-1-

(More)

For Publication

October 2022

Railroad Retirement Annuities and Pensions from

Work Not Covered by Railroad Retirement or Social Security 

Employee annuities paid under the Railroad Retirement Act are subject to dual benefit reductions 

when social security benefits are also payable. Railroad retirement annuities may also be reduced

when certain public, non-profit, or foreign pension payments are due a retired employee.

The following questions and answers describe how railroad retirement annuities are affected when 

retired railroad employees are also entitled to pensions from employers not covered by railroad 

retirement or social security (noncovered service pensions).

1. When and how did the noncovered service pension reduction in employee annuities come 

about?

The noncovered service pension reduction in railroad retirement benefits was introduced by 1983 

social security legislation which also applied to the tier I benefits of railroad retirement employee 

annuities. (Regular railroad retirement annuities are computed under a two-tier formula.) 

Social security and railroad retirement tier I benefits replace a percentage of a worker’s preretirement earnings. The formula used to compute benefits includes factors that ensure lower-paid 

workers get a higher return than highly-paid workers. For example, lower-paid workers could get a 

social security or tier I benefit that is about 55 percent of their pre-retirement earnings. The average 

replacement rate for highly-paid workers is about 25 percent. Before 1983, such benefits for people 

who worked in jobs not covered by railroad retirement or social security were computed as if they 

were long-term, low-wage workers. They received the advantage of the higher percentage benefits in 

addition to their other pension. The noncovered service pension reduction eliminated this advantage.

2. In general terms, which employees are affected by this reduction and what types of 

benefits would cause a reduction?

For employees first eligible for a railroad retirement annuity and a Federal, State or local 

government pension after 1985, there may be a reduction in the tier I portion of their annuity for 

receipt of a public pension based, in part or in whole, on employment not covered by social security or 

railroad retirement after 1956. This may also apply to certain other payments not covered by railroad 

retirement or social security, such as from a non-profit organization or from a foreign government or a 

foreign employer. It does not include military service pensions, payments by the Department of 

Veterans Affairs, or certain benefits payable by a foreign government as a result of a totalization 

agreement between that government and the United States.
-2-

(More)

3. How is a noncovered service pension reduction applied to the tier I benefit?

Unlike the dual benefit offset for social security entitlement applied by deducting the amount of 

the social security benefit from the annuitant’s tier I railroad retirement benefit, an alternate factor is 

used to compute the tier I benefit of annuitants with noncovered service pensions.

A tier I benefit is calculated in the same way as a social security benefit. An employee’s creditable 

earnings are adjusted to consider the changes in wage levels over a worker’s lifetime. This procedure, 

called indexing, increases creditable earnings from past years to reflect average national wage levels at 

the time of the employee’s retirement. The adjusted earnings are used to calculate the employee’s 

“average indexed monthly earnings,” and a benefit formula is then applied to determine the gross tier I 

amount.

An employee’s average indexed monthly earnings are separated into three earnings levels. Each 

level is multiplied by a specified percentage. The first level is multiplied by 90 percent, the second by 

32 percent, and the final level by 15 percent. The results are added to obtain the basic tier I benefit 

rate. For those first eligible in 2022, the gross tier I benefit is equal to: 90 percent of the first $1,024 of 

average indexed monthly earnings, plus 32 percent of the amount of those earnings over $1,024 up to 

$6,172, plus 15 percent of those earnings in excess of $6,172.

Beginning with 1986 - for employees subject to the noncovered service pension reduction - the 90 

percent factor is reduced in increments of 5 percent, providing factors ranging from 85 percent for 

employees with 29 years of “substantial railroad retirement and/or social security earnings” to 40 

percent for those with 20 years (or less) of substantial earnings. Substantial earnings amounts usually 

vary from year to year. In 2022, earnings of $27,300 would be considered a year of substantial 

earnings. In 2012, the figure was $20,475. In 2002, it was $15,750, and, in 1992, it was $10,350. It is 

important to understand that a year of substantial earnings is not the same as a year of service.

(Railroad employees eligible for a noncovered service pension who have 30 or more years of 

substantial railroad retirement and/or social security earnings are generally exempt from the 

reduction.)

For employees with relatively low noncovered service pensions, there is a guarantee that the 

amount of the tier I reduction cannot be more than 50 percent of the pension.

4. What is an example of how a noncovered service pension reduction affects an employee’s 

annuity rate?

An employee born in 1960 is eligible for a noncovered service pension and has 20 years of service. 

His railroad retirement annuity begins with the first full month he is age 62 and his average indexed 

monthly earnings are $1,800. The gross tier I amount, after reduction for the noncovered service 

pension, would be $657, rather than the $1,169 otherwise payable. A reduction for early retirement 

would also be applied to his annuity.

5. Are there exemptions from the noncovered service pension reduction?

As stated earlier, railroad employees eligible for a noncovered service pension who have 30 or 

more years of substantial railroad retirement and/or social security earnings are generally exempt from 

the reduction. 
-3-

(More)

The noncovered service pension reduction also does not apply to Federal workers hired after 

December 31, 1983, and persons employed on December 31, 1983, by a nonprofit organization that 

was exempt from social security and became mandatorily covered under social security on that date.

6. Are any reductions made in railroad retirement spouse or widow(er)s’ benefits if a public 

service pension is also payable?

Yes. The tier I portion of a spouse or widow(er) annuity may also be reduced for receipt of certain 

Federal, State or local government pensions separately payable to the spouse or widow(er) based on 

her or his own earnings. The reduction generally does not apply if the employment on which the 

public pension is based was covered under the Social Security Act throughout the last 60 months of 

public employment. Most military service pensions and payments from the Department of Veterans 

Affairs will not cause a reduction. Pensions paid by a foreign government or interstate instrumentality 

will also not cause a reduction. For spouses and widow(er)s subject to the public pension reduction, 

the tier I reduction is equal to 2/3 of the amount of the public pension.

7. Where can more specific information be obtained on how noncovered service pensions 

affect railroad retirement benefits?

More information is available by visiting the RRB’s website, RRB.gov, clicking on FAQ and then 

selecting Public Service Pensions, or by calling an RRB office toll-free at 1-877-772-5772. Persons 

can find the address of the RRB office servicing their area by calling the agency’s toll-free number or 

by clicking on the Field Office Locator tab at RRB.gov. RRB field offices currently offer limited inperson service by appointment. To schedule an appointment, call 1-877-772-5772. Individuals 

should bring a photo ID when visiting a field office, and, depending on guidance from the Centers for 

Disease Control and Prevention for the county in which the field office is located, may be required to 

wear an appropriate face mask. In such circumstances, if visitors do not have a mask, one will be 

provided for them.

# # #