•In E’/ 'T ■'

89 -^ RAILROAD RETIREMENT ACT—

GOVERNMENT SUPPLEMENTAL BENEFITS 

Storage

H E A R I N G

BEFO RE T H E

SUB COM MITTEE ON COMMERCE ANO FI NANCE

OF TH E

COMMITTEE ON

INT ERSTA TE AND FOREIGN COMMERCE 

HOUSE OE REPRESENTATIV ES

EIGH TY -NINTH CONGRESS

SECOND SESSION

ON

H.R. 17285

A BILL TO AMEND THE RAILROAD RETIREMEN T ACT OF 1937 

AND THE RAILROAD RET IREMENT TAX ACT, AND FOR OTHER

PURPOSE S

SEPTEM BER 27, 1966

DC

<

oc :

co i

S 3

I J* 

:

 □ 

: Ps <□

I <0

□

□

IT

H

H

<

Serial No. 89-50

Pri nte d for the use of the 

Committee on In terstate and Foreign Commerce

69-402 WA SH INGT ON : 1966
«

COMMITTEE ON INTE RSTA TE AND FORE IGN COMMERCE

HA RL EY O. ST AG GE RS , W es t Virgi nia, C hair m an

WAL TE R RO GE RS, Tex as W IL LI AM L. SP RIN GER , Il lin oi s

SA MU EL N. FR IE DEL, M ar yl an d J. AR TH UR YO UN GE R, Cal ifor ni a

TO RB ER T II. MAC DON ALD, M as sa ch us et ts SA MU EL L. DEVIN E, Oh io 

JO HN JARM AN , Ok laho ma AN CH ER NEL SE N, M in ne so ta

LE O W. O’BR IEN, New York

JO HN E. MOSS , C al if or ni a

JO HN D. DI NG EL L, Michig an

PA UL G. ROGERS, Flo rida

HO RA CE R. KORNEGAY, N ort h Car ol in a

LIO NEL VAN D EER LI N, C al if or nia

J. J. PI CKLE , Te xa s

FRED B. ROONEY, Pen nsy lv an ia

JO HN M. MU RP HY , New York

DA VID E. SA TTERFIE LD III , V ir gi nia

DANIE L J. RON AN, Illin oi s

J. OL IVA HUOT, New H am ps hi re

JA M ES A. MACKAY, Ge orgia

JO H N J. GILL IG AN , Ohio

CH ARL ES P. FA RN SL EY , Ken tu ck y

JO HN BEL L W IL LI AMS, M ississ ip pi

HA ST IN GS K E IT H , M as sa ch us et ts 

W IL LA RD S. CU RT IN , Pen ns yl va ni a 

GL EN N CU NN INGH AM , Neb rask a 

JA MES T. BR OY HI LL , N or th Car ol in a 

JA MES HA RV EY , M ichiga n 

AL BE RT W. WA TS ON , So ut h Car ol in a 

TI M LEE CA RT ER , Ken tuck y

BR OCK ADAMS, W as hi ng to n

W. E. Wil li am so n, Cle rk

K en neth J. P ain te r, A s s is ta n t C le rk

Professional Sta ff

Andr ew Ste ve ns on J am es M. Men ge r, Jr . Kurt Bor chardt William J. Dixon

Sub co mm itt ee on Comm erce and F inan ce

TO RBER T H. MACDONALD, M as sa ch us et ts , C hair m an

CHARLES P. FARNSLEY, Kentucky HA ST IN GS K E IT H , M as sa ch us et ts

BR OC K ADAMS, W as hi ng to n W IL LA RD S. CU RT IN , Pen ns yl va ni a

II
C O N T E N T S

Pag e

Te xt of H.R . 17258_______________ _________________ — -_______ - ____ 3

Ag ree me nt en tered in to Aug us t 24, 1966, by th e Na tio na l Ra ilw ay

Lab or Co nfe ren ce an d th e railway labo r or ga niza tio ns ---------------------- 2

Re po rt of—

Burea u of t he Bud ge t___________________________________________ 9

Ra ilroad Retire m en t Bo ard______________________________________ 10

Tr ea su ry D ep ar tm en t___________________________________________ 8

St atem en t of—

Bur ke, Ho n. James A., a Re pres en tativ e in Con gress from t he S tate of

M as sa ch us etts________________________________________________ 33

Byrnes, Ro be rt B., Washin gto n repr es en tativ e of th e Nationa l Ra ilroad Pension Fo rum , In c______________________________________ 33

Ha berm eyer, Ho n. Ho wa rd W., Ch air ma n, Ra ilroad Retire m en t

Bo ard________________________________________________________ 16

Schoene, Leste r P., counsel, Ra ilw ay La bo r Ex ecutives A ss oc ia tion .. 22

Wolfe, J. E., chair ma n, Nati on al Railw ay Labor Co nfe ren ce________ 29

Ad dit ion al material su bm itt ed for th e record by—

Br oth erh ood of Locom otive Engineers, le tter fro m E. L. McCulloch,

as sistan t grand chief engineer__________________________________ 38

Nationa l Ra ilroad Pension Fo rum, Inc., stat em en t of George Finn egan, pr esiden t________________________________________________ 36

Ra ilroad Retire m en t Board :

Am endm ents propose d for H.R . 1728 5------------------------------------ 18

Ex plan ation of propose d am en dm en ts________________________ 19

Ra ilw ay Labor Ex ec utives’ Assoc iation :

Ame nd ment pro pos ed for H.R . 17285________________________ 28

Or ganiz ations whose chief exe cutiv es are me mb ers of th e associatio n_____________________________________________________ 22

in

RAILROAD RETIREM ENT ACT— SUPP LEME NTAL 

BENEF ITS

TUESD AY, S E P T E M B E R 27 , 19 66

H ouse of R ep re se nt at iv es ,

S ub co mmitte e on C om me rc e an d F in a n c e, 

of t h e C om m it te e on I nt er st at e an d F oreig n C om mer ce ,

axhington, D.G.

The subcommittee met at 10 a.m., pursuant to call, in room 2322 

Rayburn House Office Building, Hon. Torbert H. Macdonald (chairman of the subcommittee) presiding.

Mr. Macdonald. The subcommittee will be in order.

The hearings this morning are on H.R. 17258 which was introduced 

by myself at the joint request of the Railway Labor Executives Association, and representatives of the railroads.

I understand that all the railroads in the United States except maybe 

one in Florida reported in favor of the bill.

At the same time there were two similar bills, one introduced by 

Mr. Burke from Massachusetts, H.R. 17659 and another bill introduced 

by Mr. Harsha, of Ohio, which is identical to my bill, 17940.

In general, the bill is to establish a supplemental pension plan for 

railroad employees who retire on or after July 1, 1966, and who have 

completed 25 or more years of service credible under the Railroad 

Retirement Act, including credible military service and who have 

attained the age of 65.

This supplemental annuity would be financed by a tax equal to 

2 cents per man-hour which would be deposited in a special fund and 

used for payments of these annuities. The supplemental annuities are 

to be payable for a 5-year period and the entire program would be 

required to be reexamined by the Congress at the end of that 5-year 

period.

In addition the bill provides for a general 7-percent increase in 

railroad retirement benefits for all persons not covered by the supplemental annuity with this 7-percent increase being offset by the total 

of the increased benefits accruing to the individual concerned under 

either the Railroad Retirement Act or the Social Security Act by 

reason of amendments of the Social Security Act of 1965.

The 7-percent increase would be financed by an additional onequarter of 1 percent taxes on the first $550 monthly compensation paid 

by both the employees and the employers.

l
2 RAILROAD RETIREMENT ACT— SUPPLEMENTAL BEN EFITS

As I mentioned, this is an agreed upon bill and I include in the 

record at this point the text of the agreement entered into on August 24, 1966.

(The agreement referred to follows:)

Agreement

Th is agreem ent made this 24th day of Aug ust, 1966, by an d between the 

Car rier s rep res ented by the Na tio nal Ra ilw ay Labor Conference as pa rtie s of 

the first pa rt, an d the Ra ilw ay Labor Or ga niz ati on s as pa rtie s of the second 

pa rt, W itn es se tli :

1. The pa rtie s hereto mu tua lly agree to coo perate with eac h othe r an d jointly 

to reco mmend to the Congress an d the Pre side nt o f th e Un ited St ates th e en ac tment at the ea rliest feasible da te of the Bi ll attach ed hereto . No pa rty hereto 

will recommend or support any fu rt her leg islati on dealing with sup ple me nta l 

an nu ities to become effective prio r to the ex pi ra tio n of t he supple me nta l an nu iti es 

provided for in Title I of the at tach ed Bill, unless pu rs ua nt to fu rt her mu tua l 

agr eeme nt of th e p art ies .

2. Re presentatives of the pa rtie s to th is agr eeme nt, or th ei r successors, not 

ea rlier th an one ye ar prior to th e ex pi ra tio n of the supplem ental an nu iti es provided for in Title I of the a tta ch ed Bill, will at the requ est of eith er pa rty , meet 

for the pur pose of discussing th e su bjec t of supplem ental an nu iti es . If these 

disc ussions do not lea d to ag reem en t on w ha t action, if any , sho uld be take n in 

rega rd to the subje ct with in a iieriod of six mon ths pr ior to the ex piratio n of 

the supplem ental annu iti es pro vid ed for in Titl e I of the at tach ed Bill, or upon 

term ina tio n of any exten sio n of the perio d fo r disc ussion as ma y be mu tua lly 

agr eed upon, both the ca rr ie r pa rtie s an d the org aniza tio n pa rtie s to t his agreeme nt sha ll be f ree to reco mmend o r s up po rt le gis lation d ealing with su pplem ental 

ann uit ies , s ub ject to t he oth er provisio ns of th is agreem ent.

3. Neit he r the makin g of th is agreem en t no r the discus sion pro vid ed fo r in 

pa ra gr ap h 2 hereo f shall be conside red in any way to preju dice t he pos ition of 

either the c ar ri er pa rtie s or the orga niza tio n pa rties hereto as to whe ther o r not 

the subje ct m at te r of this agreem en t or the subjec t m at te r of suc h disc ussion 

is a proper or ma nd ato ry su bject fo r collective bargain ing un de r th e Ra ilw ay 

Lab or Act or un de r such law or law s as may he re af te r be appli cable to collective 

bargain ing in th e ra ilro ad indu stry . I t is fu rthe r understood th at the making 

of this agreem en t is not a waiv er of th e pos ition of th e ca rr ie rs th at th e 1987 

agr eeme nt w ith res pect to equa l jo in t employer and employee ta xe s to finance 

benefits pro vid ed by the Railroa d Re tir em en t Act. as ame nded, is sti ll bind ing 

on the pa rti es, nor is it a waive r of the i>osition of th e orga niza tio n pa rti es 

hereto lo t he contrary.

4. In co nside ratio n of th e mutua l com mitment s made in the forego ing par agra phs. the pa rtie s fu rt her ag ree th at all notices of int en ded cha nges in agr eements heretof ore serve d by any Car rier or Organiz ation pa rty he reto on any 

oth er pa rty hereto pu rs ua nt to th e Ra ilw ay Lab or Act pe rta ining to pensions or 

an nu iti es of emp loye es an d no t he retofore disposed of shall no t be fu rther progressed an d shall be prom ptly wi thdraw n. The pa rti es he reto f urt her agre e th at 

no Car rier o r Or ganiz ation pa rty he reto s ha ll serve an y such notice on any oth er 

pa rty he reto pe rta ining to pen sions or an nu iti es prior to six mo nth s immediately 

preceding the sixt ieth mo nth follow ing the enactm ent of th e attach ed Bill, pro ­

vided fu rthe r th at such Section 6 notices do not conte mp late an effectiv e date 

prior to the ex piratio n of th e supp lem ental an nu iti es provided fo r in Title I of 

the a tta ch ed Bill.
RAILROAD RET IR EM EN T ACT----SU PP LE ME NT AL BE NEF IT S 3

Sign ed at W as hi ng to n, D.C., th is 24tli da y of Aug us t, 196G.

F or t he c a rrie rs :

J. E. Wolf e,

Cha irm an , N at io nal R ail w ay L ab or C on fer ence.

F or t he org an iz ati o n s:

J. F. Tah ne y, P re si den t, American R ai lw ay Sup er vi so rs ’ A ss ocia tion; 

R. C. W at ts , P re si den t, Amer ican T ra in D is pat ch er s’ A ss ocia tion; 

II. E. G ilb er t, P re si den t, Bro th er ho od of Lo como tiv e Firem en an d 

E ngin em en; II . C. Grotty , Pre si den t, Bro th er ho od of M ai nt en an ce 

of W ay E m plo yes ; Je ss e Clark , Pre si den t, B ro th er ho od of R ail ­

ro ad S ig nalm en: C har le s Lun a. P re si den t, B ro th er ho od of R ail ­

ro ad T ra in m e n ; A. J. B ea ukar dt, G en er al Pre si den t, B ro th er ho od 

of R ai lw ay C an nen of A m eri ca; C. L. Den nis, G ra nd Pre si dent, 

B ro th er ho od of R ai lw ay & Ste am sh ip Cl erks . F re ig ht H an dl er s, 

E xpre ss an d S ta ti on Empl oy ee s; A. Phil ip Ran do lph, In te rn a ­

ti onal P re si dent, B ro th er ho od of Slee ping C ar P o rte rs ; R. W. 

Sm ith , In te rn ati o n al Vic e Pre si den t, H ot el & R est au ra n t Em ­

ploy ee s & B art en d ers ’ In te rn ati o n al U n io n ; Jo se ph W. Ram sey, 

G en er al Vic e Pre si dent, In te rn ati o n al Assn, of M ac hi ni sts & Ae rosp ac e W o rk ers ; R us se ll K. Be rg, In te rn ati o n al Pre si den t, In t’l 

B ro th er ho od of Boi le rm ak er s, Ir on Sh ip Bui ld er s, Bla ck sm iths , 

F org er s & H elp ers ; Tli os. Ram se y. In te rn ati o n al Vic e Pre si de nt, 

In t’l. B ro th er ho od of E le ct rica l W ork ers ; Wm. E. Fre de nb ur ge r, 

P re si den t, In te rn ati o n al B ro th er ho od of Fir em en an d O il e rs ; 

Lloy d W. Sh eldo n, In te rn ati o n al Pre si den t, In t’l. O rg an iz at io n 

M as ters , M at es & Pilots of A m er ic a; J. M. Ca lhoo n, In te rn ati onal 

Pre si dent, N ational M ar in e E ngin ee rs ’ Ben eficial A ss n.; C. F. 

La ne , P re si den t, O rd er of R ai lw ay Con du ctor s an d B ra kem en; 

R al ph H. H ac ho w ia k, P re si den t, R ail ro ad Y ar dm as te rs of Americ a; P au l H al l, Pre si dent, S eafa re rs ’ In te rn ati o n al Union of 

N orth A m eri ca; J. W. O’Br ien, G en er al Vice Pre si de nt, Sh ee t 

M et al W ork er s’ In t’l. A ss oci at io n; Ne il P. Sp eir s, Pre si den t, 

Sw itc hm en ’s Union of N or th A m er ic a; G. E. Leigh ty , Pre si de nt, 

Tra nsp or ta tion- C om m uni ca tion Em ploy ee s U nio n; M icha el Fo x, 

Pre si den t, R ai lw ay Em pl oy es ’ D ep ar tm en t, A FL-C IO 

Mr. Macdonald. At this point in the record there will be included 

the text of the bill and the agency reports thereon.

(The bill and agency reports thereon follow:)

[H.R. 17235, 89th Cong., 2d sees.]

A BIL L To am en d th e R ai lr oad R etire m en t Act of 1937 an d th e R ai lr oa d R et ir em en t Ta x 

Ac t, and fo r oth er pu rp os es

Be it en ac te d by th e Sen ate an d Hou se of Rep re se nta tive s of th e United Sta te s

of A mer ica in Co ngres s as se mbled , T h a t—

T IT L E I—A MEN DMEN TS T O T H E RA IL RO AD R ET IR E M E N T ACT O F 1937 

TO PR O V ID E SU PP LEM EN TA L A N N U IT IE S

Section 1. Se cti on 3 of th e R ail ro ad R et ir em en t Ac t of 1937 is am en de d by 

ad di ng a t th e e nd t her eo f t h e fo llo w in g ne w subs ec tio n :

“su pp le men ta l annu it ie s

“ ( j ) ( l ) An in di vi dua l wh o is en ti tl ed to th e pa ym en t of an annuit y unde r 

section 2 of th is Ac t (o th er th an su bs ec tio n (e ) or (h ) th er eo f) an d ha d a cu rre nt co nn ec tio n w ith th e ra il ro ad in dust ry a t th e tim e su ch an nuit y be ga n to 

ac crue , sh al l be en ti tl ed to ha ve a su pp le m en ta l an nuit y ac cr ue to him fo r ea ch 

mon th be gi nn in g w ith th e mon th in which he has (i ) att ain ed th e ag e of sixtyfive an d (i i) com pleted, tw en ty-five o r mor e year s of serv ice . The am ou nt of 

th e su pp le m en ta l an nuit y sh al l be $45 pl us an ad ditio nal am oun t of $5 fo r each 

y ear of se rv ice th a t th e in div id ual has in ex ce ss of 25 ye ar s, bu t in no ca se sh al l 

th e su pp le m en ta l an nuit y exce ed $70. F or th e pu rp os es of th is su bs ec tio n, th er e 

sh al l no t be incl ud ed in th e co m put at io n of th e ye ar s of se rv ice an y mon th on
4 RAILROAD RETIRE ME NT ACT----SU PPLEME NT AL BE NEF IT S

th e ba sis of th e in di vi du al ’s se rv ice as an em ploy ee of a ra ilw ay -lab or -o rg an iz ation em ploy er duri ng wh ich he w as no t en ga ge d pre do m in an tly in work invo lving re pre se nt at io n of em plo yees w ith in th e de fin ition of ‘em ploy ee’ in th is Act. 

Th e su pp le m en ta l an nuity prov ided by th is su bs ec tio n sh al l, w ith re sp ec t to an y 

mon th, be su bj ec t to th e same pr ov isio ns of su bs ec tio n (d ) of section 2 of th is 

Act as th e in di vi du al ’s an nuity under such se ction 2. Exc ep t as pr ov id ed in 

su bs ec tio n (a ) (2) of th is secti on , th e su pp le m en ta l an nunit y prov id ed by th is 

su bs ec tio n sh al l no t be ta ken into co ns id er at io n in de te rm in in g or co mpu tin g 

an y ot her annuit y o r benefit u nd er th is Ac t.

“ (2 ) The su pp lemen tal annuit y pr ov id ed by th is su bs ec tio n fo r an indi vi du al 

sh all, w ith resp ec t to an y mon th, be re du ce d by th e am oun t of th e su pp le m en ta l 

pension , att ri b u ta b le to th e em pl oy er ’s co nt ri bu tion, th a t su ch in di vi du al is 

en titled to rece ive fo r th a t mon th under an y oth er su pp le m en ta l pe ns io n plan 

if such pe nsion is no t redu ce d by re as on of th e su pp le m en ta l an n u it y to which 

such in di vi du al is e ntitled u nde r th e pr ov isio ns of th is su bs ec tio n.

“ (3 ) The su pp lemen tal an nuit y pr ov id ed by th is su bs ec tio n sh al l te rm in at e 

w ith such an nuity ac cr ui ng fo r th e si xti eth mon th fo llo wing en ac tm en t of th is 

Ac t.”

Sec. 2. (a ) Se ction 15 of th e R ail ro ad R et ir em en t Act of 1937 is am en de d by 

in se rtin g aft e r su bs ec tio n (a ) th e fo ll ow in g:

“railroad retirement supplemental account

“ (b ) Ther e is he reby cr ea te d an ac co un t in th e T re asu ry of th e U ni te d S ta te s 

to be kn ow n as th e R ai lr oa d R et ir em en t Su pp lem en tal Ac coun t. T her e is he reby 

ap pro pri at ed to th e R ai lr oad R et ir em en t Sup pl em en tal Ac co un t, fo r th e fiscal 

yea r en ding Ju ne 30, 1967, an d fo r ea ch fiscal y ear th ere aft er, out of a ny mo neys 

in th e T re asu ry no t ot he rw ise ap pro pri at ed , to pr ov id e fo r th e pa ym en t of su ppl em en tal an nuitie s in ac co rd an ce w ith th e pr ov isio ns of se ction 3 (j) of th is 

Act, and fo r ex pe nses ne ce ss ar y fo r th e Boa rd in th e adm in is tr ati on of su ch 

se ction 3 (j) as ma y be specifically au th ori ze d an nual ly in A ppro pr ia tio n Ac ts, 

fo r cre ditin g to such Su pp lem en tal Account, an am ount eq ua l to am ou nts c ov ere d 

in to th e T re as ury (m in us re fu nds) du ri ng th e fiscal year en di ng Ju n e 30, 1967, 

an d duri ng ea ch fiscal yea r th ere aft er, und er sections 32 11 (b ) an d 32 21 (c) of 

th e R ai lr oad R et irem en t T ax A ct.

“A t th e e nd of f or ty -e ig ht m on th s follo wing th e en ac tm en t of th e Ac t es ta blish ­

ing th e R ai lroad R et irem en t Su pp le m en ta l Ac co un t th e R ai lr oad R et ir em en t 

B oa rd , ha vi ng su rv ey ed th e pr og re ss of such Ac coun t, sh al l m ak e a det erm in atio n of w he th er t he b al an ce in su ch Ac count to ge th er w ith th e an ticip ate d inc om e 

to t he Accou nt fo r th e n ext succ ee ding tw elve m on th s will b e suffi cie nt to pr ov id e 

fo r th e pa ym en t of th e su pp le m en ta l an nuitie s prov ided fo r in section 3( j ) (1 ) 

of th is Act. In th e ev en t th a t su ch de te rm in at io n is th a t su ch bal an ce an d su ch 

anti cip ate d incom e will no t be sufficie nt to prov ide fo r th e pa ym en t of all su ch 

su pp le m en ta l an nui ties in th e am ount s specified, th e R ai lr oad R et ir em en t B oa rd 

is he reby au th or iz ed an d di re ct ed to re adju st th e am ou nt s of all such su pp le ­

m en ta l an nu itie s, pr op ort io na te ly , so th a t such ba lanc e an d an tici pat ed incom e 

wi ll be suf ficien t to pr ov id e fo r pa ym en t of all th e su pp le m en ta l an nuitie s as so 

re ad ju st ed fo r the nex t succ ee ding tw elve m on th s.”

(b ) Section 15 of such Act is fu rt h er am en de d by re des ig na ting su bs ec tio ns 

(h ), (c ). an d (d ) as su bs ec tio ns (c ). (d ), an d (e ), re sp ec tive ly ; by st ri kin g ou t 

th e word “A ccou nt” whe re it firs t ap pea rs in su bs ec tio n (c ) as re de sign at ed an d 

in se rtin g in lieu th er eo f “R ai lr oa d R et irem en t Ac count an d th e R ai lr oad R eti re ­

m en t Su pp lemen tal Accou nt (h ere in aft er jo in tly re fe rr ed to as ‘Acc ou nts’ or 

‘Ra il ro ad R et irem en t Acc ou nts’) ” ; by st rikin g o ut “A cc ou nt” e ac h tim e it a ppea rs 

else whe re in such re de si gn at ed su bs ec tio ns an d in se rt in g in lie u th er eo f 

“A cc ou nts”.

Sec. 3. (a ) Th e am en dm en t mad e by sec tio n 1 of th is ti tl e sh al l be effecti ve 

w ith resp ec t to in di vi du al s who se an nuitie s unde r section 2 of th e R ai lr oad Retire m en t Act of 1937 are firs t aw ar de d on or a ft e r Ju ly 1, 1966, prov ided th a t no 

su pp lemen tal an nuity sh al l ac cr ue fo r mon ths be fore th e cale ndar mo nth follo wing th e mo nth in which th is Act is en ac ted.

(b ) Th e R ai lroa d R et ir em en t Boa rd is au th ori ze d to re qu es t th e Sec re ta ry 

of th e T re as ury to tr a n sfe r from th e Rai lroa d R et ir em en t Ac coun t to th e cr ed it 

of th e Rai lroa d R et ir em en t Su pp lem en tal Ac coun t such mo neys as th e Boa rd 

es tim at es wo uld be nec es sa ry fo r th e pa ym en t of th e Su pp lem en tal an nui ties , 

prov ided fo r in section 3 (j) of th e R ai lroa d R et ir em en t Act of 1937, fo r th e six
RAILROAD RET IR EM EN T ACT----SU PPLEME NT AL BE NE FITS O

mon th s nex t follo wing en ac tm en t of th is Act, an d fo r adm in is tr ati ve ex pe ns es 

ne ce ss ary in th e adm in is tr ati on of su ch se ction 3 (j) (w hich ex pe ns es are he reby 

auth ori ze d) until su ch tim e as an appro pri at io n fo r su ch ex pe ns es is mad e p u rsu an t to se ct io n 15 (b ) of su ch Act. an d th e Sec re ta ry sh al l m ak e su ch tr ansf er. 

The R ai lr oa d R et ir em ent B oar d sh al l re ques t th e Sec re ta ry of th e T re asu ry a t 

an y tim e be fore th e expir ati on of one yea r follo wing th e en ac tm en t of th is Act. 

to re tr an sf er from th e R ail ro ad R et ir em en t Su pp lem en tal Ac count to th e cre dit 

of th e R ai lr oa d R et ir em en t Acc ou nt th e am ount tr an sf err ed to th e R ai lr oad 

R et irem en t Sup pl em en ta l Acc ou nt purs uant to th e nex t prec ed ing senten ce , plus 

in te re st at a ra te e qu al to th e av er ag e ra te of in te re st bo rn e by al l sp ec ial ob lig ation s held by th e R ai lr oad R et ir em en t Ac coun t on th e la st da y of th e fiscal yea r 

en di ng on Ju ne 30, 1968, ro un de d to th e neare st m ul tipl e of on e-eigh th of 1 pe r 

ce ntum , an d th e Sec re ta ry sh al l mak e su ch re tr ansf er.

T IT L E II—A MEN DMEN TS TO T H E RA IL RO AD R ETIR EM EN T ACT OF 

1937 TO PROV ID E AN IN CREA SE IN CER TA IN A NN UIT IE S UN DE R TH E 

AC T

Sec. 201. (a ) (1 ) Se cti on 2 (e ) of th e R ai lr oad R et ir em en t Ac t of 1937 is 

am en de d by st ri kin g o ut th e pe riod a t th e en d th er eo f an d in se rtin g in lie u th ere of 

th e fo llow in g: “ : Aud pr ov id ed fu rt her. T hat th e sp ou se ’s an nuity prov ided fo r 

he re in an d in su bs ec tio n (l i) of th is se ction sh al l be co mpu ted w ithou t re gar d 

to the re du ct io n in th e in div id ual 's a nnuit y under t he firs t tw o prov iso s in section 

3 ( a ) ( 1 ) of th is Ac t an d w ithou t re gar d to th e effect of se ction 3 (a ) (2 ) on th e 

annuit y of th e in div id ual from wh om su ch sp ou se ’s annuit y de rive s." .

(2 ) Se cti on 2 of su ch Act is fu rt h e r am en de d by ad di ng a new su bs ec tio n at 

th e en d th er eo f as fo ll ow s:

“ (i ) The sp ou se ’s an nuit y pr ov id ed unde r su bs ec tio ns (e ) an d (li) of th is 

section sh al l (b ef or e an y re du ct io n on ac co un t of ag e) be re du ce d in ac co rd an ce 

w ith t he first two pr ov isio ns in se ct ion 3 (a ) (1 ) of this A ct ex ce pt th a t th e sp ou se ’s 

annuit y sh al l no t be les s th an it wou ld he ha d th is Act no t been am en de d in 

1966.” *

(b ) Se cti on 3 (a ) of su ch Ac t is a m en de d by st ri kin g o ut a ll t h a t ap pea rs th ere ­

in and in se rt in g in li eu ther eo f t h e follow in g:

“S ec. 3. (a ) (1 ) The annuit y sh all be co mpu ted by m ul tipl yi ng an in div id ual’s 

‘year s of se rv ic e’ by th e fo llo wing per ce nt ag es of hi s ‘mo nt hly co m pe ns atio n’ : 

3.58 pei- ce ntum of th e first .$50; 2.69 per ce nt um of th e nex t $1 00: 1.79 per 

ce nt um of th e nex t $3 00; an d 1.67 pe r ce nt um of th e nex t $1 00: Pro vide d, ho wever, T h at in ca se w he re an in di vi dua l is en titled to a be ne fit unde r ti tl e II of 

th e So cial Se cu rity Act, th e am oun t so co mpu ted sh al l be re du ce d by 6.55 pe r 

ce ntum of th e am ou nt of su ch so ci al se cu ri ty benefit (d is re gard in g an y in cr ea se s 

in su ch be ne fit ba se d on wor k re co m pu ta tion s a ft e r su ch re du ct io ns is first ap ­

plied and any in cr ea se s de rive d from ch an ge s in th e pri m ar y in su ra nce am ou nt 

th ro ugh le gi slat io n en ac te d aft e r th e So cia l Sec ur ity Amen dm en ts of 1965) : 

Pro vide d fu rt her, T hat in det er m in in g so cial se cu ri ty be ne fit am ou nts fo r th e 

pu rp os e of th is su bs ec tio n, if su ch in div id ual ’s av er ag e m on th ly wag e is in ex ­

cess of $400. only an av er ag e m on th ly wage of $400 sh all be used : And pr ov ided

fu rt her. T h a t th e am ou nt of an annuit y as co mpu ted under th is su bs ec tio n sh al l 

no t be l es s th an it wou ld be h ad th is Act no t bee n am en de d in 1966.

“ (2 ) N otw ithst an din g th e pr ov isio ns of par agra ph (1 ) of th is su bs ec tio n, th e 

annuit y of an in div id ual fo r a m on th w ith re sp ec t to which a su pp le m en ta l 

an nuit y under su bs ec tio n (j) of th is section ac cr ue s to him sh al l be co mpu ted or 

re co m pu te d under th e pr ov isio ns of th is su bs ec tio n as in eff ect bef ore it s am en dm en t i n 1966.”

(c ) Se ction 3 (e ) of su ch Act is am en de d by st ri kin g ou t al l th a t prec ed es th e 

firs t pr ov iso an d in se rt in g in lie u th ere of th e fo llow in g: “I n th e ca se of an in ­

div id ual ha vi ng a cu rr en t co nn ec tio n w ith th e ra il ro ad in dust ry , th e mi nimum 

an n u it y pa ya bl e sh al l, be fo re an y re du ct io n purs uant to se ction 2 (a )3 . be whi ch ­

ev er of th e follo wing is th e le a st: (1 ) $5.35 mul tipl ie d by th e nu m be r of his 

years of se rv ic e; or (2) $89.3 5; or (3 ) 118 per ce ntum of hi s mon th ly co mpe ns ation ex ce pt th a t th e m in im um an n u it y so de te rm in ed sh al l be re du ce d in ac ­

co rd an ce w ith th e firs t tw o pr ov isos in su bs ec tio n ( a ) (1 ) of th is section, bu t 

sh al l no t be les s th an it w ou ld b e ha d th is A ct no t been a men de d in 19 66 :”.

(d ) Se cti on 5 (h ) of su ch Ac t is am en de d by st ri kin g ou t all th a t ap pea rs 

th ere in a nd s ubst it uti ng in l ie u th ere of th e follow in g:

69 -4 02 — 66 ----- 2
6 RAILROAD RETIREME NT ACT— SUPPLEMENTAL BEN EFIT S

“Maximum and Minimum Annuity Totals.—Whenever according to the pro­ visions of thi s section as to annuities payable for a month with respect to the 

death of an employee, the total annuities is more th an $38.84 and exceeds either 

(a) $207.15, or (b) an amount equal to two and two-thirds times such employee's 

basic amount, whichever of such amounts is the lesser, such total of annuities 

shall, a fte r any deductions under subsection (i), be reduced to such lesser amount 

or to $38.84, whichever is greater. Whenever such total of ann uities is less than 

$18.14, such total shall, prio r to any deductions under subsection (i), be increased 

to $18.14: Provided, however, That the sha re of any individual in an amount so 

determined shall be reduced in accordance with the first two provisions in section 

3(a )( 1) of this Act except that the share of such individual shall not be less 

than it would be had this Act not been amended in 1966.”

(e) Section 5(1) (10) of such Act is amended—

(1) by striking out all that appears in subdivision (i) and inserting in 

lieu thereof the following: “for an employee who will have been partially 

insured, or completely insured solely by virtue of paragraph (7 )( i) or 

(7) ( ii) , or both: the sum of (A) 52.4 per centum of his average monthly 

remuneration, up to and including $75; plus (B) 12.8 per centum of such 

average monthly remuneration exceeding $75 and up to and including $450; 

plus (C) 12 per centum of such average monthly remuneration exceeding 

$450 and up to and including $550, plus (D) 1 per centum of th e sum of (A) 

plus (B) plus (C) multiplied by the number of years after 1936 in each 

of which the compensation, wages, or both, paid to him will have been equal 

to $200 or more; if the basic amount thus computed is less than $18.14. it 

shall be increased to $18.14;” and

(2) by striking out in subdivision (ii) thereof “49” wherever it appears 

and inserting in lieu thereof “52.4”, by striking out in such subdivision “12” 

and inserting in lieu thereof “12.8”, by strik ing out in such subdivision 

“$40.33” and inserting “$43.15”, by striking out in such subdivision “$30.25” 

and inserting in lieu thereof “52.37”, and by striking out in such subdivision 

“$16.13” and inserting in lieu thereof “$17.26”.

(f) Section 5 of such Act is amended by adding at the end thereof the following 

new subsection:

“ (m) An annuity payable under this section to an individual, with out regard 

to subsection (h) of this section or the proviso in the first paragr aph of section 

3(e) of this Act, shall be reduced in accordance with the first two provisos in 

section 3(a )( 1) of this Act except that the amount of the annuity shall not be 

less tha n it would be had this Act not been amended in 1966.”

(g) All pensions under section 6 for the Railroad Retirement Act of 1937. all 

joint and survivors a nnuities and survivor annuities deriving from join t and sur ­

vivor annuities under that Act awarded before the month following the month 

of enactment of this Act, all widows’ and widowers’ insurance annu ities which 

began to accrue before the second month following the month of enactm ent of 

this Act and which, in accordance with the proviso in section 5( a) or section 

5(b) of the Railroad Retirement Act of 1937, are payable in the amount of a 

spouse’s annuity to which the widow or widower was entitled (except those of 

such insurance annuities which are based on a spouse’s annuity which was payable in the maximum amount as determined in accordance with the provisions of 

the Social Security Act as amended by the Social Security Amendments of 

1965), and all annuities under the Railroad Retirement Act of 1935 are increased 

by 7 pe r centum : Provided, however. That in cases where an individual is en­ title d to a benefit under title II of the Social Security Act, the additional amount 

payable because of this subsection shall be reduced by 6.55 per centum of the 

amount of such social security benefit (disregarding any increases in such benefit 

based on work recomputations after such reduction is first applied and any increases derived from changes in the primary insurance amount through legislation enacted after the Social Security Amendments of 1965) : Provided further, Th at in determining social security benefit amounts for the purpose of this subsection. if such individual’s average monthly wage is in excess of $400, only the 

average monthly wage of $400 shall be used.

Sec. 202. (a) The amendments made by section 201 of this title shall be effective with respect to annuities accruing for months after the month in which this 

Act is enacted, and with respect to pensions due in calendar months after the 

month next following the month in which this Act is enacted. The amendm ents 

made by subsection (e) of section 201 of this title shall be effective as to lump-
RAILROAD RETIR EMENT ACT— SUPPLEMENTAL BENE FIT S 7

sum be ne fit s under se ct ion 5 ( f ) ( 1 ) of th e R ai lr oad R et ir em en t Act of 1937 

w ith re sp ec t to d eath s oc cu rr in g on or a fte r th e d ate of en ac tm en t of th is Act.

(b ) All re ce rt ific at io ns re quir ed by re as on of th e am en dm en ts m ad e by th is 

ti tl e sh al l be m ad e by th e R ail ro ad R et ir em en t B oar d w ithout ap plica tion 

th er ef or.

T IT L E I I I —A MEN DMEN TS TO T H E RA IL ROAD R E T IR E M E N T TA X AC T 

C H A N G ES IN TA X KA TES

Sec. 301. (a ) Se ction 3201 of th e In te rn al Re ve nu e Code of 1954 (r ela ti ng to 

ra te of ta x on em ploy ee s under th e R ail ro ad R et ir em en t T ax Act) is am en de d 

by st ri kin g o ut “6% per ce nt” fr om su bd iv isio n “ (3 )” a nd in se rt in g in lie u th er eo f 

“7 per ce nt” ; by st ri kin g out “7 perc ent” fr om su bd iv isio n “ (4 )” an d in se rtin g 

in lie u th er eo f “7(4 perc ent” ; and by st ri kin g o ut “7(4 p erc ent” from su bd iv isio n 

“ (5 )” a nd inse rt in g in l ie u th ere of “7% perc ent”.

(b ) Se cti on 3211 of su ch Code (r ela ti n g to ra te of ta x on em plo yee re pre ­

se nta tives un der th e R ail ro ad R et ir em en t T ax Act) is am en de d by st ri kin g ou t 

“13(/> p er ce nt” from su bd iv isio n “ ( 3 ) ” and in se rt in g in lie u th ere of “14 per ce nt” ; 

by st ri kin g out “14 per ce nt” from su bd iv isio n “ (4 )” and in se rt in g in lieu th er eo f 

“141

/i per ce nt” ; and by str ik in g out “14% per cent” from su bd iv isio n “ (5 )” an d 

in se rt in g in lieu th er eo f “15 p erc ent” .

(c ) Se cti on 32 21 (a ) of su ch Code (r ela ti n g to ra te of ta x on em ploy ers un der 

th e R ai lr oad R et ir em en t T ax Act) is am en de d by st ri kin g out “6 % per ce nt” fr om 

su bd iv isio n “ (3 )” an d in se rt in g in lie u th ere of “7 per ce nt” ; by st ri kin g out “7 

p erc ent” from su bd ivision “ ( 4 ) ” an d in se rt in g in lie u (h er eo f “7 (4 perc ent” 

and by st ri kin g ou t “7(4 perc ent” fr om su bd iv isio n “ (5 )” and in se rt in g in lie u 

th ere of “7 (4 per cent” .

SU PPLEM EN TA L TA XES

(d ) Se cti on 3211 of su ch Co de is fu rth e r am en de d by in se rt in g “ ( a ) ” a ft e r 

“Sec. 3211 ” an d by ad di ng a t th e en d (h er eo f th e follo wing ne w su bs ec tio n :

" (b ) In ad di tion to oth er ta xe s, th ere is he re by imposed on th e inco me of e ac h 

em ploy ee re pre se nta ti ve a ta x eq ua l to 2 ce nts fo r each m an -h ou r fo r which 

co mpe ns atio n is p ai d to h im fo r se rv ic es r en de re d as a n em ploy ee r epre se nta ti ve.”

(e ) Se ctio n 3221 of such Co de is fu rth e r am en de d by addin g a t th e en d 

th ere of th e follo wing new su bs ec tio n :

“ (c ) In ad di tion t o ot he r ta xes, th ere is he re by im po sed on ev er y em pl oy er 

an ex cise ta x. w ith re sp ec t to hav in g in div id ual s in his emplo y, eq ua l to 2 ce nt s 

fo r ea ch man -h ou r, fo r which co m pe ns at io n is pa id. W it h re sp ec t to da ily, 

weekly, or mon th ly ra te s of co m pe ns atio n su ch ta x sh al l ap pl y to th e num be r 

of ho urs co mpr eh en de d in th e ra te to get her w ith th e nu m be r of ov er tim e hours 

fo r which co m pe ns atio n in additio n to th e da ily , we ekly, or m on th ly ra te is 

pa id . W ill i re sp ec t to co m pe ns atio n pai d on a m ile ag e or pi ec ew or k bas is su ch 

ta x sh al l ap pl y to th e num ber of hours co nst it uti ng th e ho ur ly eq ui val en t of 

th e co m pe ns at io n pa id . T he ta x im po sed by th is su bs ec tio n sh all not ap pl y to 

ho urs in cl ud ed in any mon th of se rv ice as an em ploy ee re nd er ed to a ra ilw ay - 

la bo r- or ga ni za tion em pl oy er duri ng which mon th th e in div id ual to wh om su ch 

co m pe ns atio n is pai d w as not en ga ge d pre do m in an tly in wor k in vo lv in g re pre ­

se nta ti on of e mploy ee s w ithin th e d ef in iti on of ‘em ploy ee ’ in th is Act.

“Each, em pl oy er of em ploy ee s who se su pp le m en ta l an nuit ie s a re re duce d p u rsu an t to se ction 3 (j) (2 ) of th e R ai lr oad R et ir em en t Act o f 1937 sh al l be allo wed 

as a cre dit again st th e ta x im po sed by th is su bs ec tio n an am ount eq uiv al en t in 

ea ch mon th to th e ag gre gat e am oun t of re duct io ns in su pp le m en ta l annuit ie s 

ac cr uin g in such m on th to em ploy ee s of su ch em ploy er. If th e cre d it so allowed 

to su ch an em pl oy er fo r an y m on th ex ce ed s th e ta x liabil it y of su ch em pl oy er 

ac cr ui ng under th is su bs ec tio n in su ch mon th , th e ex ce ss may be carr ie d fo rw ard 

fo r cre dit ag ain st such ta xes ac cr ui ng in su bs eq ue nt m onth s but th e to ta l cre dit 

all ow ed by (h is para gra ph to an em pl oy er sh al l no t exceed th e to ta l of th e ta xes 

on such em pl oy er impo sed by th is su bs ec tio n. At th e en d of ea ch cale ndar 

q u a rt e r th e R ai lr oa d R et ir em en t B oa rd sh al l cer tify to th e S ecre ta ry of th e 

T re asu ry w ith re sp ec t to ea ch su ch em pl oy er th e am ount of cre dit acc ru in g to 

such em pl oy er under th is para g ra p h duri ng su ch q u a rt e r an d sh all n oti fy su ch 

em pl oy er as to th e am ou nt so ce rtified. ”

(f ) T he am en dm en ts m ad e by su bs ec tio ns (d ) an d (e ) of th is se ct ion sh al l be 

effecti ve w ith re sp ec t to m an -h ou rs, fo r si xty m on th s be gi nn in g w ith th e fi rs t 

m on th fol lowing en ac tm en t of t h is Act, fo r which co m pe ns atio n is p aid.
8 RAILROAD RE TIRE MEN T ACT----SU PPLEME NT AL BE NEF IT S

Treasury Department.

Washington, D.C., September 29, 19156. Hon. Harl ey O. Staggers,

Chairman. Committee on Interstate and Foreign Commerce,

House of Representatives, Washington, D.C.

Dear Mr. Cha irma n : T hi s re port se ts fo rt h th e view s of t he T re asu ry D epart ­

me nt on II.It . 17285. “A B IL L To am en d th e R ai lr oad R et ir em en t Act of 1937 

an d th e R ai lr oa d Retirem en t Tax Act, an d fo r oth er pu rp os es .” Th e T re as ury 

D ep ar tm en t i s oppo sed to one a sp ec t o f t h is bill.

Th e bill wo uld mak e tw o dis tinct ly diffe re nt ty pe s of ch an ge s in th e ex is ting 

ra ilro ad re tire m en t pr og ra m. T itle I of th e hill wo uld cr ea te an en tire ly new 

an d di ff er en t kind of re tire m en t pro gr am wh ich wo uld su pp le m en t th e ba sic 

pu blic pr og ra m in mu ch th e same way th a t p ri vate pe nsion pla ns in oth er in ­

dust ries su pp lemen t th e ba sic be ne fits prov id ed und er th e so cial se cu ri ty syste m. 

More specifically , th es e pr ov isions of th e bill wo uld pr ov id e fo r th e pa ym en t of 

su pp le m en ta l an nuitie s (r an gin g from .$45 t o $70 pe r m onth ) to a spe cified clas s 

of em ploy ees fo r a five year pe rio d. The su pp le m en ta l an nuit ie s are to be 

financed by a new an d se para te ta x on em pl oy er s an d em ploy ee re pre se nta tives 

(b ut no t on em ploy ees) an d wo uld be pa ya bl e on ly to em ploy ee s re ti ri n g aft e r 

Ju ly 1. 1966, wh o ha ve att ain ed th e ag e of 65, an d ha ve co mplete d at le as t 

25 yea rs of servi ce. T itle II of th e bill wo uld in cr ea se an d ot her w is e ad ju st 

th e be ne fits th a t are cu rr entl y pa id unde r th e ba sic re ti re m ent pr ogra m co ve rin g 

th e ra il ro ad in du st ry . T it le II I pr ov id es fo r an in cr ea se in th e ba sic ta x to 

fin ance th e incr ea se d ba sic be nefits an d a ne w ta x ba se d on m an -h ou rs of em ­

ploy men t to finance th e sup pl em en ta l a nn uitie s.

The T re asu ry D ep ar tm en t has no ob jection to th e pr ov isions of H.It . 17285 

ex ce pt to th e ex te nt th a t it e xt en ds th e ta x ex em pt ion pre se ntly ac co rd ed benefits 

pa id under th e ba sic ra il ro ad re ti re m en t pr og ra m to th e su pp le m en ta l annuit y 

pr og ra m c re at ed by T itle I.

The ba sic re tire m en t benefits prov id ed u nde r th e tw o pu blic re ti re m ent syste ms , 

th e Fed er al Old Age Su rv iv or s and D isab ility In su ra nce sy stem an d th e R ailroad R et ir em en t syste m, are ex em pt from Fed er al inc om e ta x. On th e oth er 

ha nd , em ploy er fin anced be ne fits rece ived und er pri vate re ti re m ent pr og ra m s are 

su bj ec t to ta x in th e same m an ne r as oth er fo rm s of re ti re m ent income. By 

cr eati ng an d im plem en tin g th e sy stem of su pp le m en ta l annuit ie s as an am en d 

inen t to th e R ai lroa d R et irem en t Ac t an d specifically by de fin ing th e annuit ie s 

as th os e covered by Se cti on 12 of th e R ai lroad R et ir em en t Ac t of 1937, th e bil l 

wo uld au to m at ic al ly ex te nd to th es e an nuitie s th e ta x ex em pt ion prev ious ly 

re se rv ed fo r th e br oa d ba se d pu blic pr og ra ms. Th e T re asu ry D ep ar tm en t does 

no t be lie ve th a t such a ta x be ne fit is ap pro pri ate sin ce, ex ce pt fo r th e fa ct th a t 

th ey are to be pu blicly ad m in is te re d, th e su pp le m en ta l an nuit ie s prov ided fo r by 

th e bi ll ha ve none of th e hal lm ark s of a pu blic prog ra m. R ath er, th ey are pay ­

ab le on ly to a nar ro w gr ou p of lon g serv ice em ploy ees wh o re ti re du ring a 

specified five ye ar pe rio d. In th es e ci rc um stan ce s th e T re asu ry D ep ar tm en t can 

see li tt le ju st ific at io n fo r fa vori ng th e su pp le m en ta l re tire m en t pr og ra m of th e 

ra il ro ad in dust ry a t th e ex pe ns e of all oth er Fed er al ta xpay ers . To do so 

wo uld gra nt th is p art ic u la r in dust ry fa vo re d ta x sta tu s fo r its pension be nefits 

th a t is no t av ai la bl e to an y oth er in dust ry with re sp ec t to it s pri vate re ti re ­

men t prog ra ms. R at her , th e T re asu ry D ep ar tm en t is of th e op ini on th a t th e 

su pp le m en ta l annuit y pr og ra m prov ided fo r by th e Ac t sh ou ld be su bj ec t to 

th e ta x ru le s th a t are a pp lica bl e to q ua lif ied pri vate p ensio n pl an s ge ne ra lly . We 

unders ta nd th a t appro pri ate la ng ua ge to acco mplish th is has bee n su bm itte d 

to y our Co mmittee by the R ai lr oad R et ir em en t Boa rd.

The T re asu ry D ep ar tm en t also w ishe s to po in t ou t th a t st ud y is pre se ntly 

be ing giv en to a Cab in et Com mittee R ep or t wh ich , th ro ug h am en dm en ts to th e 

In te rn al Re venu e Code, wo uld ad d ad ditio nal re qu irem en ts fo r th e qu alific atio n 

of pri vate pe nsion pl an s. If any such re qu irem en ts ar e ad de d in th e fu tu re , we 

wou ld th in k it wo uld be appro pri ate to am en d th e su pp le m en ta l annuity pr og ra m 

to br in g it up to th e new st an d ard s if th e pr og ra m is to be ex te nd ed bey ond th e 

in it ia l perio d.

Th e B ur ea u of th e Bud ge t has ad vise d th e T re as ury D ep ar tm en t th a t th ere is 

no ob jection from t he st andpoin t of t he A dm in is tr at io n’s p ro gr am t o th e p re se n ta ­

tion of th is repo rt.

Sinc erely yo urs.

Stanley S. Surre y, A ss is ta nt Secreta ry.
RAILROAD RETIREMENT ACT— SUPPLEMENTAL BENEFITS 9

Executive Office of the President,

Bureau of the Budget, 

Washington, D.C., September 26,1966.

lion. Harley O. Staggers,

Chairman, Committee on Inte rstate and Foreign Commerce

House of Representatives, Washington D.C.

Dear Mr. Chairman : This is in response to your request of August 29, I960, 

for th e views of the Burea u of the Budget w ith respect to H.R. 17285, a bill “To 

amend the Railro ad Retirem ent Act of 1937 and the Railroad Retirem ent Tax 

Act, and fo r o ther purposes.”

The bill has two purp oses: to provide supplemental annuitie s to certain 

beneficiaries entitled to a reg ular an nuity under th e Railr oad Retirement Act, and 

to incre ase benefit amounts under the existing provisions of the R ailr oad Retire ­

ment Act by seven percent, subject to cer tain limitatio ns. The seven percent increase conforms, generally, to the pa tte rn for increasing benefit amo unts under 

Public U w 89-97—the Social Security Amendments of 1965—and, accordingly, 

the Bureau of the Budget sees no objection to that portion of the bill.

The portion of the bill having to do w ith supplemental pensions calls f or more 

care ful considera tion. Although it is proposed as an amendment to the basic 

Railroad Retirement Act, the supplemental pension plan is in rea lity a priv ate 

pension plan arrived at thro ugh collective bargain ing and sim ilar in general 

form to many such plans within American industry except th at the Federal 

Government will (a) administer the plan through a Fed eral agency; (b) collect 

its reven ue through the Feder al taxing pow er; (c) require compulsory participation of t he entire in du stry ; and (d) exempt employer co ntrib utions as well as 

employee benefits from Federal taxes.

We wish to call a tte nti on to two issues w hich the pla n ra ises :

First, employee benefits, as in other non-contributory private plans, should be 

taxable. Employer contributions are tax free only if the plan meets certain 

requ irem ents set for th in the Internal Revenue Code. It appears that this 

plan would meet such requiremen ts as a priva te plan and, therefore, employers 

might deduct their con tributio ns from Fed eral taxes in eith er case. However, 

we see no basis for the special tax tre atm ent afforded to employee benefits. In 

thi s matter , we agree with the recommendation of the Treasury Departm ent, in 

the repo rt, it is submitting to your committee, and urge th at this exemption be 

deleted from the plan.

Secondly, we think provision should be made for adequate long-term financing. 

The plan is limited to a five-year term for both contributions and benefits and 

no provision is made for its extension beyond that period. It is adequately 

financed only for this period. If the plan were extended beyond thi s period— 

as it is expected to be—the contribu tion level would have to be at least doubled 

simply to continue benefits at the same level for another five yea rs. Negotiations 

to extend the term of the plan at th at time might involve concessions by the 

employees in ord er to continue or improve the term s of the plan. If employees 

are then called upon to sha re some of the costs, it would limit their capacity to 

finance futur e improvements in the basic railro ad retirem ent system. We would 

strongly object to any possible interp retation of this legislation that financial 

support on the pa rt of the Feder al Government might be proposed in order to 

extend the term of the plan beyond its present term ination. We. therefore, endorse the s tatement to th is effect in the repo rt of the Railroad Retirement Board 

th at enac tment of this legislation does not presuppose any financial obligation 

by the Fed era l Government. This point could be made clear by adding a provision to the bill which directs the Railroa d Retirement Board, before the end of 

the five-year period, to determin e the costs of adequately financing the plan on 

a perman ent basis and to presen t this to represe ntatives of railroad labor and 

railro ad management in o rde r to assist them in negotiating a continuation of the 

plan.

The lack of provision for e arly v estin g and the severe length of service requirements do no t recommend themselve s as models of a publicly enacted supplemental 

pension program. If this measure should become effective pending the development of Fed eral policy on these issues, we thin k any extension of it should be 

subject to review in the light of subsequent legislation.

If the bill were modified to remove the income tax exemption for employe!' 

benefits, t he Bureau of the Budget would have no objection to enac tmen t of H R 

17285.

Sincerely yotirs.

Wilfred H. Rommel.

Assistant Director for Legislative Reference.
10 RAILROAD RETIREM ENT ACT— SUPPLEMENTAL BENEFITS

United Stat es of A merica.

R ailroad Retire me nt Board. 

Chioago, III., Se pt em be r 23 ,19 66.

Ho n. Harley (). Staggers.

Cha irm an , Com mitt ee on In te rs ta te an d Fo reign C om me rce ,

Hou se Office Ru ihtin g, W as hi ng to n, I).C.

Dear Mr. C h a ir m an: Thi s is a re port on th e hill II .It. 17285, which was in ­

trod uc ed in th e Ho use of Rep re se nt at iv es on Aug us t 25, 1966, by Mr. Macdo nald, 

an d re fe rred to yo ur C om mittee for co ns ideration.

Tin* pu rpos e of t he hill is to prov ide su pp lemen tal annuit ie s un de r th e R ai lr oad 

R et irem en t Act fo r qu ali fie d in di vidu als, an d a 7 i>er ce nt in cr ea se in re gula r 

be ne fit am ou nt s un de r th e Ac t s ub je ct to c er ta in lim itat io ns .

Th e su pp le m en ta l annuit ie s would be pa ya bl e to in di vi du al s wh o ha ve at - 

aine d ag e 65. ha ve at leas t 25 ye ar s o f cr ed itab le service , are e nt itle d to a re gula r 

an nu ity as an em plo yee un de r tin* prov isions of th a t Act, an d ha ve a cu rr ent 

co nn ec tio n with th e ra il ro ad in du st ry at th e tim e th eir an nuit y began to ac crue . 

The su pp lemen tal annuity wo uld he in an am ou nt eq ua l to $45 plus $5 fo r ea ch 

y ear o f cr ed itab le serv ice ov er 25 an d up to 30 th a t th e re ci pi en t ha s. Th us , 

th e su pp lemen tal an nuity would he lim ite d to $70 even thou gh th e in di vi du al 

has in excess of 30 year s of cr ed itab le serv ice un de r th e Act. F or th e pu rp os e 

of supp lemen tal an nuitie s no mo nth wo uld be includ ed in th e c om pu ta tio n of an 

in di vi du al 's ye ar s of se rv ice on the ba sis of his se rv ice as an em plo yee of a 

ra ilw ay labo r-or ga ni za tion em ploy er du ring whic h he was no t pre do m in an tly 

enga ge d in wo rk inv olving the re pre se nt at io n of em plo yees covered by th e R ail ­

ro ad R et irem en t Act. The co sts of th es e su pp le m en ta l an nuit ie s wo uld be 

financed by an ex cis e ta x on em ploy ers an d em plo yees re pre se nta tives un der th e 

Act of 2 ce nts fo r ea ch man -h ou r of em ploy me nt fo r wh ich th e em ploy er pa id 

co mpe ns ati on to begin w ith th e mo nth follo wing th e mo nth of en ac tm en t of 

th e bill an d to co ntin ue fo r the 60 mo nth pe rio d be ginn ing w ith th e m on th aft e r 

en ac tm en t. The re wou ld be no faxe s on em plo yees fo r th e pu rp os e of th e su pplem en tal an nu itie s. The su pp lemen tal annuit ie s wo uld ha ve no eff ect in dete rm in in g th e am ou nt of oth er an nui ties or be ne fit s unde r th e Ac t ex ce pt th a t 

th e 7 pe r ce nt in cr ea se in re gula r an nuity am ou nt s th e bill wo uld pr ov id e (d escrib ed her ein aft er) wo uld no t be includ ed in an nuit y am ou nt s aft e r an in div id ­

ual become s en titled to a su pp lemen tal an nu ity. The su pp le m en ta l annuit ie s 

wou ld be su bj ec t to th e same prov isi on s re qu irin g los s of an nuitie s be ca us e of 

work as th e re gula r an nu itie s. Th ey wo uld be p ay ab le for a pe rio d of 60 m on th s 

follo wi ng th e mon th in wh ich the bill is enac te d: but wo uld be pa ya bl e on ly in 

ca se s whe re th e aw ard of a re gula r an nuit y is first mad e on or aft e r Ju ly 1, 

1966. Th e re fe re nc e to the first aw ar d wo uld pr ev en t an in di vi du al from quali ­

fy in g by w ith dr aw in g his ap plicatio n fo r an an nuit y an d ha ving a la te r aw ar d.

In the ca se of an in di vi du al en titled to a su pp le m en ta l pe ns ion pa ym en t unde r 

an ot her plan th e su pp le m en ta l an nu ity wh ich wo uld ot he rw ise be pa ya bl e wou ld 

be red uced w ith resi»ect to an y mo nth by th e am oun t of the su pp le m en ta l pe nsion 

fo r the mo nth att ri b u ta b le to the em ploy er’s contr ib uti on; ex ce pt th a t th e re ­

du cti on wo idd not Ik* ap plicab le if su ch pe nsion is redu ce d by reas on of th e 

su pp lemen tal an nu ity to wh ich th e in di vidu al wo uld lie en titled . Th e am ou nt s 

by wh ich su pp le m en ta l an nu itie s ar e redu ce d by re as on of pe ns ion pa ym en ts by 

an em ploy er would be cred ite d agai nst ta xes on m an -h ou rs im posed on su ch 

em ploy er (t he ta xes on man-hou rs, which th e bi ll wo uld pro vide, w ith re sp ec t 

to w hic h co mpe ns ati on is p aid a re de scrib ed h ere in aft er) .

Th e su pp lemen tal annuity prog ram wo uld be ad m in is te re d by th e B oa rd an d 

wo uld be financed se par at el y fro m th e re gula r ra il ro ad re ti re m en t pr og ra m. 

The re wo uld la* an ex cis e ta x imp ose d by th e R ai lroa d Retirem en t Ac t on ea ch 

em ploy er eq ua l to tw o ce nts fo r each man -h ou r w ith re sp ec t to which co mp ensa tio n is paid. A se para te ac co un t wo uld be es ta bl is he d in th e T re asu ry f o r th e 

pr og ra m. Em ploy ees wo uld not pay ta xes fo r th e su pp lemen tal pr og ra m . Th e 

ta xes wo uld be pa ya bl e only fo r th e 60-m onth pe rio d with re sp ec t to wh ich 

su pp lemen tal an nui ties are payable . Fun ds ne eded fo r th e first six m on th s of 

th e pr og ram could be Imrrowed fro m th e R ai lroad Ret irem en t Ac count, bu t 

wo uld ha ve to lie repa id w ith in te re st w ith in a yea r aft er th e sta rt of th e pro ­

gram . Th e Boa rd is satis fie d th at th e am ou nt s bo rrow ed wo uld be re pai d we ll 

be fore th e end of th e ye ar . T her ea ft er , th e re gula r R ai lroa d R et ir em en t Acco un t wo uld no t l>e call ed upo n to c ontr ib ute to th e new Account in an y wa y.

Th e Boa rd is also satis fie d th at th e pr ov isions fo r su pp le m en ta l annuit ie s are 

ad eq ua te ly financed. Ho we ver, as a pr ec au tion , th e bil l prov ides, as st at ed 

belo w, th a t if. as th e re su lt of the su rv ey to b e mad e by t he R ai lr oad R et ir em en t
RAILROAD RET IR EM EN T ACT— SU PP LE ME NT AL BEN EF IT S 11

Boa rd a ft e r 48 m on th s ha ve el ap se d fr om th e be gi nn in g of th e su pp le m en ta l annuit y pr og ra m , it sh ou ld appear th a t th e bal an ce in th e R ail ro ad R eti re ­ men t Sup pl em en tal Ac co un t to get her w ith th e anti cip ate d income to su ch ac­ co un t wo uld be insu ffi cie nt to pa y th e su ppl em en ta l annuit ie s in fu ll fo r th e re ­ m ai ni ng tw elve m on th s of th e pr og ra m , th e B oa rd is au th ori zed to a d ju st th e 

su pp le m en t a nnuit y a m oun ts p ro po rtio na te ly . Th e Fed er al G ov er nm en t has no ob liga tion w hat so ev er to contr ib ute an y fu nds fo r the su pp le m en ta l annuit y pro gr am duri ng th e live y ear pe riod pr ov id ed fo r in th e bill an d ha s no ob liga tion to pr ov id e fu nds fo r a continuat io n of th e pro ­ gr am aft e r su ch pe riod . Th e su pp le m en ta l annuit ie s w ill no t be ex cl ud ed fr om inc om e ot he rw is e ta xable pu rs u an t to th e F ed er al income ta x pr ov isio ns of th e 

In te rn al Re ve nu e Code of 1954. Th e bil l wou ld also pr ov id e fo r a 7 i»er ce nt in cr ea se in ord in ary be ne fit s pa y­ ab le un de r th e R ai lr oad R et ir em ent Act, ex ce pt fo r th os e annuit ie s which are pa ya bl e un de r th e so -called so cial se cu ri ty g u ara n ty pr ov isio n in Se ction 3 (e ) of th e R ai lr oad R et ir em en t Act, an d sp ou se s’ a nnuit ie s which are pa yab le in th e max im um am ou nt . Th e annuit ie s pa ya bl e under th e sp ec ia l g u ara n ty pr ov ision were in cr ea se d as a re su lt of th e ra is es in so cial se cu ri ty be ne fits, ge ne ra lly, by 7 pe r ce nt effecte d by th e en ac tm en t of th e So cial Sec uri ty Amen dm en ts of 1965. Th e am ou nt of th e m ax im um sp ou se ’s annuit y w as al so in cr ea se d th ro ugh su ch ra is es in social se cu ri ty be ne fits. In ca se s w her e an a n n u it a n t und er th e R ail ­ ro ad R et ir em en t Ac t is al so re ce iv ing be ne fits under th e So cial Sec urity Act, th e in cr ea se in his ra il ro ad re ti re m ent annuit y wou ld b e lim ited , ge ne ra lly, to th e am ou nt by which th e in cr ea se oth er w is e ap pl ic ab le ex ce ed s th e in cr ea se th e an n u it an t rece ived in his so ci al se cu ri ty be ne fit s th ro ugh th e 1965 le gi slat io n. T he in cr ea se in th e so cial se cu ri ty be ne fits to be ta ken in to ac co un t wo uld be con fin ed to th e addit io nal be ne fits th a t wou ld be pay ab le on th e bas is of an av er ag e mon th ly wage up to $400. In cr ea se s in so ci al se curi ty be ne fits att ri b u ta b le solely to th a t p a rt of th e av er ag e m on th ly wag e whi ch is in ex ce ss of $400 wo uld no t be ta ken in to ac co un t. The in cr ea se in th e cr edit able wag e ba se un de r th e So cia l Sec ur ity Act from $4,80 0 a yea r to $6,600 a year by th e 1965 le gi slat io n pe rm its, fo r th e firs t tim e, an av er ag e m on th ly wag e in ex ce ss of 

$400 fo r benefit co m pu ta tion p ur po se s. In or der to fa cil it ate adm in is tr ati on, th e in cr ea se oth er w is e ap plica bl e wou ld be adju st ed by 6.55 pe r ce nt of th e am ount of th e so ci al se curi ty benefits, a ft e r th e 1965 incr ea se , to be ta ken in to ac co un t (a ny in cr ea se s in social se cu ri ty benefit am ou nt s effecte d by le gi sl at io n en ac te d a fte r 1965 wou ld not be ta ken in to ac co un t in th e re duct io n). Thi s wou ld pr od uc e ap pro xim at el y th e 1965 in cr ea se in so cial se cu rity benefits, ex ce pt in ca se s w he re th e so cial se curi ty be ne fit w as in cr ea se d by mo re th an 7 per cent (i n ca se s of m in im um o r low be ne fits ), th e am ou nt of th e adju st m ent wou ld be less th an th e 1965 in cr ea se in su ch so cial 

se cu ri ty b en efit am ou nt s. The bi ll is divi de d in to th re e ti tl es. Se ction 1 of ti tl e I wou ld ad d a ne w su b­ se ction (j) a t th e en d of Se cti on 3 of th e R ail ro ad R et ir em ent Act to pr ov id e fo r 

th e su pp le m en ta l an nu itie s. Se cti on 2 of th is ti tl e wou ld est ab lish in th e T re asu ry of th e U nited S ta te s by an am en dm en t of Se cti on 15 of th e Act a new ac co un t to be kn ow n as th e R ai lr oad R et ir em en t Sup pl em en ta l Accou nt. The su pp le m en ta l annuit ie s wou ld be pa id from th is Ac coun t. Ther e wou ld be a pr ov ision fo r an auto m ati c annual ap pro pri ati on to th is Acc ou nt of th e am oun ts pai d under th e re le vant pr ov isio ns of th e R ail ro ad R et ir em en t T ax Ac t. The in te re st ra te s ap plica bl e as to th e fu nds in th e new ac co un t wou ld be de te rm in ed in th e sa m e way as in te re st ra te s 

fo r th e fu nds in th e R ail ro ad R et ir em en t Ac coun t. At th e en d of 48 mon th s follo wing en ac tm en t of th e bill th e B oar d wou ld be re qu ir ed to m ak e a su rv ey to det er m in e w het her th e ba la nc e in th e Acc ou nt pl us an ticip ate d incom e fo r th e next su cc ee ding t welve m on th s wou ld be suffi cie nt to prov ide fo r th e pa ym en t of su pp le m en ta l annuit ie s fo r th a t pe rio d. If th e det er m in at io n is th a t th e fu nds of th e Acc ou nt will not be suffi cie nt to pr ov id e fo r th e su pp le m en ta l annuit ie s in th e am ou nt specified fo r th e n ex t su cc ee ding 12 mon th s th e B oa rd wou ld be re quir ed t o a d ju st th e am ount s of a ll s upple m en ta l annuit ie s pro po rt io nat el y so th a t th e av ai la ble fu nd s, will be su ffici en t to pa y al l su pp le m en ta l an nui ties , as so re adju st ed, fo r th e nex t su cc ee ding 12 mon th s. In ord er to m ak e cert ain th a t suffi cien t fu nds wou ld be avai la ble fo r th e pa ym en t of su pp le m en ta l annuit ie s (a nd adm in is tr ati ve ex pe ns es ) in th e ear ly st ag es of th e su pp le m en ta l pr og ra m (f o r 6 m on th s fo llo w in g th e m on th in which th e bill is enac te d), au th o ri ty wou ld l>e prov ided fo r lo an s to th e R ail ­ ro ad R et ir em en t Sup plem en tal Acc ou nt fr om th e R ai lr oad R eti re m ent Acc ou nt.
12 RAILROAD RETIREM ENT ACT— SUPPLE MENTAL BEN EFITS

Th ese lo an s wo uld be re qu ired to be re pa id w ith in te re st w ithin on e y ear aft er 

en ac tm en t of th e bill. Th e in te re st ra te wo uld be ap pro xim at el y eq ua l to th e 

ra te bo rne by ot he r ob lig atio ns of th e R ai lr oad R et ir em en t Ac count.

T itle I I of th e bil l wo uld in cr ea se benefit am oun ts under th e ex is ting pr ovisio ns of th e R ai lroa d R et ir em en t A ct by 7 per ce nt but on ly as to th a t po rtio n 

of be ne fit am ou nt s which are de rive d fro m an av er ag e m on th ly co mpe ns atio n 

of $450 or les s. Th e am oun t th a t th e av er ag e m on th ly co m pe ns atio n in ex cess 

of $450 ad ds to th e an nuit y wo uld st ill be ob tain ed by ap pl yi ng th e same per ­

ce ntag e fa cto r th a t is now ap plied to th a t por tion of th e av er ag e mon th ly compe ns at io n ov er $150. Ther e are now th re e pe rc en ta ge fa cto rs in th e fo rm ul a 

fo r de te rm in in g re gula r annuity am ou nt s. Th e fa cto r now ap pl ic ab le to av er ag e 

mon th ly co mpe ns ation ov er $150 wou ld be in cr ea se d by 7 per ce nt as to av er ag e 

mon thly c on q)ensatio n ov er $150 a nd up to $450. Th e fa cto r ap pl ic ab le to av er ag e 

co mpe ns atio n un de r $150 wo uld al so be in cr ea se d by 7 per ce nt. The same 

fa cto r now ap plicab le to th e hig hes t po rt io n of th e max im um av er ag e mon thly 

co mpe ns ation wo uld ap ply to o ve r $450 an d up to $550. Thu s, th is wou ld become 

th e fo urt h fa ct or . (T he m ax im um cr ed itab le m on th ly co m pe ns atio n was, of 

co urse, in cr ea se d by le gi slat io n en ac te d in 1005 from $450 to $55 0.) Thi s co nfo rm s to th e p att ern fo r in cr ea si ng benefit am oun ts by 7 per ce nt un de r th e 

So cia l Sec ur ity Ac t in 1065 which in cr ea se s w er e lim ited to be ne fit s prod uc ed 

by th e max im um av er ag e mon th ly wag e po ssible be fo re t h e 1005 ch an ge s ($40 0). 

The pr ov isions fo r th e re gula r minim um annuit y wou ld be ch an ge d to pr ov ide 

an in cr ea se of 7 pe r cent.

The fo rm ul a fo r co mpu tin g th e ba sic am ou nt (u se d in det er m in in g su rv iv or 

benefit am ou nt s, in cl ud in g th e lump-sum benefit under Se cti on 5 ( f ) ( 1 ) ) wo uld 

also be revised to eff ect a 7 pe r ce nt in cr ea se . T he in cr ea se wo uld be eff ected 

by in cr ea si ng only th e pe rc en ta ge fa cto rs ap pl ic ab le as to av er ag e mon th ly 

re m un er at io n up to $450, as it wou ld be do ne in re sp ec t to th e fo rm ul a fo r em ­

plo yee an nuit y am ou nts.

How ev er, as st ate d be fore, th e annuit ie s pa ya bl e und er th e so- called socia l 

se cu ri ty guara nty pr ov ision wo uld not be in cr ea se d. A nnuitie s pa ya ble under 

th is guara nty prov isi on wer e in cr ea se d as a re su lt of th e ra is e in social se cu ri ty 

be ne fit s in 1905. The guara nty prov ision, in effect, ass ure s th a t an an nuity, or 

th e to ta l of an nu itie s, und er th e R ai lroad R et irem en t Ac t fo r a mon th sh al l be 

no less th an 110 pe r ce nt of th e am ou nt , or th e addi tional am ou nt , which wo uld 

he pa ya bl e to a ll pe rson s un de r th e So cia l Se cu rity Act fo r th e mon th if th e ra il ­

ro ad se rv ice fro m which th e annuit y or an nuit ie s a re de rive d had be en em ­

pl oy m en t su bj ec t to th e Socia l Sec urity Act.

T he spou se’s an nuit y und er th e R ai lr oad R et irem en t Act is in an am ou nt 

eq ua l to on e-ha lf of h er husb an d’s an nui ty , ex ce pt th a t it is lim ited in am ou nt 

to 110 i>er ce nt of th e hi gh es t am oun t which could he curr entl y pa id to an yo ne 

as a w ife’s benefit un der th e So cia l Sec ur ity Act. Ac cording ly, th is max im um 

am oun t of th e spou ses w as in cr ea se d th ro ug h th e ra is e in socia l se cu ri ty lamefits eff ected in 1965, an d th e m ax im um am ou nt wo uld no t be fu rt h er in cr ea se d 

by th is bill.

Man y in di vi du al s who rece ive annuit ie s und er the R ai lr oad R et irem en t Act 

al so dra w socia l se cu ri ty benefits. Th e in cr ea se s in annuit ie s th is bil l wo uld 

pr ov id e wo uld be redu ce d in su ch cases, ge ne ra lly , by th e am ou nt of th e in cr ea se 

in th e in di vi du al ’s so cial se cu ri ty benefits eff ected th ro ugh th e 1905 legislation. 

The a m ou nt of th e in cr ea se in social se cu rity be nefits eff ected by th e 1905 le gi slatio n to lie ta ke n info ac co un t in th is re sp ec t wo uld be lim ited to th e in cr ea se 

in social se cu rity be nefits de rive d from an av er ag e m on th ly wa ge of $400 or 

les s. Tin* social se cu ri ty w ag e ba se was in cr ea se d from $4,800 a yea r to $0,000 

a year by th e 1905 legi slat io n. Thi s per m its in th e fu tu re an av er ag e mon th ly 

wag e of up to $550 as co m pa re d w ith a max im um of $400 under th e law be fore 

th e 1965 am en dm en ts. As a consequence, an av er ag e mon th ly wa ge of ov er 

$400 an d up to $550 ca n be th e ba sis fo r th e det er m in at io n of be ne fit am ou nt s 

in th e fu tu re . Th e social se cu ri ty pri m ary in su ra nce am ou nt s on th e ba si s of an 

av er ag e m on th ly wag e of up to $400 we re in cr ea se d in 1965, ge ne ra lly , by 7 pe r 

ce nt (in th e lower am ou nt s th e in cr ea se was la rg er) , but in det er m in in g th e 

pri m ary in su ra nc e am ou nt th e fa cto r ap pl ic ab le to th e hi gh es t po rtion of the 

av er ag e mon th ly wag e be fo re th e 1965 in cr ea se w as mad e ap plic ab le to th e 

av er ag e mon th ly w ag e in ex ce ss of $400.

Pen sion s un der Se cti on 6 of th e R ai lr oad R et ir em en t A ct an annuit ie s pa ya ble 

un de r th e R ai lr oad R et ir em en t Act of 1935 wo uld si m ilar ly be in cr ea se d, as 

wou ld an nuitie s pa ya bl e on a jo in t an d su rv iv or ba sis, but th es e in cr ea se s wo uld
RAILROAD RETIREM ENT ACT— SUPPLEMENTAL BENEFITS 13

also be subje ct to reduction because of any 11X55 raise in social security benefits 

on an average monthly wage of up to .$400 for which the individual is concurrently 

entitled. The widow’s annuity payable on the basis of the guara nty th at it 

shall be no less tha n her spouse’s annuity, which is based on a spouse’s ann uity 

payable for months before the month following enactment of the bill, would be 

similarly increased subject to a reduction because of entitlement to social 

security benefits.

The 7 per cent increase would be effective as to- an nuities accruing for months 

after the month in which the bill is enacted and with respect to pensions due 

in calend ar months after the month next following the month in which the bill 

is enacted. The increase with respect to lump-sum benefits under Section 

5(f )( 1) of the Railro ad Retirem ent Act would be effective with respect to 

deaths occurring on and after the da te of enactment.

Title II I of th e bill would amend the R ailroad Retirem ent Tax Act to increase 

the basic tax rate on employers and employees for yea rs after 1966 by per 

cent. The tax rat e on employee representativ es for years after 11X56 would be 

increased by one-half per centum. These higher tax rates are designed to cover 

the 7 per cent increases in the benefits payable under the regular provisions of 

the Railroa d Re tirement Act.

Subsection (d) of Section 301 of thi s title would amend the Railro ad Retire ­

ment Tax Act to provide an excise tax on employers, with respect to having 

individuals in their employ, equal to 2 cents per each man-hour on which 

compensation is paid. This tax would also be applicable to employee representatives. The tax would not apply to hours included in any month of service of an 

individual as an employee rendered to a railw ay-labor-organization employer, 

during which month the individual to whom such compensation was paid was 

not engaged pred ominan tly in work involving representation of employees covered by the Railroa d Retirement Act. This new tax would be applicable to 

man-hours for which compensation is paid for 60 months following the month 

in which the bill is enacted.

The amount for each month by which supplemental annuities of employees of 

an employer are reduced, because of supplemental pension payments by such 

employer, would be allowed as a c redit for such employer aga inst the t ax imposed 

on the basis of m an-hours for which comi>ensatiou is paid. If the amount of the 

reduction because of suppleme ntal pension payments exceeds in any month the 

tax liab ility on man-hours for such month, the excess could be carried forward 

but the total credits could never exceed the total tax liability. The Board would 

be required to c ertify at the end of each calendar qu arter to the Secretary of the 

Tre asu ry with respe ct to each such employer the amount of credit accru ing to 

such employer and to notify the employer as to the amount certified.

CO ST ESTIM A TES

Because the suppleme ntal ann uity program is treate d in the bill as a sep arate 

financial entity, it is proper to consider the actu rial implications of the proposed 

amendments in two parts. This, however, should not lie construed to mean that 

the supplem ental an nuity pro gram a nd the selective 7 per cent increase in regular 

Railro ad Retirem ent Act benefits are truly independent of each other. The 

are as of interdependence between these two sets of amendments are as follows:

(1) The 7 per cent increase would not be available to recipients of the 

supplemental annuity , thus reducing the cost effects of th e 7 per cent increase.

(2) The availability of a sub stantial add itional reti rem ent benefit would 

in all likelihood accelerate reti rem ent on the part of qualified employees and 

thu s increase the cost of retireme nt ann uities under the regular railroad

t retirem ent program.

For the supplemental ann uity program, the acturial analysis is limited to the 

5-year period specified in the bill. However, for the 7 per cent increase, it is 

necessary to consider the long-range cost implications because this is made a 

perm anent fea tur e of the railroa d retirem ent program. Thus, an important consideration is whether the supplemental ann uity program will be extended beyond 

the 5-year period or not. For purposes of eith er set of amendm ents, it was 

assum ed th at the provisions of th e bill will become effective on October 1, 1966.

1. Supplemental annuity account.—The progress of this accou nt will depend 

mainly on the retirem ent rat es which will prevail during the period of its 

existence. Since the strong possibility of an acceleration in retirement could 

not be ignored, the estimates are based on retirement rates moderately higher 

tha n the rates used in the Boa rd’s latest actua rial valuation (the ninth, made

69 -4 02 — 66------ 3
14 RAILROAD RETIRE MEN T ACT----SUP PLEM EN TA L BE NE FITS

as of December 31, 1962). The income figure of $34.8 million a year is based on 

the assumption that over the next 5 yea rs railroad employment will average 

725,000 full-time jobs and that the number of paid hours associated with each 

job will be 200 per month.

The estimated annual income, outgo, and balan ce figures are shown in the 

table at the top of the next page.

Our general conclusion is th at the financing would be adequate to carry the 

program for 5 years without any significant fund left at the end of that period. 

There is, of course, the possibility of a deficit emerging before the specified 

term ination date of the program but for this to happen, the acceleration in 

retirement would have to be much greater than we have reason to expect.

[Dollars figur es in millio ns]

Ben efit y ear 1

Inc om e 2 Benefit 

p aym ents 2

Fun d at en d 

of year

1966-67-...................................... ....................-__________________ $34.8 $13.1 $22 1 1967-68 ........- ____________ _____________ _________________ 34 8 25 3 32 7 1968-69- -_________ ______ _________________________ ____ 34 8 35 9 32 9 1969-70____ ____ ______ _________________________________ _ 34.8 46. 5 22.3 1970-71........-....................... .............................. . ................................... 34.8 56.3 1.3

1

 Begins O ct. 1 an d e nd s S ep t. 30, next.

2

 C om pu ted w ith ou t regard to the offsets on acc ou nt of pensions un de r pr iv at e pl an s. Th ese offsets 

wo uld bala nce each other so t h at the progress o f th e accou nt would n ot ba affected by the m.

As for the borrowing from the reg ula r railro ad retir ement account, we believe 

that the am ounts borrowed would b e repaid well before the period specified in the 

bill. Thereafter, the reg ular acco unt would not be called upon to contribute to 

the new account in any way. However, as stated before, the new benefit program 

could have an indirect adverse effect on the reg ula r account by causing a significant acceleration in retireme nt.

2. Regular railroad retirement account.—The income of t his ac count would be 

augmented by a new tax of % per cent of payroll shared equally by employees 

and employers. This additional income is intended to finance the selective 7 per 

cent increase in regular railroad retireme nt benefits on a level basis.

The adequacy of this financing depends primarily on two factors: (1) the 

duratio n of the supplemental ann uity program and (2) the exten t by which retire ment rates would be accelerated as a res ult of the ava ilability of a supplemental annuity. Should the re be no extension of the supplemental ann uity 

program beyond the first 5 y ears, the cost might be as high as 0.85 per cent of 

payroll. This is because the great majority of retirees with long service would 

the n become eligible for a 7 per ce nt increase in their reg ula r annuities. On the 

oth er hand, if the supplemental plan is continued on a permanen t basis, the cost 

of the 7 per ce nt increase would be 0.52 per cent of payroll before a djustment for 

acceleration in retirem ent and abo ut 0.60 per cent after such an adjustment.

Because of the fairly larg e difference between the cost figures for a contin uing 

and term inating supplemental ann uity program, respectively, it is prac tically 

impossible to make at th is time a n unqualified ju dgm ent on the adequacy of the % 

per cent tax over the long range. However, Since thi s tax could be nearly 

sufficient under cer tain circum stances, the Board is inclined to consider the financial arrangements for this pa rt of the bill as satisfa ctory for the time being. 

As more information becomes availa ble on the issues involved, this cost area will 

be re-examined with the view of determining whet tier any adjustments in financing are needed.

IM M E D IA TE EF FE CTS

The immediate effects of the proposed legislation will also be discussed in two 

parts. The first pa rt will deal with the expected experience in the first year 

of the supplemental ann uity program while the second pa rt will describe the 

estimated effects of th e selective 7 per cent in crease on beneficiaries who were on 

the rolls at the end of June 1966.

1. Supplemental annuity program.—Assuming an effective date of October 1, 

1966, the program would st ar t with a backlog of qualified employees who were 

awarded ann uities in July-September 1966. We estimate that the number of 

such individuals will be abo ut 4.000 and t ha t their a verage supplemental annuity 

will be $68.
RAILROAD RET IREMENT ACT— SUPPLE MENTAL BENEFIT S 15

As fo r ne w re ti re m ents duri ng th e per io d Octo be r 1, 19 66 -S ep tembe r 30, 1967, 

th e nu m be r co uld ra nge fro m 15,000 if re ti re m ent ra te s co nt in ue a t th e pr ev io us 

lev els to 45,000 if al l qu alified em ploy ee s ag e 65 or ov er de cid e to re ti re im m ed iat el y. F or pu rp os es o f th e co st est im at es di sc us se d earl ie r, it w as as su m ed th a t 

th e ne w re ti re m ents in th e fi rs t yea r of th e pl an w ill num be r abo ut 21.000.

The gre at m ajo ri ty (90 per ce nt) of th e firs t-ye ar be ne ficiar ies will be eli gible 

fo r th e m ax im um su pp le m en ta l benefit of .$70. F or th e re m ai nd er , th e av er ag e 

benefit will be o f th e ord er of $55 a mon th. In ci den ta lly, th e aver ag e re gula r 

an nuit y fo r em ploy ee s eligible fo r su pp le m en ta l annuit ie s w ill be about $185 per 

mon th. In mos t ca ses, th e qu alifi ed wives of th es e re ti re es will be eligible fo r 

m ax im um sp ou se s’ an nuit ie s, th a t is, $74.80 duri ng th e re m ai nder of 1966 an d 

$83.60 d uri ng 1967.

2. Se le ct iv e 7 pe r ce nt incr ea se .— A det ai le d br ea kd ow n of t he eff ec ts of t his se t 

of a m en dm en ts on pre se nt be ne fic iaries i s pr es en te d in th e t able a pi> earing on th e 

next page. T his ta bl e te lls, am on g oth er th in gs , how m an y in div id ual s in ea ch 

be ne fic iary gr ou p wou ld rece ive an in cr ea se an d how la rg e th e in cr ea se wo uld 

be on the av er ag e. As c an be seen from th e tabl e, th e in cr ea se pr ov isio ns wou ld 

be ne fit appr ox im at el y 461,000 in div id ual s (d is re gard in g th e in co ns eq ue ntia l 

du pl ic at e co un ting of widow s re ce iv ing annuit ie s under th e old jo in t an d su rvi vo r pr ov isio ns ) pre se ntly on th e B oar d’s be ne fit rolls . T his gr ou p co ns ists 

of 294,000 no ndual be ne ficiar ies (rou gh ly one -thi rd of th e to ta l) who wou ld receive a fu ll in cr ea se an d 167,000 dua l be ne ficiar ies (o r cert ain sp ec ial ov er-all 

m in im um cas es ) wh o wou ld rec eive b ut a p art ia l in cr ea se .

Immediate effects of the selective 7-percent increase in RRA. benefits provided for

in H.R. 17285

[E stim ate for ben efic iaries on th e rolls on Ju ne 30, 1966]

Cla ss of ben eficiary

N um be r of ben efic iaries

Average 

an nui ty for 

ben efic iaries

Average 

increase 

for eligible 

ben efiTo tal ciaries

No

incre ase

Fu ll

increase

Par tial

increase

With

no

increase

With in ­

crease 1

All b ene ficiaries___________ . . . . 2 922,200 460,600 2

 294, 400 167,200

Retire d employees, to ta l . .. ____ 429,500 72,900 254.400 102,200 $117 $145 $8

Age a nnu itan ts - - ___ _____ 328,000 

101,300

200

49,600 

23,300

191,300

62,900 

200

87,1(X) 

15,100

112

128

149

133

78

8

9

5

Disab ili ty a nn ui ta nt s . . ____

P en sio n ers __ _ ______________

Spouses, t o t a l ____________ ______ 197,000 145,000 17,000 35,000 66 57 3

Su rvivo rs, to ta l___________________ 2

 295, 700 242,700 2

 23, 000 30,000 .............

Aged w id ow s_________ _____ 249,000 

9,400 

34,900 

700

1,700

198,300 

9,300 

34, 400 

700

20,700

100

500

30,000 84

114

77

80

60

76

40

2

5

3

Wid owed mothe rs. ________ . . .

C hi ld re n_________ . . . _ ____

Pa re nt s ______________________

Option cases_______ _ ______ 1,700 56 4

1

 Before increase.

2

 S lig htly ov ersta tes nu mbe rs of dif ferent in dividu als bec aus e mos t widows rec eiv ing an nu ities un de r 

th e old j oi nt an d su rv ivor o ptions are also rec eiv ing regu lar widows ' an nu iti es an d are the ref ore co un ted 

twice .

The gr ou p which wou ld be ne fit m ost is th e one co ns isting of re ti re d em plo yees 

w ith annuit ie s in th e hig her bra ck et s. The re m ai ni ng gr ou ps of be ne fic iaries 

wou ld be affected to a muc h le ss er exte nt fo r th e fo llo wing re a so n s:

(a ) R et ir ed em ploy ees w ith annuit ie s in th e lo wer bra ck et s a re th e on es 

fo r who m th e freq ue nc y of enti tl em ent to a sim ultan eo us so cial se cu ri ty 

be ne fit is fa ir ly l ar ge . Bec au se o f t he s oc ial se cu ri ty o ffset, th es e an n u it an ts 

wou ld re ce iv e eit h er no in cr ea se a t all (i f th eir social se cu ri ty be ne fit is 

la rg er th an th e R ail ro ad R et ir em ent A ct an nuit y) or an in cr ea se sm al le r 

th an 7 pe r ce nt of th eir R ail ro ad R et ir em en t Ac t an nuity. I t sh ou ld also 

be rem em be re d th a t re ti re d em ploy ee s pai d under th e 110 per ce nt social 

se cu ri ty minim um pr ov isio n (O /M ) wou ld ge ne ra lly not be eli gible fo r an 

in cr ea se in th e R ail ro ad R eti re m ent A ct annui ty .
16 RAILROAD RETIREM ENT ACT— SUPPLE MENTAL BENEFITS

( b) The majority of wives on th e benefit rolls is being paid the maximum 

benefit and would therefore not be eligible for an increase. Among those 

not receiving the maximum, there a re many O/M cases a nd dual beneficiaries 

whose own social security benefit is higher than the Railroad Retirement 

Act spouse annuity. These women would also not receive an increase. 

Thus, the group eligible for an increase is relatively small.

(c) Survivors other tha n aged widows are practically always i>aid under 

the O/M formula. This accounts for the finding th at very few beneficiaries 

in thi s category would benefit from the 7 per cent increase.

( d ) Aged widows fall into two categories: (1) those paid under the 

O/M roughly two-thirds, and (2) those paid under the regular or “basic 

amount” formula—about one-third. Excep t for cer tain marginal cases, the 

first group will not be eligible for any increase. The second group consists 

mostly of dual beneficiaries (ord inarily the social secu rity benefit is the 

reason why the O/M form ula does not apply) and would thu s be subject to 

the social security offset. This offset may either nullify the increase in 

the Railroad Retirement Act benefit or make it smaller tha n 7 per cent.

The representatives of railro ad labor and of railroad management have, as 

the Board understands, reach ed an agreement as to the provisions of this bill 

for supplemental ann uities and for an increase in regular annuity amounts, as 

provided in the bill. The Board is in accord with the views of these representatives and also believes the bill to be meritorious. Therefore, the Board 

recommends enactment of the bill.

The Bureau of the Budget advises that the re is no objection to the presentation of this report from the standp oint of the administration’s program to the 

submission of this report.

Sincerely yours,

H oward W. H aber meyer, C h air m a n.

Air. Macdonald. Our first witness this morning will be Mr. Howard 

Habermeyer, Chairman of the Railroad Retirement Board.

It is nice to see you again.

Mr. H abermeyer. Good morning, Mr. Chairman.

Mr. Curtin. Good morning.

STATEMENT OF HON. HOWARD W. HABERMEYER, CHAIRMAN, 

RAILROAD RETIREMENT BOARD

Mr. Habermeyer. Mr. Chairman, members of the subcommittee, 

my name is Howard W. Habermeyer. I have been Chairman of 

the Railroad Retirement Board since November 1956. I appear here 

on behalf of the entire Board in support of the bill.

The bill would amend the Railroad Retirement and the Railroad 

Retirement Tax Acts to provide supplemental annuities for those 

railroad employees who are entitled to a regular annuity under the 

Railroad Retirement Act based on 25 or more years of railroad service, 

have attained age 65, and have “ a current connection with the railroad 

industry” at the time their regular annuity begins to accrue. This 

phrase is defined in the Railroad Retirement Act and, in general, 

applies to those individuals who remain in the railroad industry until 

they retire on an annuity.

The amount of the supplemental annuity would be $45 a month for 

the basic 25 years of service plus $5 a month for each year of service 

over 25, but not more than $70 a month, would be paid even though 

the annuitant has in excess of 30 years of service. The supplemental 

annuity would be paid only in cases where the regular annuity was 

first awarded afte r June 1966, and would be payable for months beginning with the first month after the month of enactment of the bill.
RAILROAD RETIREMENT ACT— SUPPLEMENTAL BEN EFITS 17

Th ere wou ld be no p ayme nt o f th e supple me nta l an nu ity a fter the 60th 

mo nth follow ing the m onth of e nactme nt.

The sup ple me nta l an nu ity prog ram wou ld be adminis tered by the 

Bo ard and would be finan ced separat ely from the regu lar railr oa d 

retir em en t pro gra m. Th ere would be an excise tax imposed by the 

Ra ilr oa d Retire me nt Ta x Act on each em plo yer equal to 2 cents for 

each ma n-h our with respect to which com pen sation is paid. A sep arate acco unt wou ld be establ ished in the Treas ur y fo r the program . 

Em ployee s would not pay tax es fo r the sup ple me nta l prog ram . Th e 

tax es wou ld be payable only fo r the 60-m ontli period wi th respec t to 

whi ch sup ple me nta l annuitie s are pay able.

Fu nd s needed fo r the firs t 6 mo nth s of the prog ram could be bo rrowed fro m the railr oa d retir em en t acco unt, bu t wou ld have to be 

repa id with int ere st wi thin a ye ar af te r the st art of the pro gra m.

The Bo ard is satisfied th at th e amoun ts borrowe d would be repa id 

well before the end of th e year. Th erea fte r, the re gu lar railr oa d 

retirem ent account w’ould no t b e call ed upon to co ntr ibute to the new 

account in any way.

The Bo ard is also satis fied th at the pro vision s fo r sup ple me nta l 

annuities a re ade quately financed. However, as a preca uti on the b ill 

pro vid es th at if, as th e res ult o f the survey to be m ade by the R ailro ad 

Re tirem en t B oa rd after 48 months have elap sed from th e b eginn ing of 

the sup ple me nta l annu ity pr og ram, it should ap pe ar th at the balance 

in the railr oa d ret ire me nt sup ple me nta l accoun t together with the 

an tic ipa ted income to such acco unt would be insufficient to pay the 

sup ple me nta l annuitie s in full fo r the rem ain ing 12 mo nth s of the 

prog ram, the Bo ard is autho riz ed to a dju st the supplem ental annu ity 

am oun ts propo rtion ate ly.

Th e F ed eral Govern me nt h as n o obligation whatsoev er to contr ibu te 

any fund s for the sup pleme ntal an nu ity pro gra m du ring the 5-year 

period pro vid ed fo r in the bill and has no o bligat ion to pro vid e fun ds 

fo r a c ontin uatio n of the program af te r such period. Th e sup pleme ntal a nnuit ies will n ot be excbided from income tax able pu rsua nt to th e 

Fe de ral income tax provision s of the In tern al R evenue Code of 1954.

The bill would also provide fo r an increase in re gu lar benefit 

amoun ts of 7 percen t which wou ld be effective af te r enactm ent. Ho wever, benefits which were payable un de r the social sec uri ty guara nte e 

provisi on of the act, a nd spou ses’ annu ities which are payable in the 

maxim um am ount, would not be increas ed. These benefit amo unts, 

which are con tingent on social s ecu rity benefit amounts, were increased 

as a result o f the ra ise in social s ecu rity benefits effected by legislation 

enacted in 1965.

Also in cases where an indiv idua l is entitl ed to mo nth ly benefits 

un de r the Social Security Act as well as an a nn uity und er th e R ailro ad 

Re tirem ent Ac t, the increase, in his a nn uity which wou ld oth erw ise be 

applicab le wou ld be ad jus ted by the amount of the increase in his 

social sec urity benefits b ro ug ht about by the 1965 leg islation. The increase in regu lar an nu ity amounts wou ld not be payable with resp ect 

to mo nth s fo r which the indiv idual is entitled to a sup ple me nta l an ­

nuity . Th is increase would be a pp lic able to those who are now on the 

an nu ity rolls as well as to those who qu alify in the futur e.

Th e basic tax rate on railro ad em ployees and th eir e mpl oye rs would 

be increased by one-f ourth per cent to cover the cost of this change
18 RAILROAD RETIREM EN T ACT----SU PPLEME NTAL BE NE FITS

in the law. Our actuary thinks that this arrangement for financing 

the increase in benefit amounts should prove satisfactory at least for 

the present. The Board’s report on the bill contains a detailed discussion as to the financing of the 7-percent increase as well as the 

supplemental annuity program.

As you know, the provision of this bill reflects an agreement reached 

by the representatives of railway labor and management following 

extended negotiations. The supplemental insurance program will 

obviously be of great benefit to railroad employees and thus represents 

a greater forward step in social insurance. The 7-percent increase 

in regular benefit amounts is needed for those who do not qualify 

for the supplemental amiuity. The Board is unanimously in favor 

of the whole bill and strongly urges its enactment into law.

At this point, Mr. Chairman, 1 would like to put into the record 

some amendments th at the Railroad Retirement Board is suggesting. 

Primarily they go toward clarifying language in the bill. There is 

one amendment that the Treasury has requested; th at is, the one which 

provides that these supplemental annuities not be exempt from Federal income taxes. We have agreed to tha t and, as I understand, the 

labor and management groups have no objection to its adoption.

So I would like to oiler these amendments with an explanation of 

them to be included in the record.

Mr. Macdonald. Without objection, they will be entered in the 

record.

(The material referred to follows:)

Ame ndments to IL R. 17285 Requ ested by th e R ailroad Retire me nt Board

1. On page 2, lin e 19, a ft e r “$70” , ch an ge th e pe rio d to a colo n an d in se rt 

th ere aft er the fo llow in g: “Pro vide d, ho we ver, T h at in ca se s whe re an in div id ­

ual’s an nui ty un de r section 2 of th is Ac t begin s to ac cr ue on ot her th an th e 

fir st da y of the mon th, th e am oun t of an y su pp lemen tal annuit y to which he is 

en titled fo r th a t mon th sh al l be redu ce d by one- th irtiet h fo r each da y w ith 

resp ec t to wh ich he is no t entitled to an an nuity unde r section 2.”

2. On page 3, lin e 18, st ri k e out th e word “A ct” an d in se rt in lie u th er eo f 

“s ub se ct io n" ; 1, st ri ke out th e quo ta tion m ar k a t th e end of th e lin e an d in se rt 

aft e r such lin e th e fo llow in g:

“ (4 ) Th e pr ov isions of se ct io n 12 of th is Ac t sh al l no t op er at e to ex clud e th e 

su pp lemen tal an nui ties her ei n pr ov ided fo r fro m inc om e ta xab le purs uant to 

th e Fe de ra l income ta x pr ov isio ns of th e In te rn al Re ve nu e Code of 1954.”

(T he la tt er p art of th is am en dm en t w ith re ga rd to th e ta xab il it y fo r incom e 

ta x pu rpos es of su pp le m en ta l an nuitie s is off ere d by th e Boa rd a t th e re qu es t 

of th e T re as ur y D ep ar tm en t. Th e Boa rd unde rs ta nds th a t ra ilro ad la bo r an d 

ra ilro ad man ag em en t ha ve no ob jection to th is am en dm en t.)

3. On pag e 5, lin e 22, ch an ge th e pe rio d to a colo n an d in se rt th ere aft er th e 

follo wing: "P rovid ed, ho wev er, T hat if be fore Ju ly 1. 1966, an an nuit y was 

aw ar de d to an in di vidu al under se ction 2 ( a ) 4 or 5 of th e R ai lroa d R et irem en t 

Act of 1937, an d such in di vid ual ha d rec ov ered from di sa bi lity an d re tu rn ed to 

th e service of an em ploy er be fo re .July 1, 1966, follo wing which he was aw ar ded 

an an nu ity aft er Ju ne 39, 1969, th e an nuity la st aw ar de d him sh al l be deem ed 

to be an an nu ity first aw ar ded w ith in th e mea ning of th is su bs ec tio n but only 

if he would ha ve a cu rr en t co nn ec tio n w ith th e ra il ro ad in dust ry a t th e tim e 

th e an nu ity la st aw ar de d be gin s to ac crue , dis re gar din g his earl ie r en titlem en t 

to an an nu ity. ”

4. On page 8, lin e 11, str ik e ou t “t he ne xt $100” an d in se rt in lie u th er eo f “the 

re m ai nd er up to an am ou nt e qu al to on e-tw elfth of th e curr ent max im um annual 

ta xab le ‘wag es’ as defin ed in Se cti on 3121 of the In te rn al Re ve nu e Code of 1954” .

5. On pa ge 8, lin es 15 an d 16, st ri ke ou t “w ork re co m pu ta tion s” an d in se rt in 

lie u th er eo f “r ec om pu ta tion s o th er th an for t he co rrec tion o f e rr o rs ”.

6. On page 9, lin e 2, a ft e r th e comm a, in se rt th e fo llow in g: “a nd of su bs ec tio n 

(e ) of th is s ec tio n, ”.
RAILROAD RETIREMENT ACT— SUPPLEMENTAL BENEFIT S 19

7. On page 9, line 5, a fter the word “subsection”, insert “or of subsection (e) of 

this section,”.

8. On page 9, line 6, strike out the word “its” and insert in lieu th ereof “their”.

9.On page 9, line 6, change the period to a colon and ins ert therea fte r the

following: “Provided, however, Th at if the application of the preceding sentence 

would result in the amount of the annuity, plus the amount of a supplemental annuity (afte r adjustment und er subsection (j ) (2) of thi s section) payable to 

an individual for a month being lower than the amount which would be payable 

as an ann uity except for such preceding sentence, the ann uity shall be in an 

amount which toge ther with the amount of the suppleme ntal annuity would be 

no less than the amount th at would be payable as an a nnu ity but f or the preceding 

sentence.”

10. On page 11, line 2, str ike out “$550” and insert in lieu thereof the follow ing : 

“an amount equal to one-twelfth of the c urr ent maximum annual taxable wages 

as defined in Section 3121 of the In ter nal Revenue Code of 1954”.

11. On page 11, line 14, inse rt the dollar sign after the quo tation ma rk and 

before the figure 32.37.

12. On page 12, line 1, str ike o ut the word “for” and insert in lieu thereof the 

word “of”.

13. On page 12, line 17, before the colon, ins ert the follow ing : “, but such a 

widow’s or widower’s annuity in an amount form erly received as a spouse’s annuity shall not be increased to an am ount above $74.80”.

14. On page 12, line 23, stirke out “work reco mputations” and ins ert in lieu 

thereof “reco mputations oth er than for the correction of errors”.

The Board has been advised by representativ es of railro ad labor and railro ad 

managem ent th at they have no objection to these amen dments requested by the 

Board.

Explanation of the Amendments to the Bill H.R. 17285 Requested by the

Railroad Retirement Board

Amendment No. 1 is intended to avoid the anomaly of paying a suppleme ntal 

ann uity for days with respect to which an individual was not entitle d to a 

reg ula r annuity.

The reason for the change made by Amendment No. 2 is th at the word “Act” 

would appear in section 3 (j ) (3) of the Railroad Retirement Act and, therefore, 

would technically ref er to the Railro ad Retirem ent Act. The new parag rap h 

(4) added by this amendment distinguish es between reg ula r annuitie s which, 

under section 12 of the R ailroad Retirem ent Act, a re excluded from income ta xable und er the Federal income ta x provisions of the Inter nal Revenue Code of 

1954, and the supplemental annuitie s which would not be so excluded.

Amendment No. 3 is intended to provide eligibility for a supp lemental ann uity 

to an individual who sometime in the past had been awarded a disability a nnuity, 

which terminated with his recovery from disability before Jul y 1, 1966, and who 

return ed to the service of an employer before th at date , and was aw ard ed an 

ann uity a fte r June 30,1966. In such case, if he then has a c urrent connection with 

the railro ad industry, the awa rd of the later ann uity would be deemed to be the 

annuity first awarded to him. For this purpose he would have to h ave a c urrent 

connection based on the circumstanc es prevailing at the time the la te r ann uity 

began to accrue withou t regard to the current connection determined to exist 

at the time the earlier ann uity began to accrue.

The effect of Amendment Nos. 4 and 10 is to change $550 to one-twelfth of $6600, 

which is, of course, the same, because under the Ra ilro ad Ret irement Act of 1937 

and the Railro ad Retirem ent Tax Act, both as amended in 1965 by Public Law 

89-212, approved September 29. 1965, the maximum cre ditable and taxable 

monthly compensation base was fixed at (i) $450, or (ii) an amount eq ual to onetwelfth of the curren t maximum ann ual tax able “wages” as defined in section 3121 

of the Inter nal Revenue Code of 1954. whichever is gre ater. Such maxim um 

ann ual tax able wage base is now $6600. Consequently, such maximum monthly 

compensation base is now one-twelfth of $6600, or $550, but may, of course, be 

changed auto matica lly by a change in the social secu rity wage base.

The reaso n for the change made by Amendment Nos. 5 an d 14 is th at th ere may 

be rec omputations of social secu rity benefits fo r other th an work, such as changes 

in benefit amounts on a family composition basis.

Amendment Nos. 6, 7 and 8 a re intended to avoid the poss ibility of paying the 

7 per cent increase to an individual entitle d to a suppleme ntal ann uity on the
20 RAILROAD RETIRE MEN T ACT----SU PPLEME NT AL BEN EF IT S

basis of 25 or more years of service whose annuity is payable under the regular 

railroad retirement minimum formula. While it is hardly likely tha t an individual with that many years of service would have his annuity payable under 

the regular railroad retirement minimum formula, it is at least possible, and this 

is the basis for the proposed amendments.

Amendment No. 9 is intended to provide the 7 per cent increase in regular 

annuity amounts (or a portion thereof) to an individual who, though he is 

qualified for a supplemental annuity, has such annuity reduced (by reason of his 

entitlement to a pension under a supplemental pension plan) to nothing or to 

an amount which is less than the 7 per cent increase. In such case, his regular 

annuity would be increased to the extent that the total of his annuity payments 

would be no less than he would receive had he not been entitled at all to a supplemental annuity.

The reason for Amendment Nos. 11 and 12 is to correct typographical errors.

Amendment No. 13 is intended to prevent an increase in a widow’s or widower’s annuity, which is based on the spouse’s guaranty provision, in cases now on 

the Board’s annuity rolls, to an amount higher than $74.80 which is the maximum 

spouse’s annuity which could have been paid to any one in the period Janu ary 

1965-December 1966, inclusive. The reason for this is tha t the widow’s or 

widower’s annuities now on the rolls based on the maximum spouse’s annuity 

rates are not increased by the amendments.

Mr. Macdonald. Since the bill was introduced , as you can ima gine, 

I per son ally, and I am sure othe r mem bers of the subcom mittee, have 

received q uite a good d eal of mail. One g roup o f peo ple w ho wr ite in 

are the women employees of the railr oa d. For some reason , and it is 

no t quite cle ar to me, the y seem to feel the y are being discr imina ted 

again st. Do they have any basis in fact abo ut th is ?

Mr. H abermeter. No. If the y work in the railr oa d indu stry an d 

serve 25 years and meet the other qua lifications they will be ju st as 

entitled to sup pleme ntal an nu ities as men. Th ere is no thing in the 

bill th at would discr imina te a ga inst females.

Mr. Macdonald. Maybe you are not the prop er witness fo r me to 

ask the question of, but the re is a difference in th eir retir em en t ages, 

man da tory reti rem ent ages.

Mr. H abermeter. Ye s; they can retir e at age GO. Th ere is no manda tory ret ire me nt age but they can receive a full an nu ity af te r age 

GO if th ey have 30 o r more years of service, whereas a man cannot receive a fu ll an nu ity u ntil he at ta in s age G5, ex cept on the basis of dis ­

ab ility. Now m aybe the y a re a litt le confused. If they re tir e at age GO 

wi th 25 or more years of service, they will no t get th e sup ple me nta l 

an nu ity until they reach th ei r 65th bi rth da y the same as men, bu t 

when the y reach th ei r 65th b irth da y they will be en titled to the su pple me nta l a nnuity.

Mr. M acdonald. Righ t. I know, fortu na tely, fro m my point of 

view I received a petition signed by abou t 300 or mo re women who 

worke d fo r the rail road s b ut fo rtu na tely they are f rom t he west coast. 

[L au gh ter.j I di d h ea r from m y own area, and t hey seemed exercised, 

th at they w ere b ein g discrim ina ted a gainst. I just would like to hav e 

it cle are d up in my own mi nd fo r the record th at they are no t bei ng 

discrim ina ted again st.

Mr. ITabermeyer. I have con side rable correspondence from the 

males say ing they ar e no t able to retire at age 60 the same as the women. 

So th is puts it on a n even ba sis.

Mr. Macdonald. Right.

Th e age G5 also rais es some pro blems in my mail. T would like to 

inqu ire of you, would a per son aged 64 years and 7 months be considere d as aged 65 fo r purpo ses of the supplem ent al annuity ?
RAILROAD RETIREMENT ACT— SUPPLE MENTAL BENEFITS 21

Mr. Habermeyer. No; he would have to be actually age 65.

Mr. Macdonald. In other words, there is no shading at all.

Mr. Habermeyer. We do shade this wa y: I f a man has 2414 years 

of railroad service we consider that 25 years, or, similarly, 2914 is 

considered 30, but the age requirement means 65 and not 6414•

Mr. Macdonald. Not 64 and 364 days?

Air. Habermeyer. That is right.

Air. Macdonald. It has to be the full amount.

Mr. H abermeyer. Yes.

Air. Macdonald. Any questions, Air. Curtin ?

Air. Curtin. Yes, Air. Chairman. Thank you.

Air. Habermeyer, would you tell me just why this particular legislation is needed ?

Air. H abermeyer. Well, I th ink this question will be answered better by the witnesses who will follow me. Apparently the organized 

labor organization group in the railroad industry looking around at 

the supplemental systems tha t have been established for workers such 

as the automobile workers and the steel workers felt that they should 

get similar treatment. I was not, of course, a party to these negotiations but as I understand it they went to the railroads and I think 

filed section 6 notices under the Railway Labor A ct asking that supplemental systems be established.

Air. Curtin. Was this because they feel tha t the amount they are 

getting in the form of pension is not comparable to social security?

Air. Habermeyer. Their retirement benefits are not as much as the 

total benefits of those in some of the other industrial groups.

Air. Curtin. I notice on the first page of your statement—the last 

sentence in the second paragraph—you say that—

There would be no payment of the supplemental annuity after the GOth month 

of enactment.

Does this mean tha t 5 years afte r this legislation goes in effect th at 

no new people will be taken into it or does it mean that anyone receiving this supplemental payment will only get it for 5 years?

Air. Habermeyer. The way the bill is written the supplemental 

annuity would be payable only in a period of 5 years beginning with 

the month after enactment. I think if you will read the agreement tha t 

the chairman introduced into the record, you will find th at the labor 

representatives and the management representatives have agreed to 

meet and start negotiations with regard to the futu re of this plan at 

the end of the fourth year.

Air. Macdonald. If I could elaborate on the answer, it is my u nderstanding that the unions have agreed not to bring it up as a matter of 

collective bargaining until after the fourth year, and that was one of 

the. reasons that the railroads agreed to pay for it, so they would not 

have this yearly hassle about it.

A m i correct in that?

Air. H abermeyer. I thin k that is correct but I think these questions 

would be better put to the witnesses who follow me.

Air. Curtin. I would like to ask one other question.

AVhy is it tha t it is felt that such supplemental annuity is only 

needed for 5 years ?

Air. H abermeyer. I think anyone who believes that this will stop at 

the end of 5 years would be rath er naive.
22 RAILROAD RETIREMENT ACT— SUPPLE MENTAL BEN EFITS

Mr. Cur tin. I do. too. T hat is why I asked the question.

Mr. M acdonald. Maybe social sec uri ty would be pu t u p again.

Mr. Cur tin. Ar e the re going to b e o the r witnesses who will clarify 

this f ea ture ?

Mr. Macdonald. Yes.

Mr. H abermeter. I would th ink so.

Mr. Cur tin. Th an k you.

Mr. Habermeyer. Th an k you , Mr. Chairm an.

Mr. Macdonald. The next witn ess is Mr. Leste r P . Schoene, counsel 

to the Ra ilw ay La bor Executives As sociatio n in W ashin gto n, T).C.

Mr. Schoene. Good m orn ing , Mr. C hai rman.

Mr. Macdonald. Nice to see you ag ain.

Mr. Sciio ene. Th an k you.

Mr. Macdonald. You ma y proceed.

STATEM ENT OF LES TER P. SCHOENE, COUNSEL, RA ILWAY LABOR 

EXECUT IVES’ ASSOCIATION

Mr. Schoene. Mr. Ch air ma n and members of the com mittee, my 

nam e is Le ste r P. Schoene. I am a lawyer, a mem ber of the firm of 

Schoene & Kr am er with offices at 1625 K St reet Northwest, 

Wash ing ton , D.C.

Our office h as rep res ent ed the Railw ay La bor Ex ecuti ves’ Associa ­

tion in matters relatin g to railr oa d ret ire me nt an d unem plo ym ent insurance fo r some more th an 20 years. We have pa rti cipa ted in the 

ne gotia tio n of the agr eem ent th at give s rise to th is bill an d in the 

dra ft in g of the bill.

Th e Ra ilw ay Labor Execut ives’ A ssociation whom I rep res ent here 

is an assoc iatio n composed of the chief executives of the St an da rd 

Ra ilw ay La bor Or ganiz ations, with one exception, and the organiz ations wi th whom the y are affiliated, in the agg reg ate repres ent virtu ally 

all the railr oa d employees in the cou ntry.

I have a list of the or ganizatio n whose c hief executives a re members 

of th e association. I shal l n ot rea d it bu t I would like to ha nd a copy 

to the repo rte r fo r inclusion in the reco rd if th at is agre eable, Mr. 

Ch airma n.

Mr. Macdonald. "Without obje ction, so orde red.

(T he mater ial re ferre d to fo llo ws:)

Organizations Wn osE Ciiie f E xecutives Are Members of Railway Labor

Executives’ Association

A m er ic an R ai lw ay S up er vi so rs A ssoc iatio n.

Amer ican T ra in D is pat ch er s’ Assoc iatio n.

Bro th er ho od o f Locom oti ve F ir em en a nd En gine men .

B ro th er ho od of M ai nt en an ce of W ay E mp loy es.

B ro th er ho od of R ai lr oad Sign almen .

Bro th er ho od of R ai lr oad Tra in m en .

B ro th er ho od of R ai lw ay Car m en of Am eri ca.

Bro th er ho od of R ai lw ay an d Ste am sh ip Cl erk s, F re ig ht H an dle rs , Exp re ss an d

S ta ti on Em plo yes.

B ro th er ho od of S lee ping C ar P ort ers .

H otel an d R est aura nt Em ploy ee s a nd B art enders ’ In te rn ati onal Un ion . 

In te rn ati o n al A ssoc iatio n of M ac hi ni st s an d Ae rospac e W or ke rs.

In te rn ati o n al Bro th er ho od of Boi le rm ak er s, Ir on Sh ip B ui ld er s, Black sm iths , 

F org er s an d Helpe rs.

In te rn ati o n al B ro th er ho od o f Ele ct rica l W orke rs.

In te rn ati o n al B ro th er ho od of Fir em en a nd O ile rs.
RAILROAD RET IREMEN T ACT— SUPPLEMENTAL BEN EFITS 23

Interna tio nal Organization Masters, Mates and Pilots of America.

National Marine Engineers’ Beneficial Association.

Order of Railway Conductors and Brakemen.

Railroad Y ardmasters of America.

Railw ay Employes’ Departmen t, AFL-CIO.

Seafa rers’ Internatio nal Union of North America.

Sheet Metal Workers’ Intern ational Association.

Switchmen’s Union of North America.

Transportation-Comm unication Employees Union.

Mr. Schoene. As has already been testified, the bill is an agreed 

upon bill between the representatives of the railroads and the members 

of our Railway Labor Executives’ Association acting on behalf of the ir 

respective unions representing the employees.

Mr. Ilabermeyer has summarized the bill and I really see no need 

of repeating his summary of what the bill provides.

Mr. Curtin. If I may interrupt, I wish you would tell us just what 

the bill does seek to do. Would you please go into detail, because it 

must be presented to the members at some later time and I, for one, 

would like to know what it is all about.

Mr. Sciioene. If t hat is desired, 1 would be happy to do that, sir. 

The bill is in three titles. The first title deals with the subject of 

supplemental annuities, as has been indicated.

Mr. Curtin. If I could interrupt again. Why supplemental? 

Why don’t you just increase the amount of the regular pensions? 

Why do you have to have another separate pension on top of the 

pension that is already in existence ?

Mr. Sciioene. I think the answer to tha t is that we do not see in 

sight a source of sufficient funds to make a general increase in the 

benefit levels of the railroad retirement system beyond the increase 

provided in title II of the bill. The regular railroad retirement system is financed by joint contributions equally paid by railroads and 

the employees.

Mr. Curtin. Who is going to finance the fund necessary for the 

supplemental pension ?

Mr. Schoene. The railroads alone. The employees do not pay any 

portion of that.

These employees are now paying or will be paying upon the enactment of this bill, with the additional quarter percent tax to finance 

the general increase of benefits by 7 percent as provided in title II> 

they will be paying, beginning next January, 8.2 percent of their pay 

up to $550 a month to finance the regular railroad retirement system.

Mr. Curtin. Wh at will the railroads be paying, assuming this bill 

for supplemental payments becomes law?

Mr. Sciioene. They will be paying the same 8.2 percent; they will 

be matching the employee contribution for the reg ular railroad retirement system. And to finance this supplemental system they will be 

paying 2 cents per man-hour paid for.

Mr. Curtin. So the employees will be paying 8.2 percent, and the 

railroads will be paying 10.2 percent?

Mr. Schoene. No; it is on a different basis. Mr. Congressman. So 

far as the regular system is concerned, it is on a percentage of the 

earnings of each employee up to $550 per month insofar as the supplemental pension is concerned, it is not a percentage.

Mr. Curtin. I thought you said it was 2 percent.

Mr. Schoene. 2 cents.
24 RAILROAD RETIRE MEN T ACT----SUPPLEME NT AL BEN EF IT S

Mr. Cur tin . 2 cents per what ?

Mr. S choene. 2 cents p er m an-hour pa id for.

I t is ma n-h ours worked and pa id for—2 cents fo r each such hou r. 

Now as I said, these employees feel th at the y are h av ing about as big 

a bite t aken o ut of their pay to finance the regu lar system as they can 

stand.

Mr. Curtin. Th is is in lieu of social security, is it not?

Mr. Schoene. Yes ; this is in lieu of social security.

Mr. Curtin. W ha t do the employees pay under the social security 

system? W ha t is the part th at comes out of th ei r pay right now? 

W ha t pe rce nta ge ?

Mr. Schoene. I d on’t have th at figure w ith me b ut it is aro un d 3% 

perce nt, I believe.

Mr. S hr iber info rms me t hat it is 3% percen t. I was off an e igh th.

So y ou see th is is more than d ouble what the social sec urity emp loyees p ay and we have no s urplus funds in the Railro ad R eti rem ent A ccou nt fro m which to mak e a gen eral increase in benefits. However, 

we felt th at the m ajo r need in t his ind ustry now is ad dit ion al substan ­

tia l pensions fo r the car eer employees who devote their lives to the 

indu str y and which, follow ing the custom esta blished in oth er ind ustries where sup plemental pension s have been neg otiate d are pa id fo r 

by the employe r. Obviously if we c ould get the railr oa ds to pay fo r 

more generous benefits fo r everyone, we would like it. You will nev er 

find me reject ing more generous benefits. Th is is what we could 

neg otiate.

Mr. Curtin. Who of the employees are en titled to this suppleme nta l pension, all of them or jus t a p art?

Mr. Schoene. Tho se employees whose annuitie s are aw ard ed on or 

af te r Ju ly 1 of this year an d who at ret ire me nt are cu rre ntly connected with the ind ustry an d who have att aine d the ag e of G5 a nd who 

have 25 or more year s of service.

Mr. Curt in. Does it n ot a pp ly to those who got th ei r pension p ri or 

to—w ha t date did you say ?

Mr. S choene. Ju ly 1 of this year.

Air. Curtin. Does it no t ap ply to those who ha d pensions pr io r to 

th at date ?

Mr. S choene. No.

Mr. Curtin . I am sorr y, I ju st don’t und ersta nd this.

Mr. Macdonald. It is very complic ated , Mr. C urtin .

Mr. Schoene. Th e sup ple me nta l pension appli es on ly to employees 

whose annuitie s were first award ed on or a fter J uly 1 of th is year.

Mr. Curttn. Why th at cu tting off date ?

Air. Macdonald. Could I ask a question at t hat po int , if yo u would 

yie ld to me, Air. Curtin ?

Air. Cur tin . Surely .

Air. AIacdonald. Do you not feel that the people who retir ed are 

going to be ju st a li ttl e bit ag grav ate d about this?

Air. Schoene. I have no doubt th at they will be.

Air. AIacdonald. I s there an ything th at can be done fo r those 

people?

Air. Schoene. We ll, there is som ething bein g done for them by this 

bill throu gh title I I. Th is 7 -per cent increase does apply to all individuals who are now on th e rolls and who h ave not received ei ther thr ou gh 

the social sec urity ame ndm ents or ind ire ctly un de r the Ra ilroa d Re -
RAILROAD RETIREMENT ACT— SUPPLEMENTAL BENEFITS 25

tirement Act as a result of those amendments an increase in that 

amount.

Mr. Curtin. That is the next question I was going to ask you. This 

7 percent tha t is provided for in title II —does that also include those 

who will get the supplemental pension ?

Mr. Schoene. No, it does not. Those who get the supplemental pension will not receive the 7 percent. So there is some benefit to each 

group here. Those who have already retired, those who retire in the 

future and do not qualify for the supplemental annuity, they will get 

the benefit of the 7-percent increase, but the concept on which we were 

working with respect to supplemental annuities is that we are dealing 

with employees who are in service at the time the negotiations are 

going on.

This is a program insofar as title I is concerned dealing with employees active at the time of the negotiations and who would subsequently retire.

Mr. Macdonald. What ratio does the supplemental have to the percentage, the 7 percent, for the employees ?

Mr. Sciioene. If I understand your question you want to know how 

the two amounts would compare ?

Mr. Macdonald. Yes.

Mr. Schoene. The supplemental is of course substantially larger. 

The maximum annuity now payable is about $220 and the 7-percent 

increase on that would lie about $15.40. The supplemental annuity 

minimum is $45 and it goes up to a maximum of $70 so that gives you 

some idea of the relationship between them. I think that is the question you had in mind.

Mr. Macdonald. That is the question I had in mind.

Mr. Curtin. Now go ahead, sir. I am sorry to interrupt you but 1 

wanted to clear that point up to my own satisfaction before you passed 

on to something else.

Mr. Schoene. I think in the course of answering the questions, 1 

have pretty thoroughly described title I relating to the supplemental 

annuities.

Mr. Curtin. What do the other titles do ?

Mr. Schoene. Title II provides the 7-percent increase for the retirees who did not receive 7 percent as a result of the social security 

amendments of last year.

Mr. Curttn. Then as this bill is drawn, this 7 percent will not apply 

to any person who goes on the pension system after July 1, 1966?

Mr. Schoene. It will, but it will not apply to those who qualify for 

the supplemental annuity. Not all persons who go on the rolls after 

Jul y 1 will qualify for the supplemental annuity.

Mr. Curtin. They have to have the 25 years’ service.

Mr. Sciioene. They have to have the minimum of 25 years’ service, 

have to be connected with the industry at time of retirement and they 

must be 65 years of age. .lust for example, an individual can get an 

annuity under the Railroad Retirement Act if he has as many as 10 

years of creditable service even though he then leaves the industry and 

works 30 years somewhere else. Tha t 10 years stands to his credit. 

When he gets to be age 65 and retires he gets his annuity based 

on 10 years of service but he would not qualify for a supplemental annuity because he would not have 25 years of service and he
2() RAILROAD RETIREMENT ACT— SUPPLE MENTAL BEN EFIT S

would not be curre ntl y connected with the ind ustry at the tim e of 

reti rem ent.

Mr. Curt in. But would he qua lify f or the 7 perce nt ?

AIr. Sciioene. li e would get the 7 percen t.

Mr. Keitii. Can he tak e a reduce d am ount at an ea rlier age by 

reason of his vested inte res t at 65 ?

Mr. Sciioene. Not until he is 62 i f he has on 10 year s of service.

.Mr. Keit h. I s the only way he can benelit from th at at 62 in such 

and such amount?

Air. Schoene. Tha t is correct.

Mr. K eith. Can he take a reduced a mo unt a t 65 and have his widow 

inclu ded ?

Mr. Sciioene. No, but his w idow does get benefits in h er own rights . 

There are survivor benefits pro vid ed fo r by th e law.

Mr. Macdonald. By the same tok en isn’t it tru e th at if somebody 

has 25 yea rs service but still has not reac hed 65 th at the y can by 

option take a reduced pensio n ?

Mr. Sciioene. At age 62 he c ould take a redu ced pension.

Mr. Macdonald. Six ty-two is the minimum a ge ?

Mr. Schoene. I f he has 30 yea rs of service he can ge t a reduced 

annuity at 60.

Mr. Macdonald. Bu t 25 years of service, 62 ?

Mr. S ciioene. Yes.

Mr. Macdonald. W ha t is the min imu m af te r 30 ye ars’ service? 

Minimum age.

Air. Schoene. Six ty.

Ai r.AIacdonald. Sixty ?

Air. Sciioene. Yes.

Air. AIacdonald. Th an k you.

Air. K eith. Then there are re all y three kinds here . After 10 yea rs’ 

service he has a vested inter est and a pension becomes pay able at 65 

with no option to take th e pension at 62.

Air. Schoene. Tha t is righ t.

Air. Keit h. I nder anoth er form he can tak e it at ag e 62 wh ich sort 

of complies with the social security formu la, and on the th ird one by reason of more yea rs of service he can tak e it dow n to and includ ing 

age 60.

Air. Sciioene. Tha t is correct. Bu t in addit ion to th at there are 

prov isions for dis ability reti rem ent s. An ind ividual who has as much as 10 ye ars of service and becomes totall y and perma nen tly dis ­ abled for all reg ula r emp loym ent can be aw ard ed a d isability annuity rega rdless o f age. I t is likew ise t ru e th at if he has 20 y ear s of service and becomes perma nen tly disa bled for work in his regu lar occupation he may be aw ard ed an a nnuit y r ega rdless of age. Now as to a ny of these g rou ps who qu ali fy fo r annuitie s under age 65, if they have the minim um of 25 ye ars o f s ervice and are curr ently connected with the i ndustry a t th e time th ey ret ire , when they get to be 

age 65 they will qualify for th e su pplemental annuity .

Air. Curtin. AVhy is the 5-year lim ita tio n pu t in this agreem ent? 

W ha t is th e purpose fo r tha t ?

Air. Schoene. Th at was for as lon g a per iod as the rai lro ad s were 

willin g to agre e to su pp ort the pro gra m. In so fa r as the unions are concerned, if we could have got ten an agreem ent runn ing into per-
RAILROAD RET IREMENT ACT— SUPPLEMENTAL BEN EFITS 27

petuity we would have preferred it. We are limited by wliat we could 

negotiate.

Mr. Curtin. That is a compromise?

Mr. Schoene. Yes.

Mr. Curtin. That is all the questions I have, Mr. Chairman.

Mr. Macdonald. I)o you have any questions, Mr. Adams?

Mr. Adams. Mr. Chairman, is this the one we discussed the other 

morning briefly ?

Mr. Macdonald. Yes.

Mr. Adams. I have no questions.

Mr. Macdonald. Thank you very much, Mr. Schoene.

Mr. Schoene. I should refer to title I II , having described titles I 

and II.

Title I II provides the amendments to the Railroad Retirement Tax 

Act and provides the quarter of a percent increase on both employers 

and employees for the regular retirement account to finance the 7-percent increase. It also provides for the 2 cents per hour tax to finance 

the supplemental benefits.

Now, Mr. Chairman, the Railroad Retirement Board has suggested 

certain amendments in connection with Mr. Habermeyer’s testimony 

and I have seen the draft of those amendments and wish to inform 

you that those amendments are entirely agreeable to our association, 

and I understand they are also agreeable to the railroads. Mr. Wolfe 

will speak on that.

Mr. Macdonald. Off the record a minute.

( Discussion off th e record .)

Mr. Macdonald. On the record.

Mr. Schoene. The railroads and the unions have also agreed upon 

two, really three amendments. There are three amendments tha t I 

would like to put into the record. I will only describe them very 

briefly.

The first amendment is to eliminate the sentence th at begins on page 

2, line 19, and ends on line 25 of that same page. The bill as introduced 

would have excluded some employees of the organizations. We found 

tha t any such exclusion would be very difficult to administer and might 

be inequitable, and the railroads have agreed with us to eliminate tha t 

exclusion.

Now the corresponding amendment on the tax side appears on page 

15 and constitutes the elimination of the sentence beginning in line 18 

of tha t page and ending at the bottom of that page.

Now I also have another agreed-upon amendment which is an 

amendment to paragra ph (2) of the amended section 3( j). The 

paragraph to lie amended appears on page 3 of the bill beginning on 

line 8. This is largely a revision of language. The para graph to be 

amended begins on line 8. The change begins on line 13.

This is a clarification in the section that avoids the pyramiding of 

these supplemental annuities upon supplemental pensions that some 

railroads are already paying for. We have agreed that this should 

not be pyramided on pensions that the railroads are already paying 

for but the supplemental annuities provided in the bill should be a djusted to them.

If I may, I will hand the rep orter a typewritten sheet th at embodies 

the change that I am suggesting.

Mr. Macdonald. Without objection so ordered.
28 RAILROAD RE TIRE ME NT ACT----SUPPLEME NT AL BE NE FITS

(T he ma ter ial re ferre d to fo llo ws :)

P roposed Revision of II.IL 17285, P resented by th e Nation al Labor

E xec utives’ Asso cia tio n

Pa ge 3 (se c. 1 “ ( J 2 ) ” ) :

"(2 ) Th e su pp le m en ta l an nuity prov ided by th is su bs ec tio n fo r an in div id ual 

sh al l, w ith resjiect to an y mo nth, be re du ce d by th e am ou nt of th e su pp le m en ta l 

pe nsion, att ri b u ta b le to th e em ploy er’s co nt ri bu tion, th at su ch in di vid ual is en ­

ti tl ed to re ce iv e fo r th at mon th und er any oth er su pp le m en ta l pe nsion plan 

[ i f such pe ns ion is no t redu ce d by reas on of th e su pp le m en ta l an nuit y to wh ich 

su ch in di vi du al is en titled to un de r pr ov isio ns of th is su bse ct io n] : Provided,

however, That the maximum of such reduction shall be equal to the amount of

the supplemental annuity less any amount by which the supplemental pension

is reduced by reason of the supplem ental annu ity.

Mr. Schoene. Now I hav e ju st one fu rther comment with resp ect 

to this pa ra gr ap h (2). It uses th e ter m “supple me nta l pen sion” to 

refer to existing pension system s. Now we rea lize tha t that is perha ps 

a rathe r loose word and may requ ire some interpr etat ion.

Ou r unio ns, a good man y of them, main tai n pension systems for 

th eir officers and employees. We do not conceive of the m as supplemen tal pensions as here ref erred to. In oth er words, so fa r as the 

union pensions are concerned, we claim no cre dit ag ains t th is supple ­

mental system for pensions the unions are pro vid ing, the y will continue t o provide them wi thout reduct ion.

Mr. Macdonald. I don't rea lly follow that. Could you exp lain it 

aga in ?

Mr. K ei th . It is jus t as tho ug h we belo nged t o an othe r firm and received some com pensation fo r whi ch a pension was being paid.

Mr. Macdonald. In other words, whate ver the railro ad s wa nt to do 

in addit ion to this by way o f pension, i t does not affect the pensionee’s 

righ t to obtain benefits und er this bill, is tha t r ight?

Mr. Schoene. No. W ha t I have said is tr ue of th e pension systems 

mainta ined by the unions as employ ers.

Mr. Cur tin . Is this a third pension we are t alki ng abo ut now ? The 

regu lar pension th at the Ra ilr oa d Re tire me nt Bo ard ma intain s th at 

both the rai lro ads and employees pay into , th at is one. Th is supplemental pension will be two. Now you speak of a pension ma intain ed 

I)v the union s. Would th at be a thir d one ?

Mr. Schoene. Yes ; but only fo r the unions ’ officers and employees.

Mr. Macdonald. Say th at he works f or the railr oa d and th en he took 

a job w ith the union .

Mr. Curtin . You mean he was sec retary or some other union of ­

ficial or employee?

Mr. Macdonald. Yes; he was busin ess agent and the ref ore was 

en titled to a union p ension, t ha t thi s bill does not affect that.

Mr. Curtin. T hat does not incl ude all the mem bers of the unio n?

Mr. Macdonald. No. Pai d employees of th e un ion.

Mr. Schoene. Yes. Po es th at clear it up ?

Then I will leave th e stan d a nd let oth er w itnesses take over.

Mr. Macdonald. Tha nk you, Mr. Schoene.

Mr. Wolfe, ch air ma n of the National Railro ad Ta bo r Conference.
RAILROAD RE TIRE MEN T ACT----SU PP LE ME NT AL BE NEF IT S 29

STATEMENT OF J. E. WOLFE, CHAIRMAN, NATIONAL RAILWAY 

LABOR CONFERENCE

Mr. Wolfe. Mr. Chairman, members of the committee, my name is 

James E. Wolfe. I am chairman of the National Railway Labor Conference which is an organization that was created to handle all of our 

dealing with the railroad labor unions a t the national level. In that 

capacity, 1 handle all of the negotiations with the representatives of the 

railroad unions which culminated in our suggested amendment to the 

Railroad Retirement Act and the implementing agreement that was 

necessary to pave the way for the introduction of this amendment in 

both Houses of Congress.

1 subscribe generally to the testimony of Mr. Ilabermeyer, Cha irman of the Railroad Retirement Board, and the testimony just given 

by Mr. Schoene on behalf of the railroad labor unions.

When we initiated this movement—that is, it was initiated by the 

unions—notices were served under section 6 of the Railway Labor Act 

for supplemental annuities on many railroads. Those notices were 

intended to be handled in conformity with the procedures of the R ailroad Labor Act .

A problem was presented which was almost insurmountable. Obviously i f the negotiations were to continue railroad by railroad, the 

time element was so serious as to make it an impossible and intolerable 

proposition. Moreover, the financial position of the railroads differ. 

What one railroad might afford to pay, another just could not. Those 

of us who represented the railroad industry were cognizant of the fact 

tha t if there were to be supplemental annuities the only practical 

approach was on a national basis involving all of the railroads and the 

many subsidiaries of the railroads, the bureaus, the Railway Express, 

the Pullman Co., and so forth.

We began these discussions on an informal basis with the hope 

that something could be developed and agreed upon which would solve 

a very serious problem. Those negotiations and informal discussions 

culminated in this amendment you have before you.

Mr. Macdonald. Not amendment, bill.

Mr. Wolfe. Yes, the bill that is before you.

Now as the railroad industry and the railroad unions, including the 

one union that does not participate in the activities of the Railway 

Labor Executives Association, we have an identical agreement with 

that union. As we have worked out our own problem we feel very 

sincerely that the bill should be enacted into law and we urge that 

that action betaken.

Now there were certain things testified to by Mr. Schoene th at perhaps I can help clear up if there is any uncertaity in your minds.

One question was why d idn't we add or increase the annuities that 

are called for by the Railroad Retirement Act. Well, that was not a 

practical approach to it. The supplemental annuity, the railroads 

did agree to pay the whole bill. We agreed upon the equivalent of 2 

cents an hour rather than increase the contributions shared equally 

by the railroads and the unions.

Another question that was asked was what happens at the end of 

the fifth year?
30 RAILROAD RETIREMENT ACT— SUPPLEMENTAL BENEFITS

Well, the imp lem enting agreement prov ides th at we will enter into 

discussions, perhap s neg otia tion s, but th at neither the carriers nor the 

unions will sponsor or s upport any legis lation du ring tha t period.

Mr. Macdonald. Sir, could I in terrup t you at th at point? Does 

that not s tart after the fou rth year?

Mr. Wolfe. After the f ou rth yea r, t ha t is corre ct.

Mr. Macdonald. I t does not ru n out, it gives a whole year for 

negotia tion s?

Mr. Wolfe. Well, if at the end o f th e fifth mon th of th e fourth y ear 

progress has not been made , then the unions are free to serve section 

fi notices and then reliev ed of the pro hib itio n again st spo nso ring or 

supp ortin g legislation if it is felt th at some un de rst an ding cannot be 

reached.

Th is proposition repres ent s a proposal made by the union s; th at 

is the approac h we agreed to take.

Now, Mr. Chairma n, when you mad e your opening statem ent you 

stated that Congress will reex amine the whole pro position at the end 

of the fifth ye ar. There is no thing in the bill nor in the im ple me nting 

agreem ent th at calls fo r Congres s to reexamine an ything at the end 

of th e fifth year o r du rin g the 5 years. It is left open for discussio ns 

an d negotiations a nd t hen if the re is failur e to reach an agre eme nt as 

to wh at may be done in the lig ht of existin g circums tanc es at th at 

time, why, eith er side is fre e to------

Mr. M acdonald. Mr. Wo lfe, maybe I misund erstood you bu t I 

thou gh t th at this agreem ent was just for 5 years and the bill ju st 

covered 5 years.

Mr. W olfe. Tha t is correct.

Mr. Macdonald. There for e, at the end of 5 yea rs the Congress is 

going to have to do som eth ing again.

Mr. Wolfe. I would not be that positive, M r. Chairma n. Congres s 

may not be required to do an yth ing at all. Th at depends entirely on 

what the pa rties are able to do in the f ou rth year.

Mr. Macdonald. Righ t, sir, but even if you hav e an agreem ent as 

the Governme nt agen cy involved; namely, the Ra ilroad Re tirem ent 

Board, you are using their fac ilities to work th is thing ou t as I un de rsta nd it, just mechanic ally handle d, isn’t that correct?

Mr. Wolfe. Th at is correct.

Mr. Macdonald. Th ere fore I would think th at the Congress would 

have to re-OK them d oin g th at.

Mr. Wolfe. Ir depend s entirelv on wh at the parties agree to and 

what they seek. If th e economy of our cou ntr y is changed du rin g t hat 

period, it is an entirely dif ferent situa tion, the n I think the parti es will 

approach the prob lem in the lig ht of wha t the situ ation may be bu t 

there is no thi ng in the bill and there is no thing in the amendment th at 

contemplates a reexam ination of thi s problem by Congress unless 

oth er proposed legislation is before Congress.

Xow a qu estion was asked by Congressm an Curt in as to why we dea lt 

only with those who are curre ntl y employed in the rai lro ad indu str y 

and who reti re on o r subsequent to J ul y 1,1966. The answer is t ha t we 

were negotiatin g and under the Railway Labor Act our au thority to 

neg otiate was only on behalf cf those who are employees as defined in 

that act.
RAILROAD RET IR EM EN T ACT----SU PP LE MEN TA L BEN EF IT S 31

I think t hat concludes my testimony except that 1 repeat both the 

railroad industry and all the labor unions who represent employees of 

the railroad industry believe that this is a gotxl thing, we think that 

our approach to it was a sound and healthy approach to dispose of a 

perplexing problem and 1 think we did it in the right way through collective bargaining.

Mr. Macdonald. Right, sir. I want to congratulate both the unions 

and tho railroads for th eir conduct in this matter.

Could you put in the record the need for speed as emphasized to me 

in having this legislation passed ?

Mr. Wolfe. Yes, I would be happy to, Congressman Macdonald.

Mr. Macdonald. 1 don't think that has been touched upon.

Mr. Wolfe. The contributions that the railroads are going to make 

to finance this plan begin in the first month succeeding the date the 

bill is enacted into law. The beneficiaries, however, are those who meet 

the qualifications of the bill, who retire after July 1. However, those 

employees do not receive the supplemental annuities until the first 

month succeeding the enactment of the bill but we do not want a 

backlog of employees who retire subsequent to J uly 1 but prior to ihe 

passage of the bill.

It would be of grea t benefit to us if this bill is enacted into law no 

later than the month of October so that the railroad contributions can 

be made to the Railro ad Retirement Board in November and then 

those people who retired on or subsequent to Jul y 1, and who retire 

thereafter may receive their benefits and the financing will be assured.

In other words, if there were a year lapse between Jul y 1 and the 

passage of the bill, it is highly doubtful—well, let's say this, that the 

finances available would be seriously strained because you would have 

a 5-year bill but 6-year spread of those who would be qualified for the 

supplemental annuities.

1 may not have been as clear as I would have liked to have been but 

I hope I made it understandable.

Mr. Macdonald. It is to the benefit of the industry to have the bill 

passed as expeditiously as possible.

Mr. Wolfe. To the industry, to the unions, and to the employees, 

and I th ink the Railroad Retirement Board.

Mr. Macdonald. And the beneficiaries.

Thank you very much.

Mr. Curtin. 1 have one or two questions. Thank you, Mr. Chairman.

Do I understand that your group represents the carriers ?

Mr. Wolfe. Yes, sir.

Mr. Curtin. Now is this bill for the purpose of equalizing the pension of railway employees as against the increased benefits th at people 

on social security get ?

Mr. Wolfe. Certainly that is one of the primary’ reasons. Another 

compelling reason is this: Under the Railroad Retirement Act beginning in Ju ly 1967 the retirees may count all of their years of service.

In other words, if an employee had 35 years of service in 1972, he 

may use the 35 years for purpose of computing his annuity.

Also, there are increases built into the Railroad Retirement Act as 

it now stands.
32 RAILROAD RE TIRE MEN T ACT----SU PPLEME NT AL BE NEF IT S

Now this bridges the lapse in the increases to a certain extent. Those 

two things I would say were the reasons why the c arrier representatives felt that we should do something to alleviate the inflationary 

effect on the employees who are currently in service, who are our employees as defined in the Railway Labor Act.

Mr. Curtin. This 7-percent increase as provided for in title 2, how is 

that going to be financed?

Mr. Wolfe. Well, that is going to be financed by increasing the 

contributions of the employees and the carriers by one-fourth of 1 

percent. There are increases already in the R ailroad Retirement Act 

that Congress has already provided for.

Now we just increase the increases that the act requires by onequarter of 1 percent.

Mr. Curtin. That increase of 7 percent is going to be handled 

through the regular railway retirement program, is that correct?

Mr. Wolfe. Yes: it is a part of the Railroad Retirement Act and 

as Mr. Schoene and Mr. Habermeyer explained if they get supplemental annuities under this bill they would not lie entitled to the 

7 percent.

Mr. Curtin. What is this 2-cent per hour—provided for in the 

supplemental—going to cost the railroads per year ?

Air. Wolfe. Oh, in the neighborhood of $30 million a year.

Mr. Curtin. That is all the questions I have,Mr. Chairman.

Mr. Macdonald. Mr. Adams?

Mr. Adams. I would again try to be brief.

As I understand the way you are using the 7 percent is tha t the 

benefits across the board will increase 7 percent but there will be deducted from that whatever social security benefits are being received 

so that in effect the 7 percent applies to those employees above the 

social security guarantee minimums to the top of the annuity recipients; 

is that right ?

Mr. Wolfe. I think th at is substantially correct, but I think I can 

answer you much more briefly. The 7 percent applies to those who 

did not get the 7 percent under the 1965 act and it excludes those who 

otherwise would have had it who are going to get the supplemental.

Mr. Adams. That is the next thing. The supplemental payments 

as I understand it apply to a certain group and that group will not 

receive the 7-percent increase which goes above the basic payments?

Mr. Wolfe. That is correct.

Mr. Adams. I have no furt her questions.

Mr. Macdonald. Mr. Keith.

Mr. Keitii. I have no questions.

Mr. Macdonald. Do you have an extra copy of the agreement with 

you ?

Mr. Wolfe. I do not but I could supply you one, Mr. Chairman. 

That is the implemental agreement ?

Mr. M \cdonald. Yes.

Mr. Wolfe. T will be happy to do that.

Mr. Macdonald. There is one in the record but I think the committee would like to have.

Air. Wolfe. AVe will supply it.

(The agreement referred to appears on p. 2.)
RAILROAD RETIREMENT ACT— SUPPL EMENTAL BENEFITS 33

Mr. Macdonald. Our next witness was to be Mr. Robert B. Byrnes, 

Washington representative of the National Railroad Pension Forum, 

but I notice that my esteemed colleague from Massachusetts, Congressman Burke, has entered the room. He is the author of one of the bills

STATEMENT OF HON. JAMES A. BURKE, A REPR ESENTATIVE IN 

CONGRESS FROM THE STATE OF MASSACHUSETTS

Mr. Burke. Mr. Chairman, on September 12, 1966, I introduced 

H.R. 17659, providing a 7-percent increase in benefits to beneficiaries 

under the railroad retiremement system who were not affected by 

the increase in social security benefits last year.

This measure would further provide a supplemental pension plan 

to be financed by railroad employers only.

In view of the rise in the cost of living, it becomes imperative tha t 

this measure be enacted during this session of Congress for the 

relief of those persons compelled to exist on the allotment received 

from their retirement program.

I know th at it is not necessary to call to the attention of this committee the tremendous load being carried by all retirees caused by 

inflation and the rising cost of living. Food items such as bread, 

milk, butter, bacon, eggs, flour, ground beef have all been increased 

during durin g the past 3 months. It is my opinion tha t if this spiral 

in the cost of living continues, the House Ways and Means Committee 

will soon have to recommend another increase in social security payments and, of course, this will have to be followed by an increase to 

recipients of the railroad retirement system. Time is of the essence 

and this bill should receive high priority and be sent along.

I am aware that the Chairman of the Railroad Retirement Board 

has recommended the passage of this measure, and that support has 

been indicated by the administration. I therefore strongly urge favorable action by taken today by your subcommittee in order that 

final action can be scheduled before the close of this session of 

Congress.

I don’t have to point out to this committee the importance of acting 

in an expeditious manner in this legislation. I think that next year 

the House Ways and Means Committee, of which I am a member, 

beginning in January, will have to face the spiraling costs of living 

again and recommend another increase in social security payments 

which of necessity will have to follow along for the railroad retirement recipients, the cost of food having gone up so much, and I think 

that not 1 day should be wasted.

I want to commend the chairman and the other members of the 

committee for the sympathetic attitude they have given to this 

legislation.

Mr. Macdonald. Thank you very much, Congressman Burke.

Mr. Robert Byrnes.

STATEMENT OF ROBERT B. BYRNES, WASHINGTON REPR ESENTATIV E OF THE NATIONAL RAILROAD FORUM, INC.

Mr. Byrnes. Mr. Chairman and members of the House Subcommittee on Commerce and Finance, my name is Robert B. Byrnes. I live 

at 1514 16th Street NW., Washington, I).C.
34 RAILROAD RETIREM ENT ACT— SUPPLEMENTAL BEN EFITS

I am Wash ing ton rep res entat ive of the National Railroa d Pen sion 

Fo rum, Inc ., and have been asso ciated with this grou p for the past 

20 years.

Our org ani zation is a nonprofit, vo lunta ry membership asso ciation 

of working an d retir ed emplo yees of the railr oa d com panies, th e P ul b 

man Co., the R ailwa y E xp ress Agency a nd the trans po rta tio n bur eaus, 

and m any surv ivo rs of deceased w ork ers and ann uitants.

The Nation al Ra ilroad Pension Forum was estab lished in 1946 when 

rai lro ad ers all over the Na tio n disagreed with un po pu lar pro visions 

amend ed into the Ra ilroa d Re tirem ent Act by the 79th Con gress in 

th at year. Some of the objectionable fea tur es th at were enacted at 

th at tim e have since been repealed. The for um lias supp orted every 

bill designe d to b rin g th is abou t.

Our sole pur pose is to impro ve pro vision s of the Ra ilroa d Ret ireme nt Ac t of 1937 so th at it will ade quately benefit rai lro ad ers when 

time comes fo r them to seek r etirem ent.

I have been instructed by ou r presi dent, Mr. Geo rge W. Fi nn igan 

and by the board of gover nors of the for um in Chicago, to su pp ort 

yo ur bills II.R . 17285, H .R .17659, and II.R. 17940.

Also , Mr C hairm an and m embers of the subcom mittee, let me express 

the regret of o ur or ganiz ati on th at provision fo r ta x increases, am ou nting to one -half of 1 perce nt on wages o f emplo yees to finance the p ro ­

posed 7-perce nt increase in annuitie s is included in the bill.

Our officers a re of the opinion th at because of the fina ncial in te rcha nge arr angeme nt betw een the railr oa d retir em en t an d the social 

sec urity system s, no t ax increase a t t his time sho uld be necessary.

They un derst and th at un de r ter ms of th at arrang em en t the social 

sec urity system contr ibu tes 7 per cent increased pen sion on the majo r 

po rtion of every ra ilr oa d ret ire me nt annu ity , which the railr oa d retirem en t system adds to its reserve. We believe th at the pen sion increase pro vided for in th is bill can be met by railr oa d ret ire me nt 

resources wi tho ut any increase in emp loyer and employee taxes.

Re tir ed railro ad ers as well as retir ed P ul lm an Co., E xp ress Agenc y 

and bureau employees an d th ei r fam ilie s will be gr ateful to you for 

the real help those addit ion al dolla rs in th ei r pensions will mean, 

talk ing about the 7-p erc ent increase now.

Al tho ugh the cost of ren t, taxes, utilitie s and the necessities of life 

are goin g up fo r re tir ed rai lro aders , as fo r everyone else, retir ed men 

and women of the railr oa ds have had no pension increase since 1959.

Th e Na tional Railro ad Pension Fo rum favo rs all oth er pro vision s 

in y our bill and we ea rnestly hope t hat H.R . 17285 will lie app rov ed by 

th is com mittee an d th at with its senate com pan ion bill S. 3777, will 

be enacted d ur in g this session o f Congress.

In answer to a question of Mr. Cur tin a little while ago abo ut a 

th ird pension pla n, there is a th ird pension pl an that is very, very much 

affected by th is new law, and th at is the supplem ental pension of the 

railr oa d employees. In man y cases the y co ntr ibute par t of it, the 

railr oa d contr ibu tes a p ar t of it and t hat pension, w hatev er it will be, 

will be re duc ed by th e amoun t of the sup ple me nta l pension acc ord ing 

to the bill.

Th an k you, Mr. Ch air man and mem bers o f the committee.

• Mr. Macdonald. Are there any questions of the witness?

Mr. C ur tin. I do n’t u nd ersta nd t his th ird pension plan .
RAILROAD RET IREMENT ACT— SUPPL EMENTAL BENEFITS 35

Mr. Byrnes. There is a supplemental pension that they have only 

for supervisory employees like on the Baltimore & Ohio, the Pennsylvania Railroad and the New York Central—it includes all employees. 

Now the amount of tha t pension will be reduced by the amount of the 

supplementary pension.

Mr. Keitii. I s this caused by the fact they have been able to negotiate separately and th at now the rest are catching up ?

Mr. B yrnes. They have no negotiating power.

Mr. Keith. They have gotten additional pensions.

Mr. B yrnes. Yes.

Mr. Keitii. And others are being brought up a little bit where 

others have earlier received a supplemental pension; rath er than their 

gettin g more, they just do not get the supplemental.

Mr. B yrnes. Th at is right. I mean now that a railroad employee 

upon retiring after Ju ly 1 would be entitled to a railroad supplementary pension of $90 a month will not receive only $20 a month, the 

other $70 will be p art of the supplementary plan tha t is going to be 

enacted into law.

Mr. Macdonald. Well, perhaps when I get a chance to explore 

the record I will understand that but at the moment I don't, frankly, 

Mr. Byrnes.

Air. Byrnes. A great many railroads have a supplementary like 

the Baltimore & Ohio, the Pennsylvania, and the New York Central.

Air. AIacdonald. Wh at is the supplemental pension ?

Air. B yrnes. The pension is based on years of service, 1 percent of 

their earnings multiplied by number of years of service.

Air. AIacdonald. What is the need of this bill if tha t is the case?

Air. Byrnes. This bill covers the rank-and-file employees.

Air. AIacdonald. AVlio are you talking about ?

Air. Byrnes. The supervisory employees who will also be affected, 

however, by the enactment of this bill.

Mr. Macdonald. In what way will they be affected ?

Mr. Byrnes. The pension.

Air. Macdonald. Will they get more or less money ?

Air. Byrnes. They will get exactly the same amount of money.

Air. AIacdonald. But it will come from a different source?

Air. Byrnes. From two sources.

Air. Macdonald. It does not really matter, then.

Arr. Byrnes. They think that it matters.

Air. AIacdonald. The paycheck is the same.

Air. Byrnes. They have contributed to the railroad supplementary 

pension out of their own paychecks and they feel th at they are being 

hurt, discriminated against by this.

Air. AIacdonald. How?

Air. Byrnes. Because of the act.

Air. AIacdonald. I don't want to discriminate against anyone, I 

am the author of the bill.

Air. Byrnes. $90 from the railroad and the $70 from the supplement arv pension plan.

Air. Keitii. They are not going to get in on the new’ one ?

Air. Byrnes. It is complicated, but like a lot of things in the railroad, if is a complicated figure.

Air. AIacdonald. Are there any other questions ?
36 RAILROAD RETIRE MEN T ACT----SUP PLEM EN TA L BE NEF IT S

Mr. Curtin. Could you get permission to sit for a while longer?

Mr. Macdonald. This is the last witness.

Thank you very much, Mr. Byrnes.

The hearings are adjourned. Thank you all very much for your 

cooperation.

(The following material was submitted for the record :)

Sta te m en t of George F in n ig a n , P res id en t of t h e N ati onal R ailroa d P en si on

F orum, I nc.

Mr. Chairman and Members of the Committee, my name is George W. Finnigan. 

I reside at 2832 East 78th Street, Chicago, Illinois and am president of the National Railroad Pension Forum, Inc., the national headquarters of which are 

located at 2403 East 75th Street, Chicago.

Speaking for the Forum membership, consisting of several thousands of current railroad workers without union affiliation, several thousands who are members of one or another of the organized crafts and about an equal number of 

retired workers, ex-workers and survivors of workers, I wish to register general 

approval of the revisions in the Railroad Retirement Act, as contemplated in 

Bill H.R. 17285.

The establishment of supplemental pension payments will, to a large degree, 

furnish career railroad employes with a retirement future that would favorably 

compare with those in effect for several years in the steel, coal, auto and trucking 

industries. This move has been advocated by the Forum during 1965 and 1966. 

Agreement by the employers will likely improve employe relations, adding another weapon in the battle for resurgence of the railroads. An employee who decides to cast his lot with the railroads will not he so easily discouraged after a 

few years and be tempted to take his talents and experience elsewhere in the 

labor market. One of the disturbing elements has been the heavy monthly assessment fo r retirement taxes, only to learn tha t the retirement and family security available under railroad retirement meant only slightly more than would 

be derived from Social Security, which could have been purchased for less than 

half the cost.

The proposed authorization of a 7% increase in annuities, to those not eligible 

for supplemental pension payments, is very satisfying. It is unfortunate tha t 

the increase was denied present annuitants, about one third of those on the rolls, 

the majority of whom a re career workers in the .$130 to $165 annuity bracket. 

Having been awarded a set monthly annuity, the retiree found it necessary to 

establish a retrenched standard of living to fit the reduced monthly income. The 

cost of living and dying have increased sharply since annuities were last increased 

in 1959, so that annuities, savings and life insurance have been seriously devalued. Those conditions were taken into consideration when Social Security 

revisions of 1965 provided a 7% across-the-board increase for all Social Security 

beneficiaries. We must not lose sight of the fact that every employe covered by 

railroad retirement is also a bona fide paid member of Social Security, by reason 

of the interchange arrangement between that system and railroad retirment, 

whereby, full Social Security taxes for the employes entire working career, back 

to the inception of Social Security are or have been paid to Social Security, by 

the Railroad Retirement Board, from retirement taxes collected from the employe 

and employer. Social Security has disbursed the increased monthly payment, on 

the work record of each retirement annuitant, to the Board, retroactive to J anuary 1, 1965. However, only two-thirds of those on the rolls were so rewarded. 

Payment of the increased amount to the fortunate two-thirds was forced by the 

application of the railroad retirement provision that guarantees none shall receive 

benefits less than 110% of the amount that would be payable if the benefits had 

been calculated under the Social Security formula. Failure to adjust the Railroad Retirement Act to provide for increased payments to the remaining onethird has resulted in an obvious discrimination against some 320 thousand persons, for a period of twenty one months. The passage of Bill H.R. 17285 would 

end the discrimination.

So far as I can detrmine, other provisions of the bill are either proper or necessary but I am compelled to lament the fact that it again becomes necessary to 

dip into the pockets of the employes and the railroads for additional tax income.
RAILROAD RE TIRE MEN T ACT----SU PPLE ME NT AL BE NEF IT S 37

As was prop os ed to th e en ti re Co ng ress in F ebru ary of 1965, I firml y be lie ve in 

an d ur ge a fu ll dr es s st udy of t he f inan cia l se tu p o f ra il ro ad re tire m en t, invo lv ing 

cert ain benefits, th e ta x sche du le an d f un ct io ns of th e Boa rd, w ith a vie w to w ar d 

a bett er fina nc ial st abil it y, revi sion of th e be ne fits an d a less en ing of th e co st to 

th e em ploy es and th e em ploy ers. So not to di gr es s from th e su bje ct a t ha nd , 1 

sh al l let th e m att er re st fo r th e pr es en t. W hen pro pe r in te re st develop s, we sh al l 

be ha pp y to coo pe rate.

Upon del ib er at io n and co nsu ltat io n to th e exte nt tim e wo uld all ow , I ear nes tly 

reco mmen d pr om pt ap pro val of Bill H.It. 17285, w ith appro pri ate ad de d am en dm en ts to e ffe ct th e f oll ow in g:

1. E lim in at e th e so-call ed “l ast em pl oy er ” clau se fr om Se cti on 2 (d ) of th e 

R ai lr oad R et ir em ent A ct of 1937.

2. Am end th e R ai lr oad R et irem en t Ac t o f 1937 to pr ov id e ex te nd ed be nefits 

to ch ildr en of de ce as ed ra il ro ad wor ke rs, beyo nd ag e 18 an d th ro ug h ag e 21, 

pr ov id ed su ch ch ildr en a re fu ll tim e st uden ts in an ac cr ed ited sch ool an d 

ot he rw is e qu ali fie d.

To my know led ge, no oth er m ajo r re ti re m ent pro gr am co nta in s such st ri ngent 

an d bu rd en so me re st ri cti ons as are pre se nt in Se cti on 2 (d ) of th e R ai lr oad 

R et irem en t Act. To qu al if y fo r ra il ro ad re ti re m ent an nuity, an em plo ye m us t 

not on ly sa tisf y th e ag e and w or k re qu irem en ts but m us t resign from his pr es en t 

ra il ro ad em ploy er, sig n a pled ge ne ve r to wor k fo r an y em ploy er co ve red by (he 

R ail ro ad R et ir em en t Act an d se ve r co nn ec tio n w ith an y ou ts id e em ploy er an d 

agree to never again work for the last outside employer for whom lie worked before application for railroad retirement, no matter how fa r back the employment relationship. Now, he m ay be ea rn in g pi n mo ney as a lig ht ly pai d offic er of 

hi s lod ge or as a wee ke nd cler k in th e loc al dru g or h ard w are stor e, or pe rh ap s 

w or ki ng ar ound a fillin g st ati on. On th e oth er ha nd , he may ha ve dep ar te d 

ra il ro ad se rv ice to ac ce pt an o th er po sitio n, so as to be a t ho me n ig hts or po ssibly 

to av oid re lo ca tion in anoth er city . W he n he rea ch es a ge 60, 62 or 65, he m ee ts a ll 

of th e ord in ary re quir em en ts fo r annuit y bu t is fo rc ed to re si gn th e ou ts id e 

em ploy men t or be de ni ed th e annuit y. I ha ve no p art ic u la r quar re l w ith 

se para ti on from th e th e ra il oad in dust ry , I do th in k, ho we ver, it is gros sly u n fa ir 

th a t a m an can fulfi ll all of th e w or k an d ag e re qu irem en ts, pay ha nd so m ely fo r 

pr om ised se cu ri ty a t a give n age, th en be de nied an an nuity, w ith th e ap pr ov al 

of C on gress, fo r so re d u n d an t a re as on .

In th e ca se of a re ti ri n g m il it ary man , a civ il se rv ant or an y of th e th ousa nds 

of o cc up at io ns unde r So cia l Sec ur ity, th ere a re no su ch re st ri ct io ns. As a m att er 

of fa ct , under So cia l Sec ur ity, he ne ed not leav e hi s cu rr en t em ploy er, he can 

re m ai n a t th e ve ry sa m e de sk w her e he ea rn ed his pe nsion cre dit s an d ca n even 

ad d to h is be ne fits by w or k per fo rm ed aft e r he become s a be ne fic iar y. The “last 

em pl oy er ” fe atu re is p art ic u la rl y u n fa ir in th e ca se of a w ork er w ithout de ­

pe nd en ts wh o wou ld become e lig ible f o r be ne fits if th e em ploy e w er e to d ie. Th e 

re st ri cti on de pr iv es th e em ploy e of hi s ri ghtful an nuity, ye t, up on ap pl ic atio n, 

th e un to uc he d re si du al lu m p sum wou ld be pai d to a be ne fic iar y. To w ith ho ld 

th e an n u it y fr om th e one wh o wor ke d fo r an d pa id fo r it, on ly to di sb urs e th e 

mo ne y to some de ce de nt o r oth er be ne fic iar y, is a tr av est y an d can be en de d by 

th e el im in at io n of th e cl au se from Secti on 2 (d ). T he off ended pe rs on s are no t 

of su ch nu m be rs to ca us e a de luge of de m an ds but I be lie ve th e Con gres s wo uld 

do it se lf ho no r to st ep in and co rr ec t th is wr on g, simply be ca us e it is wr on g.

The ex te ns io n of be ne fit s to ch ildr en of de ce as ed w or ke rs , be yo nd th e ag e of 

18 an d up to ag e 22, ca n be a cc om plish ed by th e ap pe nd ag e of th e le gi sl at iv e la n 

gu ag e ap pea ri ng in an y on e of th e nu m er ou s bi ll no w in th e han ds of th e comm itte e. The ne ed fo r th e ch an ge h as been cl ea rly es ta blish ed an d it is sh am ef ul 

th a t to da y be ne fit s are no t av ai la ble to m an y su ch ch ildr en be ca us e of th e de lay 

in pr og re ss in g th e legi slat io n, in sp ite of th e fa ct th a t m os t of th e fu nds wo uld 

be fo rthc om in g from So cia l Se cu rity, im m ed ia te ly upon re vi sion of th e Act.

I wish to comm end th e chai rm an an d th e mem be rs of th e co m m itte e an d th e 

st af f fo r th e ef fo rt put fo rt h on th e im port ant fe atu re s of th e bil l.

My th an k s to th e ch ai rm an and th e mem be rs fo r th e opport unity to pr es en t 

my view s an d th os e of th e Fo ru m on th ese im port ant m att ers . I ho pe th a t Bill 

h 'r. 17285 will sw if tly pr og re ss th ro ug h th e Con gres s an d becom e law be fore 

adjo urn m en t of th is ses sio n, on whic h note I re sp ec tful ly close.
38 RAILROAD RETIRE MEN T ACT----SU PPLEME NT AL BE NE FITS

Brotherhood of Locomotive Engineers,

Cleveland, Ohio, September 1, 1966.

Hon. Harley O. Staggers,

Chairman, Committee on Interstate and Foreign Commerce, U.S. House of Representatives, Washington, D.C.

Dear Mr. Chairman : This is to inform you th at the Brotherhood of Locomotive Engineers and its 65,000 members are in complete accord with the provisions of II.R. 17285 to amend the Railroa d Retirem ent Act as introduced by 

Representative Macdonald on A ugust 25, 1966.

Labor and Management have met their obligations and thro ugh collective 

bargaining have determined th at employees in the railroad industry are in dire 

need of a supplementary p ension; also, th at employees alre ady on pension, their 

wives and orph ans are in need of increased annuities.

We thin k you will agree th at the 429,000 retired employees now receiving 

monthly annuities under the Railroad Retirem ent Act in the amount of $141.00 

a mo nth; the 197,000 wives who are averaging $63.00 per mon th; and the aged 

widows averaging $79.00 a month are deserving of the 7% increase in railroad 

retirem ent benefits. We f urther believe th at in thi s age of affluence no peoples 

should be relegated to incomes below the poverty level. This $45 to $70 monthly 

supplementary pensions proposed by II.R. 17285 and the 7% increase in railroad retirement benefits, although not sufficient, will certain ly go a long way 

toward alleviating the economic needs of retired employees and lend incentive 

to those who have sufficient years of service to consider retirement.

Under the proposed leigslation, the total cost of the supp lementary pension 

will be shared, by the partic ipa nt railroads. The 7% increase in railroad retirement benefits will be supported by one-quarter of one percent increase in 

the railroa d retir eme nt tax.

We pray th at you will give this agreement the force of law to avoid any occurrence of lost pensions as experienced in other industries in the event one road 

or system may go out of business.

Sincerely yours,

E. L. McCulloch, Assistant Grand Chief Engineer.

(W hereu pon, at 11 :20 a.m. the subcommittee was recessed subject, 

to call.)