Railroad Retirement

System

Annual Report Required by Railroad

Retirement Act of 1974 and Railroad

Retirement Solvency Act of 1983

U.S. Railroad Retirement Board

Bureau of the Actuary

June 2008
ANNUAL ACTUARIAL REPORT REQUIRED BY 

RAILROAD RETIREMENT ACT OF 1974 AND 

RAILROAD RETIREMENT SOLVENCY ACT OF 1983

I. INTRODUCTION 

Section 22 of the Railroad Retirement Act of 1974 requires the Railroad Retirement 

Board to prepare an annual report containing a five-year projection of revenues to and 

payments from the Railroad Retirement Account and to submit the report to the President 

and the Congress by July 1. The report must also contain a five-year projection of the 

account benefits ratio and average account benefits ratio. If the five-year projection 

indicates that funds in the Railroad Retirement Account will be insufficient to pay full 

benefits, (1) representatives of railroad employees, railroad carriers and the President 

must submit proposals to the Congress to preserve the financial solvency of the Railroad 

Retirement Account, and (2) the Railroad Retirement Board must issue regulations to 

reduce annuity levels during any fiscal year in which there would be insufficient funds to 

make full payments. 

Section 502 of the Railroad Retirement Solvency Act of 1983 requires the Railroad 

Retirement Board to prepare an annual report on the actuarial status of the railroad 

retirement system and to submit the report to the Congress by July 1. The report must 

contain recommendations for any financing changes which might be advisable, including 

(1) changes in the tax rates, and (2) whether any part of the taxes on employers should be 

diverted to the Railroad Unemployment Insurance Account to aid in the repayment of its 

debt to the Railroad Retirement Account. 

This report is intended to meet the requirements of Section 22 and Section 502 for 2008. 

II. RAILROAD EMPLOYMENT 

Over the years, the main source of income to the railroad retirement system has been a 

payroll tax on railroad employment. The amount of income that the tax produces is 

directly dependent on the number of railroad employees covered under the system. 

An abbreviated history of average railroad employment from 1955 through 2005 is 

shown in the following table. 

Average annual rate of decline 

 Average employment for the 5-year period 

Year for year ending with the year

 1955 1,239,000 

1960 909,000 6.0% 

1965 753,000 3.7 
2

 1970 640,000 3.2 

 1975 548,000 3.1 

 1980 532,000 0.6 

 1985 372,000 6.9 

 1990 296,000 4.5 

 1995 265,000 2.2 

 2000 246,000 1.5 

 2005 232,000 1.2 

Between 1955 and 2005, the average annual rate of decline was 3.3 percent. Since 2005, 

average employment and rates of decline have been as follows: 

 Average employment Annual rate of decline 

Year for year from previous year

 2006 236,000 (1.7%) 

 2007 236,000 0.0 

Two things become clear from the figures shown -- (1) railroad employment has 

continued to decline over a long period of years, and (2) the rate of decline has been 

irregular. 

Three employment assumptions were used in the 23rd actuarial valuation, which served as 

the 2006 annual report required by Section 502. Employment assumptions I and II were 

based on a model developed by the Association of American Railroads, and assumed that 

(1) passenger employment would remain at the level of 43,000, and (2) the employment 

base, excluding passenger employment, would 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 

differed from employment assumptions I and II by assuming that (1) passenger 

employment would decline by 500 per year until a level of 35,000 was reached and then 

remain level, and (2) the employment base, excluding passenger employment, would 

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. 

The 2007 annual report continued the use of the three employment assumptions, updating 

them as to current employment levels. 

The projected average employment for 2007, based on the three employment assumptions 

used in the 2007 report, ranged from 229,000 to 235,000. The actual average 

employment for 2007 was 236,000 (subject to later adjustment), which exceeded the 

range of projected amounts. Passenger employment at the end of calendar year 2007 was 

estimated to be 43,000. Based on this result, it was decided to use 2007 average 

employment as a starting point in this year's report and continue the use of the rates of 

decline used in the 23rd valuation. In this year’s report, for employment assumptions I 

and II, passenger employment is assumed to remain level at 43,000. For employment 
3

assumption III, passenger employment is assumed to decline by 500 per year until a level 

of 35,000 is reached and then remain level. These assumptions are shown in Table 1. 

III. RESULTS

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

employment assumption for the 25 calendar years 2008-2032. The projections of these 

components were combined and the investment income calculated to produce the 

projected balances in the accounts at the end of each projection year. The results are 

summarized in Table 2 and Figure 1. 

Table 2 consists of three tables, one for each of employment assumptions I, II and III.

The tables show, for the Social Security Equivalent Benefit Account (SSEBA) and the 

combined National Railroad Retirement Investment Trust (NRRIT) and Railroad 

Retirement Account (RRA), for each projection year, (1) the various elements of income

and outgo, (2) the account balance on December 31, and (3) the account benefits ratio1

(ABR) and average account benefits ratio (AABR). 

Table 2 indicates that cash flow problems do not arise during the projection period under 

any of the three employment assumptions. The results shown in Table 2 will be 

discussed separately for the SSEBA and the combined NRRIT and RRA. 

A. Social Security Equivalent Benefit Account

The SSEBA pays the social security level of benefits and administrative expenses 

allocable to those benefits, and it receives as income the social security level of taxes. 

The SSEBA also receives or pays the financial interchange transfers between the railroad 

retirement and social security systems. The financial interchange transfer, subject to the 

qualification in the next paragraph, should be enough to offset any surplus or deficit for 

the year. The SSEBA can thus be regarded as automatically funded, the financial 

interchange being the mechanism for correcting any surplus or deficiency. 

The qualification mentioned in the preceding paragraph arises because, in a relatively 

small number of cases, the railroad retirement system does not pay benefits when the 

social security system would. In these cases, mainly dependent children of retired 

railroad employees, the SSEBA collects an amount through the financial interchange but 

does not pay a corresponding benefit. This imbalance between outgo and income is small 

in any particular year. 

1

 At the end of each fiscal year (September 30), an Account Benefits Ratio (ABR) is calculated by dividing 

the fair market value of the assets in the RRA and of the NRRIT (and for years before 2002, the SSEBA) as 

of the close of such fiscal year by the total benefits and administrative expenses paid from the RRA and the

NRRIT during such fiscal year. The Average Account Benefits Ratio (AABR), with respect to any 

calendar year, is then calculated as the average of the account benefits ratios for the 10 most recent fiscal

years ending before such calendar year. If the AABR is not a multiple of 0.1, it is increased to the next

highest multiple of 0.1. The tier 2 tax rate is determined from a tax rate table based on the AABR. 
4

The SSEBA must from time to time transfer to the NRRIT or RRA amounts not needed 

to pay current benefits and administrative expenses in such a manner as to maximize 

investment return to the Railroad Retirement system. 

The SSEBA is assumed to maintain a target balance of approximately 1.5 months of 

benefit payments in order to meet benefit obligations and contingencies, and transfer any 

excess to the NRRIT/RRA. However, if the NRRIT/RRA runs into cash flow problems, 

the SSEBA is assumed to transfer enough of its accumulated funds to the NRRIT/RRA to 

provide for benefit payments until the SSEBA is exhausted. Thereafter, the SSEBA is 

assumed to transfer to the NRRIT/RRA any excess of income over outgo, maintaining a 

zero balance. 

B. Railroad Retirement Account and National Railroad Retirement Investment Trust

The RRA receives tier 2 payroll taxes and income taxes on tier 2 and excess tier 1 

benefits. Tier 2 benefits, excess tier 1 benefits, supplemental annuity benefits and 

administrative expenses are currently paid from the RRA. The NRRIT receives funds 

from the RRA and SSEBA for investment, pays investment expenses, and transfers funds 

to the RRA to meet benefit obligations. 

The tier 2 payroll tax rate is determined from a tax rate table based on the AABR. The 

combined employer and employee tier 2 tax rate is 18% for values of the AABR between 

4.0 and 6.0, inclusive. A maximum rate of 27% is reached when the AABR falls below 

2.5, and a minimum rate of 8.2% is reached when the AABR reaches 9.0. Since the 

AABR is a 10-year average of the ABR’s, whether the AABR in a given year increases 

or decreases from the prior year depends solely on whether the ABR in the prior year is 

greater or less than the ABR 10 years earlier. 

Under employment assumption I (Table 2-I), the combined NRRIT and RRA balance 

grows throughout the projection period. The combined employer and employee tier 2 tax 

rate decreases to 14% in 2013-2015, increases to 16% in 2019-2029 and then decreases to 

15% in 2030-2032. 

Under employment assumption II (Table 2-II), the combined NRRIT and RRA balance 

grows through 2013, remains relatively level from 2013 through 2022, and then increases 

through the end of the projection period. The tier 2 tax rate decreases to 14% in 2014, 

increases to 18% in 2025-2031, and then decreases to 17% in 2032. 

Under employment assumption III (Table 2-III), the combined NRRIT and RRA balance 

grows through 2013 and then declines. The ABR declines throughout the projection 

period, reaching 3.44 in calendar year 2032. Due to the effect of 10-year averaging, the 

AABR first increases to 7.4 in 2012-2015, and then declines throughout the remainder of 

the projection period, reaching 4.4 in 2032. As a result, the tier 2 tax rate first decreases 

to 15% in 2009-2017, then increases until reaching a rate of 18% in 2022-2032. 
5

C. Analysis of Results

Under each employment assumption, no cash flow problems occur throughout the 25-

year projection period, and the ABR remains above 0.5 in each year. 

The overall conclusion is that, barring a sudden, unanticipated, large decrease in railroad 

employment or substantial investment losses, the railroad retirement system will 

experience no cash flow problems during the next 25 years. The long-term stability of 

the system, however, is still questionable. Under the current financing structure, actual 

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

determine whether corrective action is necessary.

D. Comparison of Results with 2007 Report

Both employment and investment return exceeded expectations in calendar year 2007. 

The results are similar to last year with an improvement shown under each employment 

assumption. Notably, projected tax rates are no higher in any calendar year and are one 

percent lower in at least three calendar years under each employment assumption. 

IV. RECOMMENDATIONS

As stated in the introduction, this report must contain recommendations with regard to 

(1) tax rates and (2) whether any part of the taxes on employers should be diverted to the 

Railroad Unemployment Insurance Account to aid in the repayment of any debt to the 

Railroad Retirement Account. 

A. Tax Rates

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

employees. The tax adjustment mechanism will automatically increase or decrease tax

rates in response to changes in fund balance. Even under a pessimistic employment 

assumption, this mechanism is expected to prevent cash flow problems for the duration of 

the 25-year projection period. 

B. Diversion of Taxes to Railroad Unemployment Insurance Account

No diversion of taxes from the Railroad Retirement Account to the Railroad 

Unemployment Insurance Account is recommended at this time. There are currently no 

loans outstanding from the Railroad Retirement Account to the Railroad Unemployment 

Insurance Account. 
Table 1. Employment, inflation and interest assumptions 

Percentage increase 

Calendar Average employment (thousands) over prior year Interest 

year I II III Earnings Cost of living rate 

2007 236 236 236 4.0% 3.3% 7.9% 

2008 234 231 228 4.0 2.3 7.5 

2009 232 227 220 4.0 4.0 7.5 

2010 230 222 212 4.0 3.0 7.5 

2011 229 218 205 4.0 3.0 7.5 

2012 227 213 198 4.0 3.0 7.5 

2013 225 209 191 4.0 3.0 7.5 

2014 223 205 185 4.0 3.0 7.5 

2015 221 201 178 4.0 3.0 7.5 

2016 219 197 172 4.0 3.0 7.5 

2017 218 193 166 4.0 3.0 7.5 

2018 216 189 161 4.0 3.0 7.5 

2019 214 186 155 4.0 3.0 7.5 

2020 212 182 150 4.0 3.0 7.5 

2021 211 178 145 4.0 3.0 7.5 

2022 209 175 140 4.0 3.0 7.5 

2023 207 172 136 4.0 3.0 7.5 

2024 206 169 131 4.0 3.0 7.5 

2025 204 165 128 4.0 3.0 7.5 

2026 203 162 124 4.0 3.0 7.5 

2027 201 159 120 4.0 3.0 7.5 

2028 199 156 117 4.0 3.0 7.5 

2029 198 154 114 4.0 3.0 7.5 

2030 196 151 111 4.0 3.0 7.5 

2031 195 148 108 4.0 3.0 7.5 

2032 193 146 105 4.0 3.0 7.5 
Table 2-I. Progress of the Combined National Railroad Retirement Investment Trust (NRRIT) and Railroad Retirement Account 

Social Security Equivalent Benefit Account (SSEBA) under Employment Assumption I

(Dollar amounts in millions)

Average Combined NRRIT and RRA SSEBA

Account account Tier 2 Benefits Benefits Other 

Calendar benefits benefits tax and admin- Tax Other Balance, and admin- Tax income and B

year ratioa ratiob rate istration incomec incomed end year istration incomec expensee e

2008 7.88 6.90 16.0% $4,287 $2,681 $2,612 $33,475 $5,932 $2,606 $3,312 2009 7.68 7.10 15.0% 4,493 2,626 2,514 34,122 6,191 2,701 3,522 

 

2010 7.50 7.20 15.0% 4,673 2,714 2,567 34,729 6,417 2,794 3,651 

 

2011 7.32 7.30 15.0% 4,862 2,804 2,573 35,244 6,652 2,890 3,791 

 

2012 7.15 7.40 15.0% 5,055 2,896 2,649 35,734 6,899 2,988 3,942 

 

2013 6.95 7.50 14.0% 5,240 2,818 2,679 35,990 7,158 3,091 4,099 

 

2014 6.76 7.50 14.0% 5,419 2,909 2,698 36,179 7,425 3,199 4,260 

 

2015 6.57 7.50 14.0% 5,588 3,002 2,714 36,306 7,701 3,311 4,424 

 

2016 6.42 7.40 15.0% 5,735 3,287 2,626 36,484 7,985 3,429 4,556 

 

2017 6.32 7.30 15.0% 5,859 3,391 2,713 36,729 8,272 3,554 4,789 

 

2018 6.26 7.10 15.0% 5,963 3,497 2,775 37,039 8,554 3,684 4,905 

 

2019 6.26 6.90 16.0% 6,045 3,816 2,814 37,624 8,823 3,808 5,048 

 

2020 6.30 6.80 16.0% 6,111 3,935 2,867 38,314 9,075 3,936 5,170 

 

2021 6.35 6.70 16.0% 6,162 4,057 2,805 39,013 9,309 4,069 5,269 

 

2022 6.46 6.60 16.0% 6,201 4,182 2,990 39,985 9,529 4,206 5,350 

 

2023 6.60 6.50 16.0% 6,239 4,310 3,072 41,128 9,735 4,346 5,415 

 

2024 6.76 6.50 16.0% 6,284 4,441 3,167 42,452 9,930 4,487 5,466 

 

2025 6.94 6.50 16.0% 6,333 4,574 3,273 43,965 10,122 4,630 5,515 

 

2026 7.13 6.50 16.0% 6,383 4,710 3,301 45,593 10,318 4,777 5,565 

 

2027 7.37 6.60 16.0% 6,434 4,850 3,522 47,532 10,520 4,927 5,618 

 

2028 7.62 6.70 16.0% 6,501 4,994 3,673 49,697 10,731 5,079 5,677 

 

2029 7.89 6.80 16.0% 6,586 5,142 3,841 52,095 10,948 5,235 5,740 

 

2030 8.13 7.00 15.0% 6,683 4,996 4,014 54,421 11,179 5,395 5,813 

 

2031 8.37 7.20 15.0% 6,787 5,143 4,135 56,912 11,428 5,559 5,900 

 

2032 8.65 7.40 15.0% 6,879 5,296 4,383 59,712 11,702 5,731 6,005 

 

a The fair market value of the assets in the RRA and NRRIT as of the close of the fiscal year (September 30) divided by the total benefits and ad

 paid from the RRA and NRRIT during the fiscal year.

b The average of the account benefits ratios for the 10 most recent fiscal years ending before the calendar year.c Includes payroll taxes and income taxes on benefits.d Includes investment income and transfers from the SSEBA.e Other income includes financial interchange income, advances from general revenues, and interest income. Other expense includes repaymen

 from general revenues and transfers to the NRRIT.
Table 2-II. Progress of the Combined National Railroad Retirement Investment Trust (NRRIT) and Railroad Retirement Account (R

Social Security Equivalent Benefit Account (SSEBA) under Employment Assumption II

(Dollar amounts in millions)

Average Combined NRRIT and RRA SSEBA

Account account Tier 2 Benefits Benefits Other 

Calendar benefits benefits tax and admin- Tax Other Balance, and admin- Tax income and B

year ratioa ratiob rate istration incomec incomed end year istration incomec expensee en

2008 7.88 6.90 16.0% $4,287 $2,665 $2,611 $33,458 $5,932 $2,590 $3,327 2009 7.67 7.10 15.0% 4,493 2,584 2,511 34,060 6,191 2,657 3,566 

 

2010 7.48 7.20 15.0% 4,673 2,645 2,560 34,591 6,417 2,721 3,724 

 

2011 7.28 7.30 15.0% 4,862 2,705 2,559 34,992 6,652 2,785 3,896 

 

2012 7.07 7.40 15.0% 5,055 2,765 2,625 35,328 6,899 2,849 4,080 

 

2013 6.87 7.40 15.0% 5,239 2,827 2,649 35,564 7,158 2,917 4,273 

 

2014 6.64 7.50 14.0% 5,418 2,724 2,659 35,530 7,425 2,987 4,471 

 

2015 6.44 7.40 15.0% 5,587 2,952 2,663 35,558 7,700 3,060 4,674 

 

2016 6.25 7.30 15.0% 5,734 3,016 2,559 35,398 7,983 3,138 4,845 

 

2017 6.09 7.20 15.0% 5,856 3,080 2,619 35,241 8,269 3,219 5,120 

 

2018 5.95 7.00 15.0% 5,959 3,145 2,649 35,076 8,548 3,305 5,278 

 

2019 5.86 6.80 16.0% 6,040 3,394 2,650 35,080 8,814 3,381 5,465 

 

2020 5.80 6.60 16.0% 6,104 3,465 2,658 35,099 9,061 3,460 5,632 

 

2021 5.74 6.50 16.0% 6,152 3,537 2,543 35,026 9,289 3,541 5,776 

 

2022 5.74 6.30 17.0% 6,188 3,805 2,677 35,321 9,501 3,624 5,903 

 

2023 5.77 6.20 17.0% 6,222 3,883 2,706 35,688 9,697 3,707 6,014 

 

2024 5.80 6.10 17.0% 6,263 3,962 2,741 36,128 9,879 3,790 6,112 

 

2025 5.86 6.00 18.0% 6,307 4,249 2,787 36,857 10,057 3,871 6,207 

 

2026 5.94 5.90 18.0% 6,350 4,333 2,754 37,593 10,235 3,954 6,303 

 

2027 6.04 5.90 18.0% 6,394 4,418 2,906 38,524 10,416 4,037 6,402 

 

2028 6.14 5.90 18.0% 6,452 4,504 2,980 39,555 10,602 4,120 6,506 

 

2029 6.25 5.90 18.0% 6,526 4,592 3,061 40,682 10,790 4,203 6,611 

 

2030 6.35 6.00 18.0% 6,609 4,681 3,148 41,903 10,988 4,287 6,725 

 

2031 6.46 6.00 18.0% 6,698 4,772 3,185 43,162 11,198 4,372 6,852 

 

2032 6.56 6.10 17.0% 6,770 4,626 3,329 44,347 11,426 4,463 6,992 

 

a The fair market value of the assets in the RRA and NRRIT as of the close of the fiscal year (September 30) divided by the total benefits and adm

 paid from the RRA and NRRIT during the fiscal year.

b The average of the account benefits ratios for the 10 most recent fiscal years ending before the calendar year.c Includes payroll taxes and income taxes on benefits.d Includes investment income and transfers from the SSEBA.e Other income includes financial interchange income, advances from general revenues, and interest income. Other expense includes repayment o

 from general revenues and transfers to the NRRIT.
Table 2-III. Progress of the Combined National Railroad Retirement Investment Trust (NRRIT) and Railroad Retirement Account (R

Social Security Equivalent Benefit Account (SSEBA) under Employment Assumption III

(Dollar amounts in millions)

Average Combined NRRIT and RRA SSEBA

Account account Tier 2 Benefits Benefits Other 

Calendar benefits benefits tax and admin- Tax Other Balance, and admin- Tax income and Ba

year ratioa ratiob rate istration incomec incomed end year istration incomec expensee en

2008 7.88 6.90 16.0% $4,287 $2,646 $2,610 $33,438 $5,932 $2,572 $3,346 2009 7.65 7.10 15.0% 4,493 2,536 2,507 33,988 6,191 2,607 3,616 

 

2010 7.45 7.20 15.0% 4,673 2,565 2,551 34,431 6,417 2,637 3,808 

 

2011 7.22 7.30 15.0% 4,862 2,592 2,542 34,704 6,652 2,666 4,015 

 

2012 6.99 7.40 15.0% 5,054 2,619 2,598 34,867 6,899 2,693 4,236 

 

2013 6.75 7.40 15.0% 5,239 2,645 2,607 34,879 7,158 2,723 4,468 

 

2014 6.50 7.40 15.0% 5,416 2,670 2,605 34,739 7,424 2,753 4,704 

 

2015 6.26 7.40 15.0% 5,585 2,696 2,593 34,442 7,699 2,786 4,947 

 

2016 6.00 7.30 15.0% 5,731 2,721 2,463 33,895 7,980 2,821 5,159 

 

2017 5.77 7.10 15.0% 5,853 2,745 2,492 33,280 8,265 2,859 5,477 

 

2018 5.58 6.90 16.0% 5,954 2,923 2,493 32,742 8,542 2,899 5,677 

 

2019 5.40 6.70 16.0% 6,034 2,948 2,457 32,114 8,803 2,929 5,906 

 

2020 5.25 6.40 17.0% 6,096 3,128 2,422 31,568 9,045 2,960 6,115 

 

2021 5.09 6.20 17.0% 6,141 3,153 2,263 30,843 9,267 2,991 6,303 

 

2022 4.98 6.00 18.0% 6,174 3,337 2,345 30,352 9,470 3,023 6,472 

 

2023 4.87 5.80 18.0% 6,204 3,365 2,314 29,826 9,655 3,055 6,622 

 

2024 4.75 5.60 18.0% 6,240 3,396 2,279 29,261 9,823 3,089 6,755 

 

2025 4.63 5.40 18.0% 6,278 3,426 2,241 28,650 9,984 3,122 6,883 

 

2026 4.49 5.30 18.0% 6,314 3,457 2,105 27,899 10,144 3,155 7,008 

 

2027 4.35 5.10 18.0% 6,348 3,490 2,144 27,185 10,303 3,188 7,134 

 

2028 4.20 5.00 18.0% 6,396 3,522 2,093 26,403 10,462 3,220 7,262 

 

2029 4.03 4.80 18.0% 6,456 3,555 2,036 25,539 10,619 3,252 7,386 

 

2030 3.85 4.70 18.0% 6,524 3,589 1,972 24,577 10,781 3,284 7,518 

 

2031 3.64 4.60 18.0% 6,593 3,624 1,843 23,451 10,949 3,315 7,655 

 

2032 3.44 4.40 18.0% 6,642 3,661 1,817 22,288 11,130 3,352 7,801 

 

a The fair market value of the assets in the RRA and NRRIT as of the close of the fiscal year (September 30) divided by the total benefits and adm

 paid from the RRA and NRRIT during the fiscal year.

b The average of the account benefits ratios for the 10 most recent fiscal years ending before the calendar year.c Includes payroll taxes and income taxes on benefits.d Includes investment income and transfers from the SSEBA.e Other income includes financial interchange income, advances from general revenues, and interest income. Other expense includes repayment 

 from general revenues and transfers to the NRRIT.
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 

Figure 1. Combined NRRIT, RRA and SSEBA Balance 

(In millions) 

$0 

$5,000 

$10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000 $55,000 $60,000 $65,000 

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