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212.1 Bonus Pay 

Different types of bonus payments, such as safety, incentive, fuel conservation, perfect 

attendance, superior performance and suggestion awards constitute creditable 

compensation because they are payments made in consideration of services in addition 

to that which ordinarily are given. See FOM1 212.2 for information on stock options. 

212.2 Stock Options 

A stock option is the right to purchase a specific number of shares of a company’s stock 

at a future date at a pre-set price. The type of stock option determines whether 

remuneration from the option is compensation under the Railroad Retirement Tax Act 

(RRTA). With respect to QUALIFIED STOCK OPTIONS, the RRTA provides that: “The 

term “compensation” shall not include any remuneration on account of –(A) a transfer of 

a share of stock to any individual pursuant to an exercise of an incentive stock purchase 

(ISO) plan (as defined in section 422(b) of the Internal Revenue Code) or under an 

employee stock purchase plan (ESPP) (as defined in section 423(b) of the Internal 

Revenue Code), or (B) any disposition by the individual of such stock.” However, a 

NON-QUALIFIED STOCK OPTION, which does not qualify under the aforementioned 

sections of the Internal Revenue Code, will result in compensation to the employee 

either at the time the employer grants the option to purchase to the employee, or at the 

time the employee sells the stock. If questions arise as to the point in time that the 

compensation was paid, advise the employee to contact either the railroad employer or 

the Internal Revenue Service. 

212.4 Holiday Pay 

Holiday pay or birthday bonuses are creditable compensation. In addition, service may 

be credited for the month of the holiday or birthday. 

212.5 Productivity Fund Payments 

212.5.1 General 

Some railroad employers have special compensation funds that are designated as 

"productivity savings funds." Payments are made under cost-containment plans where 

distribution is made to employees for working in such a way to reduce costs. Payments 

are usually made once a year in a lump-sum, as a special payment for extra 

productivity. 

Distributions from a productivity sharing savings trust fund are creditable compensation 

under the Railroad Retirement Act (RRA). The compensation is considered earned in 

the month they are deemed paid. 

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FOM1 212 

Example: A five-man crew agrees to operate as a four-man crew. The pay that would 

normally be paid to the fifth man is placed in the productivity fund. At the end of the 

year the money is distributed to the employees. 

However, the month to which the payments are credited varies according to the 

employer. Conrail credits a productivity fund payment to December of the year 

preceding the year in which payments are made. The compensation is reported to the 

RRB as an adjustment in the previous year's record. The Burlington Northern Railroad 

Co. (BN) has separate funds and BA numbers for the Burlington Northern Region 

Productivity Fund (BA No. 1006) and the Frisco Region Employee Productivity Fund 

(BA No. 1007). The BN reports productivity fund payments at the end of the year in 

which payments are made; compensation will be reported for either March or October of 

that year. 

In most situations, the productivity fund payment will be credited to a month for which 

the employee has already received credit for a month of service. The productivity fund 

payment may increase the amount of compensation credited for that month, unless the 

employee had maximum creditable earnings. 

212.5.2 Effect on Railroad Unemployment Insurance Act 

Although creditable as Railroad Unemployment Insurance Act (RUIA) compensation, 

based on coordination or proration with the employer, the payments do not usually yield 

additional RUIA compensation credit. 

212.5.3 Effect on Railroad Annuity 

The annuity beginning date will not be affected. If payment is made after the employee's 

actual last day worked, the employer's year-end report should be corrected to credit the 

payment to the last day worked. 

212.6 Back Pay 

Back pay is a retroactive wage increase. Like other compensation, back pay may be 

creditable for the month compensation is paid or for the period earned. Also, like other 

compensation, if back pay is reported for the month paid, and the employee makes a 

timely request that it be allocated instead to the month(s) earned, the employer must 

submit an adjustment report accordingly. 

Service should not be reported for the month the back pay was paid unless service is 

otherwise creditable for that month. In the case of a retroactive wage increase, it is 

assumed that service has already been credited based on the initial wage payment prior 

to the increase. 

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FOM1 212 

212.7 Purchase of Employee Benefits 

The payment to an employee for the termination or "purchase" of an employee right or 

benefit, such as seniority rights, profit sharing rights, sick benefits, etc., is creditable 

compensation. 

212.8 Reimbursement for Expenses 

Reimbursement for expenses incurred in the discharge of the duties of an employee 

may not be credited as compensation unless the value of the expenses was agreed 

upon in advance of the services as remuneration, in whole or in part, for services 

rendered. Compensation that includes reimbursement for expenses incurred by an 

individual in the course of his employment is to be credited only to the extent of the net 

compensation earned for personal services rendered. 

212.9 Tips 

Generally, the RRB has looked to the treatment the Internal Revenue Service (IRS) 

accords similar payments under the RRTA in determining whether certain payments are 

compensation under the acts administered by the RRB. Tip earnings of $20.00 or more 

per month are creditable as tier I and tier II compensation and are to be included in the 

annual report of service an compensation. Tips are not subject to the RUIA contribution. 

Tip compensation is subject to employee Medicare and tier I/tier II taxes, but tax liability 

for tips does not extend to employers. If the employer is reporting tip income to the IRS 

under the Tip Rate Alternative Commitment (TRACE) program or the Tip Rate 

Determination Agreement (TRDA), the total amount should be reported to the RRB as 

creditable compensation. 

212.10 Payments under Title VII of Regional Rail Reorganization Act 

A separation or subsistence allowance paid under Title VII of the Regional Rail 

Reorganization Act of 1973 was creditable as service and compensation and was 

reported under the Title VII BA number (1002). An employee who received benefits 

under Title VII may have been entitled to an extra month of compensation and/or 

railroad service. This compensation and/or service could only have been allocated in 

certain ways. 

A month of service was credited to the month the employee filed for Title VII benefits 

when (s)he did not work in the railroad industry that month. If the employee worked in 

the railroad industry that month no service month was credited based on Title VII filing. 

Compensation was allocated to the month the employee filed for Title VII benefits up to 

the tier I and tier II maximum amounts. Compensation was allocated to the month of 

Title VII filing even if the additional month of service could not be credited for that 

month. However, if the employee already had maximum compensation, no additional 

compensation was added. 

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FOM1 212 

212.10.1 Effect on RUIA 

RUIA payments did not begin to accrue until the Title VII monthly subsistence payments 

ended or the amount of RUIA payments is equal to the Title VII separation allowance 

was withheld. 

212.10.2 Effect on Railroad Annuity 

Title VII payments did not affect the payment of a railroad retirement annuity. The only 

consideration is that an employee filing for a Title VII subsistence allowance should not 

file a retirement or disability annuity application before he files for the Title VII payment. 

212.11 Pension Payments by an Employer 

Pension payments made by an employer without expectation that the employee would 

render services therefore, but merely to supplement an annuity or pension for which the 

employee might qualify, do not constitute compensation. 

212.12 Military Service 

Military service (MS) may be creditable as either wages or railroad compensation, as 

explained in FOM 215. If the MS is creditable as compensation, the amount of 

compensation is as follows: 

212.12.1 Before 1968 

The amount of compensation credited is $160.00 a month for each month in which the 

employee was in creditable MS before 1968; or 

212.12.2 Before 1975 

The amount of compensation credited is $260.00 a month for each month in which the 

employee was in creditable MS after 1967 through 1974; or 

212.12.3 1975 or Later 

The amount of compensation credited is the actual amount for the MS basic pay that 

would be creditable as wages if the MS were used as wages. 

Where the employee is credited with MS as compensation for a month in which he has 

other creditable compensation, the MS compensation is added to the other 

compensation up to the tier I and tier II maximum. 

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