zs

Recommendation

As stated in the introduction, the Congress directed the Railroad Retirement Board to
make recommendations for financing changes that might be advisable, specifically with
regard to rates of employer contributions.

No financing changes are recommended at this time. Projections under three different
employment assumptions indicate that experience-based contribution rates will respond
to fluctuating employment and unemployment levels and thereby maintain fund solvency.


Table 3C. Progress of the Railroad Unemployment Insurance Account Under Assumption C
(Dollar Amounts in Millions)

Average
Account Net Account Loan Account Cash Employer
Contri- Benefit Other Income Cash Balance Balance Less Contribution
Fiscal butions Payments and Outgo Balance Year End Loans Due Calendar Rate
Year (1) [2] [3] Year End [4] Year End Year (Percent)
2019 $105.9 $85.8 $11.5 $132.5 $0.0 $132.5 2019 3.06
2020 59.2 106.8 11.2 96.1 0.0 96.1 2020 1.07
2021 59.8 128.0 12.7 40.7 0.0 40.7 2021 3.09
2022 140.8 144.3 12.2 49.4 0.0 49.4 2022 4.89
2023 182.2 145.8 13.9 99.8 0.0 99.8 2023 4.97
2024 163.6 147.7 15.8 131.5 0.0 131.5 2024 3.97
2025 121.0 148.2 16.3 120.7 0.0 120.7 2025 2.95
2026 106.3 148.8 15.7 93.9 0.0 93.9 2026 3.25
2027 132.6 150.5 15.3 91.4 0.0 91.4 2027 4.11
2028 157.6 152.0 16.0 113.0 0.0 113.0 2028 4.34
2029 152.5 153.2 16.9 129.3 0.0 129.3 2029 3.82

[1] Excludes 0.65 percent of taxable payroll allocated to the Administration Fund.
[2] In accordance with the Balanced Budget and Emergency Deficit Control Act of 1985, as amended by the Budget Control Act of 2011, the fiscal year 2019
amount reflects a reduction of 6.2% under sequestration for days of unemployment and sickness after September 30, 2018. The fiscal year 2020 amount

reflects a reduction of 5.9% under sequestration for days after September 30, 2019.

[3] Income includes interest on investments, transfers from the Administration Fund of amounts in excess of $6 million at the end of the previous fiscal year,
and loans from the Railroad Retirement Account. Outgo includes funding for the Office of Inspector General and repayment of loans, including interest.

[4] Includes accrued interest.

NOTE: Detail may not add to totals due to rounding.


Table 2: Annual Tier | Creditable Limit, Monthly RUI
Taxable Limit, and Maximum Daily Benefit Rate

Maximum
Annual Monthly Daily
Calendar Tier | RUI Benefit
Year Limit Limit Rate [1]
2018 $128,400 $1,560 $77
2019 132,900 1,605 78
2020 136,800 1,650 80
2021 142,200 1,705 82
2022 149,100 1,780 85
2023 155,700 1,850 89
2024 162,300 1,915 92
2025 168,900 1,985 95
2026 175,800 2,060 99
2027 183,300 2,140 103
2028 191,100 2,220 107
2029 199,200 2,310 111

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


Table 1: Employment Assumptions Used in 2019 Report

Calendar Average Employment (thousands)
Year A B Cc
2018 223 223 223
2019 222 220 217
2020 221 216 210
2021 221 213 204
2022 220 210 198
2023 219 206 192
2024 218 203 187
2025 217 200 181
2026 216 197 176
2027 216 194 171
2028 215 191 166
2029 214 188 161

Assumptions A and B reflect the stability of employment in passenger service
(Amtrak and commuter service) as distinguished from freight service. Assumption
A has the most optimistic employment of the three assumptions. Assumption B is
intended to provide a "moderate" assumption. Assumption C, the most
pessimistic, has declines in both passenger and freight employment.

Passenger employment is assumed to remain level at 48,000 under assumptions
A and B, and to decline by 500 each year under assumption C. Non-passenger
employment is assumed to decline at a constant annual rate of 0.5 percent, 2.0
percent and 3.5 percent under assumptions A, B and C, respectively.


Table 3B. Progress of the Railroad Unemployment Insurance Account Under Assumption B
(Dollar Amounts in Millions)

Average
Account Net Account Loan Account Cash Employer
Contri- Benefit Other Income Cash Balance Balance Less Contribution
Fiscal butions Payments and Outgo Balance Year End Loans Due Calendar Rate
Year [1] [2] [3] Year End [4] Year End Year (Percent)
2019 $106.7 $85.8 $11.5 $133.3 $0.0 $133.3 2019 3.06
2020 60.1 98.8 11.7 106.3 0.0 106.3 2020 1.07
2021 59.6 108.8 14.1 71.3 0.0 71.3 2021 2.97
2022 122.0 113.8 14.6 94.1 0.0 94.1 2022 3.83
2023 143.0 117.41 16.9 137.0 0.0 137.0 2023 3.77
2024 118.2 120.2 18.8 153.8 0.0 153.8 2024 2.64
2025 81.2 122.4 19.1 131.8 0.0 131.8 2025 2.10
2026 87.1 124.7 18.9 113.1 0.0 113.1 2026 2.80
2027 124.4 127.9 19.5 129.2 0.0 129.2 2027 3.53
2028 137.5 131.0 21.3 157.0 0.0 157.0 2028 3.22
2029 115.8 134.0 22.7 161.6 0.0 161.6 2029 2.57

[1] Excludes 0.65 percent of taxable payroll allocated to the Administration Fund.
[2] In accordance with the Balanced Budget and Emergency Deficit Control Act of 1985, as amended by the Budget Control Act of 2011, the fiscal year 2019
amount reflects a reduction of 6.2% under sequestration for days of unemployment and sickness after September 30, 2018. The fiscal year 2020 amount

reflects a reduction of 5.9% under sequestration for days after September 30, 2019.

[3] Income includes interest on investments and transfers from the Administration Fund of amounts in excess of $6 million at the end of the previous fiscal year.
Outgo includes funding for the Office of Inspector General.

[4] Includes accrued interest.

NOTE: Detail may not add to totals due to rounding.


Railroad Unemployment
Insurance System

Annual Report Required by Section 7105
of the Technical and Miscellaneous
Revenue Act of 1988

U.S. Railroad Retirement Board
Bureau of the Actuary and Research
June 2019


Table 4. June 30 Accrual Balance of the Railroad Unemployment Insurance Account
(Dollar Amounts in Millions)

Assumption A Assumption B Assumption C

1.5 Percent 1.5 Percent 1.5 Percent

Account Surcharge Account Surcharge Account Surcharge

Year Balance Threshold Balance = Threshold Balance Threshold
2019 $158.5 $152.8 $157.8 $152.4 $156.8 $151.8
2020 146.3 156.2 136.1 153.9 126.8 151.2
2021 123.4 160.2 103.0 156.0 75.2 151.0
2022 153.7 165.3 127.1 159.1 87.2 151.8
2023 189.0 171.7 170.7 163.3 138.0 153.7
2024 185.4 177.6 187.9 167.0 169.6 154.9
2025 162.2 183.2 166.8 170.2 158.9 155.7
2026 168.9 189.2 149.3 173.8 132.8 156.7
2027 199.5 195.6 166.3 177.7 130.5 157.9
2028 218.0 202.4 194.7 181.7 152.2 159.2
2029 216.4 209.3 200.1 185.8 168.5 160.5

The June 30, 2018 accrual balance was $118,064,725.00. The indexed 1.5 percent surcharge threshold was
$150,144,911.00 and the indexed 2.5 percent surcharge threshold was $75,072,455.50.

The experience rating system provides for a surcharge in the employer contribution rate when the Railroad Unemployment
Insurance Account balance falls below certain thresholds. The 1.5 percent surcharge threshold is the greater of $100 million
or the amount that bears the same ratio to $100 million as the system compensation base as of that June 30 bears to the
system compensation base as of June 30, 1991. The 2.5 percent surcharge threshold (not shown) is indexed from a $50
million base.


Table 3A. Progress of the Railroad Unemployment Insurance Account Under Assumption A
(Dollar Amounts in Millions)

Average
Account Net Account Loan Account Cash Employer
Contri- Benefit Other Income Cash Balance Balance Less Contribution
Fiscal butions Payments and Outgo Balance Year End Loans Due Calendar Rate
Year (1) [2] [3] Year End [4] Year End Year (Percent)
2019 $107.3 $85.8 $11.5 $133.9 $0.0 $133.9 2019 3.06
2020 60.7 89.1 12.1 117.6 0.0 117.6 2020 1.06
2021 57.6 98.1 15.2 92.4 0.0 92.4 2021 2.80
2022 114.2 101.7 16.4 121.3 0.0 121.3 2022 3.44
2023 120.4 105.5 19.0 155.3 0.0 155.3 2023 2.90
2024 84.2 109.6 20.7 150.6 0.0 150.6 2024 1.82
2025 67.2 112.9 20.9 125.9 0.0 125.9 2025 2441
2026 100.0 116.3 21.6 131.2 0.0 131.2 2026 2.97
2027 126.5 120.7 23.7 160.8 0.0 160.8 2027 2.97
2028 116.5 125.1 25.8 178.0 0.0 178.0 2028 2.47
2029 99.1 129.4 27.1 174.9 0.0 174.9 2029 2.23

[1] Excludes 0.65 percent of taxable payroll allocated to the Administration Fund.
[2] In accordance with the Balanced Budget and Emergency Deficit Control Act of 1985, as amended by the Budget Control Act of 2011, the fiscal year 2019
amount reflects a reduction of 6.2% under sequestration for days of unemployment and sickness after September 30, 2018. The fiscal year 2020 amount

reflects a reduction of 5.9% under sequestration for days after September 30, 2019.

[3] Income includes interest on investments and transfers from the Administration Fund of amounts in excess of $6 million at the end of the previous fiscal year.
Outgo includes funding for the Office of Inspector General.

[4] Includes accrued interest.

NOTE: Detail may not add to totals due to rounding.


The June 30, 2017 balance! of $97.7 million was above the indexed $50 million
surcharge threshold of $73.1 million but below the indexed $100 million surcharge
threshold of $146.3 million. As a result, a 1.5 percent surcharge was in effect for
calendar year 2018. By June 30, 2018, the balance had risen to $118.1 million, which
was below the indexed $100 million surcharge threshold of $150.1 million but above the
indexed $50 million surcharge threshold of $75.1 million. Consequently, a 1.5 percent
surcharge is in effect for calendar year 2019.

Under each assumption, the Account balance is expected to be above the indexed $100
million threshold in June 2019, showing no surcharge? in calendar year 2020. For June
2020, the balance is expected to be below the indexed $100 million threshold under all
three assumptions, resulting in a 1.5 percent surcharge in 2021. A 1.5 percent surcharge
is expected for 2022 under all assumptions. Surcharges of 1.5 percent will occur
intermittently thereafter. Under the pessimistic employment assumption C, a small,
short-term cash flow problem is possible during fiscal year 2022, with full repayment of
the loan by the end of the fiscal year 2022. The highest average contribution rate in the
11-year projection period is under employment assumption C, where it rises to 4.97
percent for calendar year 2023. This is well below the 12 percent maximum rate
allowable.

Administrative expenses are assumed to be above current levels in every fiscal year.
Nevertheless, the 0.65 percent of taxable payroll allocated to the Fund is sufficient to
finance administrative expenses during the projection period. When the accrual balance
in the Administration Fund exceeds $6 million at the end of a fiscal year, excess funds
are transferred to the Account early in the next fiscal year. Under all employment
assumptions, the accrual balance in the Administration Fund exceeds $6 million at the
end of each year in the 1 1-year projection period.

' The balance referred to here and in the following paragraph is the accrual balance of the Account as of
June 30, on which calculations of pooled credits and surcharges are based. Cash balances shown on
Tables 3A-C are not used in these calculations. June 30 accrual balances are shown in Table 4.

* The difference between the expected June 30, 2019 accrual balance and the expected 1.5 percent
surcharge threshold is quite small, between $5.0 million and $5.7 million. Consequently, based on actual
amounts determined later this year, it is entirely possible that there will be a 1.5 percent surcharge in
calendar year 2020. If that were to happen, we would expect no surcharge in calendar year 2021,
followed by a 1.5 percent surcharge in 2022 under all assumptions. In this scenario, the loans under
assumption C are repaid by the end of fiscal year 2023.


IV.

~s

employment declines are moderate and unemployment levels remain low. The
experience-rating system is designed to tie individual employer contribution rates to their
level of benefit claims, thereby adjusting the overall account balance to an appropriate
level.

The three railroad employment assumptions used, denoted A, B, and C, are shown in
Table 1 at the end of the report. The projected tier I creditable limits, which determine
both the railroad unemployment monthly wage base and the maximum daily benefit rate,
are from the Social Security Administration's April 2019 Trustees Report, intermediate
set of assumptions. Table 2 shows the tier I creditable limit, unemployment monthly
earnings base and daily benefit rate assumptions.

Results

Projections were made for the various components of income and outgo under each set of
assumptions for the 11 fiscal years 2019-2029. The results are summarized in Table 3.
Average employer contribution rates under the experience-rated contribution system are
weighted averages based on the relative size of each railroad's payroll.

Table 3 consists of three tables A, B, and C, one for each employment projection. The
tables show (1) contributions, excluding the portion allocated to the Railroad
Unemployment Insurance Administration Fund (Fund), (2) net benefit payments, (3)
other income and outgo, (4) the cash balance in the Railroad Unemployment Insurance
Account (Account) at the end of each fiscal year, (5) the loan balance, if any, including
accrued interest, (6) the Account balance at the end of each fiscal year, less loans due and
(7) the average employer contribution rate for each calendar year.

The experience-rating formula is designed to keep the accrual balance of the Account, as
of June 30, between $100 million and $250 million, indexed for changes in the system
compensation base. If the balance exceeds an indexed $250 million, contributions are
reduced by a pooled credit. If the balance falls below an indexed $100 million but is at
least an indexed $50 million, contributions are increased by a surcharge of 1.5 percent. If
the Account balance is less than an indexed $50 million, but greater than zero, the
surcharge will be 2.5 percent. A maximum surcharge of 3.5 percent applies if the
Account balance is less than zero.


Il.

ANNUAL REPORT REQUIRED BY THE TECHNICAL
AND MISCELLANEOUS REVENUE ACT OF 1988

Introduction

Section 7105 of the Technical and Miscellaneous Revenue Act of 1988 (Public Law 100-
647) requires the Railroad Retirement Board to submit an annual report to the Congress
on the financial status of the railroad unemployment insurance system. The report must
contain recommendations for financing changes that might be advisable, specifically with

regard to rates of employer contributions. This report meets the requirements of Section
7105 for 2019.

Recent Developments

The maximum daily benefit of $77 for the benefit year beginning July 1, 2018 will
increase to $78 for the benefit year beginning July 1, 2019. Beginning July 1, 2020, the
maximum daily benefit rate will increase to $80. The monthly tax base was $1,545 for
2017, and $1,560 in 2018 and increased to $1,605 in 2019, based on changes in the
railroad retirement tier I creditable base.

Average employment in calendar year 2018 was 223,000 (subject to later revision),
which is higher than the optimistic employment assumptions in last year's report. There
is currently a 1.5 percent surcharge in calendar year 2019. This year’s report predicts that
there will not be a surcharge in calendar year 2020 and a 1.5 percent surcharge in
calendar years 2021 and 2022.

Benefits payable under the Railroad Unemployment Insurance Act are subject to
sequestration under Public Law 99-177, the Balanced Budget and Emergency Deficit
Control Act of 1985, as amended by Public Law 112-25, the Budget Control Act of
2011. Benefit estimates for fiscal years 2019 and 2020 reflect amounts after
sequestration. However, since the actual sequestration percentages applicable to future
years are unknown, benefit estimates for fiscal years 2021 and later are not reduced for
possible sequestration.

Economic and Employment Assumptions

The economic and employment assumptions used in this report correspond to those used
in the report required by Section 502 of the Railroad Retirement Solvency Act of 1983.
Unemployment levels are the single most significant factor affecting the financial status
of the railroad unemployment insurance system. Rapidly declining employment coupled
with high unemployment levels, as occurred in the early 1980s and more recently in the
late 2000s, can put the system into debt. Conversely, cash balances can accumulate if