falls below an indexed $100 million, contributions are 

increased by a surcharge.

The June 30, 2010 balance1 was $0.1 million, above zero but below the indexed 

$50 million surcharge threshold of $63.5 million. As a result, a 2.5 percent surcharge 

was in effect for calendar year 2011. By June 30, 2011, the balance had risen to $66.2

million, which was above the indexed $50 million surcharge threshold of $65.1 million

but below the indexed $100 million surcharge threshold of $130.2 million. 

Consequently, a 1.5 percent surcharge is in effect for calendar year 2012. 

Under each employment assumption, the Account balance is expected to be above

indexed $100 million threshold in June of 2012, resulting in no surcharge in calendar 

year 2013. No surcharge is also predicted for calendar year 2014. For all three 

assumptions, a surcharge of 1.5 percent is likely for 2015, and surcharges of at least 1.5 

percent are likely to occur periodically thereafter. Under employment assumption C, 

short-term cash flow problems are probable in fiscal year 2015, with full repayment of 

the loans during fiscal year 2016. The highest average contribution rate needed is under 

employment assumption C, where it rises to 6.09 percent for calendar year 2016. This is 

 1

 The balance referred to here and in the following paragraph is the accrual balance of the Account as of 

June 30, on which calculations of pooled credits and surcharges are based. Cash balances shown on 

Tables 3A-C are not used in these calculations. June 30 accrual balances are shown in Table 4.
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well below the 12 percent maximum rate allowable.

Administrative expenses are assumed to be above the current level in every fiscal year. 

Nevertheless, the 0.65 percent of taxable payroll allocated to the Administration Fund is 

sufficient to finance administrative expenses during the projection period. When the 

accrual balance in the Administration Fund exceeds $6 million at the end of a fiscal year, 

excess funds are transferred to the Account early in the next fiscal year. Under all 

employment assumptions, the accrual balance in the Administration Fund exceeds 

$6 million at the end of each year in the 11-year projection period. 

 V. Recommendation

As stated in the introduction, the Congress directed the Railroad Retirement Board to 

make recommendations for financing changes that might be advisable, specifically with 

regard to rates of employer contributions.

No financing changes are recommended at this time. Projections under three different 

employment assumptions indicate that experience-based contribution rates will respond 

to fluctuating employment and unemployment levels and thereby maintain fund solvency. 
Table 1: Employment Assumptions Used in 2012 Report

Calendar Average Employment (thousands)

Year A B C 

2011 230 230 230

2012 229 226 223

2013 228 223 216

2014 227 219 210

2015 226 216 203

2016 225 212 197

2017 224 209 191

2018 224 206 186

2019 223 202 180

2020 222 199 175

2021 221 196 170

2022 220 193 164

Assumptions A and B reflect the stability of employment in passenger service (Amtrak and 

commuter service) as distinguished from freight service. Assumption A has the most 

optimistic employment of the three assumptions. Assumption B is intended to provide a 

"moderate" assumption. Assumption C, the most pessimistic, has declines in both 

passenger and freight employment.

Passenger employment is assumed to remain level at 45,000 under assumptions A and 

B, and to decline by 500 each year under assumption C. Non-passenger employment is 

assumed to decline at a constant annual rate of 0.5 percent, 2.0 percent and 3.5 percent 

under assumptions A, B and C, respectively.
Table 2: Annual Tier I Creditable Limit, Monthly RUI

 Taxable Limit, and Maximum Daily Benefit Rate

Maximum 

Annual Monthly Daily 

Calendar Tier I RUI Benefit 

Year Limit Limit Rate [1]

2011 $106,800 $1,330 $66 

2012 110,100 1,365 66 

2013 113,700 1,405 68 

2014 117,900 1,450 70 

2015 123,000 1,500 72 

2016 128,400 1,560 75 

2017 134,400 1,620 78 

2018 141,000 1,690 81 

2019 147,900 1,765 84 

2020 155,100 1,840 88 

2021 161,700 1,910 92 

2022 168,300 1,980 95 

[ 1] Effective for registration periods beginning after June 30 in the calendar

 year.
Table 3A. Progress of the Railroad Unemployment Insurance Account Under Assumption A

(Dollar Amounts in Millions)

Average

Account Account Loan Account Cash Employer

Contri- Net Other Income Cash Balance Balance Less Contribution

Fiscal butions Benefit and Outgo Balance Year End Loans Due Calendar Rate

Year [1] Payments [2] Year End [3] Year End Year (Percent)

2012 $181.3 $83.9 $13.0 $157.3 $0.0 $157.3 2012 4.58

2013 82.6 87.3 13.2 165.9 0.0 165.9 2013 1.07

2014 18.2 88.4 13.7 109.4 0.0 109.4 2014 1.15

2015 57.0 90.6 13.2 89.0 0.0 89.0 2015 2.93

2016 111.2 93.1 14.6 121.7 0.0 121.7 2016 3.66

2017 111.2 96.6 17.3 153.6 0.0 153.6 2017 2.78

2018 72.6 100.0 18.8 145.0 0.0 145.0 2018 1.77

2019 58.8 103.4 18.8 119.2 0.0 119.2 2019 2.04

2020 93.6 107.0 19.3 125.1 0.0 125.1 2020 3.09

2021 122.3 111.7 21.5 157.2 0.0 157.2 2021 3.07

2022 107.1 115.9 23.7 172.1 0.0 172.1 2022 2.36

[1] Excludes 0.65 percent of taxable payroll allocated to the Administration Fund.

[2] Income includes interest on investments and transfers from the Administration Fund of amounts in excess of $6 million at the end of the previous fiscal year.

 Outgo includes funding for the Office of Inspector General.

[3] Includes accrued interest.

NOTE: Detail may not add to totals due to rounding.
Table 3B. Progress of the Railroad Unemployment Insurance Account Under Assumption B

(Dollar Amounts in Millions)

Average

Account Account Loan Account Cash Employer

Contri- Net Other Income Cash Balance Balance Less Contribution

Fiscal butions Benefit and Outgo Balance Year End Loans Due Calendar Rate

Year [1] Payments [2] Year End [3] Year End Year (Percent)

2012 $180.4 $83.9 $13.0 $156.4 $0.0 $156.4 2012 4.58

2013 81.5 93.4 12.8 157.4 0.0 157.4 2013 1.07

2014 19.0 99.7 12.7 89.4 0.0 89.4 2014 1.22

2015 65.9 101.0 11.6 65.9 0.0 65.9 2015 3.45

2016 128.6 102.6 12.7 104.6 0.0 104.6 2016 4.32

2017 130.3 105.0 15.2 145.1 0.0 145.1 2017 3.41

2018 86.8 107.6 16.8 141.1 0.0 141.1 2018 2.08

2019 62.0 109.8 16.2 109.5 0.0 109.5 2019 2.12

2020 87.9 112.4 15.7 100.7 0.0 100.7 2020 3.17

2021 124.9 115.8 17.0 126.8 0.0 126.8 2021 3.68

2022 126.1 118.9 18.7 152.7 0.0 152.7 2022 3.12

[1] Excludes 0.65 percent of taxable payroll allocated to the Administration Fund.

[2] Income includes interest on investments and transfers from the Administration Fund of amounts in excess of $6 million at the end of the previous fiscal year.

 Outgo includes funding for the Office of Inspector General.

[3] Includes accrued interest.

NOTE: Detail may not add to totals due to rounding.
Table 3C. Progress of the Railroad Unemployment Insurance Account Under Assumption C

(Dollar Amounts in Millions)

Average

Account Account Loan Account Cash Employer

Contri- Net Other Income Cash Balance Balance Less Contribution

Fiscal butions Benefit and Outgo Balance Year End Loans Due Calendar Rate

Year [1] Payments [2] Year End [3] Year End Year (Percent)

2012 $179.3 $83.9 $13.0 $155.3 $0.0 $155.3 2012 4.58

2013 80.4 106.7 12.3 141.4 0.0 141.4 2013 1.08

2014 21.4 126.7 11.3 47.4 0.0 47.4 2014 1.38

2015 84.6 126.4 20.9 26.5 12.1 14.4 2015 4.49

2016 172.6 126.5 (2.6) 70.0 0.0 70.0 2016 6.09

2017 178.4 127.8 12.6 133.2 0.0 133.2 2017 4.74

2018 117.2 128.8 14.4 136.0 0.0 136.0 2018 2.77

2019 76.8 129.7 13.3 96.4 0.0 96.4 2019 2.54

2020 98.3 130.8 11.8 75.7 0.0 75.7 2020 3.82

2021 138.4 132.9 12.1 93.3 0.0 93.3 2021 4.55

2022 146.9 134.4 13.1 118.9 0.0 118.9 2022 4.21

[1] Excludes 0.65 percent of taxable payroll allocated to the Administration Fund.

[2] Income includes interest on investments, transfers from the Administration Fund of amounts in excess of $6 million at the end of the previous fiscal year,

 and loans from the Railroad Retirement Account. Outgo includes funding for the Office of Inspector General and repayment of loans, including interest.

[3] Includes accrued interest.

NOTE: Detail may not add to totals due to rounding.
Table 4. June 30 Accrual Balance of the Railroad Unemployment Insurance Account

 (Dollar Amounts in Millions)

1.5 Percent 1.5 Percent 1.5 Percent

Account Surcharge Account Surcharge Account Surcharge

 Year Balance Threshold Balance Threshold Balance Threshold

2012 $177.6 $135.6 $176.6 $135.2 $175.3 $134.7

2013 187.4 138.1 179.2 136.0 164.1 133.6

2014 131.7 141.7 112.4 137.9 72.3 133.4

2015 112.0 145.7 89.4 140.1 39.3 133.6

2016 145.1 150.3 128.2 142.8 94.7 134.2

2017 177.6 155.7 168.7 146.1 157.2 135.4

2018 170.0 161.2 165.0 149.5 159.6 136.5

2019 145.7 167.5 134.4 153.6 120.3 138.2

2020 153.0 174.2 126.7 157.8 100.2 139.9

2021 185.9 180.7 152.8 161.8 117.4 141.4

2022 201.2 186.7 178.4 165.3 142.3 142.4

Assumption A Assumption B Assumption C

The June 30, 2011 accrual balance was $66,198,068.70. The indexed 1.5 percent surcharge threshold was $130,193,914.00 and the 

indexed 2.5 percent surcharge threshold was $65,096,957.00.

The experience rating system provides for a surcharge in the employer contribution rate when the Railroad Unemployment Insurance

Account balance falls below certain thresholds. The 1.5 percent surcharge threshold is the greater of $100 million or the amount that 

bears the same ratio to $100 million as the system compensation base as of that June 30 bears to the system compensation base as

of June 30, 1991. The 2.5 percent surcharge threshold (not shown) is indexed from a $50 million base.