Labor Employer Reporting Instructions

Appendix VI: Understanding Edit Checks of Tier I and Tier II Compensation

Why is there a referral "Tier II compensation appears to be under-reported" when there is 

no reporting instruction that Tier I and Tier II compensation must be equal?

The Railroad Retirement Board does various reasonableness checks on the reported service and 

compensation data to help insure the accuracy of our records. For example, there is a check that 

the sum of the reported service months equals the reported service month total. Similarly, if Tier 

II compensation is less than the Tier II maximum, then Tier II should equal Tier I compensation. 

There is an exception which is discussed at the end.

Because sick pay is reported separately, all payments reported on the annual service and 

compensation report are taxable and creditable as both Tier I and Tier II. A single payment subject 

to Tier I and Tier II taxes can yield only a single amount creditable as Tier I and Tier II 

compensation. This applies until a payment is no longer subject to Tier II tax because the maximum 

has been reached.

But what if sick pay is paid first? Won't the Tier I maximum be reached before the Tier II 

maximum?

Let's look at some examples of compensation as it is paid, month by month.

Example 1

An employee has a 1999 salary of $60,000; is covered under a sick pay plan paying $2,000 

bimonthly; and is off sick for 6 months.

Type J F M A M J J A S O N D Total

SP 4000 4000 4000 4000 4000 24000

T-1 5000 5000 5000 5000 5000 5000 5000 30000

T-2 5000 5000 5000 5000 5000 5000 5000 30000

Neither the Tier I nor Tier II annual maximum is reached. The annual service and compensation 

report will show Tier I and Tier II compensation of $30,000, thus passing the edit check. The 

annual sick pay report will show $24, 000. The combined Tier I compensation, which does not 

appear on any report to the RRB, is $54,000.

Example 2

An employee has a 1999 salary of $84,000; is covered under a sick pay insurance plan paying 

100% salary; and is off sick for 2 months.

Type J F M A M J J A S O N D Total

SP 7000 7000 14000

T-1 7000 7000 7000 7000 7000 7000 7000 7000 2600 58600

T-2 7000 7000 7000 7000 7000 7000 7000 4700 53700
Labor Employer Reporting Instructions

Appendix VI: Understanding Edit Checks of Tier I and Tier II Compensation

The employee reached both annual maximums during the year so the payments made after that 

point are no longer subject to the Tier tax. The annual service and compensation reported will 

show Tier I compensation of $58,600 and Tier II compensation of $53,700, thus passing the edit 

check. The annual sick pay report will show $14,000. The combined Tier I, which does not show 

on any report to the RR, is $72,000.

NOTE: If the employee worked in every month, service is credited for November and December. 

Since RUIA is based on monthly maximums, RUIA tax and credit would apply to all 12 months.

Is there a situation where Tier I is less than the Tier II maximum and Tier I and Tier II are 

not equal?

Yes, but the circumstances occur very rarely. In the last example, we will extend the employee'’ 

sick time to 3 months.

Example 3

Type J F M A M J J A S O N D Total

SP 7000 7000 7000 21000

T-1 7000 7000 7000 7000 7000 7000 7000 2600 51600

T-2 7000 7000 7000 7000 7000 7000 7000 4700 53700

The annual service and compensation report will show Tier I compensation of $51,600 and Tier II 

compensation of $53,700. These amounts will fail the edit check but are correct. What is unique 

about the Example 3? This employee has high earnings and high sick pay coverage and received 

sick pay in the early part of the year.

The specific criteria where Tier II may correctly exceed Tier I are:

• Sick pay exceeds the difference between the Tier I and Tier II maximums.

• Sick pay is paid before non-sick pay earnings reach the Tier II maximum.

• Combined sick pay and other Tier I compensation exceed the Tier II maximum.