FOM1 211 

211.1 Compensation Based on "Pay for Time Lost" 

The term "compensation" includes amounts paid by an employer to an employee for 

time lost during which time the employee had an employment relation (see FOM 206.2), 

but was absent from the active service of the employer. An employee is deemed to 

have been "paid for time lost" whenever any of the following circumstances occur: 

A. He was paid by an employer, under certain conditions, for loss of earnings as a 

result of his temporary absence from work due to illness; or 

B. He was paid by an employer for an identifiable period of absence from active 

service, including absence due to personal injury; or 

C. He was paid by an employer for loss of earnings, during an identifiable period, as 

a result of displacement to a less remunerative position or occupation; or 

D. He was paid by an employer for an identifiable period for which an employment 

relation existed after his actual date last worked as the result of "dismissal pay" 

after abolishment of his job or an "early out" agreement. (Under this condition 

the employee must retain his job rights and receive monthly payments of 

remuneration over a specified period of time); or 

E. He was paid by an employer for loss of earnings as a result of abolition of the 

job. 

211.2 Sick Pay as "Pay for Time Lost" 

211.2.1 Definition 

Payments to an employee who is temporarily absent from work due to sickness and 

disability is credited as "Pay for Time Lost" with railroad service months and regular 

railroad compensation when: 

A. The railroad pays tier I, tier II and supplemental annuity taxes for these 

payments; and 

B. He is carried on the payroll and paid all or part of his regular salary for an 

identifiable period during which he is considered absent from work; or 

C. His return to service is contemplated, his name is carried on the seniority roster 

and he receives payment for an identifiable period when he is absent from work. 

The purpose of the payment is to make the employee whole as if he had not lost time 

from work as a result of injury. This may be accomplished through a wage continuation 

plan. The employee receives service months while on the regular payroll. The railroad 

pays tier I and tier II taxes as they would for regular compensation. 

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If your field office has not been advised whether or not a specific sick pay salary or 

wage continuation plan qualifies as "Pay for Time Lost," obtain a copy of the plan and 

forward it to OP-RAS. RAS will request the Bureau of Law to review the plan and 

determine if it should be considered "Pay for Time Lost." 

211.2.2 Effect on Railroad Unemployment Insurance Act 

The employee is not entitled to unemployment or sickness benefits under the Railroad 

Unemployment Insurance Act (RUIA) while receiving payments under this type of plan. 

211.2.3 Effect on Employee Annuity 

An annuity under the Railroad Retirement Act (RRA) may not begin earlier than the day 

following the last date for which the "pay for time lost" is received, because the 

employee is carried on the payroll and receives credit as if he were still performing 

railroad service. This type of pay should be entered as "Pay for Time Lost" on the 

APPLE APMU211 Application Information Recurring Annuities screen and the proof 

should be entered on the APPLE APMU955 Settlement/Dismissal Pay/Sick Pay screen. 

For example, the Union Pacific pays a "wage continuation benefit" to employees who 

have an "on the job injury." The employees remain on the payroll and receive their 

regularly scheduled paychecks. These payments are considered to be "pay for time 

lost". 

211.3 Sick Pay as "Miscellaneous Compensation" 

211.3.1 Years prior to 1982 

For years prior to 1982, sickness payments made pursuant to a company plan which 

provides for sickness and for accident disability or by labor agreements (i.e. plans 

providing for the accruing of sick leave based upon length of service), are not 

considered to be compensation. 

However, if the employee "cashed in" his unused sick days, that payment was 

considered tier I and tier II compensation. 

211.3.2 Legislation That Changed Creditability of This Type of Sick Pay 

The Railroad Retirement Solvency Act of 1983 changed the definition of compensation 

to include any payment subject to tier I employment taxes. Sick pay had become 

subject to tier I taxes effective 1-1-82, as a result of the 1981 Social Security Act 

amendments, and the corresponding amendment to the Railroad Retirement Tax Act. 

Since the RRA was not amended at that time to include sick pay in the definition of 

compensation, employees receiving sick pay were being taxed without receiving credit. 

The amendment to the RRA in 1983 extended the retroactivity of the tier I compensation 

credit to 1-1-82 (limited to the first 6 months after the date last worked (DLW-RR) 

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FOM1 211 

211.3.3 Changes Effective January 1, 1982, or later 

Effective with payments for January 1, 1982, or later, sick pay which is payable under a 

plan or agreement" which provides for sickness or accident disability, for up to 6 months 

after the actual DLW-RR, will be reported as "miscellaneous compensation." The 

"miscellaneous compensation" credit for sick pay is used solely to increase the earnings 

used to compute tier I of an employee, spouse or survivor annuity or to increase PIA 9 

for the retirement overall minimum computation. 

For example, The Atchison, Topeka and Santa Fe Railway Co. (ATSF) (BA 1702) has a 

short term disability program for officers and exempt employees. These payments are 

made for the first 6 months after the DLW-RR and are creditable as tier I "miscellaneous 

compensation." They do not provide RR service months. The annuity beginning date 

(ABD) may be as early as the day after the DLW-RR. 

The ATSF also have a long term disability program for salaried employees that meets 

the definition of this type of sick pay. However, since payments under this plan do not 

begin until the 7th month after the employee's actual DLW-RR, they are not creditable 

as tier I sick pay. These payments have no effect on the railroad retirement annuity. 

The entries on the APPLE APMU211 Application Information Recurring Annuities 

screen and the proof entered on the APPLE APMU955 Settlement/Dismissal Pay/Sick 

Pay screen are used to resolve any problems concerning the employee's sick pay. 

Question the employee carefully about sick pay, because it is difficult to determine the 

nature of the payment. If the payments are actually "pay for time lost," the payments 

should be reported in the "pay for time lost" items, not in the sick pay items. The RRB 

field office or the employee may have to contact the employer to determine the true 

nature of sick pay. 

211.3.4 When Sick Pay is Not Creditable as Miscellaneous Compensation 

Sick pay is not creditable as tier I compensation if: 

A. Sick pay is paid under a worker's compensation statute; or 

B. Sickness payments were made after the expiration of 6 calendar months after the 

employee last worked for the railroad employer. 

211.3.5 How Sick Pay is Reported to the RRB 

The employee is not carried on the railroad's payroll. The payment is not based on all 

or part of the employees regular salary. This payment may be made from any source 

(including an insurance company as a third party payee, sickness insurance (SI) 

benefits under the RUIA or benefits from a nongovernmental plan). 

RUIA sickness insurance payments are reported to the Employment Data Maintenance 

(EDM) as tier I compensation, under BA 1008. Two third party payers, Benefit Trust 

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FOM1 211 

(BA 1005) and Provident (BA 1004), have also been assigned BA numbers and make 

reports to the RRB. 

Railroad employers have been instructed to report miscellaneous compensation on 

Form BA-3, "Annual Report of Creditable Compensation.” 

If the employee had contributed to the sickness or accident disability plan, the portion of 

the payments attributable to his contributions are excluded. Payments under a worker's 

compensation law are also excluded. 

211.3.6 Definition of Plan or Agreement and Nongovernmental Plans 

A. Plan or Agreement - The term "plan or agreement" for miscellaneous 

compensation means the payments are based on a plan or agreement 

established by an employer which makes provision for his employees generally 

or for a class or classes of employees, and their dependents, on account of 

sickness or accident disability. These employees are no longer carried on the 

regular payroll. However, payments for sickness or injury are paid for a period 

during which the employee is absent from work on account of a personal injury or 

sickness. 

A "sick pay" plan or agreement has these characteristics: 

1. It covers a specified group of employees and may or may not be the result 

of a collective bargaining agreement; 

2. Benefits may be paid by a contract the employer has with an insurance 

company, or from a special fund set up by the employer or out of the 

employer's general revenue; 

3. Benefits are not based on the employee's salary and may continue for as 

long as the employee is absent from work on account of sickness or injury, 

or they may be limited to a certain number of days or weeks; 

4. The plan may include benefits for payments when the employee is absent 

from work for reasons other than personal injury or sickness. 

B. Nongovernmental Plan - A nongovernmental plan is defined in the RUIA. It is a 

formal, written plan under which the employee has an enforceable right to 

benefits for days on which he is absent from work on account of sickness or 

injury. A nongovernmental plan has these characteristics: 

1. The plan covers a specified group of employees and may or may not be 

the result of a collective bargaining agreement. 

2. Benefits may be paid by a contract the employer has with an insurance 

company or from a special fund set up by the employer or out of the 

employer's general revenue. 

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3. Benefits are not based on the employee's salary and may continue for as 

long as the employee is absent from work on account of sickness or injury, 

or they may be limited to a certain number of days or weeks. 

4. Benefits under the plan must be reduced by sickness insurance benefits 

under the RUIA. 

211.3.7 Effect on RUIA 

The only difference between a "plan or agreement" and a "nongovernmental plan" is 

that sick pay plans or agreements do not have to be reduced for SI, and the 

nongovernmental payments do have to be reduced. Accordingly, a nongovernmental 

plan is by definition a sick pay plan. The reverse, however, is not true unless a sick pay 

payment is reduced for SI. 

A table of employers covered under the Benefit Trust and Provident plans can be found 

in the RUIA "Adjudication Instruction Manual, Article 9, Appendix F." That appendix 

also lists other sick pay plans on file at the RRB. However, some of these employers 

may carry the employee on the payroll for a short time before the miscellaneous 

compensation begins. 

211.3.8 Effect on Employee Annuity 

Credit is not given for railroad service months or for tier II compensation. The DLW-RR 

and the ABD are not affected, since service months are not credited. 

211.3.9 Effect of Miscellaneous Compensation on Work Deductions 

The miscellaneous tier I compensation, up to the tier I yearly maximum, is based on an 

identifiable 6-month period for which sickness benefits are payable. However, the 

miscellaneous compensation is actually credited as a lump-sum to the DLW-RR. The 

earnings do not count for work deductions in retirement or disability annuities, because 

they are attributable to the date last worked for work deduction purposes since the 

employment relationship has terminated when these benefits were paid. The 

miscellaneous compensation is not added to PIA 17, which is the amount that is not 

subject to tier I work deductions. Therefore, the miscellaneous compensation is 

included in the tier I work deduction component (PIA 2) as if it were "wages." 

211.4 Personal Injury Payments 

211.4.1 When Considered Pay for Time Lost 

A payment made to an employee by his employer on account of a personal injury is to 

be treated, subject to the limitations stated below, as compensation "paid for time lost" if 

it included pay for time lost and was paid for an identifiable period of absence from the 

active service of the employer. 

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EXCEPTION: Payment under a workers compensation law or public disability is not 

RRA compensation paid for time lost. These benefits are paid under a state or Federal 

workers compensation law or plan. Therefore, no part of such payment is creditable as 

compensation. RRA annuity payments are reduced when the employee is also entitled 

to periodic workers compensation pay or a public disability benefit. 

211.4.2 Determining Period of Time Lost 

An employee will be deemed to have been paid for the period of time lost specifically 

identified in the agreement of settlement. If the period of time lost was not specifically 

identified, the period between the time of the injury and the time the employee returned 

to work is to be regarded as the period of time lost if: 

A. The personal injury payment was made after the employee returned to active 

employer service; or 

B. The employee returned to such service within 6 months after the date on which 

the payment was made. 

If the period of time lost was not specifically identified, and the employee did not return 

to railroad employment, the total amount of the settlement agreement should be 

allocated to the date last worked (DLW-RR). 

If a settlement agreement is pending, the employee is eligible for an annuity, and the 

employee does not need additional railroad service months, encourage the employee to 

finalize the settlement agreement as a lump-sum payment credited to the DLW-RR. 

The period for which a payment for time lost on account of personal injury is made need 

not be considered as finally settled at the time the payment is made. A change in the 

period made at a later date may be given effect so long as the employee and the 

employer agree upon the change, nothing unreasonable is found in the new allocation, 

and an amended settlement agreement is prepared. The employer also must file a 

corrected earnings report for the employee within 4 years. This change may affect the 

annuity beginning date. 

211.4.3 Amount Creditable 

When a payment made by an employer with respect to a personal injury includes pay 

for time lost, the total amount is to be considered as pay for time lost unless, at the time 

of payment, a part was specifically apportioned to factors other than time lost. 

Whenever such an amount was, at the time of payment, apportioned to factors other 

than time lost (such as for the purpose of obtaining release from future liability, medical 

and hospital expenses, damages for physical or other impairment, etc.), only that part of 

the amount not so apportioned is creditable as pay for time lost. 

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The portion of a personal injury payment which represents pay for time lost is to be 

allocated, subject to the maximum creditable for a month, to the month or months falling 

in the period treated as the period of time lost. Beginning with 1985, an employee may 

receive tier I credit for "pay for time lost" subject to the annual tier I maximum. Tier II 

credits are still subject to the tier II monthly maximum in the period of time lost. 

When pay for time lost is allocated, the RRB will accept the allocation if it relates to the 

employee's normal monthly pay. Effective November 28, l984, a reasonable 

relationship to an employee's normal monthly pay is defined as ten times the 

employee's daily pay rate. Prior to that date, the minimum amount that could be 

credited for a month of pay for time lost was $100.00. 

211.4.4 Developing Personal Injury Payments 

"Pay for time lost" due to personal injury is usually reported to the RRB by the employer 

in their year-end earnings report. However, when the period of "pay for time lost" due to 

personal injury is in the lag period, the applicant reports the settlement, or pending 

settlement on the APPLE APMU211 Application Information Recurring Annuities 

screen. 

If the settlement involves compensation only, the employee will receive credit when the 

railroad submits its annual report. The annuity will be adjusted in by RESCUE. 

Otherwise, the RRB field office should secure a copy of the settlement agreement, 

including the following information: 

A. The amount and date of the payment; and 

B. The reason for the payment; and 

3. The beginning and ending dates of the identifiable period creditable as railroad 

service months in the settlement. 

When possible, the proof should be entered on the on the APPLE APMU955 

Settlement/Dismissal Pay/Sick Pay screen before the application is released to 

Headquarters. 

A photocopy of the settlement papers should be forwarded to RBD-RIS supervisor to be 

imaged to the claim file. 

The settlement will probably affect the annuity beginning date. If the settlement is still 

pending when the application is released to Headquarters, ask the applicant to 

designate an ABD that will be after the ending date of the settlement. 

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211.5 Separation, Displacement and Similar Allowances 

211.5.1 General 

Separation, displacement, termination and similar payments that result from abolition of 

an employee's railroad job are creditable as compensation under the Railroad 

Retirement Act. Under many separation and displacement agreements, an employee 

whose job is abolished is given a choice between: 

A. Retaining his job rights and receiving monthly payments of compensation over a 

specified period of time; or 

B. Giving up his rights as an employee and accepting a separation allowance. 

Employers may refer to these allowances by many different names, such as separation, 

dismissal, termination, severance, displacement, reduction in force or coordination 

allowances. For purposes of this section, the different allowances or payments will be 

referred to as either a "separation allowance" or "monthly compensation payment," 

depending upon whether rights have been relinquished or retained by the employee. 

Regardless of the name the employer gives the payment or allowance or how it is 

reported by the employer, the handling to be given the payment under the RRA will 

depend upon whether the employee has relinquished or retained his job rights. 

211.5.2 Description and Effect of "Monthly Compensation Payments" 

"Monthly compensation payments" are payments of remuneration to an employee who 

retains his job rights during the course of the monthly payments. Such payments may 

be made to an employee whose job was abolished or who was displaced to a less 

remunerative position or occupation. An example of a dismissal payment is a monthly 

displacement allowance paid under Title V of the 1973 Regional Rail Reorganization 

Act. Since an employee who elects to take "monthly compensation payments" is getting 

credit for each month, his annuity may not begin until after the end of the period for 

which payments are made. The payments are "pay for time lost" under the RRA and 

creditable as service and compensation. 

211.5.3 Description and Effect of "Separation Allowance" 

A "separation allowance" is a payment of remuneration to an employee who has 

relinquished his job rights. The payments may be spread over a period of time and 

reported for that period, or the allowance may be paid in a lump-sum and reported for 

the month the separation is effective. (It is up to the employer to decide whether the 

separation is effective on the date last worked or on relinquishment of rights.) 

Regardless of whether the separation allowance is paid in a lump-sum or paid in a 

series of installments, it may not be used to credit the employee with railroad service for 

months following the month in which he was separated from service by relinquishing his 

rights. For computational purposes, tier I may be credited up to the annual maximum 

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for the year last worked and tier II may be credited up to the monthly maximums based 

on the number of actual or deemed service months in the year last worked before the 

employee relinquished his rights. 

EXAMPLE: An employee's date last worked is 5/31/86. He was on leave of absence 

for the months of January through April 1986. He returned to work in May 1986. He 

accepts a separation allowance which is also effective 5/31/86. He files for an annuity 

to begin on 6/1/86. His actual earnings for 1986 are $1,500.00. The separation 

allowance is $100,000.00 and is credited to May 1986. For 1986, he would be credited 

with $42,000.00 (the annual maximum) in tier I and $12,125.00 (5 months at the 

monthly maximum of $2,425.00) in tier II. He receives credit for 1 actual service month 

and 4 deemed railroad service months for 1986. 

The employee may be entitled to a refund of his tier II taxes deducted from the 

separation allowance after 1984 that did not yield additional railroad service months. 

This refund is called a SALSA award. 

211.5.4 Effect on RUIA 

An employee who elects to take "monthly compensation payments" is getting a railroad 

service month credit for each month he may not receive RUIA benefits for the period for 

which payments are made. 

A "separation allowance" is a payment of remuneration to an employee who has 

relinquished his job rights. Separation allowances can affect the payment of RUIA 

benefits, as under the Title VII program, which is explained in FOM 212. 

211.5.5 Effect on Employee Annuity 

A. Possible Effect on Current Connection - The requirements for a "deemed current 

connection" are in FOM 225.105. In cases where an employee has no option to 

remain in railroad service, the termination may be considered involuntary, even if 

the employee receives a separation allowance or dismissal pay. However, an 

employee who chooses a separation allowance instead of keeping his or her 

seniority rights would generally be considered to have voluntarily terminated 

railroad service. Questionable "deemed current connection" cases are referred 

to the Bureau of law. 

Months creditable as "dismissal pay" will add to the railroad service months used 

in the "12 in 30" test to extend the period the employee has before the regular 

current connection test could apply. An employee who chooses a separation 

allowance will have the "12 in 30" based on the actual railroad service prior to his 

"relinquishment of rights." In either case, work outside the railroad industry 

following the 30-month period may break the employee's regular current 

connection. 

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B. Effect on Annuity Beginning Date - Regardless of how the employer pays or 

reports it, a "separation allowance" will ordinarily be credited by the RRB to the 

DLW-RR. The annuity can then begin on the day after the DLW-RR if the 

employee is otherwise eligible. However, if the employer considered the 

separation to be effective in a later month and reported the allowance for that 

month on the year-end earnings report, it will be credited to the date the 

separation is effective, provided that the employee did not relinquish his rights 

prior to that date. If a "separation allowance" is credited in this manner, an 

annuity cannot begin until the day after the date the separation was effective. 

C. Separation Allowance for Work Deduction Purposes - Under the RR Act, 

separation allowances are considered to be earnings for work deduction 

purposes. In regard to payment of an annuity, the RRB has determined that a 

separation allowance will be deemed to have been paid for services in the month 

last worked (DLW-RR) regardless of when payments are actually made. 

Employees who have no other employment after their annuity beginning date 

(ABD) will not lose any portion of their annuity payments, as work deductions 

would not apply in the ABD month in this situation. 

Some separation allowances spread out payments over a period of years. As 

stated above, the entire allowance would be credited to the DLW-RR. Annuitants 

who continue to receive payments after the year they last worked will not be 

subject to work deductions in the years following the ABD year based on those 

payments. 

211.6 Payments upon Reinstatement after Layoff 

211.6.1 Payment for Lost Earnings 

A payment made to an employee reinstated after suspension or discharge, in settlement 

of a claim for back pay for the period during which he was not in active service, 

constitutes compensation for time lost. Payments upon reinstatement after layoff are to 

be credited proportionately to the months the employee was held out of service. 

211.6.2 Nominal Sum 

A nominal sum paid to an individual who was held out of the service of a covered 

employer and subsequently reinstated under an agreement of settlement which 

provided for the payment of a nominal sum in consideration for the execution of a 

release, is not creditable as compensation. 

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